Southwest Airlines: Flying Low

Gary Kelly
Southwest Airlines

TITLE: Vice chairman of the board and CEO
TENURE: 8 months on current job; 19 years at company
EDUCATION: B.B.A. in accounting from the University of Texas at Austin; Certified Public Accountant.
CHALLENGE: Be profitable, while remaining the lowest-cost passenger airline in North America

Southwest Airlines is the only U.S. carrier to be profitable every year since 1972. Starting July 15, Gary Kelly has been chief executive of the carrier that made point-to-point flying, alternative airports, unassigned seating, friendly service and low fares its signatures. He’s a numbers man, favoring discipline and schedules, where longtime chief Herb Kelleher was better known for heavy cigarette smoking, drinking Wild Turkey and antics that kept the upstart in the news. Now, Kelly faces a glut of flying capacity, low-cost rivals such as JetBlue and increasing complexity, from post-Sept. 11 security requirements to customer expectations that mean maybe assigned seating isn’t such a bad idea. Baseline editor-in-chief Tom Steinert-Threlkeld talked to the one-time carpenter’s apprentice about how he uses technology to help keep Southwest turning planes around quickly and maintaining its primary advantage: low costs.

Q. “All carriers are now low-cost carriers,” you said recently. How are you thinking about using technology next, to remain the lowest-cost airline in the industry?

A. I think all carriers are low-fare carriers. To survive, all carriers are going to have to be at least lower-cost carriers. We’re looking for ways to improve every aspect of our business, from customer service delivery to the efficiency and productivity of our airline operation, so that we can continue to be tops in all categories. We want to remain the low-cost producer in the industry so we can be the low-fare airline.

Q. One key technical piece of this is lowering your distribution costs. How did this start?

A. The first element was to become ticketless. We became electronic or ticketless back in the mid-1990s, and today we’re probably about 90% to 95% ticketless. Customers who use credit cards are eligible for online transactions, and today bookings account for about 65% of total revenue. I’m sure that will continue to grow. I wouldn’t be surprised if we hit 75% [this year] and even blow through that.

Q. How much does this save you?

A. In the old days, when there was a 10% travel agency commission paid, my guess is it cost us somewhere around $10 a booking. We’re probably paying somewhere between 50 cents and $1 per booking [for electronic transactions].

Q. You’ve said your airport operations technology lags your reservations technology.

A. For years, we had a very simple point-to-point route network. It wasn’t until the late 1980s that we even implemented a reservations and ticketing system. Before that, it was cash registers, literally. So that was step one.

  • Story Guide:
    Introduction: Southwest Airlines: Flying Low How to make the dollars count.
  • First, eliminate waiting; make ticketing convenient for passengers
  • Next, work closely with the CIO; apply the same tough analysis to IT as operations
  • Keep managers focused; do weekly analyses; know what you need to know, when you need to know it.

    Next page: Eliminate Waiting.