The United States airline industry experienced problems in the early1990s. From 1989 through 1993, the largest airlines, including American, United, Delta, and USAir, lost billions of dollars. Only Southwest Airlines remained profitable throughout that period. CEO and cofounder Herb Kelleher pointed out that:” We didn’t make much for a while there…” It was like being the tallest guy in a tribe of dwarfs.” Nevertheless, his company had sales of $2.3billion in 1993,an increase of 36 percent, and profits of $169.5 million. This is particularly noteworthy since Southwest is not a nationwide air carrier; 85 percent of its flights are under 500 miles. How did a little airline get to be so big? Its success is due to its key values, developed by Kelleher and carried out daily by his 13,000 employees. These core values are humor, altruism, and “luv”.
One of the things that makes Southwest so unique is its short-haul focus. The airline doesn’t assign seats or sell tickets through the reservation systems used by travel agents. Many passengers buy tickets at the gate. The only food served are peanuts or crackers. But passengers don’t seem t mind. In fact, serving Customers (at Southwest, always written with a capital”C”) is the focus of the company’s employees. As the Executive Vice President for Customers. Colleen Barrett said,”we will never jump on employees for leaning too far toward the customer, but we come down on them hard for not using common sense.” As Fortune summarized,” Treating the customer right is a lot easier when employees are treating one another that way.” Southwest’s core values produce employees who are highly motivated and who care about the customers and about one another.
One way in which Southwest carries out this philosophy is by treating employees and their ideas with respect. Executive V.P. Barrett formed a “culture committee,” made up of employees from different functional areas and levels, who meet quarterly to come up with ideas for maintaining Southwest’s corporate spirit and image. All managers, officers, and directors are expected to “get out in the field,” meet and talk to employees, and understand their jobs. Employees are encouraged to use their creativity and sense of humor to make their jobs, and the customers’ experience, more enjoyable. Gate agents, for example, are given a book of games to play with waiting passengers when a flight is delayed. Flight agents might do imitations of Elvis or Mr. Rogers while making announcements. Others have jumped out of the overhead luggage bins to surprise boarding passengers.
CEO Kelleher feels that not everyone would be happy as a Southwest employee. however:”what we are looking for, first and foremost, is a sense of humor. Then we are looking for people who have to excel to satisfy themselves and who work well in a collegial environment.” He feels that the company can teach specific skills but a compatible attitude is most important.
As an encouragement to employees to treat one another as well as they treat their customers, departments examine linkages within Southwest to see what their internal “customers” need. The provisioning department, for example, whose responsibility is to provide the snacks and drinks for each flight, select a flight attendant as “customer of the month. ” The department’s own board of directors makes the selection decision, as well as other managerial decisions, for the provisioning department. Kelleher and Barrett are invited to these board meetings, and both feel that it is important to attend. Other departments have sent their internal”customers” pizza and ice cream. Employees write letters commending the work of other employees or departments, and these letters are valued as much as those from customers. When problems do occur between departments, the employees work out solutions in supervised meetings.
Employees exhibited the same attitudes of altruism and “luv” (Southwest’s term for its relationship with its customers) to other groups as well. Nearly 25 percent of Southwest employees volunteered their time at Ronald McDonald Houses throughout Southwest’s territory. When the company purchased a small regional airline, employees personally sent cards and company T-shirt to their new colleagues to welcome them to the Southwest family. They demonstrate similar caring to the company itself. During the period of rising gasoline prices because of the Gulf War in the early 1990s, many of the employees created the “Fuel from the Heart Program,” donating fuel to the company by deducting the cost of one or more gallons from their paychecks.
Acting in the company’s best interest is also directly in the interest of its employees. Southwest has a profit-sharing plan in which approximately 15 percent of net profit is distributed to employees----and unlike many of its competitors, southwest consistently has profits to share. Employees also own 13 percent of Southwest stock. Although 80 percent unionized, the company has a history of good labor relations. In fact, the firm and the pilots union have recently agreed to an unusual 10-year contract under which the pilots will receive stock options to buy millions of shares, as well as profit sharing, but will receive no wage increase during the first 5 years.
Keeping labor costs low is one of the ways in which Southwest maintains its competitive advantage. Employees’ productivity is higher than that of any other airline. As of 1994,the company had won its 11th “Triple Crown” for being number one in the industry in on-time performance, baggage handling, and customer satisfaction. However, management also worried about the effects on morale of limited opportunities for promotion. The company has created “job families” with different grade levels so that employees can work their way up within their job category. However, as Executive V. P. Barrett, notes, “some jobs are worth only so much money.” and after 5 or 6 years employees begin to hit the maximum for their job category.
Southwest’ s management has other concerns for the future. The addition of Baltimore, Chicago, and Cleveland has increased routes, personnel, and distance. As the company continues to grow, it is becoming more difficult for employees in outlying locations to get to meetings and events at its Dallas headquarters. Another issue is how to maintain the culture of caring and fun while expanding rapidly into new markets. Southwest’s success has been built with the enthusiasm and hard work of its employees; as CEO Kelleher said, “The people who work here don’t think of Southwest as a business. They think of it as a crusade.” Cultivating that crusading atmosphere must be a continuing priority for the company.
Questions
1.What needs are Southwest’s employees able to meet through their jobs?
2. How does Southwest motivate its employees?
3. What are the principle motivational problems facing Southwest as it continues to expand?