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strategy and business
 / Summer 2004 / Issue 35(originally published by Booz & Company)


Herb Kelleher: The Thought Leader Interview

S+B: You’re being honored today as a “lifetime strategist.” Did you have a vision for the whole thing? Thirty-five years ago, did you write, “We’re going to become the largest airline with the lowest cost”?

KELLEHER: Oh, no. We didn’t write it down because when you write things down you confine yourself. That’s why we have never used the fancy titles for empowerment, total quality, etc. Every time you talk jargon you find that people assume that they have the same thing in mind when they really don’t. We don’t apply labels to things because they prevent you from thinking expansively.

Basically what we said 35 years ago was that Texas was captive: Braniff had a monopoly among the larger cities; Trans Texas had a monopoly among the smaller cities. The fares were very high. Because the short-haul passenger was merely an addendum to long-haul service, the short-haul passenger was being totally neglected. In other words, flights from San Antonio to Dallas were scheduled in terms of what your arrival was in Seattle or Paris. It looked like an opportunity to do something a lot better: provide higher-quality air service at lower fares.

One of the things that people, I think, didn’t understand is that we started out saying we’re going to give you more for less, not less for less. We’re going to give you new airplanes, not old airplanes. We’re going to give you the best on-time performance. We’re going to give you the people who are most hospitable.

We’ve never done the long-range planning that is customary in many businesses. When planning became big in the airline community, one of the analysts came up to me and said, “Herb, I understand you don’t have a plan.” I said that we have the most unusual plan in the industry: Doing things. That’s our plan. What we do by way of strategic planning is we define ourselves and then we redefine ourselves.

S+B: There’s a big market opportunity in Europe. Haven’t you missed the boat there?

KELLEHER: It wasn’t a boat that we ever wanted to get on. It’s just way beyond our competence. International service has lots of complications. You’re dealing with different cultures. You’re dealing with currency exchanges. Compared with going into Raleigh-Durham and operating at 84.3 percent load factor on opening day, it’s much more complex. We would have to vary our fleet.

We have had most of the European carriers coming to Southwest Airlines and saying, “We have to be competitive for the first time in a long time. What should we do?” We said, “First of all, find out what your customers want. Basically, you have dictated to your customers. Would they prefer to give up the babysitting service in Frankfurt in order to get a $15 reduction in fares?” The startups in Europe like Ryanair also asked our opinion about what they could do and how they could do it.

It was interesting because 15 or 20 years ago there was the assumption that Southwest Airlines could succeed with things in the United States that Europeans would not accept in Europe. I said that’s exactly what everybody told me when Southwest started: that people in the U.S. would not accept it. Well, you have to educate people as to the value of what you’re providing. Obviously Ryanair and easyJet are very successful. I think you’ll see more and more of that kind of activity not only on the continent but also in Central America, South America, and Asia.

Boards and CEOs

S+B: I’d like to get your views on some cross-industry issues. How much has the CEO’s job changed in the last 20 years? How much do you think it will change in the future?

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