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Nuts! Southwest Airlines’ crazy recipe for business and personal success

Book cover

by Kevin Freiberg and Jackie Freiberg, Orion Business Books, 1998


This book tells the story of Southwest Airline’s “positively outrageous business success”. It reveals how a company that defies conventional wisdom, industry norms and “fashionable” management programmes, can keep setting performance records on so many fronts including financial performance, workforce productivity, and customer service.

(Reviewed by Kevin Barham in June 2007)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

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A company of “Nuts”

Southwest Airlines is one of the world’s most profitable airlines and in January 2007 posted a profit for the 34th consecutive year. Its reputation for low prices and its laid-back atmosphere have made it an icon of pop culture. It is proof, according to some commentators that, while operating a commercial airline is serious business, that doesn’t mean it can’t be fun.

This book tells the story of Southwest’s “positively outrageous business success”. The authors, Kevin and Jackie Freiberg, are leading corporate culture consultants who have researched and worked closely with Southwest since the 1980s. Their aim is to reveal how a company that defies conventional wisdom, industry norms and “fashionable” management programmes, can keep setting performance records on so many fronts including financial performance, workforce productivity, and customer service. There is no one thing, they say, that makes Southwest so successful. “Like a great bowl of chilli,” Southwest’s achievement “comes from the interaction of both ordinary and exotic ingredients”.

Business guru Tom Peters contributes a foreword. When he took a closer look at the inner workings of the company (having originally criticised its customer service in one of his books), he says he was overwhelmed by the character and atmosphere of the airline:

Southwest is ‘Air Travel’s Greatest Show on Earth’ because of its on-time service, baggage handling, low fares, no assigned seats, and no heartburn from typical airline food. While most airlines are boring and rigid, Southwest is just the opposite. [It is] an organisation that dares to unleash the imagination and energy of its people. They make work fun – employees have the freedom to act like NUTS. There is a spirit of entrepreneurship – much more than a decentralised organisation chart – an attitude that extends to every corner of the company.”

The authors describe Southwest’s people as “nuts” because they are extremely enthusiastic about what they do, intensely involved, even obsessed; they are nuts about providing legendary customer service, fanatically committed to a cause. They are radicals and revolutionaries, committed to keeping fares low and making air travel affordable for everyone. They are scrupulous about working hard and zealous about having fun, impassioned about treating each other like family. They also “maniacally” avoid following industry trends.

Since the firm was founded in 1971, it has consistently deviated from convention. When other airlines were creating big hubs, Southwest was flying point to point. Instead of serving food, flight attendants hand out nuts. Instead of uniforms, they wear polo shirts and shorts. And unlike many other airlines, a great number of whom have gone bankrupt since deregulation in 1978, it has been hugely successful. (It is the largest airline in the US by number of passengers carried domestically, and the second largest airline in the world by number of passengers carried. In the 30-year period 1972-2002, Southwest produced the highest return to shareholders of any S&P 500 company: $10,000 invested in Southwest in 1972 was worth over $10 million in 2002.)

The authors tell us that people are drawn to work for Southwest because they want to be part of a cause that gives them a sense of meaning and significance. If you look behind most great companies, say the authors, there is a moral imperative, an obligation or sense of duty that compels the company to operate in certain ways. The people at Southwest are crusaders with an egalitarian spirit who truly believe they are in the business of freedom. Their mission is to open up the skies, to give ordinary people the chance to see and do things they never dreamed of. That is why Southwest is relentless about keeping costs low.

The company’s culture is rooted in its legendary beginnings. The authors start their story by describing the series of events and the cast of people who shaped the culture and character of the company. What those people went through in the early years, they say, is “enough to make anyone nuts”. It’s a tale of courage and perseverance, of a “group of pioneers who beat incredible odds to realise their vision” and survived a dramatic struggle to get the company, literally, off the ground. The spirit and steadfastness that enabled them to survive adversity in the early years is what makes Southwest such a remarkable company today.

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Goliath meets David

Southwest Airlines was created in 1967 to serve the three rapidly developing cities of the “Golden Triangle” in Texas (Dallas, Houston, San Antonio). According to company legend, Rollin King, a San Antonio entrepreneur who owned a small commuter air service, described the idea over cocktails to Herb Kelleher, a local lawyer, by drawing a triangle of the three-city route on a paper napkin. King allegedly said: “Herb, let’s start an airline”, to which Kelleher replied: “Rollin, you’re crazy. Let’s do it!”

Kelleher was right in suspecting that the new venture would lead to an intense political and legal battle with the incumbent airlines. The subsequent three-year struggle with Braniff, Continental and Texas International who took legal action to stop Southwest flying proved a severe test for Kelleher’s litigation skills, drained the capital he and King had managed to raise, and almost put the firm out of business before it had started. Despite the early court ruling against Southwest, the company appealed and finally prevailed when the Texas Supreme Court upheld its right to fly. The moment in 1970 when the US Supreme Court confirmed the decision by refusing to hear the counter-appeal by Braniff and the other airlines was the date considered by many to be the real beginning of deregulation in the US airline industry.

Having won its right to fly (though legal battles continued), Southwest now needed someone to organise and run the operation. Lamar Muse, an industry veteran, joined the firm as President and CEO in 1971. Muse was a tough, no-nonsense, entrepreneurial character and an iconoclastic thinker. When he joined, the company had virtually nothing in the bank and thousands of dollars in overdue bills. Muse went to work raising money (including the firm’s first public stock offering), buying airplanes and, most importantly, hiring the right senior people, the so-called “Over-the-Hill Gang” of seasoned airline executives. It took two years before Southwest turned its first profit in 1973 and could then start to expand. (When Muse retired in 1978, Kelleher became Chairman, stepping into the role of CEO in 1982.)

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Early innovations

Southwest has always been known as a maverick and an innovator. The company’s creativity goes back to its early days when employees had to come up with clever ideas to compete with the established carriers and keep the firm alive.

The most important innovation was to become a low-fare airline. Previously airlines had uniformly charged high fares and, given their costs, assumed that permanently reduced fares would cut revenues. Southwest challenged this assumption right from the start. It originally charged $20 a flight, undercutting its rivals’ $27 or $28 dollar fares; enough to expand the market but not enough to make Southwest profitable. When Muse segmented the market into time-sensitive business travellers (who it charged $26 for peaktime flights) and “dollar-sensitive” leisure travellers (whom it charged $13 for offpeak flights), passenger traffic skyrocketed. This gave rise to one of the most widely emulated marketing innovations in airline history – systemwide peak and off-peak pricing. It was not the result of a sophisticated, long-range planning exercise by Southwest’s top management but was originally an improvisation aimed at filling an empty ferry flight when a plane was being flown to Dallas for routine maintenance.

In 1973, Southwest cut its fare in half to $13 on the San Antonio-Dallas route – any time, any seat, any day – provoking a fare war with Braniff which responded by also slashing its prices to $13 on the Dallas-Houston route, a relatively small part of Braniff’s operations but Southwest’s only moneymaker. This could have been a lethal blow for Southwest because matching Braniff would have bankrupted it. Instead, Southwest came up with one of the most famous ads in its history: “Nobody is going to shoot Southwest out of the sky for a lousy $13”. The ad explained how Braniff was trying to put Southwest out of business and offered passengers a choice: travellers could choose the $13 fare or buy a regular $26 ticket and receive a complimentary bottle of Chivas Regal Scotch. Business travellers thought this was great: they could charge the ticket to expenses and take home a free bottle of liquor. The media portrayed the story as a David-and-Goliath duel and helped Southwest capture the public’s hearts. Braniff’s plan backfired; Southwest had once again outwitted a more powerful competitor.

Southwest faced another problem. Having bought a fourth Boeing 737 to provide out-of-state charter services and an increased schedule on regular flights, it was forced to sell the plane when a court ruled that Southwest could not fly charters outside Texas. How was it to maintain its new four-plane schedule with only three planes? The answer was the ten-minute turn, whereby total time at the gate for each plane from arriving to pushing back would be no more than ten minutes, something that Southwest employees who had come from other airlines thought was impossible. The company’s insistence on a fast turnaround helped Southwest both to maintain its regular schedule and achieve the best on-time performance in the industry. It also cut operating expenses by 25%.

The legend of these early innovations has inspired employees to “think creatively, risk intelligently, and come up with trend-setting innovations that can change the airline industry”, especially with regard to keeping costs low everywhere possible. Southwest’s corporate personality did not emerge out of sophisticated strategic decision making but from creative responses to its early circumstances. It is a maverick personality that has determination, creativity to be resourceful, and a flair and courage to be different and sometimes positively outrageous.

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Business basics

Southwest possess very few unique technologies or material assets, say the authors, but it is unique in the way it uses those assets. Its strategic theme has always been to “fly in the face of conformity”. In Kelleher’s eyes, Southwest was competing, not so much with other airlines, as with ground transportation; his aim was to make it more affordable and more convenient than to drive.

The authors take us through Southwest’s business basics in detail. Its key ingredient for success is discipline. It is obsessed with keeping costs low to maximise profitability rather than increasing market share. It is willing to forego revenue-generating opportunities that would disproportionately increase its costs. It caters mainly to the short-haul traveller, flying lots of short trips. Airplanes generate income only when they are in the air; the more flights you make with each plane, the more revenue it produces and the lower the unit costs per flight. Instead of using the hub-and-spoke system, which augments costs because planes spend more time on the ground waiting for passengers to connect from “feeder” cities, Southwest flies point-to-point between cities to maximise its use of aircraft. It avoids crowded airports that make it difficult to turn planes round quickly and uses less congested airports closer to downtown areas so customers spend less time on aircraft and travelling to and from airports.

The company’s pricing strategy is to keep fares consistently low regardless of what the market will bear. Instead of the conventional wisdom of supply and demand that, when flights are full prices should go up, Southwest offers the lowest fare every time and increases the number of flights, expanding the market.

It remains strategically focused on opening markets that are overpriced and underserved as it is confident it can bring down prices by one third to a half when it enters a new market. Keep it simple is a company motto. For example, it flies only one type of aircraft (the Boeing 737) to simplify maintenance and training requirements. It replaced traditional tickets by turning receipts into tickets; it serves no meals – there is no time on a 60 minute flight. Customers have proved willing to trade such amenities for low fares, on-time performance, better baggage handling and Southwest’s “Positively Outrageous Service”.

Average turn time is now 15-20 minutes, still half the industry average which allows Southwest to use 35 fewer aircraft than an airline with average turnaround time. Southwest’s turntime is the result of a highly coordinated effort by employees (“run, don’t walk”) based on open communication and teamwork.

It all adds up to focusing on what you know best, living within budget, looking ahead and being frugal with resources.

Southwest was also one of the first airlines to have a website and is now reportedly the number one US airline website for online revenue, with 70% of flight bookings and 73% of revenue generated from bookings through the website.

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Hire for attitude, train for skills

Southwest wants people who can “do things well with laughter and grace”. Southwest employees are uninhibited and empathetic individuals who believe that business is about making profit by serving people and making life more fun. Southwest has a “People Department” rather than an HR function, reflecting its belief that people are more than just resources. They are real people with real needs and emotions. Fun counterbalances the stress of hard work and competition; fun is about attitude so Southwest hires for attitude and trains for skills.

When hiring employees it looks above all for a sense of humour and an “other-oriented”, outgoing personality. It rewards and recognises originality and individuality but wants people to be real, not pretentious. It says to employees: treat everyone with kindness and respect; you never know who you’re talking to.

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Kill bureaucracy

Think small, act fast is another motto. Southwest is able to adapt to industry changes because it maintains small-company attitudes and practices whereby employees feel part of an extended family. Southwest creates a small-company atmosphere through as much face-to-face communication as possible. Its meetings are action-oriented; everyone must contribute because there is usually more work than people.

The company strives to eliminate unnecessary steps in service processes. Its simplified boarding procedures require fewer customer service people and operations agents; it does not assign seats because this slows down the operation.

Southwest streamlines communication by minimising management layers so information flows more quickly and accurately. It gives employees access to key people so they develop confidence in making decisions, a key factor in Southwest’s ability to change direction quickly if necessary. It gives employees immediate access to critical information (on-time performance, baggage handling, customer complaints, etc) so they can fix problems more quickly.

Southwest emphasises action and flexibility and uses future scenario generation to produce multiple plans based on “what if…?” questions. This enables it to prepare for the future in a way that provides direction for the firm but allows it to manoeuvre on many fronts and avoid being caught off guard. It imparts a sense of urgency to employees by warning them about threats from competitors. “Be quick or be dead.”

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Act like an owner

People who think like owners have a unique perspective. They ask provocative questions about how to manage the business better and the answers influence their attitude and behaviours which in turn determine the company’s performance. They take personal responsibility for the success of the company. Southwest hires entrepreneurial self-starters. It also gives employees a stake through its profit-sharing scheme. Southwest’s pilots, for example, are constantly looking for ways to cut costs and increase efficiency without sacrificing customer service. They frequently ask air traffic controllers for more direct headings and more efficient altitudes to maximise speed and minimise the burn rate of fuel.

Money is not the only motivator. Ownership, according to the authors, is also about believing you can make a difference and acting on that belief in everything you do. The more people care, the more they will do so you have to engage people’s hearts and minds and give them a sense of meaning and significance.

Ownership needs leaders to have faith and confidence that people will exercise common sense and good judgement when the path is uncertain. This depends on giving people a clear sense of the company’s guiding principles. Southwest has been successful in getting people to internalise its principles and priorities because it believes in “communicate, communicate and then communicate some more”.

Ownership also depends on trust which in turn depends on integrity. When people know they can trust you, your words and actions have more power to influence them. That is why Herb Kelleher and Southwest have had successful union relationships. Kelleher does not look to squeeze people in union negotiations but goes in with an “abundance mentality”, asking “what is the most we can give without jeopardising job security and profitability?”

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Learn like crazy

Learning was the key to Southwest’s survival in the early days and its people’s willingness to learn produced the innovative strategies to compete with airlines with more money and resources. The company still believes that learning is essential to keep competitive advantage. Employees who embrace lifelong learning are more alert, better informed and more creative and will find new ways to simplify operations, cut costs and serve customers better.

Empathy stimulates learning. The firm’s “Cutting Edge” programme, for example, encourages pilots to work on the ramp and learn more about what goes on while the plane is at the gate. This promotes communication and teamwork between flight crews and ground operations teams.

It is rare, say the authors, for frontline employees to be as well educated and informed as they at Southwest. The firm’s employee newsletter provides employees with new ideas and insights that help them do their jobs better and presents real life Southwest stories from which employees can learn. It also provides information on the importance of customers and educates employees about their overall performance compared with other carriers.

The mission of Southwest’s “University for People”, staffed by the Employee Learning and Development Department, is to practise the kind of leadership with integrity. that Southwest expects.

Stretching and growing activate learning and Southwest is not afraid to give people with relatively little experience big responsibilities. Mostly they rise to occasion and “grow like crazy”. People are expected to have the resourcefulness to find out how to do something if they can’t do it themselves. “Childlike” curiosity and enthusiasm in every employee is encouraged. Crazy ideas are routinely explored.

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Don’t fear failure

Southwest likes to hire people who aren’t afraid to express their individuality and “colour outside the lines”. There are values and guidelines such as providing Positively Outrageous Service and treating co-workers with kindness, but employees are encouraged to live these values in their own way.

Cutting costs requires people to question authority and challenge conventional wisdom. Experimentation carries the risk of failure but at Southwest it is OK to make mistakes. Failure is seen as an opportunity for personal growth and is part of developing leadership skills. Southwest encourages people to take risks knowing some of them will fail. It believes that the costs of occasional failure are insignificant compared to the benefits that come from people feeling free to take risks and be creative.

As just one instance, Southwest was the first major carrier to introduce ticketless travel systemwide. This was the result of employees spontaneously getting together to figure out a response to the company’s rejection from three major reservation systems. Another example: when the company needed 800 new computers, people in the firm’s technical services department built them themselves at half the cost rather than purchasing new ones, thereby saving over $1 million. When Southwest people go for it, say the authors, they really go for it; they “jump in with both feet and play to win”.

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One great big family

Southwest says culture is one of the most precious things a company has and must work harder at it than anything else; culture is the glue that holds an organisation together. Clearly defining the culture equips people to make decisions. Southwest’s culture is rooted in its early struggle to survive. Its cherished values consist of profitability, low cost, family spirit, fun, love (employees are encouraged to conduct business in a “loving manner), hard work, individuality, ownership, legendary service, egalitarianism, common sense, simplicity and altruism.

Southwest’s philosophy, the “Southwest Spirit”, includes such attitudes as: employees are number one; irreverence is OK, have fun at work; do whatever it takes; minimise paperwork; keep a “warrior spirit” with regard to the competition.

As one commentator says: “Southwest doesn’t consider itself to be in the airline, or even the transportation business. It understands that it’s in the people business. It makes work fun for its employees and it makes flying fun for its customers.”

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Keeping the spirit alive

Southwest believes it is more than an organisation; it is a family, a nurturing environment in which people are encouraged to grow and prosper and show their good fortune. It is a “covenantal community” in which commitments join people, provide guidelines for action, and define how people should live and work (the “vision becomes the boss”, in other words).

The sense of community at Southwest is preserved by such means as displaying photos and memorabilia of employees on the walls of head office (“a walk-through family photo album”); sending them individualised gifts and acknowledgements (e.g. birthday cards); and storytelling.

Herb Kelleher himself has been described as Southwest’s “shaman”, telling stories that get repeated and retold and which form the fabric of its tight culture. (For more on the central role of storytelling in leadership, see the review of The leader's guide to storytelling by Stephen Denning.)

Company initiatives keep the Southwest spirit alive in other ways. In 1994, Southwest created the “Helping Hands” programme whereby volunteers from around the company go out to lighten the load of employees in cities where they face significant competition. It builds momentum, “strengthens the troops for battle”, and rekindles the fighting spirit of Southwest employees.

Southwest also revels in its accomplishments and celebrates milestones such as company anniversaries or the delivery of new planes with big parties. “Work hard, play hard.” Celebrations are an opportunity to build relationships, give people a sense of history, and help them envision the future. Celebrations also reduce stress; they remind people they are part of a winning team and inspire and motivate them. They remind employees too of the activities, behaviours, attitudes and values that have made the company great. Every month the company honours ten employees whose actions make them living examples of Southwest’s values and philosophy. Southwest employees eagerly await the Annual Awards Banquet where awards are made to employees for long service and extraordinary contributions with special service pins.

The company continues to be “nuts after all these years”, say the authors. Its employees have become known for the eccentricity of their uniforms and their casual or fun dress. The principle is that when you’re having fun at work, it doesn’t feel like work at all and you’re prepared to go the extra mile. Southwest is “passionate about its pursuit of fun”; its leaders are said to “embrace humour and merriment”. Flight attendants are encouraged to add “spice” and wit to flight announcements; some sing to passengers and one pilot plays a banjo to welcome them.

Humour at Southwest is supposed to make life less serious and is intended to relieve tension and build confidence. It also makes for low attrition and absenteeism. Because work is fun, some employees work without pay around holidays to help the airline maintain its customer service levels during the busiest times of the year.

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Southwest’s ticker symbol on the New York stock exchange is LUV, representing one of Southwest’s long-time advertising themes and the “loving” nature of the company. Southwest, say the authors, practise love as a way of doing business. Love is action-oriented; it is more a decision to do something helpful than just a feeling. Southwest employees “do” love because they are committed to the well-being of others.

The power inherent in love is only released, however, when love is shared. It makes people kind and generous and more patient of others; it is courteous, affirming and compassionate. It accepts people as they are. It fosters forgiveness – Southwest’s culture is to forgive and forget. Love is humble and does not entertain pretentiousness or arrogance (self-confidence is OK). But it’s also “tough and gutsy” – it believes in telling the truth, it has no time for mediocrity. Herb Kelleher is said to be a rare blend of “sheer confidence and utter humility”.

Southwest likes to be thought of as “hometown airline” in every community it serves, believing that employees who understand this goal will work harder to invest in those communities. It has embraced the role of good corporate citizen because giving back to those communities is a “loving” thing to do.

It shows its love for the community in many practical ways – helping in the aftermath of earthquakes or floods, for example. Its “Home for the Holidays” programme gives senior citizens tickets so they can fly home during the winter holidays to see their relatives. It supports the Ronald McDonald Houses charity which provides temporary homes for children with serious illnesses (it gives free air travel to their families and employees cook monthly dinners at the homes.) It shows gratitude to the community for supporting the firm’s success. This means more than giving money; it is about giving “your time, heart and soul”.

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Unconventional advertising

Southwest has a strong presence in its markets because it has built a strong personality and culture and doesn’t miss an opportunity to tell its stories and reinforce perceptions of what makes it special. One of the most famous examples is the story of “Malice in Dallas” when Herb Kelleher and the chairman of a competing airline publicly arm-wrestled in a Dallas sports stadium to decide the rights to an advertising slogan (“Plane Smart”).

Southwest’s custom-painted jets (painted, for example, as killer whales to advertise Seaworld) are “flying billboards” and “inspirations in the sky” that are not only intended sell tickets but also stir spirit in those that look up and see them. They are “celebrations” intended to touch people’s emotions.

Southwest believes advertising should be an “invited guest”, something that people want in their homes (rather than the “uninvited guest” that makes up so much advertising) and should therefore be intriguing, entertaining and persuasive. It should keep the company’s spirit and make flying fun. Another important principle of Southwest’s advertising is underpromise but overdeliver; build credibility in everything you do.

Every employee is expected to be a living advertisement in their behaviour and words. Southwest’s frontline staff are some of the firm’s most powerful forms of advertising and are the main memory that many customers will have of the airline. Southwest’s advertising and the way it models the company’s values is therefore designed as much for employees as for customers.

A similar perspective on customer service and the importance of frontline staff is offered by Jan Carlzon, former CEO of Scandinavian Airlines (see the review of his book Moments of truth). According to Carlzon, “moments of truth” are the critical moments, perhaps thousands a day, when customers come into contact with the company and its frontline people and when customers’ enduring impressions of the company are formed. Carlzon advocates turning the organisational pyramid upside down to give more responsibility for decision-making to the frontline employees who deal with customers.

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Customers come second; employees come first

Employees, not customers, come first at Southwest. Customers come second, but they still get first-rate service. As the authors say “The heart of the service journey is spiritual rather than mechanical.” Service transcends training, in particular, service techniques, and must be delivered from the heart. It comes from employees who genuinely feel loved and work in an environment that dignifies them by valuing their contributions. When employees feel that they themselves receive “legendary” service, they will give it to customers.

Southwest says: “We are not an airline with great customer service. We are a great customer service organisation that happens to be in the airline business.” Southwest tells its employees that service involves “Giving of your time and talent while performing your job; it is a true reflection of how you live your life day to day”. It expects employees to express their personalities in their work and wants their individuality to flourish.

As a result, say the authors, Southwest employees don’t see their work as work; they see it as “a stage on which they can use their gifts and talents to make a difference in the lives of others”, whether that stage is a ticket counter, a maintenance hangar, or the cockpit or cabin of a plane.

Great service therefore begins at home. When the systems, policies and procedures of an organisation are designed and lived out so that employees genuinely feel that they come first, trust is the result. Southwest employees trust their leaders and are not sceptical or apprehensive when management tells them “Do whatever you think is right.” This depends on communicating as much to employees as you can – the more employees know, the more they care. It depends on giving them opportunities to learn through example and watching others in the company model legendary service. Southwest also matches new employees with senior people who are known for providing great service. It makes “living legends” of Southwest people who have gone beyond the call of duty to offer exceptional service.

Giving customers more than they expect and dignifying and appreciating them are a large part of what make Southwest successful. Southwest people give more because they have more to give. This is because the company has invested in their “emotional bank accounts”. It is about helping ordinary people do extraordinary things.

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Leaders leading leaders

The authors point to leadership as the galvanising force behind Southwest’s recipe for success. Leadership, they say, has ignited the “heroic” nature of the company and gives employees the freedom to “think and act like nuts”. It is not just about leadership at the top; it is about leaders leading leaders at all levels within the company.

Leadership at Southwest occurs through collaborative relationships; its people work in relationships where the roles of leader and collaborator are interchangeable. Both leaders and collaborators are active and engaged. It is a style of leadership based on commitment, not compliance, say the authors. Commitment doesn’t come with position; it must be earned. Leaders and collaborators are drawn to higher levels of commitment when both see their personal agendas are enveloped in a purpose deeply held by everyone in the relationship.

Leadership does not therefore reside in one person (there are no “Lone Rangers”); nor is it a position of power and authority. It is about leaders at all levels influencing one another (e.g. pilots influenced ground operations people to support the Cutting Edge team to step up already speedy turnaround times; ground operations people influenced their co-workers to take a paycut to offset rocketing fuel prices). Influence comes from integrity – you must “walk your talk”: do what you say you are going to do and be the person you say you are.

The authors tell us that politics at Southwest doesn’t mean “scheming or arm twisting” or withholding or distorting information and jockeying for position. It is about building loyalty and trust by letting people know where you stand and being open, authentic, and honest. It means “loving people into action” and conquering their defensiveness. It means understanding the genuine needs and feelings of others. Herb Kelleher’s influence with people is said to stem from his willingness to be influenced by them.

Great leaders share purpose, vision and values – their power is their sense of purpose. They build relationships and rally people around a cause. Leaders are also “servants by nature” – servanthood is about helping people remove the obstacles in their way and giving them the tools to do the job; it is also being willing to do yourself whatever you ask of others.

Servanthood involves a lot of hard work and self-sacrifice behind the scenes. Southwest’s top management regularly put in 16 hour days seven days a week. Most people are said to have “gruelling” travel schedules and workloads. This is partly offset by the fun they have but the authors acknowledge that for some Southwest employees, something is forfeited (this is one of the few hints in the book at any dark side to Southwest).

Leadership inspires motivation through commitment to the cause, building relationships, and honouring people’s efforts. Motivation comes from showing people you believe in them. Southwest doesn’t “slot” people or compartmentalise them. It puts them where they can have a positive impact and grow.

Leadership at Southwest is seen as enriching the human condition by honouring the “sacredness“ and individuality of each person who works for the company. It is a community that relates to the whole person: it understands that people bring every aspect of their humanness to the workplace; this is why the work and personal lives of Southwest employees are so closely integrated. The company is a community that cares and will, for example, reach out to help employees’ families when members are ill. Leadership is also self-renewing and generative in demonstrating a deep concern for the future of the community. Leaders invest themselves in others to help them become the next generation of leaders. The best example at Southwest is Colleen Barrett who started working for Herb Kelleher as a legal secretary in his law firm in 1967. Her leadership and organisational skills led her to play a key role in Southwest from the start and since 2001 she has been the company’s president and corporate secretary.

Leadership also affects change by helping people act on their expressed and unexpressed needs and transforming those into hopes, expectations and ultimately demands. It aims at achieving broad human purposes that reflect the common good, not just that of the people of Southwest’s corporate community, but the “good of the nation as a whole”.

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A recipe for personal and business success

Nuts! is superbly written, upbeat and sometimes inspirational (though the Southwest culture does at time feel a little relentless). To understand the full measure of Southwest’s achievement, you will need to read the whole book which describes in depth, and provides many illustrations of, the way the company and its people operate. The authors say that they didn’t want to write just another corporate biography; they wanted to give readers tools they could apply in their personal as well as business lives. They hope that the story of Southwest offers some principles that can enrich your life and make your business more successful.

The recipe for success inspired by Southwest is:

  • Find a purpose you are crazy about
  • Make your life and work an adventure
  • Believe in people and they will believe in themselves
  • Don’t take yourself too seriously
  • Be yourself
  • Be different
  • Pursue love before techniques
  • Choose service over self-interest
  • Make spirit your competitive advantage.

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Herb Kelleher’s legacy

Nuts! was first published in 1996. Since then, Southwest has gone on to further success – it now serves 63 cities in 32 states – and it has been an important inspiration for other low-cost airlines. Though she says she found Nuts! a “suspiciously uncritical” account, Barbara Cassani, founder of the airline Go, gave new recruits copies of the book to help them understand her objectives: “Quality because we have pride in what we do; low costs so we can push prices down as low as possible for customers.”

A common business trend has been named after the company: the “Southwest Effect”. This suggests that, when a low-fare carrier (or any aggressive and innovative company) enters a market, the market changes and often grows dramatically (a 50% drop in fares may lead to a quadrupling of the market).

Some developments since Nuts! was first published are worth noting.

First, Southwest’s success in recent years has been bolstered by some savvy financial management, in particular its long-term policy of hedging fuel prices and purchasing fuel options years in advance to smooth out fluctuations in fuel costs. In 2000-2001, in particular, it increased its hedging to lock in historically low fuel prices. While it faced substantial risks if oil prices continued to fall, that did not happen and the hedges enabled Southwest to keep operating costs down and maintain its profitability during the oil shocks from the Iraq war and Hurricane Katrina. Commentators suggest, however, that Southwest will not be able to take advantage of below-market fuel costs forever and that the company will face increasing exposure to the raw oil market. This is seen as a warning sign for the airline as it also faces tougher competition from US “legacy” carriers that have had to lower their costs after bankruptcy.

Higher fuel prices and tougher competition are already having an impact. The company has never laid off staff or cut pay but in July 2007 it offered buyout packages to more than a quarter of its workforce of 33,000 employees in a bid to lower labour costs. It is also deferring the delivery of new aircraft.

The company is seeking new growth opportunities. Having built its reputation and profitability on a low-cost domestic carrier strategy, Gary Kelly, the company’s current CEO, is taking the firm international in 2009, firstly to Canada and Mexico and later to European destinations. It is looking to partnerships with other airlines to minimise risks and investment. Questions arise: For example, what will the advent of Southwest into European markets mean for European airlines? How will the Southwest style and culture fare on the other side of the Atlantic? What are the new challenges that the firm will meet and what new capabilities will it need when it goes international?

That Southwest might in future consider radical departures from its past was indicated by news that the firm was considering introducing reserved seats. (In the event, it has decided to keep unassigned seating – for now.)

Also, since Nuts! appeared, concerns about climate change have come to the fore with the airlines coming under special pressure from regulators and politicians over their contribution to global warming. In the UK, a recent report by MPs criticised the airlines for not whole-heartedly adopting carbon offsetting schemes whereby passengers can purchase offsets to finance schemes which reduce carbon emissions. Some American airlines are reportedly adopting carbon offsetting schemes. While Southwest has not gone down that route yet, the issue seems to be on the company’s agenda. It has, for example, been providing air conditioning and heating systems and electrical power transformers for parked aircraft that allow pilots to turn off auxiliary power units to reduce fuel usage and ground-level carbon emissions.

In July 2007, as this review was being prepared, Herb Kelleher announced his resignation as Chairman (he resigned as CEO in 2001). As Southwest’s founders stand back from the running of the company, questions about its future inevitably arise. The authors of Nuts! foresaw the questions. In answer, they believed there would indeed be “life for Southwest after Herb” because, they say, the airline’s people have an uncompromising dedication to a cause. Southwest employees are not only loyal to Herb the man, they are devoted to his movement and the vision he helped to inspire. Southwest’s purpose and culture transcend his personality.

Secondly, Southwest has raised customer consciousness across the US. As the “standard bearer” of low fares, Southwest has made it possible for people all over the country to travel more conveniently and affordably. There are plenty of new leaders with a sense of duty waiting in the wings who will emerge to continue Southwest’s legendary service at low cost.

Thirdly, Southwest’s model of leadership is a collaborative effort. Kelleher surrounded himself with able and talented people who have been “groomed in the fires of competition” and who know they have what it takes to carry on the legacy left by Kelleher and others.

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