Although its stock is down 45% since the beginning of 2001, Southwest Airlines (NYSE: LUV) is the only airline to make a profit every year since it was founded. As The New York Times reports, Southwest's founder Herb Kelleher retired as chairman after 37 years this week. And he got a very warm send off from employees.
This is really one of the keys to Southwest's success. As I wrote in Value Leadership, here are some big reasons that it's been able to profit over the years:
- Treats employees well. Southwest genuinely cares about its employees. It spends a significant amount of time selecting them and it pays them well -- including giving them stock options and profit sharing -- and treats them with respect. The happy employees treat customers well and the happy customers keep coming back.
- More productive. Southwest turns planes around at the gate in 20 minutes. It doesn't serve meals -- just snacks. This cuts time that might be spent waiting for food to arrive at the plane and cleaning up after. And since employees care about the company and are rewarded for Southwest's profitability, they look for ways to keep it profitable.
- Hedging on fuel costs. Southwest hedges jet fuel -- which is the second biggest airline cost. 70% of its fuel is hedged at $51 a barrel which compares favorably to the current $135.
- Low fares, out-of-the-way airports. Southwest flies point-to-point routes so people get to their destinations faster. It charges low fares and it makes money thanks to its lower costs. Part of the lower costs come from operating out of airports that charge lower landing and other fees to the airlines.
- Use of one kind of aircraft: the Boeing Co. (NYSE: BA) 737. Since it doesn't own many different kinds of aircraft, Southwest spends less time training people and its maintenance costs are lower than they would be if they needed to train pilots and mechanics to maintain a more diverse fleet.
In short, Southwest is profitable because it does many things right. But the thing tying it all together is the idea that happy employees act to keep customers happy and to reward shareholders by doing things that keep the company profitable.