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Southwest Airlines Founder, Discount Pioneer, Herb Kelleher Dies

Bloomberg logoBloomberg 4/01/2019 Mary Schlangenstein

a man wearing a suit and tie: Southwest Airlines © BLOOMBERG MEWS Southwest Airlines Herb Kelleher, the lawyer with a Texas swagger who built Southwest Airlines Co. into the biggest discount carrier and set the standard for budget air travel for more than three decades, died Thursday. He was 87.

Kelleher’s persona as a chain-smoking sipper of Wild Turkey whiskey fit Southwest’s creation story: He and Texas businessman Rollin King used a cocktail napkin in 1966 to sketch a plan for flights in a triangle of Houston, Dallas and San Antonio. Their formula of short, frequent, no-frills trips spawned dozens of imitators, made Southwest the largest U.S. carrier by domestic traffic, and led to an annual profit streak dating to 1973.

“His stamp on the airline industry cannot be overstated,” said Southwest Chief Executive Officer Gary Kelly in a statement confirming the death. “His vision for making air travel affordable for all revolutionized the industry, and you can still see that transformation taking place today.”

Kelleher retired as CEO of Dallas-based Southwest in 2001 and stepped down as chairman in 2008. He retained the title of chairman emeritus.

American Airlines Chief Executive Officer Doug Parker, who sought advice from Kelleher early in his career and considered him a mentor, said the Southwest CEO brought the freedom to travel to hundreds of millions of people and “his appetite for taking on any real or perceived battle was unmatched.”

“His style presents the ultimate case study for airlines or any service company whereby if you take care of your people, they will take care of your customers, which will take care of your shareholders,” Parker said in a statement Thursday. “That simple yet profound way of leading continues to inspire us.”

‘Maverick Spirit’

Along with Colleen Barrett, Kelleher’s onetime secretary and later president of the company, the executive infused Southwest with a culture that encouraged fun and what he called a “maverick spirit.” As Southwest flouted convention by putting some 1970s flight attendants in hot pants and go-go boots, so did Kelleher, appearing at corporate events with his trademark bourbon and Merit cigarettes.

“We’ve always operated on the thesis that a company can have a personality, that people can be themselves, and be very successful in business at the same time,” Kelleher said in a 2001 interview with Charlie Rose.

a man in a hat using a cell phone © Bloomberg News After posting losses in its first two years of flying, in 1971 and 1972, Southwest started the industry’s longest run of profits while most rivals lost billions and filed for bankruptcy or went out of business. Kelleher served as general counsel until 1978, when he became chairman. He took over as president and CEO in 1981.

Known as Herb to employees, passengers and shareholders, Kelleher had a booming laugh and lent his name and image to promotions for Southwest. He was once seen shimmying in an Elvis Presley jumpsuit for the cover of Texas Monthly magazine.

‘Deliberately Eccentric’

“Herb did a lot of crazy stuff, deliberately eccentric stuff, and that worked in the context of the kind of company he was trying to build,” former American Airlines CEO Robert Crandall, a close friend, said in a 2012 interview with Bloomberg.

In the 1990s, Kelleher’s CEO tenure overlapped with those of Crandall and Gordon Bethune of Continental Airlines, then based in Houston. They formed a colorful Texas troika of airline chiefs, with Kelleher known for his humor, Crandall for his acerbic personality and confrontations with union leaders, and Bethune for his penchant for profanity-laced anecdotes.

“Herb Kelleher is a guy who changed the industry by being a unique mix of talents,” former Continental Airlines Inc. Chief Executive Officer Larry Kellner said in a 2012 interview with Bloomberg. “He was smart and he was savvy but, most importantly, he was sensible.”

Kelleher developed a loyal following at Southwest because he gave his workforce broad latitude and personal attention. He and Barrett routinely sent notes to mark events such as birthdays, marriages or deaths. After Southwest’s initial annual profit, Kelleher started the industry’s first employee profit-sharing program.

A leather-clad Kelleher once rode a Harley-Davidson motorcycle to an employee party. He occasionally helped baggage handlers load luggage on planes, and attendants were encouraged to tell jokes, sing and create games.

Cost Discipline

The casual atmosphere he nurtured masked Southwest’s cost discipline and power in grabbing market share.

a group of people posing for the camera: Southwest Airlines Takes Off From Philadelphia © Getty Images via Bloomberg Southwest Airlines Takes Off From Philadelphia Kelleher focused on expenses at every level, shunning onboard meals, offering only one-class cabins and setting a goal of keeping jets on the ground for only 20 minutes between flights. In 2000, Southwest removed three nuts from each bag of snack peanuts to save $300,000 a year.

Kelleher’s decisions to fly a single plane type, Boeing Co. 737s, and eschew assigned seats saved money and established a new model for airline service “quite deviant from what was being done,” said Crandall, who watched his Dallas rival from American Airlines headquarters in neighbouring Fort Worth, Texas.

Buffett’s Praise

Billionaire investor Warren Buffett, who disparaged airline investments after taking a stake in a predecessor of US Airways Group Inc. in 1989, called Southwest “a fabulous business” in 2001.

Kelleher is “right up there with Sam Walton,” the founder of Wal-Mart Stores Inc., Buffett told reporters on board a London-to-Paris flight. When Buffett’s Berkshire Hathaway Inc. returned to investing in airlines in 2016, it took stakes in four carriers -- including Southwest.

A 1993 U.S. Transportation Department study titled “The Southwest Effect” detailed how the airline’s entry into new markets increased travel and reduced ticket prices. US Airways then-CEO David Siegel told employees that Southwest “is coming to kill us” as the discounter -- with Kelleher still leading the board -- jumped into US Airways’ Philadelphia hub in 2004.

“When he saw an opportunity, he didn’t need analysis,” Kellner said. “He just went after it.”

That trait marked Kelleher’s airline career from the start. Southwest’s incorporation in 1967 was followed by several years in court as Kelleher beat back efforts by Braniff International Airways, Continental and Trans-Texas Airways to ground the upstart carrier.

Copycat Airlines

Kelleher’s success inspired copycats in the U.S. and around the world, with Europe’s biggest low-fare airline, Ryanair Holdings Plc, adopting Southwest’s approach of flying only Boeing 737s. JetBlue Airways Corp. founder David Neeleman was a former Kelleher lieutenant at Southwest.

Herbert David Kelleher was born March 12, 1931, in Camden, New Jersey. He was the youngest of four children of parents Harry, general manager of a Campbell’s Soup factory, and Ruth Kelleher.

Kelleher earned his bachelor’s degree from Wesleyan University in Middletown, Connecticut, and received a law degree from New York University Law School.

He credited late-night talks with his mother for helping develop his belief that each person carries the same value, without regard to social standing. Kelleher also embraced the idea that business success began with happy employees who, in turn, treated customers well and encouraged them to fly more with Southwest, making shareholders happy.

‘Worthy People’

“Whether you’re talking to the garbage man or the king, they are both very worthy people,” he said in the 2001 interview.

Kelleher was a clerk for New Jersey Supreme Court Associate Justice William Wachenfeld for two years, then followed the retiring judge to the Newark, New Jersey, law firm of Lum, Fairlie & Foster. He joined the former Matthews, Nowlin, Macfarlane & Barrett in San Antonio in 1961, where he worked until starting Southwest with King.

Over the years, Kelleher’s larger-than-life image and Southwest’s rapid growth made the CEO and the airline inseparable in the public eye. In 1999, when he was diagnosed with prostate cancer, investors and analysts pressed Southwest for a succession plan. After eight weeks of radiation treatment, he proclaimed himself fit, though he wasn’t giving up cigarettes.

“I don’t smoke with my prostate,” he said.

Kelleher was named deputy board chairman of the Federal Reserve Bank of Dallas in 2009 and chairman in 2011. After his retirement as Southwest CEO, he worked on scheduling, marketing, strategic planning and government affairs. In more recent years, Kelleher advised CEO Kelly when asked and continued to be involved in special projects and industry issues.

Kelleher’s continued close relationship with employees was demonstrated at a February 2014 news conference at Dallas Love Field, as a steady stream of workers sought to shake hands with, or get a kiss from, the former CEO and Barrett.

Kelleher and his wife, the former Joan Negley, had four children: Julie, Michael, Ruth and David.

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