Southwest has made money for 26 straight years, and with an EBITDA margin (earnings before interest, taxes, depreciation and amortization) of 22.6%, the airline is twice as profitable as United. Serving peanuts instead of meals helps the bottom line, as does quick turnaround for planes (20 minutes to unload, clean and reload). Kelleher, 68, says he's so low-tech he can't order a hamburger at a drive-through, but Southwest airline was one of the first airlines to offer ticket less travel and online reservations. This year earnings are expected to grow 13%, and new routes and longer flights are expected to fuel growth. (Harrington, 2004)

Herb Kelleher's Leadership Style and Important Principles
Low Fares
Time and again surveys show that-given the choice-passengers prefer lower fares. So they get them. Prices are one-third those of the competition. Passengers want to be on time--surprise--so Southwest airline is the pinnacle of punctuality because its point-to-point routes bypass most congested hubs. Most Southwest passengers are least concerned with the meals and assigned seating. They are happy with Southwest because they can save a couple of hundred extra bucks a trip.

Personal Marketing

Bigger, brawnier airlines can easily match Southwest's fares, but they can't clone its highly personal marketing. Frequent fliers get birthday cards from the airline. When plane is delayed, Customer service agents orchestrate games--one is “Guess the gate agent's weight”--to keep passengers chuckling. Someone's feathers ruffled? Barrett smoothes them with a T-shirt, stuffed bear, or other knickknack. (Lieber, 1998)

Perpetual Childhood

Ask Southwest Airlines' Herb Kelleher why he's successful and he responds, "Perpetual childhood." One can understand that if one have ever flown his airline, where flight attendants dress in costume for the holidays and sing their safety instructions. The goofiness keeps morale up--but Kelleher is also dead serious about keeping costs down. The combination works. Under Kelleher, Southwest has never had a strike; it leads the industry in on-time performance; and its stock has averaged 29% annual gains over the past 10 years, crushing its competitors. (Fourth CEO Maintains…, 2002)

Cost-Conscious but More Productive Kelleher is always very cost-conscious and he is constantly looking for ways to be more productive. He recently cut costs in his maintenance program by, for example, doing more works on a plane when it's in for a check instead of bringing it in three different times. He has also come up with a purchasing program that lets him get discounts on everything from cleaning supplies to airport security.

No Meal but Peanuts

Peanuts are served during a flight instead of meals. They are big in the peanut world. It is suspected that they buy about $9 million or $10 million worth of peanuts each year.
The average cost per passenger of serving meals is about $5, and their average cost per passenger is 20 cents. This makes a great difference in the budget. Absence of meal during a flight also saves cleaning time.

Productivity

Productivity lets them keep the planes in the air instead of on the ground. One example customers mention all the time is if people look out the window when the airplane is taxiing toward the jet way, people see their ground crews charging before the airplane have even come to rest. Customers have told that with other airlines nobody moves until the airplane has turned off its engines. Their boarding system also enables them to turn the planes faster, there are no assigned seats, and passengers get plastic, reusable boarding passes and their simplified fare system lets them take care of people at the counter faster. (Geoffrey, 2001)

Addition of More Cities

As a rule of thumb only, they visualize adding an average of two new cities to our system each year.

Competitive Culture

The culture of Southwest gives it a major place in any competition. The intangibles are more important than the tangibles because people can always imitate the tangibles; people can buy the airplane, people can rent the ticket counter space. But the hardest thing for someone to emulate is the spirit of people. (Katrina, 2000)

Strong Power to Resolve the Problems

Most of all, when difficulties arise, Southwest employees have the power to resolve them, more so than at other airlines. One passenger--irate because his snarling, pony-size dog was not permitted aboard--discovered what service really means when a customer service agent took care of the beast for the duration of the flier's two-week vacation.

Belief in Internal Customers

Southwest also believes in the internal customer, and aims to please. For mechanics that would be the pilots; marketers' clients are the reservation agents. (Katrina, 2001)