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Business

Lunch With D CEO: Gary Kelly

The CEO of Southwest Airlines on his company's brave new world.
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Sometimes Kelly wants to know what it feels like to be one of his 45,000 employees. He wants to know the joys and pains of the various jobs. He isn’t a pilot, so he can’t fly one of the planes. And he isn’t a mechanic, so he can’t work on the engines. But every couple weeks, he’ll go beneath a plane and throw some bags with the handlers. Or he’ll stand at the counter and check in some customers.


This must have led to some entertaining stories, I say. Some moments of hilarity. He thinks about it and smiles.


Kelly is having a great year. In 2014, Southwest Airlines debuted a new fleet of 737s, fully integrated its acquisition of AirTran, and began flying internationally. And of course there’s the matter of the Wright Amendment repeal this October—a large display in the offices at Love Field has been counting down to this moment since 2006—and the introduction of more than a dozen new direct routes in a three-week span. 


When oil prices went up after 9/11, airline traffic took a big hit. Southwest got an edge over its competition by hedging fuel costs.

Sitting there at Al Biernat’s, relaxed and smiling, Kelly tells me he feels “on top of the world,” with “no nervousness at all.” He orders the salmon special and we eat leisurely and chat for nearly two hours. He’s been coming here for years, through good times and bad, and calls the waiter by name. As happy as he is now, he tells me, “it’s been a very difficult 10 to 15 years.”


When oil prices went up after 9/11, airline traffic took a big hit. Southwest got an edge over its competition by hedging fuel costs. But the airline was still built as a short-haul domestic carrier. 


“We saw how the world was changing, which was primarily a radical change in fuel prices,” Kelly says. “We spent about five years trying to get a read on where the world was going, where energy prices were going, what was happening with our competitors, and what we were capable of doing. And then we made some significant changes.”


The airline needed its customers to fly longer distances. But Kelly didn’t want to ground any planes or pull out of any cities or lay off any employees. “You also have to protect the profits,” he says. “You have to protect the shareholders.”  


Warren Buffett has described a CEO position as the “chief risk officer.” That’s how Kelly sees himself, which is why he’s so heavily involved in the company’s fuel decisions. Fuel accounts for a third of its overall costs. 


“What’s the biggest risk this company faces?” he says. “Next month and over the next 25 years, it’s fuel prices going so high that we lose money on every single passenger.”


“Could that happen?” I ask.  


“It almost did in 2008,” he says.


American, United, and Delta still dwarf Southwest, but over the last decade, the airline has quietly become the largest carrier within the United States. Kelly says the company became “a disruptive force” in the industry. “The only way [other airlines] could compete with us was to declare bankruptcy.”


With the new planes, Southwest can now fly to Hawaii, Alaska, the Caribbean, and Central America. “Even the northern part of South America is in our scope,” Kelly says.


And he’s still paying attention to global events. The recent troubles in Iraq. The war in Syria. The problems in Gaza. He knows these things could drastically affect the future of his business. He gets regular briefings and every day reads some part of at least four different newspapers: The New York Times, The Wall Street Journal, USA Today, and The Dallas Morning News. The company just built what Kelly calls a “listening center.” There are TVs, and a team of people monitoring Twitter and Facebook. 


It’s this infrastructure, this forward planning, and the trust he has in his team—an approach he credits to former Southwest CEO Herb Kelleher—that allows Kelly to relax, to talk for two hours about everything from his ranch outside San Antonio and his affinity for the Spurs, to his church in Plano and the weddings of his two daughters, to the book he’s reading about the origins of World War I. And those times when he’s handling luggage or working as a ticket agent. 


Again, I prod. “There have got to be some funny stories,” I say.


He laughs. “Probably,” he says. “But none that I want to show up in this article.”  


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