Herbert Dwight Kelleher, better known as Herb, is the co-founder and former President and CEO of the pioneering Airlines – Southwest Airlines Co.  His company was one of the first airlines to offer low-cost services to the customers in the Airline Industry.

Under his leadership, Southwest which started with just four jets under its fleet became an industry leader in the US, and still holds the record of reporting profits for an unprecedented 43 consecutive years – no other Airline company in the US comes close to this record.  In this process, the company disrupted businesses of various transportation service providers in the US.

Southwest Airline is one of the leading passenger Airline in the US which provides air transportation within the US and the neighboring countries.  Currently, the company operates with a fleet of over 700 Boeing 737 aircrafts and was the largest domestic air carrier in the US for the year 2015, in terms of domestic originating passengers boarded.  The company reported revenues of US$19.8 billion for the fiscal year 2015 according to market reports.

What did it Disturb?

Southwest Airlines Co., transformed the transportation industry through disrupting the prevalent business model established by the other carriers in the US Airline Industry as well as to the businesses of the other forms of transportation providers and paved the way for the other low-cost carriers in the industry which caused further disruption.

The idea behind Southwest Airlines to provide low cost services to passengers by eliminating unnecessary costs caused the classic “low-end disruption” to the established carriers in the US Airline industry who were exclusively targeting rich people for the air travel.  At the same time, it also caused “new-market disruption” to other transportation service providers including buses, cabs, and trains, by targeting people who were not considering air travel as a primary mean of transportation through its cheaper and competitive pricing model.

The US Airline Deregulation Act of 1978 which allowed large airlines to renew their route networks into a system called “hub-and-spoke” system and gain operational efficiencies and increase capacity utilization, enabled the rise of new low-cost carriers in the industry including Southwest Airlines.  The company’s business plan was to avoid the prevalent “hub-and-spoke” system, and to offer cheapest fares possible to its customers.  For that purpose, it created an economical network of point-to-point short-haul flights, and usedless-expensive gate slots at secondary airports caused disruption to the established business models of the competitors in the airline industry.

In addition, Herb’s strategic idea to offer unassigned seating and minimal food service to passengers which allowed rapid airplane turnaround, and increased capacity utilization. At the same time, it ensured efficient and affordable services which further disrupted the businesses of the large airlines in the industry.

The signs of disruption through the industry’s first low-cost air travel services to the other forms of transportation providers were experienced by the leading intercity bus common carrier in the US – Greyhound Lines, Inc.  By making air travel more accessible and affordable to the underserved people in many cities, Southwest opened a new channel of demand for the Airline industry.  It started taking business from the bus, cab, and train transportation service providers especially from those who were offering services to the long distance intercity travelers.

How did the idea emerge?

Herb Kelleher with one of his legal clients Rollin King created the business idea on a cocktail napkin in a restaurant in San Antonio.  However, soon after Southwest’s incorporation in 1967, the company faced legal action from three competitors which was not resolved for the next three years.

In 1971, after the Texas Supreme Court up-held the Air Southwest’s right to fly within the state, the company changed its name from Air Southwest Co., to Southwest Airlines Co.  It started operations with just four jets under its fleet thereafter.  Herb’s idea to focus on the secondary airports and to offer low cost air travel to its passengers by eliminating unnecessary services and avoiding the prevalent scheduling system – Hub-and-Spoke” system in the Airline industry was the primary reason which drove the company’s growth to achieve 43 straight years of profitability.

Herb Kelleher and the Foundation of Southwest Airlines

Born in March 1931, Herb Kelleher graduated with a bachelor’s degree from Wesleyan University, and later received his Juris Doctor from New York University in 1956.  Soon after earning his law degree, he practiced law for some time before eventually moving to Texas with an intent to start his own law firm.

However, in 1966, during a discussion while he was serving as an outside counsel to a Texas Businessman Rollin King who was an air charter service owner, he came with an idea to combine his skills in practicing law with starting a business in the Aviation industry.  This idea led to the foundation of the Air Southwest Co., in 1967 which was later renamed to Southwest Airlines Co., in 1971 while Herb was serving as a legal counsel and a director to the company.

With increasing responsibility in the company, in 1982 he was asked to serve as the Chairman, CEO, and President to the company which he more than delivered on multiple accounts.  Under his leadership, Southwest maintained the steady growth while the other companies in the industry were struggling to generate profits.  With his cost control methods, in addition to his efforts to keep the turnaround time for aircrafts as low as possible, the company became the fourth largest carrier in the US, in terms of originating customers boarded.

However, in 2001, after battling with cancer for a year, he decided to retire from the position of the President and CEO of Southwest Airlines, although remaining Chairman to the Board.  Southwest was the only company in the history of US Airline industry to have over 30 consecutive years of profitability when he ultimately decided to step down from the role of Chairman and resigned from the company’s Board of Directors position in 2008.  Even though, he remained a full-time employee to the company for the next five years.

His leadership and entrepreneurial skills at Southwest earned him several major awards and accolades, including:

• Tony Jannus Award for outstanding leadership in the commercial Aviation industry in 1993,
• ‘L. Welch Pogue Award for Lifetime Achievement in Aviation in 2005,
• Charles Lindbergh Award for Excellence in Aviation in 2006, and
• Bower Award for business leadership in 2003.

In 2004, Herb Kelleher was inducted in the Junior Achievement U.S. Hall of Fame.

(Analysis of successful business models by DART Analysts)