Discuss Southwests approach to (a) attracting, (b) developing and (c) retaining human capital (i.e., employees, talent). 2. Considering the resource-based view, d

CASES

Eisner, and Dess. cer of Southwest. Lamar Muse, an airline veteran who had

CASE 21 :: SOUTHWEST AIRLINES: IS LUV SOARING OR SOUR? C137

CASE 21 SOUTHWEST AIRLINES: IS LUV SOARING OR SOUR?* Forty profitable years and an army of budget-conscious customers have made Southwest Airlines the largest domestic ca1Tier in the United States. Fluctuating jet fuel prices and turbulent economic conditions notwithstanding, by the beg inning of 2013, Southwest had expanded its net­ work to 97 destinations, assuming an emine nt position in the industry. Southwest Airlines' competitive labor costs, low fares, and unique corporate culture comprised its best arsenal against rivals.

Yet with the U.S. air travel market stagnant and larger airlines consolidating into more dominant competitors, Southwest has been forced to re think its traditional busi­ ness model in recent years. In a s ig nificant de parture from its customer-friendly policies, Southwest, like o ther rivals, is transitioning to a profit-boosting strategy. 1 The new strategy has m eant new fees and reconfigured cabins with reduced leg room to squeeze in six extra seats on every plane in its fleet. Having forgone millions of dollars in fees that its competitors charge from customers, Southwest is beginning to look for ways to earn extra revenue to off­ set rising operating and integration costs from its merger with AirTran. With a new $40 fee to be amongst the first 15 passengers to board the plane, Southwest has managed to anger some of its m ost loyal customers.2 At the end of 2012, Southwest continued to offer its bags-fly-free policy, which has contributed to increasing its market s hare. When probed about his company's plans to start charg ing baggage check-in fees in 2013, however, CEO Gary Kelly declared, "Never say never." 3 In a March 2013 report, Topaz Interna­ tional concluded that Southwest is the cheaper a lternative only 40 percent of the time, fueling analysts and customers to question Southwest's low-cost claim.4

In another significant departure from standard policy, Southwest abandoned its organic growth strategy and acquired AirTran Holdings Inc., the parent company of AirTran Airways (AirTran), for a combination of $1 .4 billion cash and Southwest Airlines common stock.5 The acquisi­ tion, which was announced in September 2010, was only the third in Southwest's history. It gave the discounter its first

• This case study was prepared by Professor Nag a Lakshmi Damaraj u of The Indian School of Business, Professor Alan B. Eisner at Pace University, and Professor Gregory G. Dess at the University of Texas at Dallas. The purpose of the case is to stimulate class discussion rather than to illustrate effective or ineffective handling of a business situation. The authors thank Mrs. She fali Mittal and Mr. Abhishek Hemrajani, Indian School of Business, for their research assistance and Professor Michael Ol iff at the University of Texas at Dallas for his valuable comments on an earlier version of this case. Several parts of the case are from an earlier version. Copyright © 20 13 Damaraju,

service in Atlanta, a Delta Air Lines fortress for decades, and more flights from New York and Washington, DC.6 While most analysts agreed that Southwest had little choice but to pursue growth through buying up a rival, two years since the acquisition, Southwest had still to realize the benefits of the deal.7 More than a year after the transaction officially closed, Southwest was de-hubbing AirTran's Atlanta hub and conceding markets to Delta. AirTran's Atlanta hub was Southwest's motivation in acqui.Jing AirTran in the first place. Southwest has also been skeptical about adopting AirTran's product attributes and with its own low-cost per­ ception eroding, Southwest has little room to fit into any of the three distinct emerging business models-full service, hybrid, and ultra low-cost- that have evolved in the U.S. airline industry.8

Background and Growth The inconvenience and expense of ground travel by bus or automobile between the cities of Houston, Dallas, and San Antonio- the Golden Triangle that was experiencing rapid economic and population growth during the late 1960s­ offered an opportunity for an intrastate airline. The idea was suggested by Rollin King, a San Antonio entrepreneur who owned a small commuter air ser vice, when his banker, John Parker, complained about the issue. King then talked to Herb Kelleher- a New Jersey-born, New York Univer­ s ity Law School graduate who had moved to San Antonio in 1967 to practice law. They soon pooled the seed money to start Southwest Airlines. The infant Southwest Airlines (SWA) fought long-drawn-out legal battles, ptimarily engi­ neered by the major airlines, for over four years before it got its first flight off the ground in 1971. Later, th~. com­ pany had to work around a regulation intended to penalize SWA's decision to operate out of Dallas Love Field instead of moving to the new Dallas-Fort Worth (DFW) airport. With Kelleher's brilliant legal expertise and extensive lob­ bying of the House of Representatives, the issue was set­ tled and SWA was allowed to operate out of Love Field in 1979. The struggle for existence in the initial years worked to the advantage of the company, as the struggle created the esprit de corps for which the airline became so well known. The employees were caught up in fighting for the "SWA cause" that created "the warrior mentality, the very fight to survive," according to Colleen Barre tt, who became the president and chief operating officer of SWA in 200 1. (She now is the president emeritus.)9

Kelleher, however, was not the first chief executive offi­

Source: Southwest Airlines. SEC fi li ngs, Form 10-K, wW>v.sec.gov.

C138 CASE 21 :: SOUTHWEST AIRLINES: IS LUV SOARING OR SOUR?

worked earlier with Trans Texas, Central, and Universal Air­ lines, was brought in to get the company off to a good start. That was followed by the brief tenure of Howard Putnam, another airline veteran, who was hired from United Airlines, where he worked from 1978 to 1982. Herb Kelleher served as the chairman of the board during that pe1iod; then he took the CEO position in 1982 and championed Southwest's expansion (at that time the company had only 27 planes and $270 million in revenues, and it flew to only 14 cities). 10

SWA was one of a kind right from its beginning. It was the pioneer of the "low-cost strategy." It flew planes point­ to-point-short-haul flights bypassing the expensive hub­ and-spoke operations. It chose less popular, less congested airports to achieve quicker turnarounds. SWA offered air­ fare s so low that it gave the bus and car travel companies a run for their money. It served no meals on its airlines and pro­ vided only a snack of peanuts. That saved plenty of money and work. There was no assigned seating, which reduced boarding times and helped planes turn around faster. The average turnaround time for planes was around 25 minutes. The faster turnaround times and higher aircraft utilization

EXHIBIT 1 Financial and Operating Data for Southwest Airlines, 2008-2012 (year-end December 31)* A s I c I ' o 1 E

Financial and Operating Data for Southwest Airlines, 2008-2012 (year-end December 31)

2 3 Op.iiraiing revenues ($ miillci"risj 4 ·operaling·expe·n·ses ($ millions) 5 Operating income {$ mTllfonsj…. 6 dlher expenses (income), net"{$ mill ions) 7 lricoriie before taxes.($ millions) 8 Provision tor income iaxe·s1$millio·ns) 9 Net income ($ m71iio-ns) -… – 10 Netincome.perstiare,'basic 11 Net income per share, diluted 12 Cashclivide·nds per common share 13 Toial assets.($millions) – -· -·–. 14 Long-ierm oliligaiions ($ millions) 15 Stockholders' equity ($ millions) 16 Operating Data 17 Revenuepassengers carried 18 Eriplanefpassengers-·· – 19 Revenue passeriger:miles (RP Ms) (000s) 20 Avaiia6ie se-a·t:m71es (ASMs) (000s) · 21 Load factor .. ·- —- . . 22 Average length-of passenger haul (milesj 23 Average aircraft stage length (miles) 24 Trips f1ovn… -·- …. — . – 25 Average passenger·fa re 26 Passenger revenue yield per RPM 27 Operating reve-riue'yieldper ASM 28 Ope raifrig expenses per isrir 29 Fueicosts per gaiion (average) 30 Fuel consumed; in gaiions (millions) 31 ·Fu1]:time equivalent employees 32 Size"of1iiiet …. – – –

·—·-·– – 2 1 202012 2011 ·· ··-17:osii" -~2~i oC – – – 1°[?__5g

16,465 – i s;/358

11,116 – 10,08814,965 ·gas ·· 262°-..693

(62) 623

243 … 98 . . – – 16•'

·370 323 745685

… 264 145. ·286 '459 -421 178

.56 .23 0.62 . – ~5(3° .i3 0~6f

:0345 r .0180 0.018 –18,596 1'a°,068 – 15,463

. 2,883 .. 1 s·.107 2,875 — 6,992 r · 6,877 I 6,237

109,346,509 I . i 03,973,759 8(191,322 I 133;978,iQ_O l

102,874,979 128:m:110 ·

· 1 80.3% i

___J~ .I 1,3~1.~58 i

$147.17 j 15.64¢

-·ff34f r 12]5¢ $3.36 I i ,847

4861 ..I 694 I

114,213,dif 97,582,530

12?:5s1-:-01 2 ta,046.967

120,578,736 98,43't;ii92 · ao·.9% ·-;9,3%

939 885 – 679 I 64f

1,317,977 1,114,451 $141°:90 $130.27 15.12¢ 14.72¢ 12.99¢ – ·t- 12.30¢ 12.41¢ 11.29¢ $3.19 $2.51 1,764 1,437

45,393 34,901 698 548

*Refer to the appendix at the end of this case for a g lossary of the terms used in this table.

enabled the airline to operate with fewer planes and gate facilities than would otherwise have been necessary.

SWA's attractive flight attendants in hot pants were a source of live entertainment on fli ghts (e.g., the flight atten­ dants made funny presentations of the otherwise routine and boring safety instructions or performed preflight tricks such as popping out of overhead bins). 11 Southwest was the first major airline to introduce ticketless travel and one of the first to put up a website and offer online booking.12 It operated a single aircraft type, the Boeing 737, that kept its training costs low and personnel utilization high, as having only one type of plane offered great flexibility in personnel deployment. Starting with three Boeing 737s in 1971, the company fleet grew to 548 Boeing 737 aircraft providing service to 69 cities in 35 states throughout the United States by the end of2010 (see Exhibits I, 2, and 3). 13

The SWA Leadership and Culture There are many stories about Herb Kelleher's flamboy­ ant style as CEO. He smoked cigars , loved Wild Turkey whiskey, was often seen dressed up as Elvis Presley, and

– 65 . 99

0.13 0.1 3

b.6f8 .. 14,269

3,325 5,454.

J _ 86,310,229 i fiff,338,2;(a

-;iiA56,11o 98,0of,550

j 76.o•lo -863

I 639 1,125311

$1 14.61 13.~9¢___ 10.56¢ 10.29¢

Go to li brarytab in Connect to access Case Financials.

F

1·· ·- ~~~~023

I

1·

'

I

I I

$2:12 l … 1,428 I

34?_2? l. _ 537

16~574 – 449 ·-

1'i1 278 100 rnl 0.24 0:24

o.01a~· 1( :ios· 3,498 4,§s:f"·

88,529,234 101,920,598 73,49·1:687

103,271,343 . ·71:20%

830 – 636

1,191 ,151 ·- .$119.16

14.35¢ 1 o:67e icf24¢

_ $2 .44 1:s1 1

35,499 . 537

EXHIBIT 2 Cities Served by Southwest Airlines

Source: Printed with permission from Southwest Airlines, ww,v.so11thwest.coml travel_ce11ter/ro11temap_dy11.html?i11t=GSUBNAV-AIR-ROUTEMAP.

EXHIBIT 3 Growth in the Number of Cities Served by Southwest Airlines, 1996-2012

~ ar Number of Cities Served

1996 49

1997 51

1998 52

1999 56

2000 57

2001 58

2002 58

2003 58

2004 58

2005 61

2006 63

2007 64

2008 64

2009 68

2010 69

20 11 73

20 12 97

Source: Southwest Airli nes. Forms 10-K filed with SEC.

publicly arm -wrestled and defeated a rival company CEO to settle a dispute over an advertisement slog an . 14 Kelleher truly believed that business could and should be fun- at too many companies, people put on masks when they came into the office. At work, people were not themselves and

would be overly serious, which explained why most busi­ ness encounters were bland and impersonal. Therefore, SWA tried not to hire people who were humorless, self­ centered, or complacent. Not surprisingly, there was no human resource department but, rather, a People Depart­ ment at Southwest. The guiding principle for recruitment at SWA was "Hire for attitude and train for ski lls," which Kelleher believed was the most important principle . An employee from the People Department once said to him, " Herb, I'm getting a little ernbanassed because I've inter­ viewed 34 people for a ramp agent pos ition in Amarillo." Kelleher replied, "If you have to interview 134 people to find the appropriate person to be a ramp agent in Amarillo, do it. Because the most important thing is to get the right people, and if you get the wrong ones they start poisoning everybody else." 15

Kelleher 's penchant for laughter and fun became a part of Sou thwest's culture. Prospective employees were asked how humor helped them out of a difficult situation. Pro­ spective pilots were sometimes asked to pu ll on shorts, and the ones who saw fun in it passed the interview. All people at the company were to be treated with dignity and respect, and Kelleher did not believe in hierarchical barriers. When a vice president complained to the CEO that c'ustomers, gate agents, pilots, and baggage handlers had more access to the CEO than he did, Kelleher said to him, "Let me explain thjs: They're more important than you are." Kelle­ he r recognized that the key to satisfied customers was hav­ ing satisfied employees . So employees came first, and that orientation was embodied in the airline's mission s tate­ ment (Exhibit 4).

The culture was pu t iulo operation through a number of policies and program s. The casual-dress policy rein­ forced the company's desire that people be themselves on the j ob. Celebrations, such as spirit parties, culture parties, and weekly deck parties, were organized at headquarters regularly to bring employees together. Activities at the events included gong shows, talent shows, dance contests, limbo contests, and famo us-person look-alike themes. The

EXHIBIT 4 Mission Statement of Southwest Airlines

The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendlin ess, individual pride, and Company Spirit.

To Our Employees

We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of SouthwestAirlines.Above all, Employees will be provided the same concern,respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.

Source: Southwes t Airlines. www.sourhwest.com/ht111 //abo11t-so11thwestl index.html.

CASE 21 :: SOUTHWESTAIRLINES: IS LUV SOARING OR SOUR? C13'9

C140 CASE 21 :: SOUTHWEST AIRLINES: IS LUV SOARING OR SOUR?

•1'

culture committee at SWA welcomed new employees with a "New Hire Welcome Kit" that included a bag, T-shirt, badge holder, pen, and welcome letter.

To build solidarity across all departments, there was an employee recognition program in which employees recognized each other's achievements. This practice helped community building within and across departments. For example, one work group committee recognized flight attendants IO times a year with "Hokey Days," named for the broom apparatus used by flight attendants to sweep the cabin after the flights. Committee members chose two locations at which to honor flight attendants, greeted each arriving plane, waited until passengers got off, and then boarded with goodies. Flight attendants were asked to relax while the committee members cleaned the plane for them. There were similar programs to honor other depart­ ments as well. 16

There was also the "Walk a Mile Program," designed to foster problem solving and cooperation, in which an employee could do somebody else's job for a day. (While operations people obviously could not fly the airplanes, pilots could do the work of operations agents.) 17 Further, the company had the "Star of the Month," a program that recognized the distinct contributions of employees toward excellence in customer service-outstanding employees were featured in Spirit, Southwest's in-flight magazine. 18

The company also expressed warmth toward its employees in other ways. At Southwest's headquarters in Dallas, the walls were covered with more than 10,000 picture frames that contained photos of employees' pets, of stewardesses in miniskirts, of Southwest planes gnaw­ ing on competitor's aircraft. Also there were teddy bears, jars of pickled hot peppers, and pink flamingos. There was cigarette smoking and lots of chuckling. "To me, it's comfortable," said Colleen Barrett, who was most responsible for nurturing the Southwest culture from its early days. "This is an open scrapbook. We aren't uptight. We celebrate everything. It's like a fraternity, a sorority, a reunion. We are having a party!" she said. Barrett also regularly traveled to meet the employees and personally sent them birthday cards, not so much to win their loyalty as to communicate the true spirit of a family. The company celebrated with its employees when good things happened and grieved with them when they had devastating experi­ ences. 19 Barrett said, "What we do is very simple, but it's not simplistic. We really do everything with passion. We scream at each other and we hug each other."20

Cost consciousness was another important part of the culture. "Yes, our culture is almost like a religion," said Gary Kelly, the erstwhile CFO and the present CEO of Southwest. "But it's a dichotomy. In many ways we are conservative. Financially, for instance," he added. 21

According to Herb Kelleher, close attention to costs had produced the kind of financial success Southwest had seen. He said, "Even in the best of times, we kept our costs low and questioned every expenditure. For years, I used to

approve every expenditure over $1,000. Why? To encour­ age a cost-conscious culture. I couldn't look at all of them of course. But I would question them selectively, and tha; kept people paying attention."22

Treating employees well at Southwest did not mean that they were paid high salaries. By creating value through intangibles, the company kept wages lower than those of competitors. Officers at Southwest were paid about 30 percent less, on average, than their counterparts at other airlines. But the airline made stock options widely avail­ able, so all employees-not just executives-could share in the company's financial success. Southwest even had a policy that its officers received pay increases that were no larger, proportionally, than what other employees received. But employees were also expected to take pay reductions when times were not good. Job security was ensured, how­ ever, with a "no-furlough policy," and Southwest did not lay off a single employee during the economic downturn after the terrorist attacks on September II, 2001, while many of its competitors did." Caring for employee happi­ ness showed positive results. Southwest had less employee turnover than its competitors. For years, Southwest enjoyed the loyalty of its employees despite the high level of employee unionization. "Once labor leaders realize that you're trying to take care of your people, most of the edge [in contract negotiations] is gone," said Kelleher. 24

Southwest's employees worked more hours than their counterparts at other airlines. Southwest pilots flew nearly 80 hours a month, compared to United's 50 hours. South­ west pilots were paid by trip, not per hour, which created a strong interest in keeping flights on schedule. Also, the pilots tended to be cost-conscious because a big part of their compensation came from stock options. On some occasions, pilots even pitched in to help ground crews move luggage to ensure on-time flights-something vir­ tually unheard of at Southwest's bigger rivals. Flight attendants at Southwest worked about 150 hours a month, compared with 80 hours at many other airlines, according to union president Thom McDaniel. Southwest attendants were required by contract to make a reasonable effort to tidy the airplane between flights, a job performed by main­ tenance personnel at rival airlines. According to an airline labor expert, senior flight attendants at United got as many as 52 vacation days a year ( compared with 35 days for vet­ erans at Southwest), and they never had to clean up after the passengers.25

Maintaining focus on the core business was another element for both controlling costs and pursuing a niche strategy. Kelleher consciously ensured that the company did not diverge into allied businesses, such as car rent­ als or reservations. Most of Southwest's growth had been organic; that is, it occurred by adding more flights on its existing routes and by connecting more dots (adding cit­ ies). The airline started complementing its short-haul flights with long-haul flights and began transcontinental services. According to Kelleher, the airline did not plan

to have international flights, as they would require a total change in the way it operated and would involve training its 35,000 employees to handle that change.26

The cost consciousness and employee commitment translated into operational excellence and increased profit­ ability. Southwest's planes flew about 10.9 hours per day, much more than any other airline except JetBlue, which flew close to 13.0 hours per day. Southwest could offer lower fares-as much as 50 percent lower than its major rivals-and still remain profitable. With such low costs, it created what was called the "Southwest effect," an explo­ sion in the numbers of people traveling by plane, includ­ ing many who would have gone by car before.27 The term Southwest effect was coined by the U.S. Department of Transportation to refer to the consistent phenomenon of a decrease in average fares and a stimulation of demand that occurred when Southwest Airlines entered any market. 28

In May 1988 Southwest became the first airline to win the coveted Triple Crown for a month: Best On-Time Record, Best Baggage Handling, and Fewest Customer Complaints. Since then, Southwest has won it more than 30 times, as well as five annual Triple Crowns for 1992, 1993, 1994, 1995, and 1996. Southwest crossed its $1 billion revenue mark in 1990, thereby becoming a major airline, and topped the monthly domestic originating­ passenger rankings for the first time in May 2003. It was also the largest carrier on the basis of scheduled domes­ tic departures. Stories of Southwest employees providing excellent customer service abound, and Southwest even set up an internal TV system to show how its employees treated customers.29

The Changing Times and Challenges Southwest Airlines had a change in leadership in August 2001 when Herb Kelleher relinquished power to two of his close aides. Colleen C. Barrett, vice president for cus­ tomers, became the president and chief operating officer; and James F. Parker, general counsel, became the chief executive officer. Bmett and Parker had worked together for over 22 years, and both had worked with Kelleher for much longer-from the time he was a lawyer. In contrast to Kelleher's obtrusive personality, Parker was a quiet dip­ lomat. He had been the company's lead labor negotiator for years, and his opponents said he pursued the company line quite forcefully, if politely, in talks. "He will surprise you because he doesn't look like he's tough, but he doesn't give anything away;' said a former vice president of the airline's pilot association. 30 Unlike Kelleher, Parker was not as fond of celebrations, because he didn't see them as contributing to productivity. But he came to realize that the party preparations were a model of teamwork and employee bonding, and he started participating in the cel­ ebrations in 2002. 31

Barrett had been the culture keeper of Southwest since the earliest days of the company. However, she was a reluctant public speaker. Thus, she let Parker take the

lead with Wall Street and the media. It was too early to guess whether the lieutenants could replace the "rock star" personality of Kelleher, who had exuded warmth to his employees. Kelleher remained chai1man of the board and focused on long-range strategy and government affairs. He maintained control of schedule planning and aircraft acquisitions, the backbone of Southwest's strategy during the period of transition. 32

The growth of the company and the consequent increase in the number of employees also posed challenges to keep­ ing the culture intact. The distance between the rank and file and top management was growing. While Colleen Barrett could reach all the employees through personally signed birthday cards when the company was small, the task was becoming increasingly unrealistic. Even though she continued to sign cards, she could reach only a fraction of Southwest's 35,000 employees dispersed in different cities. Keeping in close touch with employees was becom­ ing an increasingly challenging task. In earlier times of dif­ ficulty, Herb Kelleher personally addressed and rallied his troops, but such an exercise was no longer easy.

In addition, the warm employee relations at Southwest seemed to chill over time. Unions were becoming more aggressive in expressing their frustration, in contrast to earlier days when disputes were resolved more amicably and peacefully. In the summer of 200 I, ramp workers picketed near company headquarters with signs that read "Record Profits Empty Pockets." They complained that staff shortages, combined with Southwest's record passen­ ger loads and its drive to improve on-time performance, meant that they had to lift more bags and had to do so more quickly, which put them at risk of injury.33 And, for the first time in company history, in July 2002 Southwest's mechanics union asked federal mediators to intervene to break a contract deadlock over pay. While the company was nowhere near a strike, the incident clearly signaled the strains appearing in employee relations. 34

In 2002 the company was also engaged without much success in a contract renegotiation with flight attendants. In July 2003 a group of flight attendants staged a dem­ onstration at the headquarters, carrying signs stating "Spread the LUY" and handing out cards to travelers that read "Give our flight attendants a break." The move was an expression of frustration over management's idea of increasing the flight attendants' work hours. Also, work­ ers who had been working hard to boost the productivity of the company were not seeing much return from profit sharing and a stock value that was falling. After years of hard work, some long-time employees felt that they had no more to give. Karen Amos, a 26-year Southwest vet­ eran, said, "We have been there for them. There comes a time when it becomes too much." 35 The company had to drop the move to increase work hours, but still could not get a deal made with the flight attendants. Some workers perceived that the company had been fairer in its negotia­ tions in past years.

GASE 21 :: SOUTHWEST AIRLINES: IS LUV SOARING OR SOUR? G141

EXHIBIT 5 Southwest Airlines' Operating Expenses per Average Seat Mile, 2004- 2012 (in cents) '.J,,i/1 to access Case Financials.

A B_ C D E F G H J

In November 2003, after 11 rounds of talks without success, the flight attendants threw a Thanksgiving p arty at Salt Lake City International Airport, primarily as a means of putting pressure on management to accept their demands for holiday pay and better working conditio ns. Kevin Onstead, a Southwest negotiator and flight atten­ dant, said, "We are concerned about the culture of the airline. We are fighting for the recognition of our contribu­ tion to that culture. We've been key in Southwest Airlines' success. Flight attendants are prepared to strike as a last resort. We are willing to do whatever it takes to get a fair contract."36 T he negotiations had not borne fruit by early 2004. Thom McDaniel, president of the Transport Workers Union, said that the flight attendants were willi ng to return to the negotiating table. However, he made the point that the latest management offer fe ll short of their expectations. " We fee l that our culture is at risk because of the actions taken by Southwest's management during these negotia­ tions."37 Many of the employee groups started feeling that Southwest Airlines was no longer the underdog and that their pay should match the profitability of the company. Love (LUV) alone no longer seemed to be enoug h. That meant a twin challenge in terms of culture and costs.

In July 2004 James Parker abruptly resig ned as CEO of Southwest amid strained labor negotiatio ns with the fli ght attendants. Some people said that Parker had spent too much time in the back offices of Southwest and was never really cut out for a job in the limelig ht.38 Herb Kelleher stepped into the negotiations, and the flight attendants walked away smiling with a 31 percent p ay raise.39

G

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