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- Aug 9, 2005
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What a difference:
Southwest won't share its pain with workers
By MITCHELL SCHNURMAN
Star-Telegram Staff Writer
For years, Southwest Airlines has been the exceptional player in a troubled industry, but it's starting to resemble its overburdened brethren. Labor costs are rising, high fuel prices are taking a toll, and the company is tapping the brakes on its growth plans.
Last week, the Dallas carrier announced that it was cutting new plane deliveries significantly and dropping transcontinental flights out of Baltimore and Philadelphia . It may even switch to assigned seating and adopt a revenue-management system to extract more money from business travelers.
"In this economic environment, we simply need to take less risk and grow more slowly," Chief Executive Officer Gary Kelly told analysts and investors in New York .
One notable thing that's not changing: Southwest doesn't plan to get healthy on the backs of its employees.
Kelly told The Wall Street Journal that Southwest workers are the airline's "greatest weapon," and that he'd consider pay cuts a "management failure."
How often do you hear the boss say, "Blame me, not the workers?"
Labor is one of the largest expenses in the airline business, and cuts in that category are usually crucial to any restructuring. Four years ago, when American Airlines started reworking its business model, concessions from workers played a pivotal role. And other airlines repeatedly used the bankruptcy courts to bludgeon wages and benefits.
Even in other industries, layoffs and pay cuts seem to be a default strategy in most turnaround plans. RadioShack, for example, has eliminated roughly 800 jobs in Fort Worth as it seeks to boost profits and its stock price.
But Southwest has a tradition of putting employees first and seeing good things follow, including great customer service, leading on-time performance and high productivity.
Even after 9-11, when the airline industry was forced to shrink, Southwest resisted layoffs.
During last week's presentation to analysts, Kelly showed a slide titled, "The Vision."
First item: "Be the best place to work."
That's easy to talk about. Almost a decade ago, RadioShack set the same goal during a glitzy affair at Bass Hall. Leaders argued that the company needed highly motivated, knowledgeable workers to stand out in high-tech retailing.
These days, employee morale is in the tank at RadioShack headquarters, and uttering that phrase there would be a cruel joke.
American Airlines has similar troubles with its employees. Union leaders and many workers are still outraged by executive bonuses paid in the past two years, while the rank and file saw little improvement.
Southwest walks the walk, though. It consistently ranks near the top on lists of best places to work. And although Southwest workers were once paid less than their peers, they are now among the highest paid in the airline industry.
That's a factor in the company's rising operating costs, and some analysts have said that the problem won't be easily overcome. Kelly's plan is to stabilize the rising costs while looking for new ways to generate revenue, such as attracting more business travelers with a better frequent-flier program.
Kelly blames higher fuel prices and expiring fuel hedges, which had insulated Southwest from price swings, for most of the company's cost problems. Salaries are up, but he didn't complain about that.
"The higher pay raises have been funded largely by improvements in productivity," Kelly told reporters in a conference call last week. "I've been very proud of our people and how hard they've worked and the kind of results they've put out."
Worker productivity has improved 24 percent in the past five years by one measure, he says. In 2001, Southwest had the equivalent of 89 employees for each aircraft; by 2006, that number was 68.
Even with bigger workloads, Southwest workers are "the friendliest, most helpful employees in the business," Kelly said, citing customer surveys.
Those attitudes are important to Southwest's business, because its model hinges on quickly turning around aircraft and keeping customers happy despite the carrier's no-frills flights.
Not every company and executive holds the same view of its work force.
Rupert Murdoch, the media tycoon who's bidding for Dow Jones, has been getting lots of coverage in recent weeks. Ken Auletta, a leading media writer, recently wrote in The New Yorkerthat Murdoch believes that all talent is replaceable.
About 30 years ago, Auletta wrote, about 40 editors and writers went on strike to try to forestall a Murdoch takeover of New York magazine. Auletta, then at the magazine, led a small delegation to visit Murdoch's outside counsel, Howard Squadron.
"I was certain that, once Murdoch understood that the staff would leave, he would retreat," Auletta wrote. "Squadron listened politely and replied: 'You don't understand. If you leave, Rupert will replace you like he replaces furniture.'"
Surely, other executives share that kind of thinking, although most wouldn't admit it to a reporter.
Southwest represents the alternative worldview. And if you worked there, wouldn't that make all the difference?
Southwest won't share its pain with workers
By MITCHELL SCHNURMAN
Star-Telegram Staff Writer
For years, Southwest Airlines has been the exceptional player in a troubled industry, but it's starting to resemble its overburdened brethren. Labor costs are rising, high fuel prices are taking a toll, and the company is tapping the brakes on its growth plans.
Last week, the Dallas carrier announced that it was cutting new plane deliveries significantly and dropping transcontinental flights out of Baltimore and Philadelphia . It may even switch to assigned seating and adopt a revenue-management system to extract more money from business travelers.
"In this economic environment, we simply need to take less risk and grow more slowly," Chief Executive Officer Gary Kelly told analysts and investors in New York .
One notable thing that's not changing: Southwest doesn't plan to get healthy on the backs of its employees.
Kelly told The Wall Street Journal that Southwest workers are the airline's "greatest weapon," and that he'd consider pay cuts a "management failure."
How often do you hear the boss say, "Blame me, not the workers?"
Labor is one of the largest expenses in the airline business, and cuts in that category are usually crucial to any restructuring. Four years ago, when American Airlines started reworking its business model, concessions from workers played a pivotal role. And other airlines repeatedly used the bankruptcy courts to bludgeon wages and benefits.
Even in other industries, layoffs and pay cuts seem to be a default strategy in most turnaround plans. RadioShack, for example, has eliminated roughly 800 jobs in Fort Worth as it seeks to boost profits and its stock price.
But Southwest has a tradition of putting employees first and seeing good things follow, including great customer service, leading on-time performance and high productivity.
Even after 9-11, when the airline industry was forced to shrink, Southwest resisted layoffs.
During last week's presentation to analysts, Kelly showed a slide titled, "The Vision."
First item: "Be the best place to work."
That's easy to talk about. Almost a decade ago, RadioShack set the same goal during a glitzy affair at Bass Hall. Leaders argued that the company needed highly motivated, knowledgeable workers to stand out in high-tech retailing.
These days, employee morale is in the tank at RadioShack headquarters, and uttering that phrase there would be a cruel joke.
American Airlines has similar troubles with its employees. Union leaders and many workers are still outraged by executive bonuses paid in the past two years, while the rank and file saw little improvement.
Southwest walks the walk, though. It consistently ranks near the top on lists of best places to work. And although Southwest workers were once paid less than their peers, they are now among the highest paid in the airline industry.
That's a factor in the company's rising operating costs, and some analysts have said that the problem won't be easily overcome. Kelly's plan is to stabilize the rising costs while looking for new ways to generate revenue, such as attracting more business travelers with a better frequent-flier program.
Kelly blames higher fuel prices and expiring fuel hedges, which had insulated Southwest from price swings, for most of the company's cost problems. Salaries are up, but he didn't complain about that.
"The higher pay raises have been funded largely by improvements in productivity," Kelly told reporters in a conference call last week. "I've been very proud of our people and how hard they've worked and the kind of results they've put out."
Worker productivity has improved 24 percent in the past five years by one measure, he says. In 2001, Southwest had the equivalent of 89 employees for each aircraft; by 2006, that number was 68.
Even with bigger workloads, Southwest workers are "the friendliest, most helpful employees in the business," Kelly said, citing customer surveys.
Those attitudes are important to Southwest's business, because its model hinges on quickly turning around aircraft and keeping customers happy despite the carrier's no-frills flights.
Not every company and executive holds the same view of its work force.
Rupert Murdoch, the media tycoon who's bidding for Dow Jones, has been getting lots of coverage in recent weeks. Ken Auletta, a leading media writer, recently wrote in The New Yorkerthat Murdoch believes that all talent is replaceable.
About 30 years ago, Auletta wrote, about 40 editors and writers went on strike to try to forestall a Murdoch takeover of New York magazine. Auletta, then at the magazine, led a small delegation to visit Murdoch's outside counsel, Howard Squadron.
"I was certain that, once Murdoch understood that the staff would leave, he would retreat," Auletta wrote. "Squadron listened politely and replied: 'You don't understand. If you leave, Rupert will replace you like he replaces furniture.'"
Surely, other executives share that kind of thinking, although most wouldn't admit it to a reporter.
Southwest represents the alternative worldview. And if you worked there, wouldn't that make all the difference?
