RISING WITH RESILIENCE

The world was experiencing one of the most devastating pandemics in the last 100 years. Add to that a crippled economy, a reluctance to travel, and health and social restrictions rarely seen in recent memory and you have what some believed would be a near demise for many businesses, let alone the airline industry.

by Joseph Trevino

The main component was one of the most dangerous, some say, most lethal pandemics in the last 100 years. Add to that a crippled economy, a reluctance to travel and health and social restrictions rarely seen in recent memory and you have what some believed would be a near demise for many businesses, let alone airline companies.

For many in the business community the question was: how do you lead a company in the middle of one of history’s greatest economic and social challenges? If you are Gary C. Kelly, Chairman of the Board and Chief Executive Officer, of Southwest Airlines®, the nation’s largest airline, long considered one of the most innovative in the world, you take a deep breath, lean on your Company’s unique business model, and rally your more than 50,000 Employees to embrace their Southwest Warrior Spirit.

But Kelly says that since its creation in 1967, Southwest has proven to be resilient. He admits there were times early on in the pandemic, when the company was already losing money, it became apparent this was a far worse situation than that of the aftermath of 9/11. As the weeks progressed, things went from bad to worse.

“The following week it was ‘oh man,’ this is a huge problem. That was the longest month of my life. Every day things were getting worse and worse and it took me a couple of days to come to grips with how bad it was,” Kelly says. “We knew what needed to be done topically, but we didn’t necessarily have the punch list on all the items that were needed to accomplish it. Our main priority, at that point, was to secure cash because we knew we were going to be suffering very large cash losses and had to cover that.”

50 years of connecting People and championing communities

How Southwest managed to survive and is making a comeback is likely to go down in the history books, especially since Southwest is now getting ready to celebrate its 50th anniversary.

Yes, there are many things to lament, Kelly admits. But there are also many things to celebrate and be grateful for at Southwest, he says.

“I think we're so proud of the fact that in 50 years we've never had a furlough, we've never had a layoff, we've never had a pay cut, even through this pandemic. Now, it took government grants to see us through,” he says. “That’s the nature of the challenges we were faced with in this unique 12-month period,” he says. “All of those things have been top priorities for us, despite losing almost all of our business at times.”

During his career with Southwest, and even before that, Kelly lived the values and vision of his Company, including offering world-class hospitality to Customers, a commitment to diversity at all levels, and providing access to air travel through low fares. Experts concede that before Southwest, air travel was mostly for the rich or for people with a good income, but all that changed when the Dallas-based company came into the picture.

“I think finally the public knows what we're all about in terms of our business model, our brand, and our low fares,” Kelly says. “Make travel affordable for our Customers, and we feel like we give America the freedom to fly. We have democratized the skies and created a diverse Customer set and that’s something we’re really proud of.”

So much more than a numbers man

The man who would lead Southwest into the digital era and oversee the expansion of the company to other countries, becoming the largest airline in the U.S., first met his wife, Carol, when he was in the eighth grade. They married when he was 21; they have two daughters.

Kelly, 66, was born in San Antonio and received his Bachelor’s degree in Business Administration from the University of Texas, in Austin. He is also a public accountant.

Before joining Southwest, Kelly was an Audit Manager for Arthur Young & Co. He later became a controller for Systems Center, Inc..

“The interesting thing about accounting is that it is not really numbers," Kelly told Barron’s, during an interview in 2012. "It is really more theory and understanding business and transactions, and then translating that into some kind of financial representation."

It was in 1986, the year when big hair was common, Reaganism was the political rule of the land, big financial deals were famous and three-piece power suits were the norm in most boardrooms when Kelly joined Southwest Airlines as a controller. The company was on its fifteenth year and though it had about 70 planes (now it has more than ten times that), it was a big job for Kelly, who was then 31.

Herb Kelleher, long considered one of the country’s most visionary business leaders, a chain-smoking maverick who slept four hours per night, planned Southwest Airlines on a paper napkin and once arm-wrestled a business rival instead of suing him (they later became friends), was to be Kelly’s mentor.

Three years later Kelly was promoted to Chief Financial Officer and Vice President of Finance. He would later become Executive Vice President and CFO, before the company promoted him to CEO and Vice Chairman in 2004.

In 2019, Kelleher, who had been retired by then but was still close to Kelly, passed away. Mourning his death, Kelly called Kelleher "a lifelong mentor and friend, a pioneer, a maverick, and an innovator ... [whose] vision revolutionized commercial aviation and democratized the skies."

Kelly, who has been called a history buff and an avid reader of all themes and subjects, is also a football fan. A Texan through and through, his family has owned a small ranch located near San Antonio since the Old West days.

Like most Texans, he loves the outdoors, golfing, hunting and driving his 1964 356C Porsche. And he owns several electric guitars, claiming to know the first 10 licks to at least 100 songs.

“Right when he gets into it, then he changes song,” says his wife Carol, jovially, during a video interview for Turn it up! And every Halloween, Kelly dons a costume. He has been, among other characters, Dracula and a Beatle.

The skies ahead

The skies ahead But lately, despite Kelly’s Joie de Vivre that most say embody the Company’s work ethic and sense of joy, there’s no denying the coronavirus managed to affect Southwest. The numbers reflect this.

Southwest concluded the first quarter of 2021 with a fleet of 730 aircraft, which includes 61 MAX 8. It also took delivery of 20 MAX 8, 12 of them owned and eight of them leased, with the company expecting eight more of those aircrafts this year, according to a Southwest media report.

In this same quarter, the company returned eight leased 737- 700 aircraft to lessors and expects to retire up to nine more 737- 700 aircraft in 2021.

Referring to the company’s finance today, Kelly says, "in first quarter, we benefited from temporary cost relief as a result of PSP Extension proceeds, which offset a portion of salaries, wages, and benefits expenses, resulting in first quarter 2021 net income of $116 million, or $.19 per diluted share. We remain grateful for this much-needed federal payroll support on the heels of substantial losses in 2020, and ongoing non-GAAP losses in first quarter 2021. The payroll support from the federal government has allowed Southwest to preserve its 50-year history without involuntary layoffs or furloughs, an achievement unprecedented in the U.S. airline industry. Excluding the benefit of PSP Extension proceeds and other special items, our first quarter 2021 net loss was $1.0 billion, or $1.72 loss per diluted share.”

Still, things are looking up, Kelly says. He adds that while the pandemic is not over, the worst is behind, resulting for Southwest with some steady, weekly improvements in leisure bookings that started in February 2021.

And Southwest is more than poised to respond to people that want to travel again, he says. Be it for pleasure or business.

“I do think business travel will recover. I just don't know how fast it will recover and to what level it will recover,” he says. “I think there's a lot of people, me included, that are anxious to get out and see my colleagues and suppliers and customers, face-toface of course, but we will need to be prepared to have much more traffic coming from consumer travel and I think we're perfectly situated for that.”