In the dynamic world of aviation, few companies have captured the hearts and minds of passengers as consistently as Southwest Airlines. Known for its low-cost model, quirky marketing campaigns, and customer-first approach, Southwest has long been the darling of both travelers and investors. However, recent murmurs from activist investors suggest a growing concern that the airline might need a different direction—one that prioritizes financial maneuvering over its operational ethos. But not everyone agrees with this perspective. Former United Airlines CEO, who has witnessed the ebbs and flows of the industry firsthand, argues that these investors are missing the point entirely. Running an airline, he insists, requires far more than just a sharp financial mind.
At the heart of this debate lies a fundamental misunderstanding of what makes an airline successful. Activist investors, often armed with spreadsheets and financial forecasts, tend to look at companies through a narrow lens. They push for strategies that maximize shareholder value, often in the short term, without fully appreciating the complexities of airline operations. This approach, while effective in other industries, doesn’t always translate well to the high-stakes world of aviation.
Southwest Airlines, under the leadership of Herb Kelleher and later Gary Kelly, built its reputation not just on financial success, but on a culture of care, both for its customers and its employees. This culture, often described as the “Southwest Way,” is not something that can be easily quantified on a balance sheet. It’s an intangible asset, deeply embedded in the company’s DNA, that has driven its success for decades.
The former United Airlines CEO is quick to point out that Southwest’s success is not merely a product of financial acumen, but of a deep understanding of the airline business—a business that is as much about people as it is about planes. “You can’t run an airline from a spreadsheet,” he says. “You need to understand the intricacies of operations, the importance of employee morale, and the value of customer loyalty. These are things that can’t be captured by financial metrics alone.”
Indeed, Southwest’s operational model is a testament to this understanding. Unlike many of its competitors, the airline has consistently focused on a simple, point-to-point route structure, using a single aircraft type—the Boeing 737. This approach has allowed Southwest to maintain operational efficiency and reduce costs, but it’s also a model that requires deep operational expertise to manage effectively. Any disruption, whether from external factors like weather or internal issues like labor disputes, can have a cascading effect on the entire network.
The former United Airlines CEO argues that activist investors, in their quest for financial optimization, often overlook these operational realities. They push for changes that might look good on paper but could have disastrous consequences if implemented without a full understanding of the airline’s unique operational needs. “It’s one thing to suggest cost-cutting measures,” he says, “but if those cuts undermine the operational integrity of the airline, you’re setting the company up for long-term failure.”
One of the key areas where this tension is playing out is in Southwest’s labor relations. The airline has long been known for its strong relationship with its employees, who are considered a vital part of its success. But as activist investors push for cost reductions, there is a risk that these relationships could be strained. The former United Airlines CEO warns that this could be a grave mistake. “In the airline business, your employees are your front line,” he says. “If they feel undervalued or underappreciated, it will show in their work, and ultimately, it will affect the customer experience.”
This is not just theoretical. The airline industry is littered with examples of companies that have tried to cut costs by squeezing their employees, only to see their service levels—and customer satisfaction—plummet as a result. Southwest has largely avoided this pitfall by maintaining a strong, positive culture, but the former United Airlines CEO fears that this could be at risk if the airline starts prioritizing financial metrics over employee well-being.
Another area where activist investors may be misguided is in their focus on immediate financial returns. The former United Airlines CEO points out that the airline industry is notoriously cyclical, with profits often fluctuating based on factors outside the airline’s control, such as fuel prices or economic downturns. A strategy that prioritizes short-term financial gains might leave the airline vulnerable in the long run, especially if it leads to decisions that compromise the airline’s operational stability or customer satisfaction.
Southwest’s business model, which has been built on the principles of simplicity and efficiency, is not one that can be easily tinkered with. The former United Airlines CEO notes that many of the suggestions coming from activist investors—such as expanding into new markets or increasing ancillary revenues—might sound appealing, but they also carry significant risks. Expanding too quickly, for example, could strain Southwest’s operations and lead to service disruptions, while a heavy focus on ancillary fees could alienate customers who have come to expect a certain level of service from the airline.
In the end, the former United Airlines CEO believes that the key to Southwest’s continued success lies in staying true to the principles that have made it a beloved brand in the first place. This means resisting the pressure from activist investors to make drastic changes that prioritize financial metrics over the airline’s operational strengths. “Southwest has always been more than just a low-cost carrier,” he says. “It’s an airline that has built its success on a deep understanding of its customers, its employees, and its operations. That’s not something you can just plug into a financial model.”
The debate over Southwest’s future is likely to continue, as activist investors push for changes that they believe will drive shareholder value. But the former United Airlines CEO offers a word of caution: “Running an airline is not just about making money. It’s about creating a product and an experience that people want to come back to. If you lose sight of that, no amount of financial engineering is going to save you.”
As Southwest navigates this pressure from activist investors, it will need to carefully balance the demands of its shareholders with the operational realities of the airline business. The former United Airlines CEO believes that this balance is crucial for the airline’s long-term success. “Southwest has always been a company that does things its own way,” he says. “I hope they continue to do so, because that’s what has made them successful. And in this industry, success is about more than just numbers—it’s about understanding what really makes an airline work.”
