How Culture Creates Competitive Advantage

When Southwest Airlines (SWA) began operations in 1971, it had three airplanes and a route structure that included just three cities in Texas. It was not much more than an idea that Herb Kelleher drew up on a cocktail napkin at the Saint Anthony Hotel in San Antonio, Texas. Today, Southwest is an international carrier with 700 airplanes approaching $20 billion in annual revenues and topping $1 billion in net income. From the beginning, the company built its competitive advantage around a simple, efficient operating model and a culture unique to air travel.

The most astonishing factoid about Southwest is that it has not had a single layoff in its 44 years—a stunning accomplishment in an industry that leads the economy in bankruptcies, re-organizations, mergers and companies that have disappeared. Think Eastern and Pan Am.

Consider also another astonishing factoid. Southwest gets a lot of resumés from people who want to work there. Last year, it received 178,299. Gary Kelly, the company’s CEO who has been with the airline for 29 years, 15 of them as CFO, says, “We pay about the same for our airplanes and pay about the same for gas. That doesn’t leave a whole lot of cost left. So we have to be more productive with the workforce, which is about a third of any airline’s cost structure.”

SWA is known for its policy of hiring for attitude and training for skill, but what keeps the culture machine humming is the careful leadership and management of it. In the beginning, this effort was led by Colleen Barrett, who passed the baton on to SVP for Culture & Communications Ginger Hardage. After Hardage retired, Linda Rutherford took on the role. The position reports directly to the CEO and the person in it oversees the culture throughout the company. “I don’t know how to fly an airplane,” Kelly explains. “I can’t change the oil in an engine. Even some of the customer service things, I would have to be trained on. So it’s really a team effort.”

It’s not rocket science. Storytelling is part of the culture that binds people to a purpose. A Dayton, Ohio customer agent offered to take a customer’s pet hamster to the agent’s home for a month while the customer visited a sick mother in another city. A five-year-old boy waving enthusiastically at an SWA plane taxiing along a tarmac got a thrill when the pilot opened his window and waved back. The boy’s mother captured the incident on camera and sent it to the company in appreciation.

Dining in a Dallas restaurant one evening, Gary Kelly and his wife were astonished when a waiter came to their table to say that two SWA pilots also at the restaurant had recognized the couple and anonymously paid their bill. They also sent a note of appreciation—written on a cocktail napkin a lá Herb Kelleher.

Any company can create a competitive advantage from its culture by instilling processes designed to keep it going. At Chief Executive’s CEO Talent Summit in Dallas, J.P. Donlon spoke with Gary Kelly to learn how SWA does it.