Herb Kelleher Changed the US Airline Industry for All of Us

Herb Kelleher, who died only a few days into 2019, was probably one of the most influential figures in aviation for almost fifty years. It was he, along with partner Rollin King, who successfully broke the hub and spoke oligopoly run by American, United, Continental, Delta, Northwest, and a few other carriers. Until that point air travel was mostly restricted to business people and the very rich. Airlines charged the absolute maximum amount of money possible on every route, irrespective of cost. In contrast, Kelleher charged the highest price necessary to generate a reasonable profit on every ticket sold. When casual travelers found out it was actually possible to fly Southwest cheaper (and faster) than to buy a ticket on a bus or train, the upstart airline quickly grew and never looked back. Southwest Airlines is still the largest direct route passenger carrier in the United States–and second place is not even close.

It was just as well Kelleher was a lawyer, because when the legacy airlines found out that they couldn’t prevent Southwest Airlines from flying new routes by their usual method of squeezing out competitors from gates at hubs they controlled, they and their proxies threw up various legal challenges in 1967 before the carrier had flown even once. It took four years and challenges heard at both the US Supreme Court and the Texas Supreme Court. But Southwest began service in 1971 with four planes (later just three after one was sold to pay for operations) from Love Field in Texas. Local competitors Braniff and America West tried to force Southwest out of business by undercutting pricing on Southwest routes, but they were ultimately unsuccessful as Kelleher was able to run his airline cheaper than the incumbents.

Starting in 1973 Southwest moved into the black financially, and by 1978 it was clear to the incumbents that Kelleher’s carrier was a serious threat to the status quo. 1978 also brought deregulation to the airline industry in the US, so any airline could, in theory, fly to any airport in the country. This provided additional lift to Southwest’s prospects. Braniff took its case to Congress, and Congress passed what became known as the Wright Amendment. The new law sharply restricted what flights could be taken out of Love Field. This only affected Southwest, which was Love’s only commercial passenger carrier, and benefited Dallas-Fort Worth International Airport, which was dominated by Braniff.

Kelleher got around the Wright Amendment by finding other underserved airports around the country that could act as new bases for new direct routes. Airports such as Baltimore-Washington (Thurgood Marshall) International–instead of DC National (Ronald Reagan) and Dulles International, Newark International–instead of JFK and LaGuardia, and Orange County (John Wayne) Airport–instead of LAX. The new bases quickly became larger than the airports they were intended on bypassing and Southwest became one of the US largest airliner of any kind; hub and spoke or direct route. The Wright Amendment was allowed to quietly expire in 2014. Braniff went bankrupt in 1981. American West entered bankruptcy reorganization in 1991, but successfully exited in 1994 and was able to subsequently acquire bankrupt US Airways in 2006 and a struggling American Airlines in 2013, thereby growing inorganically where it could not grow organically in the face of competition from Southwest.

The low cost airline model was not a slam dunk business model. People Express Airlines tried to do in the Eastern US what Southwest was doing in the Western and Southern US starting in 1981, but the carrier ran out of cash by 1987 and was bought by Continental. Pan American Airways, which had gone bankrupt in 1991 (along with Eastern Airlines and Midway Airlines) was restarted as a low cost carrier in the East in 1996. It folded in 1998, was reorganized and restarted the same year with limited service until 2004, and then flown as a commuter brand until 2008, when operations finally ceased. The major airlines attempted to start low cost versions of themselves in the 1990’s and 2000’s, but all had been folded by 2010.

Only JetBlue Airlines has managed to succeed as a low cost carrier, wedged in between Southwest and the legacy carriers as a premium low cost airliner. JetBlue, founded by former Morris Air (bought by Southwest in 1993) executive David Neeleman, has formed a niche as a point-to-point carrier offering more amenities than Southwest to travelers that are willing to pay for a better flying experience than that of Southwest, but still at a significant discount to the legacy carriers.

As for United, American, and Delta–the three remaining US legacy carriers after a series of mergers and bankruptcies–they carry on as usual, charging the maximum price possible between routes. Ticket prices on these carriers are normally four to ten times as much (or more) as that found at Southwest or JetBlue. The three legacy carriers match Southwest or JetBlue’s prices on only those routes where they are one of two carriers–the other being the low cost competition–accepting the associated losses.

Kelleher’s airline began international flights in 2014–heretofore the sole domain of the Big 3 and their South and Central American and European competitors, putting further strain on Delta, American, and United. Hub and spoke competitors from the Middle East such as Qatar Airways, Emirates Airline, and Etihad Airways, are squeezing the Big 3 from the other direction. And one cannot ignore British Airways, Lufthansa, Air France-KLM, All Nippon Airways, and several other Asian carriers.

Kellerher ended up beating them all. Southwest is the seventh largest carrier in the world by revenue, is the third largest by passengers carried, is the largest domestic carrier by revenue, and has the fourth largest fleet of aircraft. If one considers that the Big 3 maintained their rankings solely by virtue of 21st century mergers rather than by any business acumen, it is easy to see that Southwest Airlines is actually the world’s largest passenger carrier by any measure. It is hard to be believe that Southwest started with less than a handful of airplanes in the regulated era.

Without Kellerher’s firm hand, it seems likely that Southwest will eventually falter, becoming victim to bad management or stupid advice from some advisory firm like McKinsey. But until that inevitable moment we can enjoy the fruits of Herb’s labor–the democratization of air travel. It is truly glorious.

2/18/19 update: The Washington Post wrote an unusually fine obituary for Kelleher on 1/5/19 (online) and 1/6/19 (Sunday paper). You can read it here.

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