Southwest Airlines Act II - An Airline in Trouble?

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Case Details:

Case Code : HROB061
Case Length : 13 Pages
Period : 2001 - 2004
Pub Date : 2004
Teaching Note :Not Available
Organization : Southwest Airlines
Industry : Aviation
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"The challenges in the future are us."

-Gary Kelly, CEO of Southwest Airlines, in 20041.

"It's worth asking whether Southwest is finally facing the same issues and challenges that legacy carriers have experienced for some time. We believe there is a risk that as a generational change occurs and the oldest Southwest employees retire (who remember the early years of struggle), the company's low-cost culture will change."

-William Greene, an analyst at Morgan Stanley, in 20042.

CEO Resigns

James Parker (Parker), the CEO and vice chairman of Southwest Airlines Co. (Southwest) announced his resignation from the airline, in July 2004. The news came as a surprise to company insiders as well as analysts, who did not expect that Parker would step down just three years after taking over from Herb Kelleher (Kelleher), who had an almost iconic status at the airline. Southwest announced that Gary Kelly (Kelly), the airline's Chief Financial Officer and executive vice president would be taking over as CEO immediately. In a statement, Kelleher, who was the chairman, said that Southwest's board had accepted Parker's resignation "with both deep regret and profound gratitude."3

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He also said that he had great hopes on Kelly, under whose guidance Southwest had achieved the strongest balance sheet in the US airline industry. Both Parker and Southwest, maintained that the resignation was due to personal reasons. Parker said that the job was too 'draining' for him and that he did not feel he could cope with it any more. "Sometimes you feel like you've given all you can give," he said.4

However, certain analysts believed that there was more to it than that. They linked Parker's resignation to the difficult time he had in the negotiations with the airline's flight attendants union, in which he was involved since 2002.

In early 2004, Parker had to withdraw from these negotiations, because he said the discussions were getting too personal and critical. Kelleher had to be brought in before a tentative agreement could be reached in 2004. Certain analysts said that this affected Parker's credibility among employees, at a company renowned for its harmonious labor relations.

"You would certainly think that the troubles he's had with the unions may have led to his departure," said Bill Warlick, a senior airline analyst at Fitch Ratings in Chicago.5

Southwest Airlines Act II - An Airline in Trouble? - Next Page>>

1] Loren Steffy, "Enter the bean counter as Southwest's costs grow", The Houston Chronicle, July 23, 2004.

2] John Helyar, "Southwest finds Trouble in the air", Fortune, August 30, 2004.

3] "Southwest says CEO Parker is taking off",

4] Dan Reed, " Southwest CEO calls it quits: 'I did my duty'", USA Today, July 16, 2004.

5] David Koeing, "Southwest Airlines profits sag; CEO quits", The San Diego Union Tribune, July 16, 2004.


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