'We'll Put It To Work,' Southwest Airlines CEO Says Of Possible GOP Tax Cut Savings

In a View From The Top conversation, Here & Now‘s Jeremy Hobson speaks with Southwest Airlines CEO Gary Kelly (@gary_kelly) about the state of the airline industry, what’s on the horizon for the company and possible impacts of the Republican tax overhaul.

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Interview Highlights

On what the Republican tax overhaul might mean for the company

“I would just say first of all that transportation as an industry — including the airlines — has been significantly disadvantaged with the tax schemes over the decades, and that makes us less competitive with other industries in terms of attracting capital, because their cost of capital is simply higher. So this levels the playing field, and we would welcome that.

“In terms of what we would do with the money, we’ll put it to work. We have opportunities to grow the fleet faster, create more jobs. In addition to that, we have the opportunity to consider renewing our fleet faster, and retiring some of the older aircraft. So this would be a trade for quieter airplanes, more fuel-efficient airplanes, and I think that would be a significant benefit. That may not drive jobs at Southwest, but it would drive more jobs at Boeing, as an example, so that would certainly be an economic stimulus. But in addition to those investments, it’s an opportunity for us to share those gains with our employees.”

On perks Southwest offers flyers, like free checked bags

“We are trying to make sure that every single customer feels important on Southwest Airlines. We love to say, ‘There is no second class.’ Other airlines will take great care of their elite customers, and then the rest of us kinda go to the back of the bus. And that’s just not what we try to do at Southwest. We try to take very good care of everyone. That’s why we have the best customer satisfaction ranking over decades.”

On whether he thinks Southwest will ever have first class

“I don’t. I do think it’s important to quickly add ‘never say never.’ But we’re the largest airline in the country, and we have among the top brand rankings in the country. We’ve got a good thing going. Our employees are proud of what they do. Our customers like what we offer, and why change that?”

On Southwest’s biggest competitor

“We compete with all the airlines. It’s a brutally competitive business, and always has been. Most customers look for two things when they’re looking for a flight: They’re looking for, first of all, the most convenient way to get where they wanna go, so that’s the flight schedule, and then No. 2, they’re looking for the lowest price. We have smaller, newer carriers that have low costs, they pay very low wages, and then we compete with high-cost, global carriers. And what we try to do is offer great service with very low prices. You mentioned we don’t charge bag fees and change fees, so we don’t like to nickel and dime, and that’s our niche. It’s worked very well. But we compete with everybody.”

On whether the airline will ever offer flights to Europe

“You know, I don’t anytime soon. It’s back to that ‘never say never’ phrase. The 737 is a very versatile airplane. It will absolutely do the mission from the U.S. to the U.K., as an example. But it’s really not on our list at this point. We’ve got more than enough opportunities in the 48 states, and then more broadly, throughout North America, to really grow the airline by 400 or 500 airplanes over a generation. I think with a code-share partner, we’ll likely serve Europe and Asia in the not-too-distant future. But even that’s a lower priority at this point.”

On the airline’s fuel hedging practices

“The way that we think about fuel hedging is just like insurance. So if you own a home, you’re going to have homeowner’s insurance. You’re not hoping for a fire, but you certainly need the coverage in the event you have a catastrophe. The worst thing that can happen is a fuel price spike. In the 2007-2008 time period, airlines went bankrupt, airlines had to lay off employees, they had to cut back service. And we flew right through that because we had that protection in place. The last several years when oil prices have collapsed, we’ve had the highest earnings in our history, even though we’re paying above market prices because of our hedging, we’re still very, very profitable. Because prices are lower today, we’re less aggressive with our hedging program. But we’ll always hedge.”

On whether Southwest has fired employees over sexual harassment

“Well over time, absolutely. And, you know, most people — the vast majority of people — have character, they have tremendous integrity, they’re honest. They deal with each other in a very civilized way. Our mantra here is that we live by the golden rule. But occasionally yeah, there are some that don’t fit the criteria and they have to go. But we certainly haven’t seen anything like we’re experiencing in the news here recently. But over 46 years, yeah, occasionally we have issues like that and we deal with it.”

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