Lean, Not Mean -- 3 Reasons Why Southwest Wins with a Culture that Empowers Employees

One of the biggest misconceptions about Customer Experience (CX) is that it's about delivering a "premium" experience. You know, like Apple, Ritz Carlton and Zappos.

It's true some companies win by "wowing" their customers. But CX can also be a differentiator in low-cost business models. Like Southwest Airlines, one of my favorite examples of a customer-friendly business that is also low-cost.

Some have called Southwest a "cattle car airline" because it doesn't offer pre-assigned seats, unlike virtually every major airline. Hardly a premium experience. It's remarkable, then, that Southwest just celebrated 39 consecutive years of profitable growth.

Furthermore, as you can see in the chart below, Southwest has been leading the airline industry in loyalty ratings (according to the ACSI) for the past 18 years. From 1995 to 2012, Southwest's gap versus the industry average or other major US carriers expanded from 6 to 10 points. That's huge.

How does Southwest continue to earn customer loyalty and consistently make money? I believe it boils down to three things:

1. Staying true to brand promise

When I think of Southwest, I think affordable, dependable air travel, with service provided by friendly people. That's what the "brand" means to me, because I've experienced it firsthand dozens of times over the years.

It didn't happen by accident. Southwest was founded on a simple idea: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.”

And companies leaders have never wavered from that promise. If customers suggest something that runs counter to their brand promise, the answer is "no." Nicely, of course.

A good example of this is open seating. I'll admit it's not my favorite part of the Southwest experience. Until some refinements a few years back, it seemed like I'd always end up with a center seat in the back of the plane.

But Southwest considers ideas through the lens of its business strategy. Turns out that open seating means faster turnaround time at the gate. Southwest turns airlines in 25 minutes versus 40 minutes for other airlines, and passenger boarding is one key reason why. Faster turns means they get higher utilization of their fleet, which means lower costs, which supports the low-cost brand promise.

CEO Gary Kelly explained in a 2006 blog post:

Open seating has allowed us to build a highly efficient operation by keeping the time our aircraft are sitting at our gate to a minimum. Aircraft on the ground don’t make money! But it’s no secret that all airlines – even Southwest – are facing extensive cost pressures due to the rising price of fuel and we have to find ways to generate additional revenue.

Fortunately, Southwest did refine their boarding system to support early check-in and assign numbers in A/B/C queues. I'd still prefer an assigned seat, but like many Southwest customers, I'm willing to compromise on that in return for a good deal.

Key point: being customer-centric doesn't mean abdicating to every customer request. Especially if giving in means compromising the reason they are customers!

2. Management to employees: "We’ve got your back"

Like many customer-centric brands, Southwest has a distinctive culture. You can trace it back to the colorful founder, Herb Kelleher, a former lawyer who created the business model on the back of a napkin. He stepped aside a few years ago, but is still involved in an advisory role.

Many companies have tried to figure how Southwest managed to create such a loyal and productive workforce. Kelleher says that other companies visited looking for the secret in how Southwest hired, trained and motivated people. In a recent interview he said it was about paying "personal attention to each of your people." Instead of a "formula," he described the Southwest approach as a "huge mosaic that you're always adding little pieces to make it work."

That means you have to empower employees and back them up. Former Southwest President Colleen Barrett drove this point home in an interview where she disagreed with the Nordstrom motto, "the customer is always right."

The truth of the matter is, … sometimes customer is not right. If you really want to have the trust and the love and the support and belief of the employees, then you’ve got to tell the customer on the few occasions when they have done something that is so outrageous or so disrespectful or so degrading to the employee, you’ve got to say “stop.”

This has happened rarely (only 4 times in 40 years, according to Barrett), but sends a message that being customer-centric doesn't mean anything goes.

However, when you trust employees to make good decisions, sometimes they don't. Like the time Hollywood director Kevin Smith was kicked off a Southwest flight for taking up too much, um, space. He got angry, tweeted about his experience and set off a firestorm of discussion pro and con. An airline representative later acknowledged that "Southwest could have handled this situation differently."

In another incident, Southwest received a lot of flack for how a flight attendant dealt with a women dressed (in the employee's opinion) too provocatively.

The point here is that despite these high-profile missteps, Southwest management didn't throw its employees under the bus. Sorry, bad analogy. Making mistakes goes with empowerment, but higher performance goes to people with a sense of ownership.

In the end, when CEO Gary Kelly says, "Our people are our single greatest strength and most enduring long-term competitive advantage," I tend to believe him. Their actions back this up.

3. Fair fares, without gimmicks or tricks

The airline industry pioneered the idea of "revenue management," which essentially means every price is subject to change based on demand, competition and other factors. The downside of this, of course, is never really knowing if you got the best deal.

Now customers and airlines are trying to outsmart each other. Sooner or later you're going to end up feeling screwed because a last-minute purchase will be priced outrageously high, but you don't have a choice. Score one for the airlines! But, I've always wondered if the geniuses who created these algorithms factored in the loss of trust, along with the ill will generated by a single flight where you felt the airline took advantage of you.

On top of that, in recent years airlines seem to be copying banks by layering on fees for bags, changing tickets, and more. Coming soon, a surcharge for breathing air.

The CEO of Ryanair, a low-cost European carrier, is famous for an astonishing array of fees. At one time he proposed a fee to pee. You can't make this stuff up!

Except on Southwest, where the fares are low, simple, and fair. For example, Southwest doesn't charge "change fees" - you just pay the difference between old and new ticket. Frankly, there's no cost rationale for airlines to charge $50, $100, or more to change a ticket, on top of any difference in the ticket itself. Do you get better service with all those fees? No, airlines with high fees also had low ACSI scores.

That said, Southwest hasn't avoided fees entirely. For about $25 you can upgrade to a Business Select fare to expedite the airport security process, get early seating and a free drink. I liked the service and didn't feel like I was been charged for something previously included, which is the sad position of the other airlines.

Clouds on the horizon

Southwest has had a good run, spanning nearly 4 decades. But that doesn't mean it's immune from competition.

In the past 10-15 years, key competitors have worked on their cost structure through bankruptcies and consolidation. American and US Air are set to merge this year, following another mega merger of United and Continental in 2012.

Meanwhile, Southwest's lower personnel costs are now pretty much gone as its employees have aged and gained seniority. The end of fuel hedges has put Southwest at the mercy of higher fuel costs, just like everyone else.

With fuel and people being two major costs (aircraft being the third, of course), Southwest's cost advantage has eroded and prices have gone up. It's becoming more like a big airline, not an industry disruptor. Meanwhile, JetBlue, Virgin America and other regional players are winning over customers with a combination of price and experience.

Still, Southwest has two things not easily copied: 1) loyal customers and 2) friendly and productive employees. Southwest's culture is why I'm betting that even in the face of a much more challenging industry, it will continue to be successful in the years ahead.