- [narrator] funding for overheard with evan smith is provided in part by the alice kleberg reynolds foundation, and hillco partners, a texas government affairs consultancy, and by klru's producers circle, ensuring local programming that reflects the character and interests of the greater austin, texas community. - i'm evan smith, he's the longtime ceo and chairman of southwest airlines, which broke its own records for revenue and passenger traffic in 2016, and carried more people to destinations across the u.s. than any other airline. he's gary kelly. this is overheard. (moderately paced music) let's be honest. is this about the ability to learn, or is this about the experience of not having been taught properly. how have you avoided what has befallen other nations in africa? you can say that he made his own bed, but you caused him to sleep in it. you know you saw a problem, and over time, took it on. let's start with the sizzle before we get to the steak.

are you gonna run for president? i think i just got an f from you actually. (crowd applauds) (crowd applauds) gary kelly, welcome. - thank you. - nice to be with you and congratulations on all your success. - well thank you. - the long and good record of putting big numbers up on the board. i was actually gonna come in here today and say, "boy, isn't it a challenging time to be in the airline business?" apparently not, the most revenue, the most profit, the most shareholder returns, the highest stock price. - the most customers. - the most customers. - the highest load factor. - you have more planes than ever. you've got more destinations than ever. you've got a new reservation system in place. you haven't dragged anybody off a plane. (audience laughs) there are no scorpions in the cabins. you haven't killed anybody's dog that i'm aware of. i mean you really have managed to cut your own path. - yeah stop there. - stop right there, good. (audience laughs) you've managed to cut your own path here, and i think there's a lot to be commended for it

in that path. why is this the time to be doing this work? - well it's not always a great time, but you know i think we would admit that. it's our 46th year. - [evan] right, amazing. - we have outperformed the industry for that period of time. we've got 44 consecutive years of profits, which no one comes remotely close to that. - i was about to say i don't know that anybody else can claim that, right? - oh no, and in fact, if you go back, when i started 30 years ago, all the major airlines that flew at that time are either gone or gone bankrupt, so it is a really rough industry. - here is where we run the nostalgic scroll, pan am, twa, eastern. - braniff. - braniff right, those guys are gone, and you're here. you were the disrupter at the time, where now it's common place to talk about disruption, right? it's almost a cliche, but you were literally a disruptor before that was a thing, and the people you disrupted went away. - we were really the maverick, and it was the low cost, low fare model. low fare model. the area that we've really i think differentiated ourselves today is that we're also great service

and low cost. and low cost. - in all fairness, wasn't customer service always part of the formula? i remember the earliest days when i flew southwest, which is of course not 46 years ago, but it's a while ago, and i remember thinking at the time they're just treating you more like a human being than most other airlines do. that seemed to be a part of the values of the company. - that's exactly right, and it's not so much that we've changed in that regard, it's that everyone else has really gone the other direction. that's the allowed us to differentiate ourselves. - well let me play street corner psychologist on this. why do you think that is? get inside the heads of the other ceos, or the other people that run those companies. it can't be a deliberate decision. i know what we'll do, we'll screw the customer. it can't possibly be a strategy for them. - actually it is. - really? - it is. - tell me more. - i think they're being successful at it. - okay, well what do you think's going on over there? - you know, it goes back to the low fare model that we had. they could not match our cost, so basically what they started doing is adding on fees,

so that they could get closer to matching our base fare. that's not what we do. we don't separate charges for bags, for change fees. we've stopped overbooking. what we're trying to do with our employees is give them as many things as possible to be proud of is give them as many things as possible to be proud of to serve our customers, to take as many pain points out of the travel experience as possible. - you think it actually begins with not just the way you treat customers, but the way you treat employees. - oh certainly. - if you treat them well, they'll treat us well. - yeah, we believe that all 55,000 employees are really family. what we ask them to do as a family, is to treat all of our customers like they're guests in our home. - now when you start a new business, if you're a startup, and i suppose southwest can be called in the earliest days a startup, although it's a much bigger startup, and a much better funded startup, there's a lot to theater, shtick. in fact southwest was known in those early days among other things for their shtick, right? for your predecessor running the company, herb kelleher dressing like elvis presley,

or you had flight attendants in what we called hot pants in the old days. you had people who would sing on airplanes, or sing at gates. there was a lot of that. the airline has retained some of that. i haven't seen you as elvis by the way. you look pretty normal to me, but i have-- - i'll have to send you a picture. - i would like that and maybe perhaps you could sing right now for us. i'll just cross my arms and legs. - oh i don't sing. - oh, okay. it's just an image. - it's an image. - it's just an image. - i do think that if you fly southwest airlines flight these days, you do get a sense of a more personal, or a more intimate, or a more unconventional experience. that part of it has conveyed to some degree. - oh i totally agree. what we try to do is treat each one of our customers like a human being, and not a transaction, but we've always walked this interesting line where we have kind of a wacky, zany, really fun marketing personality. really fun marketing personality. at the same time, we're a very rigorous, safe, reliable, convenient schedule, and one of the best operators in the world.

- think about how oddly incongruous that might seem. on the one hand, it's sort of fun and wacky. on the other hand you're flying me in this tube from place to place as the old louie c.k. joke about you know flying in this tube of death from place to place. i mean there's like a real safety thing. - yeah, oh yeah. - there's anxiety about flying. people are always freaked out about is my plane late? am i gonna get to where i need to get on time? where's my bag? there's a lot about it that's not really wacky and zany, and you've managed to levin, or lessen the anxiety by creating an experience that's a little bit more fun, although it seems like it's the last thing you would expect to be fun. - well it is, it is more fun, but i think it's just more attentive. you make people feel more comfortable because they believe that we take more of an interest in them as individuals, and that's true. - you said the airline is 46 years old. - right. - you have been with the airline, for 30 years. you're in your 31st year currently. you weren't there at the very beginning but you know the origin story. how did the airline's self-perception, or brand, come into existence?

what was the thinking back then? can you be a little bit of a historian for us about the value set. - well certainly from the beginning it was an intention to be a maverick, and to do something different than what the big guys were doing at the time. - was that because you couldn't be a big guy out of the gate and compete? - oh certainly. yeah, we had three airplanes and a couple hundred employees. - you needed to look for your own point of entry. - we needed to have a niche. - three airplanes and a couple hundred employees. again, just to come back to today, so it was three airplanes then. today it's 700 and-- - 730 with 55,000 employees. - airplanes and 55,000 employees. in those earliest days of the airline, you flew to how many destinations? - three, it was a texas triangle. - it was that triangle, dallas, houston-- - and san antonio. - san antonio, and today your number of destinations is? - we have 101. - right. - with the opportunity to add 50 more. - including not only, and we'll come to right amendment in a while, and the opportunity in 2014 that was really created by that veil being lifted, but you not only have an increasing number of destinations outside of texas,

but you now have international destinations. - we do. - that's an aspiration for the airline going forward to expand the footprint. - that's really the opportunity to add destinations. it's beyond the states, and today, we'll end this year with 15 international destinations. it's still a very small component of our current system. it's about 3%. - still not nothing. - still not nothing, and still a very exciting opportunity for growth over the next generation. - even in fact not outside the united states but in the 50 states, you're looking at hawaii. - [gary] absolutely. - which is not something that you're currently doing, but that seems to be on the horizon. - it's on the horizon. it's operationally more of a challenge than what we do within the 48 states, but we're the largest airline in california, and by quite a large measure. californians love hawaii, so that'll be a very strategic destination for us. - it is relatively a short hop for them. - it's roughly a five hour segment. - relatively speaking. - that's their beach destination. texans like to go to mexico and the caribbean,

but californians head west. - why not provide that opportunity. again, go back to those earliest days. that triangle you described, it was really an attempt to solve a problem. all business ideas are attempts to solve a problem of some kind, and that was, how do we get people quickly point to point in the big cities of texas. i've heard you all referred to over time. i maybe even used this phrase, like the greyhound bus of texas. - yes. - that would have been the old days. that is consciously not what southwest airlines is now. right? - well we still have that business. - in other words-- - commuter business. - one hour flight time with a high number of frequencies at convenient flight times during the day, with low fares, and that was our differentiating factor back in the 1970s. - [evan] then, right. - as time goes by, we become the largest airline in america in the early 2000s, and now we have opportunities to serve our existing customers more by taking them on longer distance flights, and also adding cities that previously we had shunned, laguardia.

for example we're trying to win customers for business in chicago. for business in chicago. i'd love to fly you southwest but you don't got to minneapolis, you don't go to boston, you don't go to washington, d.c., so we had to change that. we also evolved our onboard product, and our airport product to better serve longer distance flights. - right but there's still at the same time while you do what the other guys do in the sense that they provide long distance flights, you provide long distance flight. you go to the a list as opposed to the b list airports, as do they. you still have when you board this format, or this methodology, this process of boarding that is simply differentiated from everybody else, and that has not changed. - to this day, and one of the reasons back to the 1970s that we haven't is because, i'll just give you an example. my very first flight in my life was on southwest in 1972. - long before you joined the company. - i was a teenager. there were three customers on the flight. you do not need to tell them where to sit. there was plenty of open seats to choose from,

and so the open seating was really born out of simplicity. why go to the effort to do it when you don't need to, and then what evolved over time was a customer preference in addition to it being an efficiency for us. you can simply board the airplane faster, and be away on your trip, as opposed to assigning seats. - drawing on your many years at the airline, and in the business, tell us how the economics have changed. i mean clearly running an airline today is a different proposition, economically business model different than it would have been 10 years ago, 20 years ago, 30 years ago. - i would say the big change in 46 years are two fundamental things. number one the air traffic control system has gotten slower, and slower, and slower, in terms of the throughput, so you look at the time required to fly from austin to washington today, it is far longer than it was 30 years ago. - even though the distance hasn't changed. - distance, of course it's not changed. it's just the system is very safe, but in order to maintain that safety,

it's slowed down more, and more, and more. - the impact mr. kelly of that is, is that we just have to schedule flights at a longer footprint. it doesn't necessarily by virtue of that make you less on time. make you less on time. - well only because you adjust the schedule to incorporate what would have been a delay otherwise, but because there's more time in the air, we burn more fuel so there is an extra cost there, and because the airplane is not being utilized as much, we may get one trip less per day, so there is a very significant cost effect on that. - right but by lengthening the amount of time, of a given flight, they push potentially other flights, so if we can't find a flight that we like, we should blame the air traffic control system, and not you guys. - well right, so if the day keeps getting longer, and longer, and longer, and that last flight is now going to depart at 11:00 p.m., it will be empty because nobody wants to be on that flight. - if it's not that the air traffic control system is responsible, what is responsible for not being on time? i looked up your 2016 on time percentage, i think that's just over 80%.

- right. - right, you were behind alaska, you were behind virgin, you were a little bit behind delta. you were ahead of most of the other domestic airlines. many of the airlines that have a higher percentage, are smaller airlines. they're shticky, boutiquey, niche airlines. you guys are near the top. you're not at the top, pretty good record, but that means 20% of the time, one out of every five times, it's not on time. what's the cause if it's not the air traffic control system? - you know they've been publishing statistics at the federal government level since 1987, and year in, year out, we hover around 82%. - what do you think that is? - well i think there's a variety of issues that come into play, weather primarily. we'll have a few percentage points of flights that are affected by mechanicals. - right, but in my experience, not many. that doesn't seem to be a huge reason. - it's not, it's mostly weather, and then in addition to having air traffic now less efficient, we do have a lot of air traffic delays compared to what we schedule, so those are the primary reasons. - the nature of a plane that's being reused,

and reused, and reused over the course of a day, is you end up with a problem early. - right, it ripples through the day. - then essentially everything else is affected. - exactly. - i remember the 9/11 impact on the airline industry being particularly problematic, and i remember talking to your predecessor, herb kelleher, after that terrible day about how southwest actually had banked fuel. right, there was some reason why you all were able to come out of that better. am i remembering that correctly? you had done some things strategically that actually prepared you. - fuel hedging. we have done fuel hedging consistently since the first gulf war back in 1990, '91. - yeah a lot of airlines were hurt pretty badly post 9/11, were they not? - well yeah, all airlines were affected, and i think at that point in time really nobody knew what was going to happen next. we didn't know what was going to happen to a travel demand for one thing, and felt in 2002 for one thing, and felt in 2002 that we had to make sure that we had to make sure that we maintained our competitive position,

because it was going to force all airlines to be a low cost airlines. sure enough that proved to be true. then that led ultimately as you know not just to all the legacies going bankrupt again, but it really led to this unbundling the beginnings of charging for bags and a number of things like that in an attempt to get fares lower. - in some ways they encroach on your turf but they also give you an opportunity to further differentiate as you say, bag charge, no; change fee, no. a lot of the things that they all do now by necessity from an economic standpoint, you all do not. - yeah, frequent flyer rewards really free on southwest. you know there's a number of things like that. we have free live tv, and we love the word free, but what is interesting is that i feel like we've always been a great customer service airline, just like you mentioned, it's just that the other airlines have allowed us to differentiate because they make the travel experience more painful. - just by doing what you ought to be doing, they're not doing it is shining a light on you.

- correct, correct. - i mention 9/11, one of the differences certainly in my lifetime, first half of my life, second half of my life, is it used to be easier the first half of my life to get into the airport to get on the plane. your mom would bring you to the plane, or you'd be able to say good bye to your kid when they went off to college, much more complicated because of all the security apparatus. we're entering a period now where if the rumors in the news are true, we may be getting even more complicated as far as security. there's talks of banning laptops on all flights from europe to the united states. this actually became a mini incident when the president talked to the russian ambassador and the russian foreign minister, and this topic was among those discussed. what is your sense of where we're heading, generally, in terms of the security apparatus, making it more easy, or less easy to fly and how it affects airlines like yours. - well right now i feel like we've got a really good partnership with the government in terms of working with the tsa. - you like the tsa. - the tsa-- - you may be the only person in the country who likes the tsa. - has had its ups and downs, but they had a pretty remarkable turn around from last year,

improved their staffing. they did a good job of getting the lines under control, and the whole idea has been to approach it more on a risk basis, identify the higher risk passengers, on a risk basis, identify the higher risk passengers, and be sure that we put the proper security screenings where it's warranted. that leads to tsa precheck, which a far again faster through put there. - right, but people sometimes when they come to the airport and they have a hard time getting people through security, may miss their flight, or have to run. they sometimes blame falsely, they go, oh the airline. it's the airline's responsibility. it's not your responsibility, right? - oh no, that's a federal function. - that's a tsa deal. - absolutely and they own the security protocol, we don't. we work together with them. we work especially well in terms of trying to predict demand, in terms of traffic, and what peak periods should be expected during the day, so that staffing matches that.

i think the point that you were making earlier is that they will need to continue to evolve the technology to continue to screen for threats. the technology to continue to screen for threats. - that's not only okay with you, but you're actually happy to have the-- - absolutely. - further vigilance. - oh absolutely. and it changes the way you do business, necessarily. - well yeah, i think as americans, we're all more diligent today than we were before 9/11. there's no doubt about it. you know the airport experience is quite good today compared to where it was 20 years ago, i think. even with the added security procedures. - i mention the president offhanded in this part of the conversation, but i do want to ask about the new administration and the desire on his part, and the part of the administration to reduce regulations on industry, including on the airline industry. i know that one of the opportunities for an airline now might be to have a little bit of relief from the regulatory apparatus. can you talk about where you see that from southwest perspective? - well we would welcome that.

you know there's really three themes that the president ran under and is still pursuing, tax reform, regulatory reform, and also infrastructure investment. for us that would be the air traffic control system. i think the regulatory burden is very costly. there should be a requirement to look at the cost benefit. any time the federal government puts in a new regulation that's not being done, so i think we have an opportunity just to do that. - he's talked openly about every time we add a new regulation, somewhere within the federal government, we're gonna remove two, i think. - hopefully two, and that would be very welcome. i'll just give you one quick example of something that we've been trying to ward off and prevent from happening. as you know southwest, we sell exclusively on the internet on southwest.com, one of the largest travel sites in the world. well there are some in the senate that are pushing to require us to list our products on competing sites, to require us to list our products on competing sites, online travel agencies,

which i just think would be very harmful to customers. - because if they buy your tickets, they essentially buy your product on somebody else's site, and they have a bad experience. that bad experience makes them think badly of you, not at the site. - it puts and intermediary between us and the customer. - well you don't control the way that people interact with your brand. - exactly, so they don't merchandise the way we want, and there's a cost associated with that. in the end it would - exactly, so they don't mercnot be an enhancementnt, to customer service, and it would make our costs go up. - it's not as if your product is not available. - oh exactly. it's easily available, and we pride ourselves on being transfarent. a little plug there, that's your little plug. - you guys are full of slogans. - yes we are. - where are my peanuts by the way? were are my peanuts? i figured you were gonna bring me peanuts. - well i didn't bring 'em for you. - that is kind of a southwest... i figured you'd just have some in your pocket. - i should. - it's like giving balloons to kids at parties. - i'll send you a case. - i appreciate that. the flip side of the regulatory conversation mr. kelly

is that people say, well the airlines of course, like all businesses would like to have less regulation from the government, but there's the opportunity then to endanger or otherwise put a burden from a consumer protections standpoint on the individual. how can you ensure all of us, ensure that removing the regulation is not going to adversely affect us? - well we wanna be famous for hospitality. we're in a customer service business. i would love for southwest to continue to have a competitive advantage because we treat our customers better. - it wouldn't be in your interest to treat customers worse. - it's not in our interest to treat our customers worse, so there are any number of regulations that are very difficult to comply with, and weigh the balance between customer convenience versus customer inconvenience. one in particular is the tarmac delay rule. we are heavily penalized if we don't allow our customers to get off the airplane within a three hour time period. just the way that rule is written is punitive for the customer,

because we may be just about ready to take off, and get the customer where they want to go. what they're trying to do is complete their trip, and then have to get out of the conga line, and go back to allow everyone to get off. i just don't think that, that is in the best interest of customers every single time, but the regulation is black and white. there are a number of things like that, that can be improved upon. - on the subject of your website, which is as a consumer again, pretty easy to use. anybody could use it. technology has transformed the business of running an airline, and the interface with the customer, as much as anything over the years. i never have to go talk to anybody at the airport ever again, and this was not just limited to southwest. theoretically you do everything yourself. it's diy now. you get your boarding pass, you put it in the app on your phone. you walk through, boom, done, that's it. this has helped you i expect in terms of keeping the process to a minimum and overhead to a minimum. - it does, it reduces, for example the line at the airport

at the ticket counter, and now is pretty much people who are checking a bag. whereas before they might be wanting to check in to have a boarding pass printed. now all of those things are much more self service, and that just expedites people through the airport. mainly we do it because that's what the customers want. - right, and customers have gotten to be pretty good at being diy, and not just with interface with airlines, but banking, and ordering food. but banking, and ordering food. - putting gas in your car and on, and on. - what's next on the tech front that we can expect in the next, say five years? where is the next innovation? - well i think there's still a wonderful array of opportunities just to provide better information to our employees first, and then to our customers. it would be wonderful to be able to tell you when you're deplaning, exactly when to expect your bag to arrive if you've checked it at the carousel, and you know it's going to take 15 minutes. well now you've got 15 minutes. - do i have time to go to the restroom, and go get a coke, or make a phone call or whatever else?

- then on the flip side of things, just the opportunity to give you better information about the status of your departing flight. we're i think just in the infancy of that, but there's a host of opportunities there. - well you mention also free tv, which has been for a lot of people, again, not just on southwest. a lot of other airlines have this, but what what it's provided is a transformational experience on board where you now can watch the news. these days the news comes so fast and furious. - or sporting event. - or a sporting event, or whatever else, and allow you to keep up. is the wi-fi product that airlines are putting on the planes, this is my one beef, not just with southwest, with everybody. is the wi-fi product gonna ever gonna be better, reliable? - it's a legitimate beef, and the answer's yes. for us it'll start being better this summer. - what does that mean specifically? - it means that in terms of the response time that your accustomed to on board one of our flights now, it should improve by three fold, it should improve by three fold, and then that should over time just be the beginning. - people will stop sending mean tweets to you about the airline wi-fi, or whatever. - i hope so, but you know, it's a legitimate

as i mentioned to you, it's a legitimate complaint, because the service is not adequate so we are upgrading with our supplier the service this summer. we're adding a second supplier for additional service, we're adding a second supplier for additional service, so stay tuned. so stay tuned. - it's great to get to talk to you about this. you know we take what you all do for granted, not just you again, but the industry. specifically in the case of southwest i think it's just usually just so stress free that we just pretend that effort didn't go into it, and i have to say to you, thank you. - well you're welcome. the credit goes to our people, and i think they work very hard to make that happen for our customers. - next time bring peanuts. - i'm gonna send you a case, as promised. - all right gary kelly thanks very much. - thank you, appreciate it. (audience clapping) - have fun. thank you very much. - [narrator] we'd love to have you join us in the studio. visit our website at klru.org/overheard to find invitations to interviews, q&as with our audience and guests, and an archive of past episodes.

(moderate paced music) - our idea, as an industry is to take the air traffic control management is to take the air traffic control management out of the federal government, like it's done in canada, like it's done in 60 other nations around the world, and have it set up as a not for profit corporation with a governing board that would include members from the federal government and other constituents, so the airlines would not run it. - [narrator] funding for overheard with evan smith is provided in part by the alice kleberg reynolds foundation, and hillco partners, a texas government affairs consultancy, and by krlu's producers circle ensuring local programming that reflects the character and interests of the greater austin, texas community. (moderate paced music) (moderate paced music)