=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/07/11/f= inancial1045EDT0082.DTL ---------------------------------------------------------------------- Friday, July 11, 2003 (AP) Inside Southwest Air, storied culture feels strains MELANIE TROTTMAN, The Wall Street Journal (07-11) 07:45 PDT (AP) -- DALLAS -- One afternoon in February, a group of 40 flight attendants gathered at Dallas Love Field to vent their frustration with their employer. They carried signs declaring "Spread the LUV" -- their employer's stock symbol -- and handed out cards to travelers demanding "Give Our Flight Attendants a Break!" Their bosses wanted to boost their workday to 13 hours from 101/2. The attendants also didn't like the lack of meal breaks and the fact that they didn't get paid when their planes sat idle -- even though they spent that time cleaning the cabins. This display of dissatisfaction from the flight attendants would have be= en unthinkable just a few years ago. That's because they work for Southwest Airlines. Southwest, the only profitable airline among the nine U.S. majors, owes much of its success to an extraordinary culture that binds and motivates workers. By offering a generous profit-sharing and stock-option plan, and creating a "we're all family" culture with office parties and advancement opportunities, Southwest has spurred its employees to continually boost productivity and profits. And it has engendered a fiercely loyal and competitive work force along the way. But now that culture is showing signs of strain, just as Southwest flies toward crucial new challenges -- from adapting to a new CEO to maintaining its growth during the worst downturn in aviation history. Southwest's labor unions have become more vocal and aggressive. Workers who scrimp and sweat to boost earnings are seeing less return from profit sharing and a pummeled stock. And some longtime employees say that after years of pushing themselves to increase productivity, they simply can't give any more. "We have been there for them," says Karen Amos, a 26-year Southwest veteran who took part in the flight-attendant protest. "There comes a time when it becomes too much." Southwest acknowledges it is seeing more problems as it moves from adolescence to adulthood, but the airline says it also has more people and measures in place to fix them. Over the past decade, Southwest has started "culture" programs in all 58 cities it serves, appointing ambassadors to disseminate corporate news and hold parties and picnics to foster team spirit. A "second wind" team helped establish seminars to address employee burnout and the seven-year itch. From its first flight in June 1971, Southwest's culture was a reflection of one of its founders, Herbert D. Kelleher. Mr. Kelleher, who stepped down as CEO in June 2001 to assume a more limited role as chairman, drank Wild Turkey at company parties, smoked everywhere -- even behind the podium at shareholder meetings -- and loved to joke with employees and dole out hugs and kisses as greetings. Fun and humor were essential, he preached. Original employees -- many of whom say they considered him more of a father than a boss -- wanted to please and emulate him. Workers routinely went above and beyond the call of duty to help the airline thrive. During the Gulf War, flight attendants volunteered to give up pay for vacation days to help the airline pay for fuel. The motivation wasn't just company loyalty. In the mid-1970s, Southwest became the first airline to start a profit-sharing plan and added a stock-purchase plan in 1984. In 1991, it started a stock-option plan that now includes many employees but not the flight attendants. The stock, which has risen more than a thousandfold since 1972, has produced millionaires throughout company ranks, down to mechanics and flight attendants. Even with the stock declines, a $10,000 investment in early July of 1984 would be worth just over $200,000 today. With so much of employees' personal holdings and compensation tied to the company's performance, peer pressure to keep costs down grew intense. Workers still routinely challenge each other on questionable sick calls, overuse of office supplies and requests for overtime pay for "stupid things," says Dan Kennedy, an operations agent in Spokane, Wash. Employees recycle everything possible, saving paper clips and making scribble pads out of old mail. In 1994, Rhonda Holley, a flight attendant, suggested using plain trash bags on airplanes, instead of printing ones with the airline's logo. The switch saved $300,000 a year. Flight attendants pitch in to hurriedly clean planes to get them back in the air within 25 minutes; some even help when they're traveling off-duty. Pilots have helped ramp agents load bags to keep flights on time, and they log more flight hours per day on average than their peers at other airlines. Three years ago, when Mr. Kelleher challenged each employee to save $5 a day, Debra Benton, who heads the airline's frequent-flier program, started using the stairs instead of the elevator to save electricity. "Part of our working environment means working our butts off," says Colleen Barrett, Southwest's president. Last year, Southwest's unit labor costs -- which track the cost to fly o= ne seat one mile -- were 22 percent below those at Continental Airlines, even though the two airlines' average salaries were about the same, around $60,000. Southwest's costs were a whopping 41 percent below those at AMR Corp.'s American, but American's average salary was nearly $80,000. Such results have helped Southwest post 30 consecutive years of profits and turn it into the fourth-biggest airline in terms of U.S. domestic service. Many carriers, new and old, are trying to emulate Southwest's low-cost, no-frills formula. Yet that formula is under mounting pressure. Southwest, which led the industry in on-time performance for most of the 1990s, slipped to second in 1999 and has bounced in and out of the lead ever since. Last year, it ranked sixth among the nine major carriers. Executives cite increased security measures as one reason for the change. They also note that Southwest hasn't reduced its flight schedule during the industry slump, as most other airlines have. Many veterans of the airline have complained that they have worked increasingly hard to boost productivity and profits, but without matching pay raises. Lately, unions have increasingly sought "big airline" pay to match the airline's growing success, as opposed to the old days, when they'd settle for other incentives to help their underdog airline fly higher. In 1994, for example, in exchange for a stock-option award in their contract, pilots agreed to a five-year wage freeze that would help the company keep costs in check. Unions are showing more frustration during negotiations, unlike the old days, when deals would generally be made more quickly and amicably. In the summer of 2001, ramp workers picketed near company headquarters with signs reading, "Record Profits Empty Pockets." They complained that staff shortages, combined with Southwest's record passenger loads and a drive to improve on-time performance, meant they had to lift more bags and do so more quickly. And that, they argued, put them at greater risk of injury. Management added staff, and the workers say they won raises of at least = 26 percent and as much as 107 percent over the life of the original six-year contract, including increases for advancement in seniority rankings, with the most senior ramp agents getting the lesser amount and the most junior getting the greater amount. Union officials say they have no lingering hard feelings toward management. Meanwhile, the negotiations with the flight attendants have entered their 13th month. Management dropped the proposal about increasing daily hours, but the two sides are far apart on other issues. "In the old days," says Ms. Amos, "they would have negotiated more fairly." Southwest CEO Jim Parker says that complaints are part of any negotiating process. Management's goal is to get a "good contract" for the attendants, he adds. Many of the company's top motivational techniques aren't working as well as they used to. Consider stock options and profit sharing, which have lost a lot of their allure during the airline slump. Southwest's net income fell 53 percent to $241 million last year from $511 million a year earlier. Its stock hit a low of $10.90 last year. Shares have inched back up to about $18, well below the five-year, split-adjusted high of nearly $24. The slump has hit morale in other ways. Southwest's growth -- as measured in the seating capacity of its fleet -- has slowed to 4 percent to 5 percent annually from its traditional 8 percent to 10 percent. The airline typically launches service in at least two cities a year. It hasn't done so in 21 months. That restricts advancement opportunities for pilots, station managers and many others, and employees lose the excitement of conquering new territory. At the same time, Southwest has found it tougher to maintain its underdog fighting spirit. Southwest, which now has more planes than Continental, often finds itself playing the incumbent under attack from new upstarts, such as JetBlue Airways. Growth has also made upper management more remote from the rank and file. In the early days of the company, corporate den mother Ms. Barrett could send hand-written notes of compliment or condolence to many of the company's 517 employees. She still writes notes, but only reaches a fraction of the company's more than 35,000 workers, who are spread from Manchester, N.H., to San Diego. Some employees say that newer hires just don't get how special the cultu= re is. "Southwest treats its employees so well, and really takes care of them if they stay," says Susan Goodman, who joined Southwest in 1975 as a flight attendant and now coordinates legislative efforts among employees, such as organizing petition drives. "I think some of the younger ones don't understand." In the face of difficulty in the past, Mr. Kelleher would usually step to the forefront and rally the troops, something he has an uncanny ability to do. He is still treated much like a rock star when he walks into a room full of workers. For now, however, the 72-year-old executive is concentrating on Washington lobbying and industry commissions, given the crisis in the industry since Sept. 11. The new CEO, Mr. Parker, kept a low profile as Southwest's corporate lawyer and is considered more staid than the effervescent Mr. Kelleher. "Jim is not Herb," says longtime Southwest board member June Morris. "Obviously he doesn't have a flamboyant personality, and he's smart enough to not try. He's very bright and he's a superb speaker." Southwest executives say recent complaints from employees don't necessarily indicate waning loyalty. An overwhelming number of employees remain devoted to the company's success and are proud of their high productivity, executives say. Mr. Parker says the airline's work ethic remains critical to its success. "Our cost advantage is not based on low wages," he says. "We pay very competitive wages. It is based on our employees' hard work." He is doing his part to keep the culture alive. He used to disapprove of the company's annual daylong Halloween celebration; dressing up in costumes and doing comedy sketches didn't seem productive. But he came to see that the party preparations were a model of teamwork and employee bonding. So last year the CEO paraded through headquarters in a judge's robe and wig, evaluating workers' sketches with a smile. Southwest has also made an effort to help workers who have been at the company a long time and whose enthusiasm is flagging. In 1997, the airline established its "second wind" team of 20 employees who for several years helped set up libraries of stress-relief books in offices across the country and gave 90-minute seminars on burnout. Much of the advice for avoiding overload recalled Mr. Kelleher's emphasis on fun: Workers were taught to value "kid spirit" by taking "joy breaks," such as staging yo-yo contests or hopscotch games in the office. They also were taught to look at every weekend as a "mini-vacation," so that they'd have something to plan and look forward to each week. Young workers, meanwhile, sometimes need to be told the opposite. Ms. Barrett says that some recruits who have never had a job before misunderstand the culture of Southwest and see it as one big party. The company has probationary periods for new hires, and "peer pressure is very intense" to work hard, she says. If someone isn't working out, "We won't let it drag on." =20 ---------------------------------------------------------------------- Copyright 2003 AP