Kelly May Be Stepping Aside After Leading Southwest To Dominance, But He’ll Still Shape One More Big Decision

Southwest Airlines’ announcement Wednesday morning that Gary Kelly, Southwest’s CEO for the past 17 years, is stepping down marks an epochal change at the world’s most profitable and successful airline, which turned 50 just last week.

Kelly’s reign at Southwest may not match that of his mentor, Herb Kelleher — not in length (Kelleher served as CEO for 20 years), and not quite in stature either (Kelleher reached “living legend” status a decade or more before he stepped down as CEO in 2001). Yet, there’s no doubt that Kelly deserves to be regarded very highly for his large impact on both Southwest and the airline industry.

He first drew public attention in the 1990s as the brains behind the industry’s first truly effective fuel hedging program. It kept Southwest profitable during multiple oil price shocks that crippled or even bankrupted multiple airlines.

Kelly then took over the reins as CEO in 2004 as the industry was recovering from the 9/11 terrorist attacks. Instead of retrenching, he turned up the heat on Southwest’s rapid growth and led its maturation from large niche carrier to becoming the largest of all U.S. airlines in terms of passengers boarded and flights offered. He then shepherded it through the economy-rattling Great Recession, and the painful and long grounding of the Boeing 737 MAX from 2019 through early this year. And unlike all its competitors, Southwest remained profitable during all of that. It never resorted to bankruptcy, something is largest competitors can’t say.

Today Southwest remains the only U.S. carrier with an investment grade debt rating on Wall Street.  It has lost money in only two years of its 50 years of existence: 1971, its first year in business when it only operated for 6.5 months, and 2020, when the Covid-19 pandemic dragged global travel demand to near zero at one point.  

Through it all, Kelly has kept Southwest not only on top in terms of domestic capacity and financial performance, he’s managed to keep Southwest’s shareholders and employees alike happy and well rewarded — and its customers satisfied.

Like Kelleher did before him, Kelly is not exactly leaving. Now 66, Kelly will remain CEO until Feb. 1 of next year. He then is set to serve as Executive Chairman through at least 2026, and perhaps longer. Kelly will focus mainly on leading the airline’s board of directors and dealing with Congress and the rest of the federal government and airport authorities around the nation. Kelleher played a similar role in the years after he gave up the CEO job.

Kelly also can be counted on to spend a lot of time thinking through and helping to structure Southwest’s fleet strategy. The end of the line for the Boeing 737, Southwest’s only aircraft type, is approaching. Though the controversial MAX version of the 737 is still relatively new, it represents the logical end of just how much the base design can be expanded and changed. So, by the time Southwest take’s delivery of the 274th  — and last — MAX it has on order sometime around 2030, it will need an aircraft type to start replacing older 737s as they reach the end of their useful lives. Currently Southwest’s fleet totals around 750 planes. Though Southwest certainly will give Airbus’ offerings a serious look, it is unlikely that Boeing’s biggest customer ever (besides the U.S. military) would change brands of airplanes. Accordingly, even as Boeing officials try to recover from the double whammy of the long, safety concerns-driven grounding of the MAX and the global pandemic, they now are seriously studying what Boeing will build next as a replacement for the versatile and popular 737.

Counting the hundreds of 737s that Southwest ordered both for growth and replacement if older planes, Kelly likely has been deeply involved in the acquisition of more than 2,000 Boeings either in his finance department roles or as CEO. So, expect him to be involved in that next huge airplane decision. Depending on how fast Boeing can decide what to build, Southwest, which figures to be the launch customer for that new Boeing design based on its history, would be in position to place such an order in the next two to three years, and to begin taking delivery of such planes by 2030, or perhaps sooner.

But Kelly won’t be alone in making that important long-term decision. He’s being replaced as CEO by his long-time lieutenant, Robert Jordan. Unlike Kelly, who stayed in finance until he was named CEO, Jordan was groomed in multiple airline functions: finance, technology, marketing and sales, and corporate services. Currently he is Executive Vice President for Corporate Services.

Most notably Jordan managed Southwest’s integration of Airtran Airways, which it acquired for $1.4 billion in 2011, and developed the carrier’s e-commerce platform, southwest.com. He also led the overhaul and modernization of the airline’s Rapid Rewards frequent flier program and the creation of its enhanced boarding process.

Unlike Kelly, who was just 49 when he became CEO, Jordan is 60. And though he likely will be CEO when the momentous 737 replacement decision must be made, Jordan is likely to play more of a transitional, rather than an epochal role in Southwest’s history.

 Still, he likely will have several big issues to deal with as CEO.

  • How far with Southwest venture outside the United States? It only began flying internationally after acquiring AirTran and its routes to the Caribbean, and in the last few years has launched service to Mexico. Will it soon cross the northern border and begin serving Canada? What about Central America and northern South America? And will it try to fly to European destinations, and if so, what plane will it fly there?
  • Will Southwest retain its labor cost edge? Contracts with Southwest’s pilots, flight attendants, mechanics and other unionized groups all will come up for renegotiation during Jordan’s likely term as CEO. Can it continue to keep employees happy and satisfied without surrendering even more of the labor cost advantage relative to conventional airlines than it already has surrendered over the last 20 years?
  • Can it keep its overall cost advantage by continuing to grow? Rapid growth meant hiring lots of workers at the bottom end of its pay scales and flying lots of new planes that needed relatively little maintenance. Now Southwest is huge, with lots of planes and lots of top-of-scale workers. Can it continue to grow, even from its now much larger base?

Jordan’s elevation is not surprising given his long history with Kelly and the company. It means Southwest President Tom Nealon has been passed over for the top job. Nealon, unlike Jordan, is not a career-long Southwest employee: He was an executive at Frito-Lay in the 1990s before joining Southwest as Senior Vice President and Chief Information Officer in 2002. He left in 2006 to become Group Executive Vice President at JCPenney. In 2010, while he was still Penney, Nealon was elected to Southwest’s Board of Directors and served until 2015. In 2016 he returned to Southwest full time as Executive Vice President for Strategy and Innovation (and stepped down from the board). In 2017 he was named the airline’s President, a job in which is responsible for Southwest’s sales, marketing, route network, customer relations, the Rapid Rewards program, finance, technology, and internal auditing.

At 58, Nealon is only two years younger than Jordan, and just one year older than Tammy Romo, Southwest’s Executive Vice President and CFO. Thus neither he nor Romo appear to be well positioned to become CEO, assuming Jordan serves five years or more. Indeed, unlike Kelly, who prior to becoming CEO was well known outside Southwest and yet a full generation younger than other senior Southwest executives, the airline’s group of somewhat younger executives are not widely known outside the company.  Thus, Jordan can be expected to begin trying to identify, groom and elevate the profiles of the airlines’ next generation of C-suite executives.

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