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Connect, May 2012 - Gary Kelly - EY - United States

Connect, May 2012

Gary Kelly

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  Current position:
Chairman, President and CEO of Southwest Airlines, Inc.
  Last EY office:
Dallas, Texas
  Born in:
San Antonio, Texas
  Board/community involvement:
On the Board of Directors of Lincoln National Corp.; serves on the University of Texas at Austin Business School Dean’s Advisory Council and Accounting Department Advisory Council
  Career highlights:
Serves as Vice Chairman of the Air Transport Association of America; named one of the Best CFOs in America by Institutional Investor and one of Business Travel News’ 25 Most Influential Executives (2004)

Gary Kelly

Taking flight at Southwest

If you’ve ever flown Southwest Airlines, you know that the carrier is just a bit, well … different. Its boarding system is unconventional. There are no assigned seats. And, if you’re lucky, you get a flight attendant who is also part stand-up comic.

It’s all part of a unique, well-documented culture instituted by the airline’s iconic founder and former chairman Herb Kelleher: a man who is as well remembered for his zany antics (like the time he resolved a business dispute with a rival CEO by holding a televised arm-wrestling match!) as his business genius.

It was into this limelight that comparatively mild-mannered, soft-spoken Ernst & Young LLP alum Gary Kelly stepped when he took over as Southwest’s CEO in 2004. Despite the striking contrast in their personalities, Kelly is nonplussed: “There can never be another Herb,” he says with a smile, sitting in his office overlooking Dallas’ Love Field. “Herb was a legend and there can only be one legend, one founder. I’m very comfortable with that.”

Kelly says he never envisioned himself playing the same kind of CEO role as did Kelleher, but “that doesn’t mean I can’t be successful as a teammate here at Southwest.” And since he became a member of the Southwest team in 1986, the airline has seen more than its share of success. For instance, when Kelly first arrived, Southwest had “maybe sixty planes.”

Today, it flies almost 700 aircraft and is the nation’s largest domestic air carrier. Southwest is a perennial on Fortune’s “Most Admired Companies” list (placing four times in the top 10 since 2006). Kelly is particularly proud of the fact that, even during the recent economic downturn, Southwest has never had a furlough or a layoff, much less had to cut pay or benefits. “I think we’ve proven to our people that we’re here for them, and that they really are our top priority,” he says.

The flight path

Born in San Antonio, Kelly joined EY straight from the University of Texas in 1977. He immediately “fell in love” with the Dallas office, where he spent seven years. He recalls some of the people who were influential in his young career, including Ed Beanland, John McDonald, Sandy Johnigan, former Dallas Office Managing Partner George Truitt, Mike Turner and Bob Helms. “They were like a factory for developing talent,” says Kelly. “They helped me develop skills at an early age that I still use to this day.”

In the captain’s seat: In his 26 years at Southwest, Gary Kelly has helped pilot the company to become the largest US carrier (based on domestic passengers) with 38 consecutive years
of profitability.

At EY, Kelly served several software clients and was drawn to the business. In 1983, he left the firm and joined a software start-up. While there, he heard that Southwest, an airline upstart that was getting lots of positive press, needed a controller. Kelly called Beanland, a long-time mentor who was EY’s coordinating partner for Southwest at the time. Beanland replied he thought it sounded like a tremendous opportunity.

Kelly “jumped at the chance” and in 1986 was hired by Southwest as corporate controller. After serving three years in that position, at the young age of 34, Kelly was promoted to Vice President Finance and Chief Financial Officer in 1989, a position he held for 12 years. Kelly became Southwest’s Executive Vice President, Chief Financial Officer when Kelleher retired as CEO in 2001. Three years later, Kelly landed the CEO spot. He added the titles of Chairman and President in 2008.

“You need a very strong culture backed by a very strong work ethic. I think that's what we’ve got at Southwest.” Yet Kelly defies anyone to show him a company that celebrates more than Southwest Airlines does. He adds, “We’ve got a lot to celebrate.”

Preserving the culture … moving ahead

While stating that culture is “sometimes hard to define,” Kelly clearly understands the importance of keeping the Southwest culture alive. In fact, he calls it “a matter of survival.” Says Kelly, “You have to be good at what you do. If you’re in business, it has to be profitable. But to sustain those things through all life’s trials and tribulations, you need a very strong culture backed by a very strong work ethic. I think that’s what we’ve got at Southwest.” Yet Kelly defies anyone to show him a company that celebrates more than Southwest Airlines does. He adds, “We’ve got a lot to celebrate.”

While preserving the Southwest culture is critical to Kelly, so is moving the company forward. Up through the 1990s, Kelly notes that Southwest didn’t really have any low-cost, low-fare competitors. But with the arrival of JetBlue and similar airlines over the past decade, that’s all changed. “So we changed too,” he states. Southwest added leather seats, completely revamped its boarding process (while retaining its open seating) and began offering higher-level services to business travelers. It’s adding new, bigger jets to its fleet, and the airline started flying into airports long on its “thou shalt not” list, such as LaGuardia, Boston Logan and Atlanta’s Hartsfield-Jackson. In addition, Southwest will soon begin flying its first international routes.

Meanwhile, back at the ranch (literally)

To unwind, Kelly likes playing golf or spending time at his ranch on the Guadeloupe River in south Texas. “There’s a never-ending list of chores to do there and lots of fun toys to do them with,” he grins.

Kelly and his wife of 36 years, Carol, have two married daughters and two young granddaughters who live in the Dallas metroplex.

Looking back over his highly successful career, Kelly feels fortunate to be a part of one of the world’s best companies for 26 years. In addition, Kelly is particularly proud of three things: that he’s a Texan, a Texas Longhorn and an EY alum.

Changing times call for strong leadership

by Gary Kelly

If I had a chance to sit down with the next president of the United States, I’d urge him (or her) to do everything possible to help the US remain a world leader. To do that we need to be competitive with the products we build and services we offer. You can’t just invent jobs. You do that by having the most desirable products and services. And we won’t have the most desirable products and services unless we have the best and the brightest people. That requires offering a globally competitive education and breaking down the barriers to achieving such an education.

Looking at it from just our industry, our biggest raw material cost is jet fuel. We would benefit from a more coherent energy policy and less dependence on foreign oil. We’d also benefit from investments in infrastructure to support this notion of improving our competitiveness. For us, that means simply modernizing the air traffic control system. It’s hard to find an opponent, yet after 30 years, we are still using 1940s and 1950s air traffic control system technology that, if nothing else, is fuel-inefficient.

All the political change occurring around the world this year will definitely have a bearing on the future. The US is going to have to play a strong leadership role, and that’s what we’re hoping for.

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