Newmark's Door

Making an honest buck in business is tough. Making that buck for 37 years is tougher. Making that buck for 37 years while retaining a huge amount of affection from your employees is tougher still. The Door seconds this salute to Herb Kelleher, retiring chairman of Southwest Airlines.

And yes, being able to operate out of Love Field helped, but there are a number of stories that testify to Southwest's smart business decisions. One of my favorites, useful in an economics course because it illustrates a weakness of the standard "predatory pricing" claim, is as follows:

In its early days Southwest Airlines competed primarily with Braniff. Southwest undercut Braniff's prices a little and provided better service and more convenience. But Southwest was making money on only one route, the Dallas-Houston route--it accounted for 72% of Southwest’s revenue--and Braniff slashed its price in half on that route.

Southwest took out full-page ads accusing Braniff of predatory pricing and it asked, “Remember What It Was Like Before Southwest Airlines?” The ad then offered to match Braniff's price, but it also asked customers to voluntarily buy the full-price ticket (with a small bottle of Scotch thrown in). Supposedly, more than 75% of Southwest's customers chose to pay full price.

Braniff reversed the price cut after two months, and about two years later exited the route completely. (This account is in a famous B-school case; I got the details second-hand from Peter Robinson's fine book, Snapshots from Hell: The Making of an MBA.)