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Gary Kelly, Southwest Airlines, and the Texas tavern where it all began

Before retiring, Kelly reflects on 17-years as CEO, why expanding to South America is more realistic than London, and Herb Kelleher stories we haven’t heard.

SAN ANTONIO — In a city steeped in history, neither tourists nor guidebooks seem to recognize the event that happened inside the lobby bar at the St. Anthony Hotel just four blocks from the Alamo.

This dark, cozy, seemingly untouched Texas tavern is where Herb Kelleher and Rollin King scratched out the idea for Southwest Airlines on the back of a cocktail napkin in the 1960s.

Now, as Southwest Airlines celebrates 50 years since its first flight, this historic bar is also where CEO Gary Kelly joined the Jasons for a wide-ranging interview on the newest episode of the Y’all-itics podcast.

Kelly, 66, and retiring on Feb. 1, discussed politics, whether a bullet train between Dallas and Houston might threaten the airline, how Omicron will impact holiday travel, and he even shared some little-known Herb Kelleher stories, as well.

Unlike other airlines, Southwest grew during the pandemic.

When demand dropped during the pandemic, Southwest reduced the frequency of flights between major cities.

But it took the surplus aircraft that would have flown those extra flights and used them to expand to 18 new destinations.

“We've got really boring stuff that needs to be done to restore our network. So, we don't feel like we'll be adding any new cities for quite some time. It's as if we've accelerated all these new city openings, and you know, some of them are pretty exciting… Bozeman, Mont. and Sarasota, Fla., Myrtle Beach, S.C. and a bunch of fun places,” he said.

Credit: Jason Whitely
This dark, cozy, seemingly untouched Texas tavern is where Herb Kelleher and Rollin King scratched out the idea for Southwest Airlines on the back of a cocktail napkin in the 1960s.

In 17 years as CEO, Kelly helped lead Southwest through explosive growth. It opened in Hawaii in 2019, after other international destinations in Mexico, the Caribbean and Central America.

So, where does Kelly see Southwest’s next opportunity for growth?

“We're at 121 destinations right now. We need to create depth in that existing network. Beyond that, I'll bet you there's 50 more cities that we can add to our route network in the USA. And I would say North and South America. I think South America is more realistic than London,” Kelly said.

Leisure travel has returned but Southwest, like other airlines, is still awaiting lucrative business travelers to come back.

That’s not likely to happen until workers return to offices, Kelly said.

“If you have people that aren't in the office, there's no reason to travel to go see them because they're at home,” Kelly said. “All of this is complicated, and I think most people are assuming that we might get back to maybe 80% of what it used to be in five years.”

In his final 60 days as CEO, Kelly is still tasked with leading the airline out of the pandemic and simultaneously urging employees to get vaccinated before a federal deadline next month.

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Watch our full interview with Gary Kelly:

“So, we've made excellent progress. We're not done, and so we've got some employees – it's in the single digits at least – who have not responded [to the vaccine requirement]. But the deadline has now been moved to January 4th, so we still have some work to do,” Kelly said.

If employees do not get the vaccine, they have to apply for an exemption.

Kelly reiterated that he does not plan to fire any employee for not getting the vaccine but said the company is still considering how to handle it.

“Well, I think we just have to work through all of that,” he said. “We haven't had a furlough or layoff in 50 years. The last thing I want to do is have that happen because of this vaccine mandate.”

Southwest, like every airline and thousands of U.S. businesses, survived on government assistance during the height of the pandemic last year.

Kelly said profitability without that relief money is not far off.

“I think we're close and whether we hit it in the fourth quarter or the first quarter, you know, obviously it's important. But the main thing that I'm focused on is let's run a good operation. Let's hit our staffing targets. Let's serve our customers well. The demand is it's going to be there, whether it's now or whether it's three months from now.”

Three cities were scrawled on the back of that cocktail napkin that laid the foundation for Southwest; Dallas, Houston and San Antonio.

If a bullet train is eventually built between Dallas and Houston, Kelly was asked whether that will threaten the airline’s busy flight schedule between the two cities.

“It's sort of the equivalent of saying if an airline wants to come in and add flights, do we push back on that? Well of course not,” Kelly said. “I think what Herb Kelleher pushed back on in the 1980s was subsidized, you know, government funded high speed rail. We'd push back on that, or another airline being subsidized unfairly. It would definitely be something that we would have to pay attention to, but in terms of lobbying to prevent it… as long as it's fair and square, that's what we're all about. I mean people didn't like Southwest and tried to kill it in the early days and that turned out to be a mistake on their part. We're all for competition and very pro-consumer.”

When Kelly retires as CEO, he will become Executive Chairman at the airline.

Though his new schedule will not be as hectic, Kelly said he would like to visit his ranch in South Texas but will not be moving.

“No, I have four granddaughters in the Dallas area, which will prohibit [moving], right? My wife would never hear of that and that would be a dumb idea on my part as well” he laughed. “But yeah, I'll spend more time at the ranch. I've got lots of Mesquite [trees] to eliminate, to chop through."

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