How Southwest Airlines challenged a global crisis

This study is of the U.S. airline industry after the Trade Towers came down on September 11th. Well, ridership went to zero for the first two or three days after that event. But then when it returned, it never returned to above 80 percent of previous ridership levels, which would have been fine, except the U.S. airline industry was counting on at least 86 percent seat fill rate to make money. That's why seven firms declared bankruptcy almost immediately. The two firms hurt the worst were the short haul carriers, those who relied on short haul routes, because not only did people stop flying, but they especially stopped flying on short haul routes. We said, "I don't think I'll take the shuttle from Washington D.C. to New York. I think I'll take the train," or "I think I'll drive to Chicago from Detroit rather than taking a flight." So, by and large, those firms were hurt worse than normal. US Airways is one of those short haul carriers. So they not only downsized more than 20 percent, but declared financial exigency, and laid off people without benefits. That is, they violated the union contract, essentially said, "We have no money to pay you severance." Southwest Airlines is the other short haul carrier. They adopted a very different strategy. They said, "We will lay off no one."

Now, the question is how can you do that? Now, the CEO of Southwest Airlines said, "Look, we're losing millions of dollars every day, and clearly we can't do this indefinitely, but we're willing to suffer some damage, even to our stock price, to protect the jobs of our people." Now why would you do that? You want to show your people that you value them. You're not going to hurt them just to get a little more money in the short run. Not furloughing people breeds loyalty, it breeds a sense of security, it breeds a sense of trust, a relatively virtuous approach, virtuous motives.