Wall Street vs. Southwest Airlines

If you had one standout success among several companies in a struggling industry, would you try to get that one company to be more like the others?

You might if you were Wall Street and the company was Southwest Airlines.

You don’t have to read very deeply between the lines of recent exchanges between analysts, investors and Southwest to grasp the exact nature of the pressure that Wall Street is exerting. The message is “charge more fees,” specifically “charge bag fees.”

Southwest alone among the major U.S. airlines does not charge passengers to check a first, or even second, bag. Wall Street, seeing other airlines reap hundreds of millions of dollars in bag fees, demands to know why not.

Gary Kelly, the CEO of Southwest, has stood firmly against bag fees, and the company has built an advertising campaign around the fact that it does  not charge them. Southwest is willing to add fees for new services, such as Wi-Fi (OK by me) and earling boarding (I hate that), but has not wanted to charge for anything it previously provided as part of the ticket price.

Wall Street is also pushing Southwest hard to “control costs,” which more or less means putting the squeeze on its employees. Southwest, which has never laid off a single employee, is focusing instead on increasing productivity and efficiency.

Given its relatively strong financial position, it’s reasonable to think that fees for new services, increased productivity and better efficiency will carry Southwest through to better times. But these things won’t satisfy Wall Street, in good times or bad.

This is more than a disagreement over strategy, it is a clash of cultures.

Wall Street is a culture based on profit in the short term, built almost entirely on numbers. Southwest has a culture of growth in the long term, built on relationships, with employees and with customers.

I ran my culture clash theory by Gary Kelly at Southwest’s recent Media Day (where I was a guest of the airline). He’s much too diplomatic to say harsh things about Wall Street, but he did say that his management team is strong, and focused on what’s best for the company.

So who’s right? I guess it’s possible that Wall Street is correct in the short term, which is as far as Wall Street’s thinking seems to go. But in the long term, Southwest has the better track record.

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