09 Nov 2009  Research & Ideas

Come Fly with Me: A History of Airline Leadership

A new book looks at the history of the U.S. aviation industry through the eyes of its entrepreneurs, managers, and leaders—men like Pan Am's Juan Trippe and Southwest Airlines' Herb Kelleher—each emerging at different stages of the industry's evolution from start-up to rebirth. Who comes next? An interview with coauthor Anthony J. Mayo. Key concepts include:

  • While disruptive forces can change an industry, so too can leaders themselves by the manner in which they run their enterprises.
  • Different archetypes of leaders emerged as the U.S. airline industry evolved from start-up phase through deregulation and the shock of September 11, 2001.
  • Airlines seem ripe for a new form of leadership to reenergize the industry.

 

Few industries have had the competitive challenges—the literal ups and downs—experienced by the U.S. airline industry since its formation in the 1920s.

Consider that its early pioneers had the unenviable task of selling tickets to people who thought airplanes were inherently dangerous. And until 1978, U.S. airlines were one of the most government-regulated businesses, when suddenly full deregulation changed the competitive landscape once again.

How individual executives both shaped the industry and were shaped by it is the subject of a new history of the airline industry and its leaders, Entrepreneurs, Managers, and Leaders: What the Airline Industry Can Teach Us about Leadership (Palgrave Macmillan), coauthored by Anthony J. Mayo and Nitin Nohria of Harvard Business School, and Mark Rennella, a former research associate.

"The story of the airline industry since its inception in the early years of the 20th century, as much as any business in America, is marked by dramatic changes in the context in which CEOs had the opportunity to forge their identity and the fortunes of their companies," the authors write in the book's introduction.

"Leaders are change agents who see opportunities and promise where others see only defeat."

At each stage of aviation's business life cycle—start-up, growth, maturity, decline, rebirth—new types of leaders emerged, such as entrepreneur C.E. Woolman at Delta in the 1920s and '30s; professional manager Juan Trippe at Pan Am during the war years; and innovator Herb Kelleher at Southwest near the end of the century.

In this e-mail interview, Mayo, director of the HBS Leadership Initiative and the Thomas S. Murphy Distinguished Research Fellow, discusses how executives representing different leadership archetypes emerged as the industry went through its life-cycle stages. (Read a book excerpt on Herb Kelleher and Southwest Airlines below.)

Sarah Jane Gilbert: Your research on the airline industry explores three types of executives: the entrepreneur, manager, and leader. How are they different, and how do they relate to the industry life cycle?

Tony Mayo: My research with Nitin Nohria on entrepreneurs, managers, and leaders of the 20th century began with the creation of the Great American Business Leaders database about six years ago. In building the database, we explored the interaction between leadership and contextual factors that impact the business landscape (geopolitical forces, demographic shifts, technological breakthroughs, labor policies, social mores, and government intervention). In studying the context in which business leadership emerged, we found that there were three distinct approaches to the way individuals seized the context of their times—some individuals created new businesses, others maximized growth opportunities, and still others found success in turning around dying or declining businesses. We called these the three archetypes of leadership: entrepreneurs, managers, and leaders. Our first book, In Their Time: The Greatest Business Leaders of the Twentieth Century (Harvard Business Press), explored these three archetypes within the context of the 20th century.

Following on this initial research, we sought to identify the role of entrepreneurs, managers, and leaders within one specific industry.

Q: Did your archetypes still ring true when you applied them to the airline industry?

A: In our research, we saw a clear link between these three archetypes and the evolution of the airline industry. While all three archetypes are present at each stage of an industry life cycle, there are certain concentrated times that favor each one.

Entrepreneurs are the dominant leadership archetype in the early start-up phase of an industry, especially as different players try to establish a viable business model. This was the case in the airline industry in the early years of the 20th century when various entrepreneurs competed for dominance. During this time, success was dependent on securing U.S. airmail contracts as well as on reliable and safe aircraft. Access to government officials, sources of capital, and technical expertise were important components of leadership.

Once an industry grows, the playing field is leveled, where one or two business models gain dominance, and managers who thrive in maximizing opportunities become the primary leadership archetype. The growth phase of the airline industry was framed by massive government regulation. Successful airline executives were able to navigate the structures of regulation during this stage.

As an industry peaks and begins to decline, leaders take center stage. Leaders are change agents who see opportunities and promise where others see only defeat. That was certainly the case for Southwest and JetBlue because these companies defined a new business model of success.

Q: Explain the relationship between the leadership styles of airline CEOs and the industry's "contextual landscape"?

A: Our study of the airline industry helps to shed light on the interaction between leadership and industry evolution. We found that the relationship was a coevolutionary one. The context of the industry impacts the type of leader or leader characteristics that are required for success. But this is not a one-way process. Leaders, by their actions, can influence the evolution of an industry as well. Most research on industry evolution has focused on disruptive external influences or technological breakthroughs. While disruptive forces can change the direction and potential for an industry, so too can leaders themselves by the manner in which they run their enterprises.

For much of the 20th century (from 1938 to 1978), the U.S. airline industry was heavily regulated. Under government regulation, airlines were not able to establish their own rates or route structures. Almost all aspects of the industry were under government oversight. Despite these restrictions, airline executives were able to influence the evolution of the industry through the introduction of key service elements like flight attendants, in-flight meals, and loyalty programs. Each of these service elements, which are common today, was introduced as a key differentiator by a specific airline. To sustain competitiveness, other airlines quickly adopted these service elements, and the industry baseline success criteria shifted.

Q: As the business environment has evolved, how have its leaders adapted to change, such as deregulation in 1978?

A: The advent of deregulation opened the formerly closed structure of the airline industry in a dramatic way. For 40 years, major airlines had limited competition—routes were parceled out by the Civil Aeronautics Board, and rates were relatively consistent among airlines. As I've noted above, the basis of competition was on service. After deregulation, all this changed. The former strong barriers to entry were eliminated, and many new carriers entered the market. While deregulation resulted in a dramatic increase in air travel, it also fundamentally changed the profit potential of the industry. Under regulation, airlines could bank on steady, stable profits and could pass along operational cost increases to consumers. This was no longer possible after deregulation.

Most of the legacy carriers had a considerable amount of difficulty adjusting to the new environment, and many of the airlines went through several failed leadership transitions. In the midst of this turmoil, more nimble airlines like Southwest, which were not trapped by a legacy structure, were able to thrive. Many traditional carriers are still struggling with this adaptation process.

Q: What impacts have recent market conditions had on the airline business model and the leadership styles of airline executives? From a management perspective, what challenges face airline leaders today?

A: Industries can evolve and change as a result of both external and internal forces. As the life cycle of an industry evolves, the dominant business model also typically evolves. In some cases, the disruptive forces appear gradually over a series of years (e.g., the shift from a regulated to a deregulated environment or the impact of certain legislative actions).

In other cases, these changes can be precipitated by a single jolt to the competitive landscape or a series of influencing factors that reshape and redefine the opportunities and parameters of success. The U.S. airline industry went through a seismic shift after the terrorist attacks of September 11. This external jolt to the industry further reinforced the need to reevaluate the manner in which the industry is run.

"While air travel will eventually rebound, the competitive landscape will be vastly different."

Today, the U.S. airline industry still primarily comprises carriers with two different business models: the traditional, large-scale hub-and-spoke model used by American, Delta, Continental, and United, and the smaller, point-to-point model used by JetBlue and Southwest. Several traditional carriers have tried to create "airlines-within-an-airline" to compete with the point-to-point carriers, including Continental Lite, Delta's Song, and United's Ted, but none have found success. The time seems ripe for a new form of leadership to reenergize the industry.

Will Southwest's no-frills, point-to-point approach become the new dominant business model, or will traditional carriers reinvent their businesses? This question has even more resonance in the wake of the global financial crisis that has devastated both leisure and business travel. After years of top-line growth and expansion, the airline industry is contracting—fewer carriers, fewer route options, fewer travelers. While air travel will eventually rebound, the competitive landscape will be vastly different, and airline executives will once again fight to build a sustainable business model.

Q: Who are some current business leaders you see that could be strong role models for the airlines?

A: Jeff Bezos of Amazon.com has been a maverick in the online retailing industry for a number of years. Amazon is one of the few 1990s Internet-based businesses that have built a viable business model. In building this model, Bezos has revolutionized many aspects of the book-selling and distribution process, and with his introduction of the Kindle, he has become an even more influential figure in the overall publishing industry. He and his company have influenced the way people buy and read books. Steve Jobs and Apple were similarly influential in the sale and distribution of music through iPod and iTunes.

Successful leaders possess the ability to understand the impact of the context on their business and to adapt their leadership style and approach to fit the business environment. General Electric has been able to continually reinvent itself to maintain its contextual relevance—and has done so for over 100 years.

Q: What can managers of other businesses learn from your findings?

A: While we focused our research on the airline industry, the lessons of coevolution are applicable to all types of businesses. The context certainly impacts the competitive landscape for an industry, and leaders, in turn, can influence various contextual factors. The length of a specific life-cycle stage (start-up, growth, maturity, decline, and rebirth) of an industry is a function of its leadership; the relative dominance of a specific business model; and the number, degree, and variability of contextual forces in the environment.

Regardless of the industry, certain characteristics can lengthen the stability period of an industry's life cycle such as:

  • Government regulation
  • Low consumer power
  • High barriers to entry
  • A dominant business model that is tightly integrated
  • Leadership dominance—usually the impact of founders

Conversely, the following characteristics can shorten an industry life-cycle stage:

  • Changes in regulation or other legislative actions
  • Global competitive threats
  • Changing consumer demands
  • Low barriers to entry
  • Many niche opportunities

As I've noted above, leaders who are successful in industries over a long period of time have become skilled at either adapting to or influencing the contextual forces within the competitive environment.

Q: What are you working on now?

A: I am working on a new management textbook primarily for undergraduate students with Nitin and Ranjay Gulati. We are trying to reconceptualize the manner in which the principles of management are taught. We plan to present the principles of management through three perspectives or lenses: the strategic perspective, the organizational perspective, and the individual perspective.

Book Excerpt: "Herb Kelleher at Southwest Airlines"

by Anthony J. Mayo, Nitin Nohria, and Mark Rennella

Wearing satin shorts and a bathrobe, Herb Kelleher prepared to enter Dallas's seedy Sportatorium during a winter morning in 1992. Kelleher's "athletic" look, topped off with a sweatband pushing back his hair, was deliberately undercut by a cigarette dangling defiantly from his lips.

Surrounded by an entourage rented from the world of professional wrestling, the 63-year-old CEO of Southwest Airlines had come to arm wrestle his company's latest nemesis: Kurt Herwald, the 38-year-old weightlifting CEO of Stevens Aviation, an aircraft maintenance company based in South Carolina. Herwald had recently taken offense when he learned of Southwest's use of the slogan "Plane Smart." It seems that Stevens Aviation had already been using "Just Plane Smart" as their slogan for the past couple of years. But instead of calling on his lawyers to get things straightened out, Herwald phoned Kelleher directly and challenged him to fight for the rights to the slogan, mano a mano. Seizing this as a chance for great publicity, Kelleher hyped the event as "Malice in Dallas," gave 700 Southwest employees the morning off and brought them to the event to cheer him on. The arena soon echoed with the chant of "Herb! Herb! Herb! Herb!"

After staging an entrance that Gorgeous George would have been proud of, Kelleher got to business. Although he strained with all his might against his adversary's obvious physical advantages, Kelleher lost the match. "If it hadn't been for my hairline wrist fracture, my cold and my athlete's feet, I would have won," Kelleher protested. Gracious in victory, Herwald allowed Kelleher to keep using the slogan anyway. More important than winning the rights to the slogan, both men succeeded in obtaining great publicity for their companies. In the case of Southwest, Kelleher showed the public yet again that the nation's seventh largest airline had a lovable, zany sense of crowd-pleasing humor that came straight from the top.

Although Kelleher's personality and fun-loving style certainly helped him to earn public relations points, one would be mistaken to assume that he was simply an off-the-wall businessman with a lucky streak. Spontaneous and unpredictable in public, Kelleher the CEO was as regimented and determined as an army general. Although Kelleher's antics brought the spotlight to his company, behind the scenes Kelleher was deadly serious about success. From his point of view, the airline business was "the closest thing to war in peacetime." He welcomed the stresses the job could bring, explaining: "Life to me is a competition, and you distinguish yourself by succeeding in the competition." At Southwest, Kelleher was legendary for his nonstop devotion to the airline, playing and working hard sometimes 16 hours a day for weeks on end. Even with this frenzied schedule, Kelleher claimed he could remain calm and coolheaded, thanks to what one journalist called his "existential detachment." As Kelleher himself declared, "You shouldn't get too heady about anything, because the greatest thing you do is not big in the universe. It's not saying it doesn't matter. It matters all the more. You're fighting against nothingness. But you don't give up. Therein lies the heroism." Whatever his deepest motivations were, Kelleher certainly never gave up. His success lay not only in his indefatigable competitive spirit, but also in his ability to maintain a focused approach to running Southwest—an approach that transformed the tiny Texas commuter airline of the 1970s into the biggest success of the modern airline industry.

If one had to choose a single word to summarize the reasons behind Southwest's financial and business successes, it would have to be "discipline." Although Southwest's employees can be as zany as their CEO (in a flight to Austin during the 1988 Christmas season, "flight attendants were dressed as reindeer and elves, and the pilot sang Christmas carols while gently rocking the plane"), their commitment to the airline and maintaining its profitability provides evidence of a compelling company culture. Maintaining longer hours than employees at other airlines, Southwest's highly productive workers during Kelleher's tenure were motivated by a vibrant working atmosphere, good wages, profit sharing, and the knowledge that no employees had ever been laid off at the company. This feeling of mutual respect and responsibility between management and employees inspired workers to take some extraordinary measures on behalf of their airline. For example, in the wake of the Gulf War and rising jet fuel prices, Southwest's Dallas employees initiated a "Fuel from the Heart" program in 1991 in which employees voluntarily incurred short-term payroll deductions to offset the firm's higher operations costs. Employees also more routinely accepted payroll deductions to help the families of fellow workers suffering from terminal illnesses.

Southwest's operational approach to the airline industry was a curious niche model for many years, but it was a model that was well poised for the increasingly competitive and cutthroat context in the third phase of the industry's evolution. Founded 10 years before deregulation, Southwest's tightly integrated and aligned operational model established a new benchmark for success in the industry. The utter simplicity of Southwest's business model (no frills point-to-point air service) is one that many large, established carriers have struggled to emulate. The sheer complexity of the business models that worked well in the relatively stable confines of regulation were not at all suited to the new competitive landscape of the airline industry under deregulation. Largely overlooked in the popular literature on Southwest, this culture combining wacky behavior and a deep commitment to the long-term health of Southwest and its employees was modeled after another airline with a very similar history. Pacific Southwest Airlines (PSA), which started in the late 1940s as a short-haul, intrastate airline based in San Diego, provided a model for Southwest. The former director of corporate communications for PSA maintains that Southwest personnel were trained by PSA in 1970; in addition, PSA allowed Southwest to use its own training manuals, "which gave the inexperienced airline 22 years of experience written down ... as formulas for success." In 1973, Southwest's head of marketing Jess Coker admitted as much when he stated that many of his airline's aggressive marketing campaigns were simply copied from PSA.

About the author

Sarah Jane Gilbert is a product manager for Harvard Business School's Knowledge and Library Services.

Excerpt reproduced by permission of Palgrave Macmillan from Entrepreneurs, Managers and Leaders: What the Aviation Industry Can Teach Us About Leadership by Anthony J. Mayo, Nitin Nohria, and Mark Rennella. Copyright 2009, Palgrave Macmillan.