The Art of Business Wars by David Brown

Author:David Brown
Language: eng
Format: epub
Publisher: Harper Business
Published: 2021-02-20T00:00:00+00:00

Flying through a Loophole: Southwest Airlines vs. Everybody

The luxurious St. Anthony Hotel in San Antonio, Texas, has been host to many illustrious individuals over the years, including at least three presidents—FDR, Eisenhower, and Johnson. No heads of state are enjoying martinis tonight, however. This evening, in the spring of 1966, two men drink whiskey at the hotel bar, neither well known but each with an aspiration to achieve great heights.

Of the two, Rollin King has already reached for those heights. A couple of years earlier, the thirty-five-year-old investor bought Wild Goose Flying Service, a charter that flew San Antonio’s movers and shakers around Texas, mostly for hunting trips. Rebranded as Southwest Airlines, that charter recently went bust. Now King has a better idea. Though skeptical, Herb Kelleher, enjoying a cigarette with his usual Wild Turkey bourbon, decides he might as well hear King out. Technically, it’s his job; he’s King’s lawyer. A lawyer who wants to keep his client happy doesn’t necessarily say what he really thinks, if what he really thinks is that his client’s idea is “pretty stupid.”

On paper, King’s charter business had looked like a sure thing. Texas is the second-largest state after Alaska, spanning more than a quarter-million square miles. Like California, its major destinations are separated by vast distances. It should have been a natural fit for an intrastate air travel business. But Southwest had problems, King says. For one thing, it relied on slow, propeller-driven planes instead of jets like the big commercial airlines fly. The real reason the charter airline failed, however, was because it was a charter airline. King thinks he aimed too small by focusing on wealthy hunters. From personal experience, he knows how miserable it is to fly commercial between the major cities of Texas. Thanks to airline regulation, there’s no competition whatsoever. As a result, flights get canceled, bags get lost, and worst of all, tickets are exorbitantly expensive. A businessman like him can afford to fly at those rates, but millions more Texans would be happy to zip from Dallas to Houston to visit family or from Houston to San Antonio to see the Alamo—if only the trip were both reliable and affordable. The potential demand will be enormous if a company can provide a viable alternative to all that driving.

What King wants to build, he explains, is a full-fledged commercial airline, but one that flies only the “Texas Triangle”: Dallas, San Antonio, and Houston. (King later denied the often-repeated origin story that he drew this triangle on a cocktail napkin.) Kelleher scoffs and returns his attention to his bourbon, but King persists. If the other airlines’ only vulnerability were their unhappy customers, the scheme would never stand a chance. After all, what do King or Kelleher know about commercial air travel? But there is a larger vulnerability to exploit. It’s a loophole in the American system of air travel itself: federal regulations only apply to interstate travel. If a company only flies between cities in Texas, it can operate however it likes, outside of federal jurisdiction.

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