Southwest Airlines (LUV): The Ghost Of Herb Kelleher

Juan Trippe is gone. The founder of Pan Am died in 1981. So is Howard Hughes who started TWA. Bob Crandall who started the frequent flyer program and the "hub and spoke" passenger feeder system is retired.

And, then there was Herb Kelleher. He started Southwest Airlines (LUV) with a pair of cowboy boots, a 737, and a bottle of Jim Beam. The airline’s stock out-performed all comers from the early 1980s until about two years ago. Now Southwest is run by people who know how to hedge fuel prices and negotiate with unions.

Southwest announced that its was gearing back its expansion and plane purchases. Hedging does not save enough money and labor costs are rising. The new CEO told The Wall Street Journal: "Because of escalating costs, our profits are lagging, and we intend to adjust and fix that."

Southwest used to have an edge. It was fun to fly. The employees loved the company. Costs were low because the company only flew one kind of plane. JetBlue (JBLU) had some of that for awhile, but the company blew it by leaving customers on planes for hours during a snow storm.

One of the really hard questions about growth companies is whether, once founders are gone, the firms can keep the spirit of the original enterprise. Usually not. Wal-Mart’s (WMT) stock has certainly not done as well since Sam Walton died in 1992.

Southwest probably could have kept some of its founding spirit. Customers still like friendly employees, funny stewardesses, a CEO who helps load luggage. But, it is unlikely that any of those things will be back.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.