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This Is 1 Incredible CEO

The Motley Fool's readers have spoken, and I have heeded your cries. After months of pointing out CEO gaffes and faux pas, I've decided to make it a weekly tradition to also point out corporate leaders who are putting the interests of shareholders and the public first, and who are generally deserving of praise from investors. For reference, here is last week's selection.

This week, we're going to delve deep into the heart of one of America's most-hated sectors, the airline industry, and I'll show you why Southwest Airlines (NYSE: LUV  ) CEO, Gary Kelly, is flying high above everyone else.

Kudos to you, Mr. Kelly
There's not much to like about the airline sector from the ground up. Airlines are notorious for endless fees, have notoriously bad reputations for the quality of their customer service, and have a hideous track record when it comes to profitability. In fact, there have been more than 100 bankruptcies in the airline sector just since 1990.

Southwest has completely changed that mold. Southwest is one of the few no-nonsense regional airlines that doesn't charge its fliers for their first two checked bags. This may seem like a benign act, but it's had incredible implications. To begin with, it encourages more fliers to check their bags. Most airlines prefer passengers not to check their bags, as it absolves them of potential loss liabilities. Southwest sees things differently. With more fliers checking their bags, Southwest spends less time loading and unloading passengers and luggage from their planes which allows them to spend more time flying. So while Delta Air Lines (NYSE: DAL  ) will charge $125 for a third bag and $200 for each additional bag, you'll only begin incurring a fee with Southwest starting with your third bag.

A step above his peers
Southwest is also consistently profitable due to its tight cost controls, its high satisfaction rate among its customers, and the fact that it's successfully hedged its fuel costs for years. US Airways (NYSE: LCC  ) is one of the few airlines that chooses not to hedge its fuel costs, which can occasionally work in its favor, but often doesn't since oil prices tend to trend higher.

Southwest has been profitable in each of the past 10 years, which, may I add, encompasses the back-end of the negative impact of the tragic terrorist attacks, and the worst recession in 70 years. Not even regional airlines Alaska Airlines (NYSE: ALK  ) or JetBlue Airways (Nasdaq: JBLU  ) , which have relied on their route flexibility and competitive pricing to undercut the national airlines, have been able to stay profitable every year over the past decade. Simply put, Southwest is unrivaled.

But, there's one final piece to the Southwest puzzle that makes it great and places Gary Kelly well above his peers -- its 401(k) contribution match for its pilots' retirement savings plan. I might be kicking tires since pilots generally are compensated well, but the fact that Southwest matches dollar-for-dollar up to the first 9.3% of an employees' contribution is practically unheard of when it comes to company generosity.

Two thumbs-up
Sometimes it doesn't take rocket science to be a great CEO. In Gary Kelly's case it's as easy as keeping customer satisfaction rates high, keeping fees reasonable, perpetuating a long history of consistent profitability, and supporting a 401(k) match that's off the charts. Mr. Kelly easily flies into the rafters as a truly incredible CEO and gets a well-deserved two thumbs-up from me.

Do you have a CEO you'd like to nominate for this prestigious weekly honor? If so, then head on over to the new "CEO of the Week" board and chime in with your fellow Fools on who deserves some praise. If you don't have a nominee yet, don't worry: You can still weigh in on other members' selections.

Here at the Fool, we love management teams that have strong track records of rewarding their shareholders, which is why I invite you to download a copy of our latest special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind, whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He loves giving credit when credit is due. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2012, at 12:59 PM, turnerk17 wrote:

    You do realize that Southwest, Alaska and JetBlue are not regional airlines right? You should take a look at Southwest's recent "cost control" as their costs have exploded driving margins down significantly as they have no way to raise incremental revenue via bags (Their systems won't even allow it). Good try on the article, but maybe you should do some more research next time.

  • Report this Comment On September 12, 2012, at 9:26 PM, Shakinthefat wrote:

    Last year US airlines, except SWA, made 2.5 BILLION dollars on bag fees. As a SWA shareholder I think CEO Kelly is not looking after shareholder interest. Delta made 962 MILLION last year. Yeah the commercials are funny, making fun of bag fees, yeah the "bags fly free" painted above cargo bins are funny. But being arrogant is stupid and this CEO needs to reevaluate. I estimate SWA could make 800 MILLION on bag fees, that's a lot of money to be passed just to be arrogant!

    By the way AirTran airlines now owned by Southwest still charges for bags. How long will that last Mr Kelly?

  • Report this Comment On September 13, 2012, at 6:49 AM, djplong wrote:

    ...and there's an example of WHY this sector is so hated. Shakinthefat talking about how bad Southwest is to it's shareholders - the customers be damned.

    Southwest isn't doing it (passing up bag fees) to be arrogant. They're doing it to appeal to CUSTOMERS - you know, the people who actually GIVE THEM MONEY. Sure, they use humor in their ads - it's a proven tactic. But it works.

    Every domestic flight I've taken in the last 15 years except one round-trip was taken on either Southwest or JetBlue (that one exception was for a weekender where bag fees didn't matter and there was a fare sale on a non-stop versus the connection I would have had to take).

    I need a compelling reason to put up with the poor service and nickel-and-diming that the 'legacy' carriers practice. The only time I've used them are for trans-atlantic flights (and I've had no bag fees there since you get one checked bag free on most of those flights).

    So put a price on loyalty. What's it worth to the stockholder of JetBlue or Southwest that they are the only airlines I consider for domestic travel? If they put a $25 bag fee on my itinerary, they risk losing the $500 cross-country ticket.

  • Report this Comment On September 13, 2012, at 6:09 PM, bruce412 wrote:

    The one thing that concerns me the most is that right now Southwest seems to be spending money like they're printing it up in the basement. The buyout of Air Tran, new planes from Boeing, new cities, absorbing these new employees into the insurance programs,401's,profit sharing. Overnight,it's turned from that low fare budget carrier into the new legacy carrier. We all know that with time comes changes and that you have to be ready to change with the times. But they're just taking on too much, too soon.

  • Report this Comment On September 13, 2012, at 7:55 PM, counterforce wrote:

    I hate to be the one to pee in your Southwest Kool-Aid, but this is yet another example of someone reading a few articles and thinking they're experts in the airline industry.

    Mr. Kelly has presided over one of the most poorly-conceived and -implemented airline mergers in history. AirTran and Southwest announced their merger in 2010, and yet two years later you still can't buy a single ticket for both carriers, and probably won't be able to for at least another year. So, the benefits of a combined network are largely lost. Meanwhile Delta has fully integrated Northwest, and United and Continental are well on their way, too. How does that create value for shareholders?

    Second, as another poster mentioned previously, AirTran still charges bag fees...if Southwest is such a customer-friendly airline, why haven't they made AirTran follow suit? Because there's good money to be made in bag fees; AirTran collected $128M in bag fees in the first nine months of 2011 alone. Indeed, Southwest has announced AirTran will continue to collect bag fees until at least 2014.

    Along those lines, don't think for a second Southwest doesn't charge bag fees to benefit consumers. They'd add them in heartbeat if they could, but their antiquated reservations system simply can't handle it. I'll admit they've done a great job selling this to consumers and unwitting stock analysts, but not to anyone who reads beyond the headlines.

    Finally, friendly Southwest bought AirTran for one rid themselves of a competitor. Look at all of the cities that have lost low-fare service because they wouldn't be profitable with Southwest's higher costs. Is that how a consumer-friendly carrier acts? I don't think so.

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