Remembering Herb Kelleher

Jan 4, 2019

The co-founder and former CEO of Southwest Airlines, Herb Kelleher, has died. He was 87. We are grateful Herb shared his story with us in 2016. We are republishing it as a tribute to his life and career, in which he transformed the US airline industry. More than 50 years ago, competitors sued to keep Herb Kelleher's new airline grounded. After a 3-year court fight, the first plane took off from Dallas. Today Southwest Airlines is the country's largest domestic airline.

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hey it's guy here and by now you may have heard that herb Kelleher the co-founder of Southwest Airlines died on Thursday heard was 87 and in honor of her we wanted to re-release this interview I did with him back in November of 2016 it is still one of my favorite all-time episodes of How I built this because his story and the way he tells it is delightful and funny and also a truly inspiring

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on account of sticking with an idea when the odds are stacked against you so here it is here's to Herb and enjoy

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you were basically introducing these really low fares were these Airlines trying to match your prices yes in some cases they were and we told the public of Texas that you could fly at the lower fare but if you paid the higher fare we would give you a free bottle of whiskey and so for a couple of months we became the largest liquor distributor in the state of Texas from NPR it's how I built this

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show of that innovators entrepreneurs idealists and the stories behind the movements they built I'm guy Roz and on today's show how an eccentric Texas lawyer turned a crazy idea in the Southwest Airlines now one of the biggest airlines in the world

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could you could you just start by introducing yourself mr. Keller make it herb if you would her please okay herb can you just say your full name this is Herb Kelleher and your best known as the founder of Southwest Airlines great how old are you now 85 okay great perfect okay we are very excited to talk to you about your story now I'm just going to jump in here for a sec to mention that before we really started our interview yeah I had some time to just chitchat with herb and I learned some interesting things about him

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got like what do you eat for breakfast normally for breakfast I have cheese crackers and what he likes to drink Wild Turkey Bourbon and that he's been a smoker for pretty much his entire life I just enjoyed the magical mystical Aroma and site of smoke so how soon after you wake up do you have a cigarette well it's a nanosecond it was that quick okay yeah with your cheese crackers even before by

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cheese crackers now for the story of how herb launched Southwest Airlines yet to go back about 50 years 1966 to be exact herb was a young lawyer he's living in San Antonio Texas where he had started his own Law Firm helping clients to start companies and one day one of herbes clients guy named Rollin King calls him up and he says hey I heard about this Airline called Pacific Southwest at flies only in California and I have an idea let's let's me

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drink Rollin came to me with the idea of setting up a similar operation in Texas and how soon after he sort of floated this idea to you saying yep let's do it let's start a company it was a very short period of time maybe you know like a minute that's fast wow no it was longer than that I was just joking but within a very short days within days within days well at first I was very skeptical

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but then I did some research and discovered that PSA was very successful in California that Texas supplied all the requisites for an intrastate Airline because it was a big state that had large metropolitan areas far enough apart to justify flying and so Houston Dallas and San Antonio will the obvious first targets because they were the three largest cities in Texas what did you know about Airlines at the time well I knew nothing about are

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which I think made me eminently qualified to start one there because what we tried to do at Southwest was get away from the traditional way that Airlines had done business so I started with the tabula rasa blank slate and I think that was very helpful so at this point in time how old are you by the way at that point in your life I was 35 35 okay so you had and your family yes right for children for children and you've got the successful Law Firm by the way was he was the airline industry

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three profitable at that time no it was not notably profitable as a matter of fact Warren Buffett reportedly joked about it at one time and said if a capitalist had shot down the Wright brothers at Kitty Hawk in 1903 the economy would probably be better off and so it didn't have very great returns it was constantly in difficulty so why did you even think that this was a plausible idea

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yeah well I think it was the Allure of doing something different doing something that was exciting I really always have had a great deal of curiosity and then I thought to myself well you know most of the adults in the United States of America haven't been able to fly because of the cost barrier it's too expensive it's too expensive you know they just thought it was business people on expense accounts and so what I'm saying is that

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in terms of market analysis there was a huge untapped market for flying out there

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okay so you decide with Rollin to start a company was that right you know I actually Incorporated it in March of the 1967 but of course that was just a piece of paper and we started to raise seed money to the extent of about $500,000 that's a bit was quite a lot of money to raise I guess yeah it was at that time it certainly was and we were set to go and what was a competition like at the time like with their other airlines

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that we're doing these Texas flights like-for-like between Houston and Dallas and these other places oh yeah they prove to be our biggest adversaries because they were not exactly warm welcoming and hospitable and Pat yeah we didn't get kisses on both cheeks when we announced that we intended to create an intrastate carriers so braniff continental and trans-texas later Texas International really took out after us and they kept us involved in political fights and fights in the courts

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and they just thought that they would apply their incumbency and their financial strength to bleed Southwest Airlines to death before it could ever fly so they were they were suing Southwest Airlines correct I mean what was their argument what why were they saying you shouldn't operate well you know the arguments that they made in court or actually all kind of specious and this is one illustration of where people attempt to use to manipulate

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government to prevent competition that's what they were up to so how long did it take you to fight these these legal challenges well between the time when I started working on forming Southwest and the time we flew our first flight it was four and a half years wow it took a little pertinacity yeah and during that time the company ran out of money and in 1969 the board of directors had a meeting and talked about shutting the

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line down selling the company down and I said well how about if I litigate for nothing and pay all the court costs out of my own pocket huh would you be willing to continue under those circumstances and they said oh sure so so how what was it that motivated you to fight for four years to launch this Airline well first of all I was idealistic about it because I figured if they can prevent Southwest Airlines from introducing

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what Southwest Airlines proposes to provide to the consumer then that is a sign that the free enterprise system is failing and one of the things that motivated me was to in effect validate the free enterprise system and another one was of course that it was very hot competition and

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I like to win but what's not like what I don't get is it was such a huge gamble anyway because you you could have spent those four and a half years fighting and then winning and then Southwest Airlines might have fizzled out anyway I'll tell you what guy you put your finger on something because if you had taken a poll in the state of Texas after we filed our application I can assure you that 99.9% of the population

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in the state of Texas would say this thing will never come to anything I'm very serious about that several people told that they said they were glad to see how how much the fight energize me and that I was enjoying it but herb don't kid yourself it'll never make a dime did you ever get saturd or depress me how did you keep your spirits up wild turkey helped it may provide hey guys may provide a little boost but frankly my spirits just

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don't get down I don't stress very easily hmm I'll give you an example only they had stress classes at Southwest Airlines years ago many years ago and they invited me to come over and speak you know the fellow that was running the classes and he said to the class he said we know her undergoes a lot of stress all the time herb tell the class how you handle it and I said I don't handle it I like it that was the last time I was asked back to the class so

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so you mean you were going in and out of court rooms for four years how are you making a living at that time well I was still practicing law I mean I was doing a lot of other things during that time which led to very long weeks on one occasion I was in the law office for two full days and at the end of those two full days I've won home shaved and one to a fundraising dinner for Southwest Airlines but that's kind of the

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perseverance that it demanded to help get Southwest Airlines started while still practicing law and doing many other things so what happened in the courts with the with the Southwest case it went through the United States Supreme Court and through the Texas Supreme Court twice before we could fly

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and the Texas Supreme Court handed down an order 19 hours prior to our first flight when was that that was in 19 June of 1971 we started flying on June 18th 1971 what was the flight where to go the first flight went from Dallas and San Antonio but the one that received all the publicity went from Dallas to Houston and we were the underdog it was sort of David versus Goliath is you know not just one but three of them

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so there was a lot of news coverage about it and that's the reason people paid a lot of attention to his finally getting under way so were you on that first flight by the way no I wasn't I was busy working to make sure there was a second flight do you remember that day that that first flight took off and remember how you felt that you feel like finally this is dunno oh it was wonderful and I'll tell you an experience I had when the first airplane came in it was over

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in Fort Worth at Americans hanger so I went over there and there's this airplane after four and a half years and I want up stuck my head in the back of one of the engines and a mechanic grabbed me pulled me back and he said you realize that thrust reverser goes off it will decapitate you and I said at this moment I don't give a damn yep

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so at this point Southwest Airlines is what is starts advertising it starts flying many ra what was that was a flying more than one route was it flying multiple routes whoa it was Dallas Houston Houston San Antonio in San Antonio Dallas and what was it what was it what are the cost to go to do one of those legs well on some flights we had affairs as low as $10 on others we had theirs as low as 15 or 20 dollars we were about 45 percent lower

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the other carriers so how are you able to do that how were you able to charge so much such a lower fare than the other Airlines and Texas through enormous productivity but how I mean I'm assuming you just had a few planes at the time well we start out with three and then we got a fourth one we had to get rid of one airplane in order to meet our payroll right after Southwest started flying and so we decided that we would fly a for

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on schedule with three airplane how do you do that ten-minute turns at the gate we bring that airplane in and 10 minutes after it stopped at the gate you know it would be pushing back again and we had airplanes that you know we're operating 12 hours a day sometimes so each one of those additional flights represented a revenue generation opportunity that the other carriers didn't have okay but even so I mean those other carriers like brandy

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and Texas International right I mean they were charging much much higher fares and couldn't it couldn't have just been that you turn to plans around faster no it was a whole Cadre of think you're right about that I was just giving you an example with the 10-minute turn because it's a vivid one in addition to that they were by definition monopolist they had been under 40 Years of federal government supervision through the ca be the the Civil Aeronautics board

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bored yes right and during that time if they had a little financial problem the ca B would just give them a fare increase and so that's how their fares got so high as compared to what we were doing since we weren't regulated by the ca B okay so you weren't regulated in the same way but I mean what were you doing other things like like paying your employees less well it depended initially we were paying them less as the years went on

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we were paying them more their total compensation was superior to the other carriers and in addition when we turned our first very slim profit in 1973 we set up the first profit sharing plan and the American airline industry and I think we made a profit of I don't know a hundred thousand dollars a year or something like that but that went on of course to pour billions into our employees pockets and your employees were were unionized as well

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yeah we were the most heavily unionized carrier in the United States are low costs were not due to being a non-union carrier since we were more unionized than our competitors were so you were basically introducing these really low fares were these Airlines trying to match your prices

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yes in some cases they were there's no question about that as a matter of fact braniff at one point put in a lower fare the Nares would say called an introductory Fair course they've been serving Texas you know for 40 years by that time but in any event one of the things that came out of that was we maintained our full fairs and we told the public of Texas that if you paid the higher fare we would give you a free bottle of whiskey and so forth

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for months we became the largest liquor distributor in the state of Texas

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so herb you know what if I think about flying at that time like I'm thinking of of like Mad Men and you know tumblers with scotch and like a glamorous experience but Southwest was competing on price I mean you were not you were not doing in Flight Cocktails so like what do people think of your service versus the competition guy got a story to tell you on that it was Thanksgiving of 1971 member we've been in business since June yeah and my sister-in-law

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delightful lady called me my real office and and she said herb she said I just flew from Houston to San Antonio on Southwest Airlines and I've traveled most of the world's Airlines which was true you know she was a world traveler and she said I know you're going to be a big success you've got the best in-flight service that I have ever experienced on any Airline wow and I said boy am I glad to hear that how many passengers were on the airplane

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she said just me

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and just a minute Southwest goes National and Herb convinces Travelers at Airlines do not have to serve in-flight meals I'm Gyros and you're listening to how I built this from NPR

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it's how I built this from NPR I'm guy Roz so throughout the 1970s Southwest Airlines they still only fly within the state of Texas but then in 1978 something really important happens Congress decides to completely deregulate the airline industry and for Southwest Airlines that means they could now start flying to new cities outside of Texas you know her at this point you Southwest is expanding and your competitors

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no longer just Texas Air Lines you're competing with like American and and and and Pan Am and TWA right like the national major International carriers start to become your competitors yeah so we're people skeptical that Southwest would be able to compete in you know the big leagues oh yes we were described as a Texas Airline that could only be successful in the state of Texas okay yeah and then we were described as a Sunbelt Airline

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that could not be successful outside the Sunbelt there is a press conference went into Baltimore where one of the reporters there said well you know mr. Keller he said I know you've been very successful out west but now you're coming to the east the most competitive part of the country as far as Airline service is concerned and I said yeah it's so competitive that when we start out here we're reducing your existing fares by 60%

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at how competitive does that sound to you I mean we're Southwest at that time were you guys already sort of No-Frills what we were no frills we're in a sense that we were short haul the net kind of restricts what you can do you have relatively short flight to like peanuts and drinks yeah yeah exactly and then pretzels and that sort of thing but you know when we started flying longer haul like from San Antonio to Los Angeles we had a press conference you know to announce a new service and one of the

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Otters their said well are you going to serve meals on those flights and I said no we're not we're going to charge you four hundred dollars less per trip right and I understand you can get a pretty good sandwich at chasen's for $400 so when I would Point did you give up your law practice actually that was at the request the board of directors in 1981 so you were still you still had your own law practice that you were doing other work for throughout the

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fire 1970s oh yes yeah and I'll tell you the truth you know I didn't really hang her to be part of corporate life because you know lawyers have a lot more freedom to do their own thing when and where they want to but we hired a very excellent fellow named Lamar Muse who was a real battler to get the company off the ground and operational he had substantial Airline experience and he did a wonderful job and so you know finally in 1981

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one we lost a successor to Lamar and the board director said to me you've got to do it and in did you want to do it while I felt I had to do it and I'll tell you why because the start of the 1980s you had unemployment of 10.8% you had a double-dip recession you had the air traffic controllers strike then Lamar Muse the guy we hired to get the company off the ground he launched a competitor against this called Muse are oh wait he

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left Southwest and then launched a competitor yeah so that's three years after he left gold Muse are how did you feel about that well I thought it was somewhat in modest on his part because he called it Muse are after himself yeah but where are you are you like what are you doing I mean I gave what we work together all these years and now you're I mean no we bought him later you bought him later yeah when they're on the verge of bankruptcy yeah we bought these are but it was there and

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1981 so I figured I better do what the board asked me to do and come to Southwest Airlines full-time was Southwest Airlines making money at the time yes we've been profitable every single year for 43 years I guess now an end it must have made the other airline's crazy because they were a lot of them have had good years and bad years but it seems like Southwest has just has never had a bad year

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well we've had years when you know earnings were down but we've never had a loss for a full year since 1972 and we've never followed an employee at Southwest Airlines when the rest of the industry during that period up until now as probably furloughed I don't know a million and a half employees throughout the world basically we looked at history and said this is a very dicey business to be a jolt the airline business yeah so we may be

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flamboyant from the marketing standpoint but we're going to be very conservative from the fiscal standpoint and I established a rule of thumb that we're going to pay 80% of the cost of all of our new airplanes from internally generated funds and actually wound up paying under percent for most of our airplanes so we had the largest percentage in our Fleet of owned airplanes

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of any carrier of any size so so what did I mean well I mean you're not taking on that right when you do that so when you get into the bad times you're not threatened by the debt payments which is put carriers into bankruptcy and out of bankruptcy and back into bankruptcy you know for 35 years you know her from the outside from listening to your stories the airline industry seems so brutal like is it do you think it's more Savage than

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than other Industries I think that it's more competitive than other Industries and one of the reasons for that is that our principal Capital assets the airplanes move it 540 miles an hour yeah and you know if you have a shoe factory that that fails in Seattle as an example you can't within hours transport that shoe factory to Chattanooga Tennessee to compete there

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but if your Seattle are service fails you can have your airplanes in San Antonio or Chattanooga within a matter of hours so the very mobility of your Capital assets breeds a lot of competition did you like that competition I did you like being an airline CEO and managing all that stuff was it fun for you well I have to adapt myself yeah I love being with the people of Southwest Airlines that was like a fountain of youth for me they were so

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the fall and entertaining and you know great to be with that part of it but when you're practicing lawyer pretty much do your own thing and it's a swift Pace well things didn't move as swiftly at first when I came to Southwest Airlines full-time and I'm we're moving swiftly compared to the rest of the airline industry but not compared to my experience were you pushing for expansion and growth

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and all this things during your tenure oh yes I mean Southwest Airlines expanded enormously you know from a very small base but I soon realize it was a speech that I want to hear where a guru said if you can improve a corporation five percent in a year that's a miracle I said oh okay I was trying to do 25% maybe that's why I was feeling a little frustrated so it really brought my thinking

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you know more in life you know I'm thinking even if it might have seemed like it was a slow process for you the fact that Southwest was growing and kind of prevailed in this Industries is pretty remarkable and it's pretty unbelievable given that you know so many of those early competitors don't even exist anymore and some of the great iconic Airlines TWA Pan Am they're gone exactly many of them there are very few left what mistakes did they make that you seem not to have made

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well we just did things differently like market share you know a shibboleth supposedly and I told anybody if they mentioned market share I'd punch him in the nose because here are all these big companies fighting over their market share and losing money in furloughing employees yeah so I said let's focus on profitability

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and if we have four percent of the market we're profitable that's better than having 90% of the market and being unprofitable

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what's the value of Southwest today see you know overall yeah oh probably twenty billion dollars something like that so that's why we're talking about one of the biggest airlines in the United States easily in the world in terms of passengers carried it's unbelievable yeah it really is it's like I've had too much wild turkey yeah I'm fantasizing by the when you started the company how much how much did you invest personally I invested

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thousand dollars which must be worth quite a bit today imagine well it's gone up some since then but at the company is what I thought was a requirement of good leadership I always turn down pay increases bonus increases to set a good example I thought for all of our people of course the stock that I got Rose enormously and value but that was in lieu of cash compensation see where you were mainly paid with with stock

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ah captions yeah basically was talk I got the biggest kick out just to give an Exemplar when I did a stock option deal in lieu of pay raises with our Pilots so they get Southwest Airlines stock options in lieu of the pay increase I took no pay increase along with them and I'm not trying to single anybody out but there was a the head of an airline that was smaller than Southwest Airlines and on the verge of going out of business whose salary and bonus were three times

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what mine were at Southwest Airlines and that's the way I wanted it by weight like are you ever worried that some you know some young you know herb Keller type characters going to come around and put up some upstart Airline and knock Southwest off its Throne I'm concerned about it all the time I wrote a letter to her employees and it was about my ten for most concerns for the next decade of Southwest Airlines okay yeah and number one was us

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that we ignore competition though we get complacent that we get cocky and I used a line think small and acts mall and will get bigger think big and act big and will get smaller so could happen one day oh it's possible you know I'm a history buff and if you look at the largest companies and United States as a 19th century turned into the 20th most of them are gone the central leather company

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in 1900 1901 was the 17th largest company in the United States but it didn't anticipate what the Advent of the Ford automobile was going to mean

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you know what it did hmm it made buggy whips and Saddles and never stop doing it until it was gone

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and if you look at countries or you look at companies they perish and if you have any sense of History you realize that and you know try to avoid it you know hearing the story of how you made this happen and all the work you put into it I wonder if you think you're just wired differently to be able to put up with all that stuff for so many years well I think yeah I probably am wired a little bit differently from from many people nerve probably very happy about that difference

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but one of the things is that I never look back you know I don't spend a lot of time regretting things that went wrong and furthermore I think that I've always had a great deal of fun out of what I was doing and you know people would say to me why don't you why don't you burned out yeah you know I was working a hundred hours a week now glands are very simply well it's easy when you have a passionate joy in what you're doing

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doing you don't burn out

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herb Kelleher co-founded Southwest Airlines 50 years ago and he served as CEO and then on the board before retiring in 2008 by the way herb Kelleher once result a trademark dispute with a rival Airline they're both using the slogan playing smart he resolved this not in court but by challenging the other CEO to a public arm wrestling match which herb Kelleher lost and you can see that entire arm wrestling match just go to Google and type

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up in the malice in Dallas