Stronger Southwest PodcastEpisode 1 | Gregg Saretsky

Episode Transcript

Bri (0:00)

Welcome to Stronger Southwest, the podcast where we bring you the latest in Elliott Investment Management’s effort to restore Southwest Airlines to its industry-leading position.

Bri (0:12)

Joining me today is Gregg Saretsky, who brings over three decades of experience in the airline industry at three different airline companies, most recently as CEO of WestJet. Gregg, thanks so much for joining us today on the podcast.

Gregg (0:26)

Pleasure to be here.

Bri (0:28)

So, I’d like to start back to your university days, where you actually studied microbiology and biochemistry. So, running an airline is a bit different than being a doctor. So, how did you end up here instead of in the white coat?

Gregg (0:41)

Yeah, it’s a bit of a leap, isn’t it? I always thought I wanted to be a doctor, and so it was natural to pursue studies in biosciences when I went to college. And after my fourth year, I wrote the medical college admission test and got accepted and went into med school, did my first year there. And I started to think, “I’m not so sure this is really the career I want.” And we had a family friend who was a doctor, and he was questioning, like, “Why are you interested in being a doctor? You know, there’s so much administration and red tape.” And this was a long time ago. And he said, “You know, I would encourage you to do something different. Like, if you think business might be a more interesting field, you should pursue business.” So, I finished my first year, wrote my GMAT, went into the MBA program, got a business degree, started in banking, and that’s how it all began. And eventually the banking career led to a troubled airline that needed help. And that’s where I entered the airline business.

Bri (1:30)

And I also heard that you spent some time as a flight attendant and a gate agent during your university days?

Gregg (1:35)

I did. You know, I think I had the coolest job of anybody in college, of all my buddies. So, when they were going to work – I went to school in Vancouver, British Columbia, a big forestry industry, and they had a lot of summer help from college – so, they all went and worked in the forestry industry, and I had layovers in Paris and London and Frankfurt – it was pretty cool. My mother’s French, I speak French, and I studied Spanish, and so those languages allowed me to have that opportunity to fly international. And I was with Air Canada, which, funny enough, ended up being the biggest competitor of WestJet, when I eventually got to WestJet. And after two years, the airline was going through a downsizing, so they didn’t need me. And I made a leap in my summer job. Since I already had a taste in the airline business, I leapt to a company called Ward Air and became a passenger service agent. So, I worked in the airport, boarding flights, got to enjoy the hustle and bustle of getting aircraft on and off on time. They flew a fleet of widebody 747s and DC-10s to Europe and the Caribbean and Hawaii. So, it was kind of fun, you know, getting people off on their vacations.

Bri (2:34)

And I’m sure that definitely influenced your…once you rose to those leadership positions at different airlines. How do you think about that experience now?

Gregg (2:42)

Yeah. You know, I always say: that’s where the aviation fuel got in my blood. Because I had a taste of, you know, a couple of different aspects. I got the privilege of flying around and got the travel bug at the same time. And I think it gave me a perspective later on in leadership positions of appreciating all that it takes to run the airline business, that everybody has a job to do, and they’re all equally important. Right? That, you know, I, I think when I was a flight attendant, I thought, “Okay, how can I make this better for the customers that are flying with us today?” And when I was an agent, it’s like, “Okay, if I get this plane out on time, then the people who are flying are going to get to where they want to be on time.” And it was just a perspective, I think, that may have been a little bit different had I jumped right into a leadership role.

Bri (3:23)

Sure. So, I’d like to dive into your experience at Canadian Airlines International. And so, you joined during a very tumultuous time. So, it was this downturn of ‘91, you guys were facing increasing competitive pressures, you were the VP of marketing at the time. How was it during this turnaround?

Gregg (3:42)

Yeah, I call that “practiced dying,” that time at Canadian Airlines. I joined when the company was first having financial difficulties, and they were looking for people that had MBA degrees and had a minimum of two years work experience. So, I came from finance at the bank and joined the finance department in a group called “Vision 2000.” And the whole goal of this group, there was six of us and a VP dedicated to trying to imagine where the company could be in the year 2000. And this was 1985 when I joined Canadian Airlines. So, kind of looking out 15 years. And we got to work with all of the operating groups, and then on a rotation every six months, we went to a different group – trying to bring a different business/uninformed position. I got to ask a lot of crazy questions that led to some interesting answers. And so, I worked in maintenance, I worked in flight operations, I worked in the marketing department. And eventually, after several rotations, we got assigned to a department. And I ended up in marketing and worked in the planning department. And then ultimately years later as the VP of marketing – right at the time when the company was entering another phase of financial difficulty. Unfortunately, the company was overleveraged, had a very weak balance sheet. And so, any hiccup – oil crisis, economic downturn – any, any hiccup caused a real problem for the company’s, you know, operating ability. And so I got put onto another team at that time that was working on a plan to figure out how we were going to survive this particular downturn. So, we ended up really reviewing our product. We ended up doing commercial relationships with different airlines. We joined the Oneworld Alliance. British Airways was a big partner of ours. We ended up moving our flights to continental Europe, we moved them all to London. So, a big network shift. And then on top of that, we did an equity participation by American Airlines, about 25% of Canadian Airlines equity. And we partnered with them, and they infused us not only with cash through that transaction, but a lot of the technology that the company desperately needed. And so, you know, we, I think that a couple of years following were probably the two most productive years financially for the organization, and there was a great feeling of “[Exhale], we survived that one; and now we actually have a platform that we can go forward on.” And so, it was great to have that front row seat. I ended up being the senior vice president of the transition, I think was my, my title. And it was like having a front row seat at a completely different piece of the business.

Bri (6:18)

And so, as the leader of this, of this transformation’s transition, how would you apply that to Southwest and where they are today?

Gregg (6:27)

Well, I think there are a lot of parallels. You know, the thing about Southwest is they have a strong balance sheet, they have an incredible culture, they have a very storied history. And so, they have more raw materials to work with, certainly than we had when we were trying to figure out, you know, how we were going to put fuel in the aircraft next week sort of thing. But the things that we had to do in those days with respect to taking a deep dive and looking really critically at aspects of our business, I think are very much what needs to happen today at Southwest.

Bri (6:56)

Sure. And so, after your period of leading this transition, you jumped into another situation at Alaska where they were also in need of a turnaround. What was your role at Alaska?

Gregg (7:08)

Yeah, so, a little bit different because Alaska had always been a successful carrier. And on the heels of 9/11 – I joined Alaska just before 9/11 –and the airline, you know, airlines across the country were seeking government’s help. Many of them filed for bankruptcy. Alaska was only one of two that didn’t file for bankruptcy. Southwest was the other one. And the airline had to rethink what it was going to do, because clearly the future was going to look a little different than the past. There was lots of new security measures. It was going to impact how quickly we could turn aircraft. There was training events that had to take place. But most critically, demand had greatly diminished. People were afraid of flying. And so, we had more people and more planes than we needed, and we huddled as a leadership team – I was the senior vice president of planning at the time – and we asked ourselves a question: Is there something we could do here that would be different than everybody else? Since we’re not in a bankruptcy situation, as they’re retrenching, can we go forward? Before 9/11, we didn’t fly east of the Rockies. So, after 9/11, we said, “Look, we’ve got too many planes flying up and down the West Coast. Let’s keep them all flying and let’s go east of the Rockies.” So, we launched service to New York and Washington, Chicago, Denver. And that became the beginning of a brand new Alaska Airlines. And the cool thing was, we never had to furlough any employees. They all worked through it. Everybody put their shoulder to the wheel. You know, it was an exciting time because we were doing really different things, a little bit scary because, like, we had never come head-to-head with United and Delta and now we’re flying into their hubs and taking them on. But it was really great. And I think, you know, looking through the rearview mirror in history, it was a really turning point for Alaska Airlines. And from that, they started all kinds of expansion. And I think we’re only one of two airlines that didn’t furlough people after 9/11. So, a turnaround for sure. But under very different circumstances. And, you know, we didn’t have to seek bankruptcy because we were fortunate to have the strength of a strong balance sheet.

Bri (9:13)

And these two experiences gave you all the tools you needed to take on the CEO seat. So, you joined WestJet. And then very shortly after joining you became the CEO, and you led them through a massive period of expansion and really transformation. So, I’d love to hear a little bit about that and double click on your experience there.

Gregg (9:36)

Yeah, that was a highlight of a career for sure. I mean, first of all, WestJet was built on the Southwest formula. We were the Southwest of Canada: low-cost airline, single fleet, highly productive flying point to point. And 1996 was the year they were born. And of course, during the early days, they came under tremendous pressure from the incumbent carriers, Canadian Airlines and Air Canada. And there were a few lean years. I was not part of the company at that point. I joined when they were 12 years old. And so, they had reached the point of maturity and financial success, but they needed to start a new chapter. And so, you know, Yogi Berra coined the phrase, “When you get to a fork in the road, take it.” And we were at that fork, and we took one. And we decided that we needed to do something a little bit different. We wanted to drive a better financial performance. The company had never set a return on invested capital target for itself. So, we said, look, we need to start measuring ourselves by the shareholders who are investing in us expect a return, and for us to give them a great return, we have to have an ROIC goal. So, we set that goal, and we set it at 10% to start. Happy to say that over my eight years as CEO we achieved 11.8%. So, but to get there, we changed our formula a lot. We moved away from the pure play ULCC. We added a premium economy section. We started a new airline that provided regional feed. We changed our network. We ended up bringing in some – four – old Qantas 767s to start testing the water with long haul flying. Canada’s a big country, but of very few people. And so, to grow, to continue to grow, you have to keep finding new shores to fly to. And so, for us, it was, gosh, that the net that we needed to cast further should probably include Europe. Canada is a country of immigrants, mostly from Europe. And so, there’s a big pleasure vacation market but also visiting family and relatives market. So, we did a whole bunch of things that were very, very different. And at first, you know, the analysts were a bit skeptical that, gosh, this doesn’t look anything like the WestJet that was the Southwest model. And yet we were able to continue to grow and expand. We achieved an investment grade credit rating. Employees who started their careers had very fast opportunities for advancement. It was just a fun place to work. And then the thing that we had to really guard for through that whole period of time was the culture, because like Southwest, WestJet was built on their formula and their formula was all about the people. And so, when you’re really stretching the boundaries of what people had come to expect after 12 years, it puts a lot of pressure on the culture. And they’re doing things that were very different than they ever thought they would be doing. So, we were very mindful of that and brought the employees in early into discussions and made them very much insiders. It’s very difficult with a publicly traded company to share information that’s not public, but, to the degree that the lawyers said we could, we made them insiders on the plans. They knew exactly where we were going, what we were attempting to do and why. And with that, it really built a lot of, I think, credibility and the employees went along happily with the ride.

Bri (12:52)

And I think that this kind of relates really well to Southwest and where they are today, considering a lot of these value creation levers. And so how do you think about innovation at Southwest but also maintaining the culture that they’re known for?

Gregg (13:07)

Well, that’s the real secret sauce, right? Is being able to make these changes and keep the culture strong. You know, if a company loses its way, it loses its culture. And so, you really have to be mindful of both those things simultaneously. We’re not dealing with a company in financial crisis. The strength of their balance sheet and the strength of their culture will carry them through this rough water. But I think, like we experienced at WestJet. Keeping an open mind to the realm of possibility is really important, and saying that you’ll never do things, I would say “never” is too firm a word, right? And saying “we will never” is a really bad place to start, because I think it really limits your opportunity. That would be my advice to folks from Southwest, is: Keep an open mind. The things that you said you would never do, you probably will at some point. But the way you do them is going to be really important, so you don’t damage the culture.

Bri (13:58)

So, while you were at WestJet, there was a unionization effort. How does that inform your ability to relate with labor unions on the board of Southwest?

Gregg (14:12)

We had an employee association, so there was a flight attendant association, a pilot association. And what we did with them is we got them all together, monthly. And we had an employee association meeting that I chaired, and so they could bring their issues. And frankly, it was a form that created a lot of great dialogue. I heard firsthand what was going on in their world and what they had some concern about and had the opportunity to then address it immediately. The pilots decided that the union might actually be a better way of bringing their pilot group together. So, I don’t think it really changed much, other than now there was that third party, and you were dealing – instead of with the employees themselves – you were dealing with the business unit of the union, most of whom were employees, in any event, pilots of WestJet. I don’t think it changed really how you should be dealing with people. I always say you get the union you deserve. If you don’t treat your employees well, you’re going to have a very cranky union and you’re going to pay for it and probably deserve that. But if you treat them well, then you should be able to operate just as effectively with a union and make sure that, you know, their issues are addressed. I think where companies get into trouble with unions is not seeing the organization as the voice of the employees of your company. And that’s a big mistake. Great union relationships are founded on really making the investment of ensuring that issues are brought in a timely fashion and dealt with.

Bri (15:28)

And for our listeners who may be employees of Southwest, what’s a message that you’d like to convey to them?

Gregg (15:36)

I think it’s a message of hope. I mean, it’s the same reason why we were attracted to this opportunity to potentially be part of the Southwest Airlines story. It’s a great company with a great history, with so many things to leverage. And, you know, employees, they’re going to be skeptical, maybe even fearful or have some anxiety. And my advice to them was just keep an open mind and go along for the ride. You have a great company, and we can make it better together.

Bri (16:01)

And WestJet’s culture and their history of putting their people first is very similar to Southwest. How do you see your experience there helping you on the board of Southwest?

Gregg (16:11)

Yeah. I mean, we ripped that off from the Southwest playbook. So, and, you know, we had profit sharing at WestJet, as do Southwest employees. Now, when the company doesn’t perform, there’s not much profit to share, and that becomes a big disincentive to employees. So, it kind of has the opposite effect. What we found is that as we made these changes and we became more profitable, the employees got to share in that through the gain sharing programs, through profit sharing. And that was motivating to themselves. I mean, I remember stories that flight attendants would tell me that, you know, they paid their kids’ way through college on their profit-sharing checks. How cool is that? Right? And so, there has to be skin in the game. I think the employees, really, they’re so central to everything a company does, not just in the airline business, but perhaps more in the airline business than elsewhere, because it is a people business. You’re taking people on their trips of a lifetime or, you know, to weddings and family events, and the employees have a great opportunity to influence that in a very positive way. So, as a member of the leadership team or as a member of the board, I think we need to keep that front and center in our minds. Like, how do we engage the minds and the hearts of employees as we drive through a transition? So that when we exit on the other side, they feel really good about where we’ve exited?

Bri (17:25)

And I’ve been asking all of our candidates this. So, what excites you most about the possibility of joining the Southwest Board?

Gregg (17:32)

Well, I think it’s just, you know, having spent ten years of my life at the Southwest of Canada, and having been a part of some exciting changes that led to great outcomes, the opportunity to be part of the grandfather of the low cost carriers, to help them get back to a point of real prominence and profitability in the industry. You know, Southwest just has such a great story and such a great history and so many good things to be proud of and to leverage, that being a part of that, as an airline person, would be the best thing possible.

Bri (18:07)

Thanks, Gregg, so much for joining us today. I’m sure our listeners really enjoyed getting to know you a little bit and thank you so much for your willingness to serve Southwest.

Gregg (18:15)

It was great to be here, Bri. Thank you.

Bri (18:20)
For more information about the candidates, as well as information on how to vote, visit StrongerSouthwest.com. And please remember to subscribe to this podcast so you can stay updated with the latest episodes. Thank you and see you next time.