The Issue: A CEO's Call on Customer Service

James Parker, Southwest's former CEO, fought to save call-center jobs despite pressure from the finance team and tough times in the airline industry

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James Parker couldn't have picked a worse time to become chief executive officer of a major airline. In June, 2001, the former Southwest Airlines (LUV) general counsel was named to the top spot—just three months before the airline industry went into a tailspin following the terrorist attacks of September 11. While airlines all around him were cutting back on staff and salaries, Parker managed to protect Southwest employees' jobs.

Two years later, the Southwest veteran wasn't so lucky. The Dallas discount carrier's passengers had been among the first to embrace e-ticketing, and later, online reservations, when the industry first rolled them out in the 1990s. Initially, the airline thought online booking wouldn't make much of an impact, Parker recalls. In late 2003, Southwest had nine call centers with far more customer-service representatives than the airline needed—as online booking went from being a novelty to "wildly popular."

At that time, Southwest's finance team advised Parker that he could cut the number of call centers down from nine to just three. Parker didn't immediately follow their advice. "I know, according to the management books, that CEOs are supposed to be proactive in making decisions," he says. "I chose not to be so proactive. I wanted to see if the trends continued," and if some losses might naturally occur through employee attrition. As it turned out, Southwest's workers weren't going anywhere—the airline industry was still smarting from the aftershocks of September 11.

Couldn't Face the Firing

Parker knew slashing the ranks—especially among the airline's vaunted customer-service representatives—would be detrimental to the airline's well-known service culture and to morale. And Parker, who was already facing difficult contract negotiations with the airline's flight attendants, didn't want to be the first CEO to enact a mass furlough. While there were some on his team who wanted him to do much more, Parker ultimately decided to cut the call centers by just three, leaving six locations. And all affected employees were given the opportunity to relocate with full pay, seniority, and benefits if they chose.

"We could have saved a lot more money by replacing those well-paid people with low-paid, new-hire people," Parker says. "But that would have been wrong."

Ultimately, about two-thirds of the affected customer-service representatives decided to take Southwest up on its relocation offer; about 700 left and took severance pay. While the decision to reduce the number of call centers was extremely tough, Parker says he remembers well a conversation he had with the union leader at the time. "He told me, 'You've done everything you can do.' That made me feel a little better."

James F. Parker is the former CEO of Southwest Airlines and the author of Do the Right Thing: How Dedicated Employees Create Loyal Customers and Large Profits, which was released by Wharton School Publishing in November.

McGregor is BusinessWeek's management editor.