Here’s why spending too much to keep staff happy may not pay off

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Southwest Airlines has long positioned itself as the friendliest airline. Famous for showing as much dedication to the wellbeing of its staff as its passengers, Southwest has never cut jobs or wages. This year, the airline will contribute about $228million to employees through its 40-year-strong profit sharing plan, its largest ever contribution. Employees own more than 4% of the company’s shares. Last year alone, Southwest spent more than $1billion on employee benefits, on top of base salaries.

"We had a great year in 2013 because of their collective efforts and contributions toward Southwest's success and profitability," said CEO Gary Kelly on the airline’s profit sharing plan.

But the airline spends a higher proportion of its costs on labor than its publicly listed competitors, an analysis by Quartz found:



If indeed a high investment in staff was key to a company’s success, then surely Southwest’s profit margin must be higher than its competitors, too, right? It turns out that maybe, that’s not the case. As of December 31, 2013, Southwest’s profit margin was respectable in its industry, but less than half one competitor, Spirit.

Airline profit margins as of December 31, 2013 SEC filings
  • Southwest: 4.79%
  • United: 1.5%
  • Jet Blue: 3.44%
  • Spirit: 10.28%
Notably, Spirit Airlines has the lowest employee satisfaction ratings on Glassdoor, with an average star rating of 2.4 out of 5, and only one in three raters approve of CEO Ben Baldanza. United is rated 2.9, JetBlue has an average 3.5, and Southwest can boast 4.2 stars and a 90% CEO approval rating. The numbers clearly aren’t corresponding to profits for the airline, though.

Spirit did not respond to questions, and Southwest declined to comment.
 
  • Jeff Tapp on 4/24/2014 1:11:35 PM

    I'd like to know what the revenue numbers are. 4.3% of a ten billion is much better than 10.28% of a one billion.

  • Business Partner on 4/24/2014 11:01:46 AM

    Have you flown Spirit Air? I can't believe they will be around for long if they maintain current customer service practices.

  • HR Human on 4/24/2014 10:10:13 AM

    I think it's worth noting that Southwest made a larger profit than United and Jet Blue, which have poor employee satisfaction numbers. Also, Spirit Airlines has a different business model than the major carriers, which contributes to it's high profits.
    I think it is admirable that a company would aim for more employee satisfaction over higher profits, but still be reasonably profitable. Maybe doing the right thing is it's own reward?

  • Thoughtful on 4/24/2014 6:32:45 AM

    Capitalism - profit is king, not worker quality of life. What is life about?

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