Southwest Airlines Just Made a Big Announcement That Will Make Southwest Employees Very Happy

Your profit is down from a year ago, as a result. And yet, now it’s time to announce annual profit-sharing with employees. What do you decide to do?

Southwest Airlines announced Thursday that it’s sharing a total of $667 million with Southwest employees as part of its profit sharing plan for 2019. 

That works out to a 12.2 percent bonus and “more than six weeks’ pay for every eligible employee,” according to the airline’s statement.

It’s also a 22.6 percent increase over the $544 million the airline shared last year, and the 47th profit-sharing year in a row for Southwest.

Of course, none of this happens in a vacuum. First off, the airline previously announced a deal with Boeing that allocates about $125 million to share with employees, due to the fact that so many of Southwest’s planes were grounded.

Without that addition, this year’s profit-sharing amount would essentially be flat.

And, Southwest made its announcement just weeks after one its big competitors, Delta Air Lines, which has about 20,000 more employees than Southwest, announced its own profit-sharing numbers: $1.6 billion.

The two other big U.S. carriers, United and American announced profit-sharing numbers at $419 million $213 million, respectively.

Now, it’s hard not to notice the order in which the size of the airlines’ profit-sharing programs are ranked: First Delta, then Southwest, then United, then American.

That also happens to be the order in which they’re listed in the recent Wall Street Journal ranking of the best and worst U.S. airlines.

Delta came in first; Southwest tied with its smaller competitor Alaska at second, United was eighth, and American was ninth.

Correlation? Causation? As scientists might say, it warrants further study. 

And as an observer, it suggests maybe it’s better to find ways to compensate employees that gives them a direct stake in your company’s overall success.

That’s hard to define in a big organization with a lot of roles, of course. I’m not sure how you’d calculate how much revenue a single flight attendant or gate agent brings in. 

But as a second-best measure, profit-related bonuses mean that when your employees act in a way that benefits the company, they can see directly how they’re benefiting themselves.

I love writing about the airline industry because it’s essentially a commodity business. It’s about renting a small piece of real estate, and safely delivering customer from Point A to Point B.

So, you can look at small differences between the airlines, and theorize more cleanly than in other industries that the small changes they make can have big results.

Change a bag fee? Reduce the space between seats by half an inch? Literally stop serving a certain type of cookie? You can very quickly see the outcome. 

It’s the same thing with profit-sharing and aligned compensation. Share the pie, get a bigger pie. That’s the theory anyway.

For companies like Delta and now Southwest, it seems like it works pretty well. Maybe it would make sense in your industry, too.