February 23, 2006
Fortune 500 CEOs Exchange Ideas on the Energy and
Transportation Pipeline
By Amy Lavergne
Gary Kelly, CEO and vice chairman of Southwest Airlines, and William Greehey,
recently retired CEO and Chairman of Valero Energy, are on opposite ends of the
energy debate. While one of these men is looking for ways to efficiently run a
business dependent on oil, the other is dealing with acclimating to the new
energy regulations by the government.
In an interview with Jeff Greenfield, CNN senior analyst, for the PBS show
CEO Exchange, the two Fortune 500 CEOs discussed how their companies respond
to these changes.
Keeping Southwest in the Air
Kelly, BBA '77, who kept his company flying despite rising oil prices and harsh
competition, has made tough financial decisions to maintain both the company’s
profit margins and Southwest’s commitment to employees. One of Kelly’s solutions
was to use long-term contracts to keep costs down when purchasing fuel; the
company effectively bought fuel last year at about 40 percent below market
value.
“It’s not as much what we did do, but what we didn’t do,” he said during the
show’s taping at Hogg Auditorium Feb. 21. “We have no frills and keep focus on
what has value for our customers, which is getting them where they need to go on
time, with their bags and with a low fare.”
When it came to fuel, Kelly said they “approached it as an area of risk that
just needed to be mitigated,” like insurance coverage. But he admitted that
constant pressure to keep costs down in the wake of increasing competition is a
challenge.
“We’re looking for ways to improve customer service and become more efficient,”
he said, including more robust offerings through their Web site.
Fuel Costs vs. Profits
William Greehey, recently retired CEO and Chairman of Valero Energy, offered a
viewpoint from the side of the oil refinery business, which has seen profits
increase as oil prices rise.
“There’s such a misunderstanding of what makes up the price at the pump,” he
said. “We have no control over crude oil prices. When you take a look at the
other costs in the price of gasoline, about 30 percent are taxes.”
Fluid government regulations also make it difficult for companies like Valero to
make changes to their business. “We make plans based on what the government says
they are going to do, and then they don’t do it,” he said.
Greehey added that refining makes up a very small portion of the overall price
of gasoline. In 1997, Valero spun off its refining and marketing operations as a
new independent company.
“If you look at refining margins going back historically, you’d be better off
investing in a CD rather than refining,” Greehey said. “Margins have increased
in recent years, therefore profitability has increased. There have been
tremendous investments in refining.”
And while Valero’s profits are increasing, Greehey emphasized that the company
is dedicated to giving back to surrounding communities. “I believe strongly that
when you live in a community, you don’t take from it, but you give back and make
it better,” he said. “When we hire employees, they know exactly what kind of
company that we are.” Fortune magazine named Valero the third best company to
work for in 2006.
Editor's Note: In a previous version of this article, Mr. Kelly was quoted on the subject of leather seats. Please note that all Southwest Airlines planes have leather seats. We regret any misunderstanding created by the article.
Notable Soundbites
Greehey, on how to relax and “turn it off”:
“I always try to work around my family. I would go to
work early in the morning so that I could be there in the
afternoon to go to baseball games and spend quality time with my
kids. I’m always able to turn it off when I’m with my family.”
Kelly, on working hard and “turning it off”:
“I think you have to have a passion for the
business and you have to enjoy working hard. It is hard to turn
it off. I work in a 24/7 business, so I have to take advantage
of what life offers me. I have a good life and I have a great
job, but it would be disingenuous to say that it’s not hard
work.”
Greehey, on inexcusable offenses:
“A hardened rule in our company is to respect your employees.
Care more about your employees than you do yourself. People need
to feel like part of the family.”
Kelly, on inexcusable offenses:
“If you lie, you’re gone. We’re looking for people who are
warriors, hard workers and treat everybody with respect.”
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
