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Few CEOS know how to whoop it up quite like Herb Kelleher. The irrepressible Kelleher, who in 1971 cofounded Southwest Airlines, has built a company in which impromptu celebrations are common. Sound frivolous? Quite the contrary, claims Kelleher. "What we do communicates itself to the outside world in better service and warmer hospitality," he says. And strong financial performance: the $3.8-billion Dallas-based Southwest has over the past 10 years grown its revenues by 388% and its net income by 1,490%. Staff writer Stephanie Gruner interviewed Kelleher to learn how he fosters esprit de corps.

Inc.: What's the secret to a good company party?

Kelleher: A lot of our celebrations are spontaneous, but we do have an awards banquet each year. If you're going to have that type of event, there has to be chemistry and excitement. It has to be an event that praises the goodness of the soul and brings out the idealism and the altruism in people.

All our banquets feature our people. We try to get baby pictures of all the people being honored at the dinner, and there are a ton of videos that feature our people. We bring in entertainers. They do skits and songs pertaining to Southwest Airlines, focusing on funny and sad things that have happened to the company and to the individuals involved.

Inc.: What did you do in the early days, before you had a big budget for parties?

Kelleher: We did the same thing but on a smaller scale. You can have parties without spending enormous sums of money. For example, we give some of our vendors, such as the people who provide the tents and the food, airline tickets instead of cash. That's valuable to them but costs us less.

Inc.: What are some of the other methods you use to build team spirit?

Kelleher: We constantly do things that show our dedication and our gratitude to our people. We have numerous airplanes that are dedicated to our people. In 1996--when for the fifth year in a row we had the best record among major airlines for on-time performance and for baggage handling and the fewest complaints for the number of customers carried--we dedicated an airplane to all of our 25,000 people. We put all their names on the outside of the overhead bins.

Inc.: Not every business owns airplanes. What's another way to achieve that effect?

Kelleher: In the hallways of our headquarters, we have photos of our employees--about 1,500 pictures of our people engaged in various activities, being honored, given awards. Those pictures show that we're interested not in potted palms or in Chinese art, but in our people. It's another kind of celebration, and it's something that costs very little.

Inc.: I understand that you've also been known to give out birthday cards . . .

Kelleher: I do, and it's not just birthday cards. It's a card saluting people on the anniversary of their employment with Southwest Airlines. It's Thanksgiving. It's Christmas. It's recognizing the births in families, recognizing the deaths.

Inc.: How do you keep the cards from seeming perfunctory?

Kelleher: There are very few people who think that getting a card on their birthday from the company is perfunctory--especially when you have 26,000 employees, as we do now.

Inc.: Do you ever worry about the amount you spend on employee recognition?

Kelleher: Well, if you were a statistician, you wouldn't do these kinds of things, because you'd say, "Well, we could save money if we didn't do it." Southwest Airlines has the best customer-complaint record in the American airline industry, and who can say how much that's worth? I could sit in my office one afternoon and cut Southwest Airlines' budget substantially by cutting these things. But that's like cutting out your heart.