The Herb Kelleher era ended Wednesday at Southwest Airlines, with one final plume of cigarette smoke and Kelleher's cackling laugh as he...

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DALLAS — The Herb Kelleher era ended Wednesday at Southwest Airlines, with one final plume of cigarette smoke and Kelleher’s cackling laugh as he shook hands with adoring employees and shareholders.

Few executives are as closely identified with their company as Kelleher is with Southwest, the Texas puddle-jumper he built into a low-fare, no-frills giant and the most consistently profitable carrier in the country.

Kelleher stepped down Wednesday as chairman after presiding over his 31st annual shareholder meeting, a festive and emotional farewell at the company’s headquarters.

The pilots union gave Kelleher a framed photo of him in the cockpit. Others gave him T-shirts, a needlework coat of arms and a laudatory video. There were plenty of jokes about Kelleher’s love of whiskey.

“I’m Lucky Herbie for having all these years with all of you,” Kelleher said, his voice cracking, barely able to choke out some of the words.

Now 77, Kelleher gave up the chief executive’s job in 2001. He is under contract to continue on as an employee, at $400,000 a year, into 2013.

Kelleher’s future duties haven’t been spelled out, but the man who wore an Elvis costume to employee events and arm-wrestled the head of another company for the rights to an advertising slogan says he’ll show up at the office five days a week and do whatever Chief Executive and new Chairman Gary Kelly asks him to do.

Kelleher, whose smoker’s voice and wisecracking manner still bear evidence of his New Jersey roots, was practicing law in San Antonio in 1966 when a client talked about starting an airline that would link the biggest cities in Texas.

Kelleher and his client, Rollin King, prevailed during a long legal fight against behemoths, including American Airlines, and finally began flying in 1971. It was a rocky takeoff. The company soon sold one of its four planes just to raise enough cash to stay in business.

“That was the most perilous time for Southwest Airlines — 1970, 1971, 1972,” he said. “We were just trying to survive day to day.”

Kelleher kept his law practice while also serving as a board member at Southwest. He was named chairman in 1978, and CEO in 1981.

Over the next 20 years, Kelleher presided over Southwest’s growth in California and Chicago and its first transcontinental service.

The company’s hallmark was efficiency. It still flies only Boeing 737s to reduce maintenance complexity and turns incoming planes around with a new load of passengers in about 25 minutes. It long favored smaller, less-crowded airports, although lately it has expanded into big ones.

Southwest employees are now among the highest-paid in the airline industry, but they also work longer hours, making Southwest more productive than rivals, analysts say.

In 2001, with Kelleher nearing mandatory-retirement age and having endured a bout of prostate cancer that raised pressure on Southwest to devise a succession plan, general counsel James Parker was promoted to replace him as CEO. Kelly replaced Parker in 2004.

Last year, Southwest announced that Kelleher would step down as chairman after the 2008 annual meeting.

His career spans airline deregulation, recessions and now record prices for jet fuel that threaten to cripple the industry. He said this is the worst crisis ever for the industry.

“With fuel prices where they are, it’s a real threat to commercial aviation in America,” he said. “All airlines, not just Southwest, are doing a good job controlling costs. But if you get your costs down 10 percent and fuel rises 80 percent, you’re not making any headway.”

Kelleher believes higher fuel prices are now a permanent fixture in the airline business, because of voracious demand for energy in emerging markets and the decline of key oil fields limiting supply.

Kelleher was vague about his assignments now that he’s no longer the chairman. He said he expects to conduct lobbying missions, fighting Southwest’s battles in Congress and with the Federal Aviation Administration (FAA).

That would be no small task — a suddenly more muscular FAA recently hit Southwest with a $10.2 million civil penalty for flying planes that hadn’t been inspected for cracked fuselages. Kelleher and Kelly have met with FAA officials in an effort to reduce the penalty.

Ron Ricks, who oversees Southwest’s lobbying efforts, said Kelleher prepares for meetings with lawmakers the way an attorney might for an appearance before the Supreme Court — he “knows his facts, knows his issues, knows his audience, knows his adversary.”

“And most importantly,” Ricks said, Kelleher “never, ever loses his sense of humor or his competitive zeal.”