1
00:00:17,560 --> 00:00:20,999
Speaker 1: Pushkin too quick. No, it's perfect push kid stup.

2
00:00:21,400 --> 00:00:38,200
Speaker 2: You got it, Robert Smith, I'm gonna give you a

3
00:00:38,200 --> 00:00:40,600
Speaker 2: classic business origin story.

4
00:00:40,760 --> 00:00:43,760
Speaker 1: Do be a few of Jacob and just set the scene.

5
00:00:43,800 --> 00:00:44,879
Speaker 1: I want atmospherics.

6
00:00:45,400 --> 00:00:50,240
Speaker 2: It's nineteen sixty six San Antonio, Texas and a lawyer

7
00:00:50,600 --> 00:00:55,880
Speaker 2: named Herb tellerher is drinking wild turkey bourbon and smoking cigarettes.

8
00:00:55,520 --> 00:00:58,040
Speaker 1: As everyone did in nineteen sixty six at the Sane

9
00:00:58,080 --> 00:01:01,440
Speaker 1: Anthony Club, great bar name in Texas.

10
00:01:01,280 --> 00:01:05,160
Speaker 2: And so Herb. He's from New Jersey. His dad died

11
00:01:05,160 --> 00:01:07,319
Speaker 2: when he was twelve. He worked at the Campbell soup

12
00:01:07,360 --> 00:01:11,200
Speaker 2: factory in high school and college in the summers, grows

13
00:01:11,280 --> 00:01:13,520
Speaker 2: up to be a lawyer, eventually moves to Texas, and

14
00:01:13,640 --> 00:01:16,399
Speaker 2: on this particular night, he's drinking with a client of

15
00:01:16,440 --> 00:01:21,040
Speaker 2: his named Roland King, and Rowin's a Harvard MBA amateur

16
00:01:21,080 --> 00:01:24,959
Speaker 2: pilot and in fact, right around this time, Herb is

17
00:01:25,000 --> 00:01:29,360
Speaker 2: helping Rolin wind down this failed charter air business he'd

18
00:01:29,400 --> 00:01:33,640
Speaker 2: had called Wild Goose Flying Service basically like like flew

19
00:01:33,800 --> 00:01:36,280
Speaker 2: rich guys to go hunt in the in Texas, in

20
00:01:36,319 --> 00:01:37,040
Speaker 2: the country whatever.

21
00:01:37,200 --> 00:01:39,040
Speaker 1: So far as the most Texas story of ever Verry

22
00:01:39,160 --> 00:01:42,080
Speaker 1: Texas and Rollin says to Herb something like, you know, look,

23
00:01:42,240 --> 00:01:45,800
Speaker 1: I know you're working on this failed air charter business

24
00:01:46,240 --> 00:01:50,240
Speaker 1: that I have, but I think you and me we

25
00:01:50,240 --> 00:01:54,360
Speaker 1: should actually start a real airline. And Rollin takes a

26
00:01:54,400 --> 00:01:57,280
Speaker 1: cocktail napkin there at the bar, and he draws a triangle.

27
00:01:57,680 --> 00:02:01,880
Speaker 1: The top he reads Dallas, the bottom, left, he rights

28
00:02:01,920 --> 00:02:02,880
Speaker 1: San Antonio.

29
00:02:03,640 --> 00:02:04,840
Speaker 2: What's he right on the bottom right?

30
00:02:05,480 --> 00:02:06,920
Speaker 1: Houston, Texas, Houston right?

31
00:02:07,240 --> 00:02:11,080
Speaker 2: Good. You know, Rollin says, Look, these cities are hundreds

32
00:02:11,120 --> 00:02:13,760
Speaker 2: of miles away from me each other. Takes a long

33
00:02:13,800 --> 00:02:16,799
Speaker 2: time to drive from one to the other hours and

34
00:02:16,920 --> 00:02:19,120
Speaker 2: you know, at the time you could fly between them,

35
00:02:19,200 --> 00:02:22,480
Speaker 2: but basically nobody did. It was inconvenient, It was really expensive.

36
00:02:22,680 --> 00:02:24,200
Speaker 1: Flying is what you did when you need to go

37
00:02:24,200 --> 00:02:24,720
Speaker 1: New York.

38
00:02:24,560 --> 00:02:28,320
Speaker 2: To LA on business. Yeah, yeah, exactly. And so Herbs like,

39
00:02:29,280 --> 00:02:33,280
Speaker 2: this is a crazy idea, and I want to do it.

40
00:02:33,280 --> 00:02:36,520
Speaker 2: Turns out to Nepkin might be apocryphal, but the triangle

41
00:02:36,600 --> 00:02:39,359
Speaker 2: is real. Those cities are in fact in a triangle.

42
00:02:40,040 --> 00:02:42,360
Speaker 2: And on the strength of the triangle and the bourbon

43
00:02:42,520 --> 00:02:45,720
Speaker 2: and the cigarettes, they launched Southwest. And I'm going to

44
00:02:45,840 --> 00:02:49,680
Speaker 2: argue in the show today that Southwest is the most

45
00:02:49,919 --> 00:02:53,120
Speaker 2: successful airline in the history of America.

46
00:02:53,280 --> 00:02:55,959
Speaker 1: Let's do it. I'm Jacob Goldstein and I'm Robert Smith.

47
00:02:56,000 --> 00:02:59,040
Speaker 1: And this is Business History, a show about the history

48
00:02:59,440 --> 00:03:02,400
Speaker 1: of business. So it's called Business History.

49
00:03:02,680 --> 00:03:06,000
Speaker 2: Today on the show, we're talking about Southwest, which is scrappy,

50
00:03:06,080 --> 00:03:09,560
Speaker 2: which is fun, and which completely changed what it means

51
00:03:09,639 --> 00:03:12,960
Speaker 2: to fly in America. Southwest eventually got into trouble, but

52
00:03:13,080 --> 00:03:17,720
Speaker 2: it had this decade's long run of incredible consistent profitability.

53
00:03:17,960 --> 00:03:21,400
Speaker 1: That may sound simple, right, A business is profitable, But

54
00:03:21,520 --> 00:03:25,600
Speaker 1: in the airline industry, this is amazing. The airline industry

55
00:03:25,639 --> 00:03:29,359
Speaker 1: is notoriously one of the worst businesses in the world.

56
00:03:29,520 --> 00:03:31,920
Speaker 1: If you think about it. All those great airlines say

57
00:03:31,960 --> 00:03:37,080
Speaker 1: their names on buildings have disappeared, right, twa Eastern PanAm

58
00:03:37,240 --> 00:03:40,720
Speaker 1: Aloha went to Hawaii, right, And even the big ones

59
00:03:40,720 --> 00:03:45,320
Speaker 1: that are still around your Delta's, United's Americans, they've declared

60
00:03:45,360 --> 00:03:48,440
Speaker 1: bankruptcy at least once. At least once. It's just a

61
00:03:48,520 --> 00:03:52,320
Speaker 1: regular thing. The investor Warren Buffett notoriously said, I.

62
00:03:52,320 --> 00:03:53,840
Speaker 2: Don't say the investor Warren Buffett.

63
00:03:53,840 --> 00:03:56,200
Speaker 1: People know who Warren Buffett is, the singer Beyonce.

64
00:03:56,720 --> 00:04:00,640
Speaker 2: United an airline.

65
00:04:01,920 --> 00:04:05,640
Speaker 1: Warren Buffett always talked about how much he hated investing

66
00:04:05,640 --> 00:04:07,360
Speaker 1: in the airline industry, even though he said he was

67
00:04:07,360 --> 00:04:10,080
Speaker 1: somewhat addicted to it. He famously said, if a far

68
00:04:10,240 --> 00:04:13,839
Speaker 1: sighted capitalist had been President Kitty Hawk for the very

69
00:04:13,840 --> 00:04:16,480
Speaker 1: first airplane flight, he would have done his successor is

70
00:04:16,480 --> 00:04:19,120
Speaker 1: a huge favor by shooting Orville down.

71
00:04:19,520 --> 00:04:22,960
Speaker 2: It's rough. It's not Uncle Warren's kind of a hardness.

72
00:04:24,000 --> 00:04:25,200
Speaker 1: He's like no airplines.

73
00:04:25,240 --> 00:04:29,880
Speaker 2: Ever, It's okay, let's do the Southwest story, the Triangle,

74
00:04:30,040 --> 00:04:32,440
Speaker 2: the Triangle. We're going to start with the Triangle. One

75
00:04:32,520 --> 00:04:35,760
Speaker 2: obvious but very important fact about the Triangle. All three

76
00:04:35,800 --> 00:04:39,280
Speaker 2: of those cities, Dallas, San Antonio, Houston, they're all in Texas.

77
00:04:40,000 --> 00:04:42,760
Speaker 2: And this is really important in nineteen sixty six, the

78
00:04:42,800 --> 00:04:45,120
Speaker 2: late sixties when they're coming up with this idea because

79
00:04:45,839 --> 00:04:49,880
Speaker 2: at the time, interstate air travel was regulated by the

80
00:04:49,880 --> 00:04:51,760
Speaker 2: federal government. Right, if you want to fly from state

81
00:04:51,800 --> 00:04:54,120
Speaker 2: to state, the federal government is going to have a

82
00:04:54,120 --> 00:04:57,679
Speaker 2: lot to say about it. And so herbin Rolins figure,

83
00:04:57,800 --> 00:04:59,400
Speaker 2: you know what, we're not gonna have to deal with that.

84
00:04:59,440 --> 00:05:01,440
Speaker 2: We're just gonna stay inside of Texas.

85
00:05:01,480 --> 00:05:03,800
Speaker 1: And they've started in this place that it's actually pretty

86
00:05:03,839 --> 00:05:06,279
Speaker 1: rare in the United States to have a big state

87
00:05:06,400 --> 00:05:09,119
Speaker 1: with three population centers that far apart.

88
00:05:09,320 --> 00:05:13,160
Speaker 2: It's optimal. Yeah, And the way airline regulation worked at

89
00:05:13,200 --> 00:05:18,080
Speaker 2: that time in the late sixties feels wild, feels unimaginable today,

90
00:05:18,120 --> 00:05:23,280
Speaker 2: Like the federal government decided which airlines could fly which routes.

91
00:05:23,440 --> 00:05:25,640
Speaker 2: And by the way, at this time, they basically kept

92
00:05:25,680 --> 00:05:28,280
Speaker 2: saying no when people asked to fly new routes, like no, no,

93
00:05:28,320 --> 00:05:29,760
Speaker 2: we're not gonna let you do that. We're not gonna

94
00:05:29,839 --> 00:05:31,160
Speaker 2: let any more competition there.

95
00:05:31,240 --> 00:05:33,000
Speaker 1: And again, you're a major airline. You want to fly

96
00:05:33,040 --> 00:05:35,400
Speaker 1: from Denver to Seattle and you go to Washington, DC,

97
00:05:35,640 --> 00:05:37,800
Speaker 1: and you're like, I think this might be a good route, Like.

98
00:05:37,839 --> 00:05:40,600
Speaker 2: No, we've decided there's enough competition there. We don't think

99
00:05:40,600 --> 00:05:43,680
Speaker 2: there should be more. And the airlines who do fly there,

100
00:05:44,320 --> 00:05:47,080
Speaker 2: the government tells them down to the penny what they

101
00:05:47,160 --> 00:05:48,279
Speaker 2: can charge for a ticket.

102
00:05:48,839 --> 00:05:52,839
Speaker 1: This is amazing to me. It's like they're treading airlines.

103
00:05:52,839 --> 00:05:54,440
Speaker 1: And maybe they thought of it this way as a

104
00:05:54,480 --> 00:05:58,320
Speaker 1: public utility, like this power company. Yeah, this thing that well,

105
00:05:58,560 --> 00:06:02,239
Speaker 1: everybody needs it. It's important to our national security and such,

106
00:06:02,360 --> 00:06:04,760
Speaker 1: So we're going to regulate this down to the penny

107
00:06:04,800 --> 00:06:05,560
Speaker 1: you can charge.

108
00:06:05,720 --> 00:06:10,240
Speaker 2: And so this regulatory regime had some really striking effects. Right,

109
00:06:10,279 --> 00:06:13,440
Speaker 2: So the airlines are not competing on price, the government's

110
00:06:13,480 --> 00:06:16,400
Speaker 2: telling them the price, and so they wind up competing

111
00:06:16,440 --> 00:06:21,080
Speaker 2: on service. When people talk about how great air travel

112
00:06:21,160 --> 00:06:23,880
Speaker 2: used to be, this is the era they're talking about,

113
00:06:23,920 --> 00:06:26,840
Speaker 2: you know, and like it does seem like it was cool.

114
00:06:26,880 --> 00:06:30,120
Speaker 2: Like American airlines put a piano bar in first class,

115
00:06:30,120 --> 00:06:32,480
Speaker 2: Like there was a piano player there on the plane.

116
00:06:32,680 --> 00:06:36,000
Speaker 1: Oh so good, and you could like mingle and like smoke.

117
00:06:36,200 --> 00:06:38,440
Speaker 1: You could smoke and have a Martiniz.

118
00:06:39,000 --> 00:06:41,240
Speaker 2: Even in coach. Coach was good. Like pan Am would

119
00:06:41,360 --> 00:06:43,520
Speaker 2: roll a cart down the aisle with a with a

120
00:06:43,760 --> 00:06:46,240
Speaker 2: roast on it and they'd like carve your slice of

121
00:06:46,320 --> 00:06:49,680
Speaker 2: beef for you. Seats were wider, there was more leg room.

122
00:06:50,040 --> 00:06:52,640
Speaker 2: But like this came at a price, right, and not

123
00:06:52,720 --> 00:06:56,000
Speaker 2: just a metaphorical price, an actual dollars price. So here's

124
00:06:56,000 --> 00:06:59,640
Speaker 2: here's one example I found in nineteen seventy a round

125
00:06:59,640 --> 00:07:03,240
Speaker 2: trip ticket from New York to La cost two hundred and.

126
00:07:03,120 --> 00:07:03,960
Speaker 1: Eighty four dollars.

127
00:07:04,600 --> 00:07:08,160
Speaker 2: Robert Smith. If you adjust that for inflation, nineteen seventy,

128
00:07:08,720 --> 00:07:11,720
Speaker 2: two hundred and eighty four dollars. I got the BLSCPI

129
00:07:12,120 --> 00:07:13,640
Speaker 2: inflation calculator right here.

130
00:07:13,880 --> 00:07:16,600
Speaker 1: Nine hundred nine fifty no more.

131
00:07:16,800 --> 00:07:19,120
Speaker 2: Two hundred and eighty four dollars in nineteen seventy is

132
00:07:19,160 --> 00:07:23,800
Speaker 2: the same as two thousand, four hundred and thirty four dollars.

133
00:07:23,920 --> 00:07:25,440
Speaker 1: I'm not paying forty five.

134
00:07:25,520 --> 00:07:28,600
Speaker 2: I'm not paying one thousand, four hundred dollars. That's what

135
00:07:28,720 --> 00:07:30,920
Speaker 2: it costs a fly around trip New York, LA.

136
00:07:31,480 --> 00:07:33,760
Speaker 1: So it was like first class is today. But this

137
00:07:33,920 --> 00:07:34,880
Speaker 1: is like all the tickets.

138
00:07:35,000 --> 00:07:38,080
Speaker 2: Yes, and so to anyone complaining about how much better

139
00:07:38,080 --> 00:07:41,080
Speaker 2: air travel used to be, I say, just fly for

140
00:07:41,200 --> 00:07:45,080
Speaker 2: his class, because it's exactly the same. It's still rad Yeah,

141
00:07:45,120 --> 00:07:47,880
Speaker 2: apparently you walk past it at those big seats do

142
00:07:48,000 --> 00:07:51,680
Speaker 2: look cool. So you know, when businesses aren't competing on price,

143
00:07:51,800 --> 00:07:54,679
Speaker 2: this is what happens, right, You get very nice things

144
00:07:54,720 --> 00:07:57,200
Speaker 2: and they cost a lot of money. Right. This is

145
00:07:57,200 --> 00:08:00,120
Speaker 2: the world Herb and Rolin are getting into with Southwest,

146
00:08:00,320 --> 00:08:02,640
Speaker 2: and really it ends up being mostly Herb. Herb is

147
00:08:02,680 --> 00:08:04,760
Speaker 2: the key figure at the airline for a long time.

148
00:08:05,160 --> 00:08:08,080
Speaker 2: He trains his personal savings to launch the airline. He's

149
00:08:08,120 --> 00:08:10,480
Speaker 2: still working his day job as a lawyer, you know,

150
00:08:10,600 --> 00:08:13,360
Speaker 2: they do still have to get regulatory approval, not from

151
00:08:13,360 --> 00:08:15,800
Speaker 2: the federal government but from the state of Texas.

152
00:08:15,840 --> 00:08:17,760
Speaker 1: Freedom loving Texas, Freedom loving Texas.

153
00:08:17,760 --> 00:08:20,240
Speaker 2: They get a certificate saying they can go into business

154
00:08:20,240 --> 00:08:22,960
Speaker 2: serve in that triangle, and then the next day, the

155
00:08:23,120 --> 00:08:26,720
Speaker 2: very next day, three legacy airlines that flew those triangle

156
00:08:26,800 --> 00:08:30,840
Speaker 2: routes already sued to prevent Southwest from flying.

157
00:08:30,760 --> 00:08:34,200
Speaker 1: Saying what we don't want competitors, saying we don't need

158
00:08:34,360 --> 00:08:37,839
Speaker 1: more airlines, saying the market does not need more airlines,

159
00:08:38,160 --> 00:08:39,520
Speaker 1: and they immediately.

160
00:08:39,000 --> 00:08:43,000
Speaker 2: Got an injunction, even in Texas, even in Texas, Land

161
00:08:43,040 --> 00:08:44,720
Speaker 2: of the Free, remember the Almo whatever.

162
00:08:45,160 --> 00:08:46,840
Speaker 1: It's so funny to think of, right, this is the

163
00:08:46,840 --> 00:08:50,400
Speaker 1: way I think of the UK or Europe working, Right.

164
00:08:50,920 --> 00:08:53,079
Speaker 1: I forget that in the United States of America, you

165
00:08:53,080 --> 00:08:54,600
Speaker 1: would just be like, I don't feel like having a

166
00:08:54,600 --> 00:08:55,280
Speaker 1: new competitor.

167
00:08:55,520 --> 00:08:57,600
Speaker 2: Yeah, I mean, well, if you think about like mid

168
00:08:57,640 --> 00:09:01,280
Speaker 2: century America, right, which this still is, right, Like, you

169
00:09:01,360 --> 00:09:04,520
Speaker 2: have this history where in the thirties, if we go

170
00:09:04,559 --> 00:09:06,560
Speaker 2: back a few decades, right, you have the depression, and

171
00:09:06,559 --> 00:09:08,200
Speaker 2: then you have the New Deal, which is this moment

172
00:09:08,200 --> 00:09:12,000
Speaker 2: when the government really steps in to regulate the economy.

173
00:09:12,160 --> 00:09:14,760
Speaker 2: Banks were much more highly regulated, trucking was much more

174
00:09:14,840 --> 00:09:15,440
Speaker 2: highly regulated.

175
00:09:15,559 --> 00:09:17,480
Speaker 1: Yeah, and there was a distrust of business even at

176
00:09:17,480 --> 00:09:19,480
Speaker 1: this point, far from the depression. Yeah.

177
00:09:19,520 --> 00:09:23,840
Speaker 2: So that's the context, and that's why Southwest has to

178
00:09:23,920 --> 00:09:28,040
Speaker 2: fight this legal battle just to fly, and it actually

179
00:09:28,080 --> 00:09:32,000
Speaker 2: takes a year. For years, Southwest is blocked from flying.

180
00:09:32,040 --> 00:09:35,880
Speaker 2: They're spending all their capital on legal fees. And after

181
00:09:36,240 --> 00:09:40,760
Speaker 2: a while, the board says this, enough, we're just losing

182
00:09:40,800 --> 00:09:43,080
Speaker 2: money in court. We're not a real company. Let's give up.

183
00:09:43,160 --> 00:09:46,839
Speaker 2: And Herb says, look, I'll represent the company for free.

184
00:09:47,160 --> 00:09:48,800
Speaker 2: There's more legal fees. I'll pay him out of my

185
00:09:48,800 --> 00:09:50,679
Speaker 2: own pocket. And he keeps fighting.

186
00:09:51,080 --> 00:09:53,480
Speaker 1: Was he stubborn or was he like this is an

187
00:09:53,520 --> 00:09:56,040
Speaker 1: actual business opportunity. I'm one hundred percent convinced of it.

188
00:09:56,200 --> 00:09:57,160
Speaker 2: I think he was stubborn.

189
00:09:57,240 --> 00:09:59,560
Speaker 1: Okay, went through a lot of cigarettes.

190
00:09:59,040 --> 00:10:02,280
Speaker 2: So many cerets that'll lower it up like half of

191
00:10:02,320 --> 00:10:05,160
Speaker 2: their startup capital. But he's doing well in court, he's

192
00:10:05,200 --> 00:10:09,640
Speaker 2: winning in court. Eventually, by June of nineteen seventy one,

193
00:10:09,679 --> 00:10:11,680
Speaker 2: so this is years into it, things are looking good.

194
00:10:12,160 --> 00:10:16,680
Speaker 2: Southwest schedules its first flights for June eighteenth and on

195
00:10:16,720 --> 00:10:21,240
Speaker 2: the sixteenth, the rival airlines get wait for it, another

196
00:10:21,280 --> 00:10:24,880
Speaker 2: injunction to block Southwest, and Herb goes to Austin where

197
00:10:24,880 --> 00:10:27,040
Speaker 2: the State Supreme Court is, pulls an all nighter in

198
00:10:27,040 --> 00:10:30,040
Speaker 2: the law library, goes before a special session of the

199
00:10:30,040 --> 00:10:33,160
Speaker 2: State Supreme Court on the seventeenth and gets the court

200
00:10:33,200 --> 00:10:35,679
Speaker 2: to block the injunction. And he picks up the phone

201
00:10:35,800 --> 00:10:39,120
Speaker 2: and he calls this guy, Lamar Mews, who he's hired to,

202
00:10:39,440 --> 00:10:43,360
Speaker 2: you know, run operations at Southwest. Tell him the good news, says,

203
00:10:43,360 --> 00:10:46,640
Speaker 2: you know, we're good to go, and Lamar's like, are

204
00:10:46,679 --> 00:10:49,640
Speaker 2: we you know, like I feel like at this point,

205
00:10:49,760 --> 00:10:54,040
Speaker 2: surely there's gonna be another injunction and tomorrow we'll be

206
00:10:54,080 --> 00:10:56,120
Speaker 2: about to go and the Sheriff's going to show up

207
00:10:56,160 --> 00:10:59,280
Speaker 2: and say you can't fly. What do I do if

208
00:10:59,320 --> 00:11:02,760
Speaker 2: that happens? And Herb says, if that happens, and this

209
00:11:02,840 --> 00:11:05,840
Speaker 2: part's a quote, he says, roll right over the son

210
00:11:05,880 --> 00:11:10,439
Speaker 2: of a bitch and leave our tire tracks on his uniform. Oh, Herb,

211
00:11:11,040 --> 00:11:13,240
Speaker 2: So the next day come and in fact Southwest does

212
00:11:13,280 --> 00:11:15,240
Speaker 2: not have to drive over the sheriff. There were no

213
00:11:15,440 --> 00:11:19,640
Speaker 2: more injunctions, and they started flying, offering cheaper fares that

214
00:11:19,720 --> 00:11:23,840
Speaker 2: were like twenty percent lower than their competitors, and basically

215
00:11:23,880 --> 00:11:24,480
Speaker 2: nobody cared.

216
00:11:24,679 --> 00:11:27,439
Speaker 1: So I know, back in these days, if you were flying,

217
00:11:27,480 --> 00:11:32,559
Speaker 1: you were probably a business person and you probably had

218
00:11:32,600 --> 00:11:35,160
Speaker 1: your company pay for it, your secretary book the tickets.

219
00:11:35,200 --> 00:11:37,800
Speaker 1: You're just like, I gotta get from San Antonio to Houston.

220
00:11:37,800 --> 00:11:39,200
Speaker 1: I got to be there by nine to fifteen.

221
00:11:39,400 --> 00:11:43,479
Speaker 2: Yeah, exactly, Like nobody in that universe has an incentive

222
00:11:43,920 --> 00:11:46,280
Speaker 2: to save twenty percent to fly on some airline nobody's

223
00:11:46,320 --> 00:11:47,880
Speaker 2: ever heard of, Like, why would.

224
00:11:47,600 --> 00:11:48,040
Speaker 3: You do that?

225
00:11:48,720 --> 00:11:52,160
Speaker 2: And so Southwest is doing badly, and there's this amazing

226
00:11:52,200 --> 00:11:54,240
Speaker 2: moment a few months later where Herb's sister in law

227
00:11:54,280 --> 00:11:56,240
Speaker 2: calls them and is like, Herb, I got to tell

228
00:11:56,280 --> 00:11:58,240
Speaker 2: you I just flew on Southwest and it was the

229
00:11:58,280 --> 00:12:02,920
Speaker 2: most amazing flight, incredible service. And HER's like, oh, that's

230
00:12:02,920 --> 00:12:05,880
Speaker 2: so good to hear, and his sister in law is like, yeah,

231
00:12:05,960 --> 00:12:08,920
Speaker 2: on the plane, it was just me, the pilots and

232
00:12:08,960 --> 00:12:11,480
Speaker 2: the flight attendants. I was the only passenger.

233
00:12:11,600 --> 00:12:13,319
Speaker 1: It was incredible crushing.

234
00:12:13,520 --> 00:12:17,199
Speaker 2: But the way they turn it around is actually interesting

235
00:12:17,240 --> 00:12:20,560
Speaker 2: and delightful. And there's there's really two key things they

236
00:12:20,559 --> 00:12:22,880
Speaker 2: figure out. Two key things they do to turn it around.

237
00:12:23,080 --> 00:12:25,600
Speaker 2: The first one happens just later that year, and it's

238
00:12:25,600 --> 00:12:28,480
Speaker 2: that same guy, Lamar mused, the guy Keller her hired

239
00:12:28,520 --> 00:12:32,480
Speaker 2: to run operations. He's thinking about the fact that every

240
00:12:32,559 --> 00:12:36,560
Speaker 2: night Southwest flies an empty plane back from San Antonio

241
00:12:36,800 --> 00:12:39,560
Speaker 2: to Dallas to get a maintenance that's where their maintenance

242
00:12:39,559 --> 00:12:42,679
Speaker 2: center is, and it's like too late for businessmen. Nobody's

243
00:12:42,679 --> 00:12:44,240
Speaker 2: gonna fly at that point. They'll just stay in a

244
00:12:44,240 --> 00:12:47,480
Speaker 2: hotel on the company dime. Right, But Lamar thinks, like, well,

245
00:12:47,480 --> 00:12:50,079
Speaker 2: the plane's flying anyway, we gotta have a pilot on it.

246
00:12:50,360 --> 00:12:52,480
Speaker 2: What if we sell tickets really cheap and just see

247
00:12:52,480 --> 00:12:57,080
Speaker 2: if anybody buys them. So they offer tickets for ten bucks.

248
00:12:57,080 --> 00:12:58,920
Speaker 1: Oh crazy late night fair.

249
00:12:58,880 --> 00:13:02,040
Speaker 2: Right, although you know, adjusted for inflation, that's like eighty

250
00:13:02,200 --> 00:13:05,680
Speaker 2: but at that time, in that regulated expensive world, it

251
00:13:05,840 --> 00:13:08,520
Speaker 2: was crazy cheap. It was less than half of what

252
00:13:08,559 --> 00:13:12,000
Speaker 2: tickets usually cost. And they do like one radio app

253
00:13:12,200 --> 00:13:14,440
Speaker 2: or something. It's just like a cheap experiment. And the

254
00:13:14,640 --> 00:13:18,960
Speaker 2: first night they have one of these flights, they are swamped.

255
00:13:19,480 --> 00:13:23,199
Speaker 2: People are lined up to get on it, and crucially, crucially,

256
00:13:23,720 --> 00:13:27,959
Speaker 2: the people who are there look nothing like the people

257
00:13:28,000 --> 00:13:32,600
Speaker 2: who usually fly. Remember this is like the carved roast businessman.

258
00:13:32,679 --> 00:13:35,200
Speaker 2: I want to say business person, I'm the reallyest businessman. Sure.

259
00:13:35,400 --> 00:13:39,240
Speaker 2: Era of flying flying is you know, refined expensive. The

260
00:13:39,320 --> 00:13:42,240
Speaker 2: majority of Americans at this point have never been on

261
00:13:42,280 --> 00:13:45,760
Speaker 2: a plane nineteen seventy one. And so with this new

262
00:13:45,960 --> 00:13:50,920
Speaker 2: ten dollars late night fair, Southwest is not playing that game, right, Like,

263
00:13:50,920 --> 00:13:55,600
Speaker 2: they're not competing with the twenty six dollars midday businessman fair.

264
00:13:55,600 --> 00:13:57,839
Speaker 2: It's a whole different product almost.

265
00:13:57,520 --> 00:14:00,800
Speaker 1: It's a whole different customer base. These are people who

266
00:14:01,320 --> 00:14:04,160
Speaker 1: maybe they would have driven a few hours, taken the boss,

267
00:14:04,400 --> 00:14:07,240
Speaker 1: you know, the greyhound, and they see a price that's

268
00:14:07,320 --> 00:14:10,240
Speaker 1: like close ish to what they might have paid anyway,

269
00:14:10,400 --> 00:14:11,680
Speaker 1: and they're like, I'm getting on a plane.

270
00:14:12,120 --> 00:14:16,360
Speaker 2: Yeah, it's positive some right, Like they're not cannibalizing some

271
00:14:16,480 --> 00:14:20,480
Speaker 2: other fair. They're bringing new people into flying. And so

272
00:14:21,160 --> 00:14:25,240
Speaker 2: quickly they're like, oh, this is working. And they create

273
00:14:25,560 --> 00:14:30,560
Speaker 2: two fair classes, the regular weekday business person fair and

274
00:14:30,600 --> 00:14:34,120
Speaker 2: this cheap nights and weekends fair for the masses, and

275
00:14:34,160 --> 00:14:37,920
Speaker 2: it works. They have competitors, right, and because it's Texas,

276
00:14:37,920 --> 00:14:40,880
Speaker 2: it's easier for people to change their prices, and so

277
00:14:41,040 --> 00:14:44,880
Speaker 2: one of the old school competitors Branif. Remember bran If

278
00:14:45,200 --> 00:14:48,960
Speaker 2: really they were an airline. They cut their regular daytime

279
00:14:49,040 --> 00:14:52,200
Speaker 2: fare to thirteen dollars, half of what it had been before.

280
00:14:52,960 --> 00:14:54,960
Speaker 2: It was money loser for them. But like Classic, they're

281
00:14:54,960 --> 00:14:56,640
Speaker 2: a big airline. They can lose money on this little

282
00:14:56,680 --> 00:14:58,920
Speaker 2: fair and they figure, you know, Classic, big player move

283
00:14:58,960 --> 00:15:02,960
Speaker 2: will just bleed Southwest dry. And so Southwest has this,

284
00:15:03,520 --> 00:15:07,000
Speaker 2: I have to say, delightful response. When Branif does that,

285
00:15:07,080 --> 00:15:11,640
Speaker 2: they say, okay, we'll give you a choice, public customer.

286
00:15:12,200 --> 00:15:15,680
Speaker 2: You can pay thirteen dollars to fly midday, or you

287
00:15:15,720 --> 00:15:18,360
Speaker 2: can pay the usual twenty six dollars fare and get

288
00:15:18,360 --> 00:15:21,640
Speaker 2: the flight and a fifth of Shivus regal fifth of whiskey.

289
00:15:21,880 --> 00:15:23,720
Speaker 1: Well you just get that when you get on the plane.

290
00:15:23,880 --> 00:15:27,640
Speaker 2: Yes, yes, and a glass to come to the I think,

291
00:15:27,720 --> 00:15:30,440
Speaker 2: isn't that when they comes to the little valure pop? Yeah?

292
00:15:30,480 --> 00:15:32,400
Speaker 1: I mean it's only an hour flight. What could go wrong?

293
00:15:32,880 --> 00:15:35,440
Speaker 2: The people buying these tickets, these are the mid day

294
00:15:35,920 --> 00:15:40,240
Speaker 2: weekday tickets. They're not paying right, the company is paying,

295
00:15:41,040 --> 00:15:44,280
Speaker 2: and so why wouldn't they be like, yeah, I'm paying

296
00:15:44,480 --> 00:15:47,960
Speaker 2: twenty six dollars for my ticket, company, please pay me

297
00:15:48,120 --> 00:15:50,000
Speaker 2: back and then they get the whiskey.

298
00:15:50,080 --> 00:15:52,080
Speaker 1: Are you telling me they didn't report the whiskey to

299
00:15:52,120 --> 00:15:54,720
Speaker 1: their employer. They just took it home. Seems plausible, Yes,

300
00:15:54,800 --> 00:15:56,480
Speaker 1: they just took it home. I think it meets the

301
00:15:56,520 --> 00:16:01,040
Speaker 1: deminimus exemption. And so there's this moment when Southwest is

302
00:16:01,080 --> 00:16:04,440
Speaker 1: the biggest Shivus regal distributor in Texas. So what I

303
00:16:04,480 --> 00:16:08,480
Speaker 1: love about this story so far is Southwest And maybe

304
00:16:08,480 --> 00:16:11,760
Speaker 1: this is just you know, Herb's craziness really is that

305
00:16:11,840 --> 00:16:16,280
Speaker 1: they're really innovating and responding to what's going on. They're

306
00:16:16,280 --> 00:16:18,480
Speaker 1: able to change on a dime, really and come up

307
00:16:18,520 --> 00:16:22,880
Speaker 1: with these ideas in this staid industry where a sort

308
00:16:22,920 --> 00:16:25,840
Speaker 1: of by government definition, they didn't want anything to change.

309
00:16:26,400 --> 00:16:29,440
Speaker 2: Yes, And there's a weird way in which that regulation

310
00:16:30,200 --> 00:16:32,920
Speaker 2: is like their friend, right, you know, like the Bezos line,

311
00:16:33,160 --> 00:16:37,080
Speaker 2: your margin is my opportunity. It's sort of that vibe. Yeah, yeah, yeah,

312
00:16:37,120 --> 00:16:39,640
Speaker 2: So I do want to say one more thing about

313
00:16:39,680 --> 00:16:42,360
Speaker 2: sort of the vibe and the shivis regal and the

314
00:16:42,400 --> 00:16:45,800
Speaker 2: whole kind of Southwest positioning of itself in the marketplace

315
00:16:45,840 --> 00:16:48,040
Speaker 2: on what their brand was. Their brand was like we

316
00:16:48,120 --> 00:16:51,080
Speaker 2: are the wild Mavericks, we love whiskey. And there was

317
00:16:51,160 --> 00:16:54,320
Speaker 2: another piece of this that has aged less well, which

318
00:16:54,360 --> 00:16:57,880
Speaker 2: is the flight attendant uniforms that they came up with,

319
00:16:57,960 --> 00:17:02,360
Speaker 2: and they were these like extremely extremely short shorts.

320
00:17:02,480 --> 00:17:04,600
Speaker 1: And you've shown me a picture of this. We've all

321
00:17:04,639 --> 00:17:08,040
Speaker 1: seen the short skirts that stewardesses would wear at airlines.

322
00:17:08,320 --> 00:17:09,999
Speaker 1: These are way shorter.

323
00:17:10,040 --> 00:17:12,919
Speaker 2: They are way shorter. So this was an era where

324
00:17:12,920 --> 00:17:16,639
Speaker 2: there was like rampant sexism toward flight attendants in the

325
00:17:16,680 --> 00:17:21,120
Speaker 2: airline industry, and Southwest was definitely a part of that. So, okay,

326
00:17:21,280 --> 00:17:24,359
Speaker 2: it's nineteen seventy two, all right. Southwest has been up

327
00:17:24,359 --> 00:17:26,640
Speaker 2: and running for about a year. Those off peak fares

328
00:17:26,680 --> 00:17:29,920
Speaker 2: are popular, but the company is still losing money. Their

329
00:17:30,000 --> 00:17:33,120
Speaker 2: daytime flights are still running largely empty. Businessmen are still

330
00:17:33,119 --> 00:17:36,359
Speaker 2: flying Brandish or whatever. And by the spring of nineteen

331
00:17:36,400 --> 00:17:40,160
Speaker 2: seventy two, companies, I guess, checking account whatever, their current

332
00:17:40,200 --> 00:17:43,080
Speaker 2: account bank account is down to one hundred and forty

333
00:17:43,080 --> 00:17:46,359
Speaker 2: three dollars, not one hundred and forty three. One hundred

334
00:17:46,400 --> 00:17:47,800
Speaker 2: and forty three dollars. They're about to run out of.

335
00:17:47,760 --> 00:17:50,720
Speaker 1: Money in a warehouse full of whiskey. Don't get me right, whiskey.

336
00:17:50,760 --> 00:17:51,359
Speaker 2: They got the whisks.

337
00:17:51,359 --> 00:17:53,040
Speaker 1: They got the short shorts of the whiskey. But one

338
00:17:53,119 --> 00:17:53,960
Speaker 1: hundred and forty three.

339
00:17:53,800 --> 00:17:56,399
Speaker 2: Dollars you don't have to have airplanes. They have four airplanes, right,

340
00:17:56,400 --> 00:17:59,119
Speaker 2: that's their big asset. And so they decide they're going

341
00:17:59,200 --> 00:18:00,679
Speaker 2: to sell one of the planes. That's the way you

342
00:18:00,680 --> 00:18:03,640
Speaker 2: get money, ouch ouch, Right, So it means they're gonna

343
00:18:03,640 --> 00:18:05,119
Speaker 2: have to cut back on flights. They're gonna have to

344
00:18:05,200 --> 00:18:05,920
Speaker 2: lay people off.

345
00:18:06,080 --> 00:18:08,560
Speaker 1: And this, by the way, is the classic beginning of

346
00:18:08,560 --> 00:18:11,520
Speaker 1: a death spiral, when you start to cut essential parts

347
00:18:11,520 --> 00:18:15,359
Speaker 1: of your business. Yeah, and that means you make less money,

348
00:18:15,400 --> 00:18:17,480
Speaker 1: which means you have to sell another plane. And this

349
00:18:17,560 --> 00:18:20,440
Speaker 1: is like the way fewer flights means it's less convenient

350
00:18:20,480 --> 00:18:21,160
Speaker 1: to fly them.

351
00:18:21,320 --> 00:18:24,640
Speaker 2: Right. So there's this guy, Bill Franklin, who's in charge

352
00:18:24,640 --> 00:18:28,800
Speaker 2: of ground operations, and he says, okay, we just went

353
00:18:28,800 --> 00:18:31,399
Speaker 2: from four planes to three. I know a way we

354
00:18:31,520 --> 00:18:35,439
Speaker 2: can keep the same number of flights, same staff. We

355
00:18:35,600 --> 00:18:37,840
Speaker 2: just have to keep the planes we have in the

356
00:18:37,840 --> 00:18:41,080
Speaker 2: air more often. And the way to do that is

357
00:18:41,119 --> 00:18:44,959
Speaker 2: spend less time on the ground. And I think it

358
00:18:45,000 --> 00:18:47,639
Speaker 2: was actually really hard for me to find this number.

359
00:18:47,680 --> 00:18:51,439
Speaker 2: But my sense is that the turnaround time at the

360
00:18:51,520 --> 00:18:55,440
Speaker 2: gate for Southwest at this point was something like twenty five.

361
00:18:55,280 --> 00:18:57,840
Speaker 1: Minutes, which is amazing by today's standards. But they were

362
00:18:57,880 --> 00:18:59,960
Speaker 1: small planes, right, Yeah, So just.

363
00:18:59,920 --> 00:19:01,800
Speaker 2: To be clear what this means, Right, the plane comes

364
00:19:01,800 --> 00:19:05,280
Speaker 2: into the gate, passengers get off, the plane gets cleaned,

365
00:19:05,320 --> 00:19:12,000
Speaker 2: other passengers get on, whatever has to happen outside the plane, fuel, luggage, luggage, Yeah,

366
00:19:12,240 --> 00:19:14,879
Speaker 2: push back from the gate. All of that twenty five minutes.

367
00:19:15,320 --> 00:19:17,479
Speaker 2: And Bill Franklin is like, okay, we can keep our

368
00:19:17,480 --> 00:19:20,080
Speaker 2: current schedule with three planes instead of four. We just

369
00:19:20,119 --> 00:19:22,960
Speaker 2: have to go from twenty five minutes to ten.

370
00:19:24,160 --> 00:19:26,480
Speaker 1: It does not seem possible. What they said to him.

371
00:19:26,560 --> 00:19:29,359
Speaker 2: That is what they said to Bill Franklin. And here's

372
00:19:29,400 --> 00:19:31,960
Speaker 2: Bill Franklin's quote when they said it. He said, we're

373
00:19:32,000 --> 00:19:34,920
Speaker 2: gonna do ten minute turns with this airplane, and if

374
00:19:34,920 --> 00:19:37,040
Speaker 2: you can't do a ten minute turn, you're gonna get fired,

375
00:19:37,080 --> 00:19:38,960
Speaker 2: and we'll bring somebody else in. And if he can't

376
00:19:38,960 --> 00:19:41,359
Speaker 2: do a ten minute turn, we'll fire him to and

377
00:19:41,400 --> 00:19:43,800
Speaker 2: we'll just keep firing until we can find someone who

378
00:19:43,800 --> 00:19:44,199
Speaker 2: can do it.

379
00:19:44,240 --> 00:19:46,080
Speaker 1: I feel like, you know how now they say stay

380
00:19:46,119 --> 00:19:48,400
Speaker 1: seated until we're at the gate. I feel like at

381
00:19:48,400 --> 00:19:50,399
Speaker 1: this point at Southwest, they're like, as soon as the

382
00:19:50,440 --> 00:19:52,880
Speaker 1: plane touches down, they're like, take get up, get up,

383
00:19:52,920 --> 00:19:53,600
Speaker 1: get your stuff.

384
00:19:53,680 --> 00:19:55,639
Speaker 2: That is the bot, that is the vibe. So you

385
00:19:55,720 --> 00:19:58,200
Speaker 2: have like, you know, people from the from the back

386
00:19:58,280 --> 00:20:01,800
Speaker 2: office helping out. You have flight attendants cleaning the plane

387
00:20:01,800 --> 00:20:04,359
Speaker 2: from the back as the passengers they're getting off. Is

388
00:20:04,400 --> 00:20:07,040
Speaker 2: it a deep clean I am guessing not. I'm guessing

389
00:20:07,080 --> 00:20:09,159
Speaker 2: they were not worried about how clean the plane was.

390
00:20:09,200 --> 00:20:11,800
Speaker 2: That's not why you were flying Southwest for ten dollars,

391
00:20:12,640 --> 00:20:14,560
Speaker 2: you know. Then you have the gate crew like hustle

392
00:20:14,560 --> 00:20:17,520
Speaker 2: in the passengers on for the next flight. And then

393
00:20:17,920 --> 00:20:20,840
Speaker 2: once everybody's on the plane, just in the door, they

394
00:20:20,840 --> 00:20:23,640
Speaker 2: close the door and the pilot pushes back from the gay.

395
00:20:23,920 --> 00:20:26,640
Speaker 2: Are they waiting for passengers to sit down? No, they

396
00:20:26,680 --> 00:20:29,600
Speaker 2: are not. If they didn't make that rule until the eighties,

397
00:20:29,640 --> 00:20:32,640
Speaker 2: I don't know, almost because of Southwest, but maybe by

398
00:20:32,680 --> 00:20:35,480
Speaker 2: the way I just want it. There's a very very

399
00:20:35,480 --> 00:20:38,520
Speaker 2: interesting thing to talk about right here about the getting

400
00:20:38,520 --> 00:20:40,960
Speaker 2: on and everybody standing up. When you fly Southwest. As

401
00:20:41,000 --> 00:20:43,919
Speaker 2: you may know, if you have flown spy asked, you

402
00:20:44,000 --> 00:20:47,679
Speaker 2: don't reserve a specific seat. You just get on the

403
00:20:47,680 --> 00:20:50,480
Speaker 2: plane and you sit in the order that you've arrived. Yes,

404
00:20:50,600 --> 00:20:52,840
Speaker 2: the person who gets their first gets to get on first.

405
00:20:53,119 --> 00:20:55,000
Speaker 2: Person who gets their last gets to get on last.

406
00:20:55,240 --> 00:20:57,400
Speaker 2: There is no seat number, and even when you get there,

407
00:20:57,480 --> 00:20:59,679
Speaker 2: they don't give you a seat number. And much like

408
00:20:59,720 --> 00:21:03,280
Speaker 2: the subway, you if you see an open seat, you

409
00:21:03,400 --> 00:21:05,199
Speaker 2: hustle for it. Well, so let's talk about this, right,

410
00:21:05,320 --> 00:21:07,639
Speaker 2: Let's talk about what's the fastest way to get on

411
00:21:07,680 --> 00:21:11,320
Speaker 2: a plane. This, on one level, doesn't feel like the fastest.

412
00:21:11,359 --> 00:21:14,240
Speaker 2: I feel like I know hundred slowest ways to get

413
00:21:14,280 --> 00:21:16,480
Speaker 2: on the plane. Every time I'm lining up, I'm like,

414
00:21:16,680 --> 00:21:21,440
Speaker 2: really really parents with yers, I know, and then it's

415
00:21:21,480 --> 00:21:23,080
Speaker 2: just like are you going from the back, you're going

416
00:21:23,080 --> 00:21:25,520
Speaker 2: from the front, or you're going So people have studied this.

417
00:21:25,640 --> 00:21:29,200
Speaker 2: There is a literature of lane boarding back to front,

418
00:21:29,320 --> 00:21:32,760
Speaker 2: one of the classics. Quite slow in fact, because there's

419
00:21:32,760 --> 00:21:34,800
Speaker 2: a lot of waiting. There's a lot of standing and waiting.

420
00:21:35,520 --> 00:21:38,359
Speaker 2: People have come up with other ways, like window middle aisle.

421
00:21:38,520 --> 00:21:43,000
Speaker 2: There's actually an astrophysicist who came up with this very

422
00:21:43,080 --> 00:21:46,119
Speaker 2: elaborate system of like alternating rows and I think window

423
00:21:46,119 --> 00:21:48,720
Speaker 2: middle aisle. But a problem with window middle aisle is

424
00:21:48,760 --> 00:21:51,520
Speaker 2: you don't get on with like your spouse or your

425
00:21:51,600 --> 00:21:53,000
Speaker 2: kid you're sitting.

426
00:21:52,720 --> 00:21:54,800
Speaker 1: Next to, and you have to explain the whole thing,

427
00:21:54,840 --> 00:21:56,160
Speaker 1: and then you're just fighting with someone.

428
00:21:56,560 --> 00:21:59,520
Speaker 2: Ending on the study this get on and sit down

429
00:21:59,600 --> 00:22:03,720
Speaker 2: wherever is either the fastest or the fastest among any

430
00:22:03,760 --> 00:22:06,399
Speaker 2: reasonable way to get on a plane. It is shockingly fast.

431
00:22:06,520 --> 00:22:08,920
Speaker 1: Well, I have read that when computers look at when

432
00:22:08,920 --> 00:22:12,280
Speaker 1: people leave something like leave a sports stadium, it is

433
00:22:12,640 --> 00:22:18,440
Speaker 1: remarkably efficient because everyone is optimized for finding the best

434
00:22:18,440 --> 00:22:20,240
Speaker 1: way out and the shortest way out. And so you

435
00:22:20,359 --> 00:22:25,760
Speaker 1: have sixty thousand people all simultaneously optimizing. And you can

436
00:22:26,359 --> 00:22:26,919
Speaker 1: understand that.

437
00:22:27,040 --> 00:22:30,399
Speaker 2: I know, so Southwest didn't need an astrophysicist to figure

438
00:22:30,400 --> 00:22:33,400
Speaker 2: out that sit down wherever you are is fast. Right,

439
00:22:33,480 --> 00:22:35,520
Speaker 2: there's this sense of like, oh, I'd better sit out.

440
00:22:35,520 --> 00:22:38,280
Speaker 2: It's like the musical chairs version of getting out of plane. Right.

441
00:22:38,280 --> 00:22:40,520
Speaker 2: They just did it, and it helped them with their

442
00:22:40,560 --> 00:22:43,520
Speaker 2: super fast turns. You know, they don't hit ten minutes

443
00:22:43,560 --> 00:22:45,600
Speaker 2: every time. It's sort of the dream, but they hit

444
00:22:45,600 --> 00:22:48,520
Speaker 2: it sometimes and when they miss, it's still a lot

445
00:22:48,560 --> 00:22:51,320
Speaker 2: faster than twenty five minute. Right, And you know, remember

446
00:22:51,400 --> 00:22:53,200
Speaker 2: these plays are going back and forth back and forth

447
00:22:53,240 --> 00:22:56,119
Speaker 2: on these short hops all day long. So saving a

448
00:22:56,160 --> 00:22:59,920
Speaker 2: few minutes on every turn is huge. This means they

449
00:22:59,920 --> 00:23:04,000
Speaker 2: have a very large cost advantage relative to the other airlines. Right,

450
00:23:04,320 --> 00:23:08,040
Speaker 2: they've just reduced their fleet by twenty five percent. Right,

451
00:23:08,080 --> 00:23:11,000
Speaker 2: they've gone from four to three, and they can still

452
00:23:11,160 --> 00:23:14,440
Speaker 2: do the same number of flights, right, same amount of revenue,

453
00:23:14,800 --> 00:23:18,680
Speaker 2: less capital costs. And the next year, nineteen seventy three,

454
00:23:18,960 --> 00:23:22,399
Speaker 2: with all these changes, Southwest turns a profit.

455
00:23:23,000 --> 00:23:26,200
Speaker 1: Sort of amazing from what we know about the nineteen seventies,

456
00:23:27,000 --> 00:23:30,400
Speaker 1: I mean, I mean seriously, right, we have an oil

457
00:23:30,440 --> 00:23:35,880
Speaker 1: embargo in nineteen seventy three, We've got stagflation, huge inflation

458
00:23:35,960 --> 00:23:38,960
Speaker 1: later in the seventies, Like this is not an era

459
00:23:40,280 --> 00:23:41,480
Speaker 1: when every company is.

460
00:23:41,440 --> 00:23:43,480
Speaker 2: Probably you don't want to be starting an airline.

461
00:23:43,560 --> 00:23:47,080
Speaker 1: I mean, there is a theory that starting and growing

462
00:23:47,160 --> 00:23:50,159
Speaker 1: during hard times makes makes you make better choices.

463
00:23:50,840 --> 00:23:54,719
Speaker 2: Well, it is the case that Southwest from nineteen seventy

464
00:23:54,720 --> 00:23:58,359
Speaker 2: three on is going to be profitable every year for

465
00:23:58,440 --> 00:24:00,560
Speaker 2: the next forty seven years.

466
00:24:00,800 --> 00:24:03,760
Speaker 1: Stunning Well, because think of the oil prices during this time,

467
00:24:03,800 --> 00:24:06,120
Speaker 1: think of the inflation during this time. You know, problems

468
00:24:06,160 --> 00:24:10,280
Speaker 1: with unions. You're thinking about financial crashes recessions.

469
00:24:10,359 --> 00:24:10,600
Speaker 3: Yeah.

470
00:24:10,920 --> 00:24:13,120
Speaker 2: Yeah, So we're going to take a break and when

471
00:24:13,119 --> 00:24:17,120
Speaker 2: we come back, we're going to do Southwest big expansion, right,

472
00:24:17,119 --> 00:24:20,200
Speaker 2: and Southwest is gonna conquer America from.

473
00:24:20,000 --> 00:24:46,439
Speaker 3: Texas to the country.

474
00:24:47,960 --> 00:24:51,800
Speaker 2: All right, Robert, we're back with more Southwest. It's the

475
00:24:51,840 --> 00:24:55,720
Speaker 2: mid seventies. Southwest is there in Texas starting to make

476
00:24:55,720 --> 00:25:00,200
Speaker 2: a profit. These airlines that are flying cheap and making

477
00:25:00,280 --> 00:25:05,200
Speaker 2: a profit are weird outliers, right, because remember any airline

478
00:25:05,240 --> 00:25:08,920
Speaker 2: that's flying an interstate route is forbidden by law from

479
00:25:08,960 --> 00:25:11,439
Speaker 2: lowering its prices, And like, why would you want to

480
00:25:11,440 --> 00:25:13,800
Speaker 2: lower your price? This is right, Like you're a business.

481
00:25:14,119 --> 00:25:15,800
Speaker 2: You just want to go to the government and say, hey,

482
00:25:15,800 --> 00:25:17,320
Speaker 2: our costs have gone up, can we charge more in

483
00:25:17,359 --> 00:25:19,119
Speaker 2: the government's Like yeah, people.

484
00:25:18,880 --> 00:25:22,440
Speaker 1: Talk a lot about the competitive spirit, but like most people,

485
00:25:22,480 --> 00:25:25,400
Speaker 1: if you've got a pretty sweet gig and you own

486
00:25:25,440 --> 00:25:28,720
Speaker 1: an airline, right, you run an airline, life is good,

487
00:25:28,920 --> 00:25:29,320
Speaker 1: nice life.

488
00:25:29,400 --> 00:25:31,760
Speaker 2: Yeah, and you're not like a crazy billionaire, but like

489
00:25:31,880 --> 00:25:33,760
Speaker 2: you're rich, you have a pleasant life.

490
00:25:33,880 --> 00:25:35,959
Speaker 1: You get to wear a uniform sometimes whatever, you get

491
00:25:35,960 --> 00:25:36,960
Speaker 1: to right wherever you want.

492
00:25:37,040 --> 00:25:38,800
Speaker 2: So that's the way it worked for a long time.

493
00:25:38,840 --> 00:25:42,159
Speaker 2: But then around this time things start changing for a

494
00:25:42,200 --> 00:25:46,760
Speaker 2: few reasons. One reason is the seven forty seven, the

495
00:25:46,800 --> 00:25:50,040
Speaker 2: Boeing seven forty seven, the wide body, and of course

496
00:25:50,240 --> 00:25:52,920
Speaker 2: the airlines love it right because it's the big, shiny

497
00:25:52,960 --> 00:25:55,320
Speaker 2: new thing. You gotta have the big plane.

498
00:25:55,040 --> 00:25:57,199
Speaker 1: With a little hump on the top. Yeah, I love that,

499
00:25:57,600 --> 00:25:57,960
Speaker 1: love that.

500
00:25:58,560 --> 00:26:02,440
Speaker 2: More wild over the top services you can provide. Air

501
00:26:02,520 --> 00:26:05,880
Speaker 2: Canada puts a disco in its seven forty seven almost

502
00:26:05,880 --> 00:26:08,880
Speaker 2: two on the nose for the seventies airlines.

503
00:26:08,560 --> 00:26:11,080
Speaker 1: So good disco ball, you lower the lights and then

504
00:26:11,240 --> 00:26:12,800
Speaker 1: people just gook yah.

505
00:26:12,800 --> 00:26:14,520
Speaker 2: Smoking is what I go to for the seventies. So

506
00:26:14,720 --> 00:26:17,240
Speaker 2: the airlines love seven forty sevens, in fact too much.

507
00:26:17,280 --> 00:26:20,480
Speaker 2: They buy too many of them. And so now there

508
00:26:20,560 --> 00:26:23,639
Speaker 2: is a glot of seats flying around America. Airlines are

509
00:26:23,640 --> 00:26:26,600
Speaker 2: flying all these planes largely empty. And then they notice

510
00:26:26,640 --> 00:26:29,679
Speaker 2: over there, oh look Southwest. Southwest is making a profit

511
00:26:29,720 --> 00:26:33,400
Speaker 2: by selling just cheap tickets, no disco. So the big

512
00:26:33,480 --> 00:26:36,880
Speaker 2: national airlines start going to the government asking to do

513
00:26:36,920 --> 00:26:41,320
Speaker 2: this unheard of thing, cut prices, and for the first

514
00:26:41,359 --> 00:26:45,119
Speaker 2: time in like decades, the government says, well, okay, you

515
00:26:45,160 --> 00:26:48,960
Speaker 2: can cut your prices, and surprise when the airlines cut

516
00:26:48,960 --> 00:26:52,040
Speaker 2: their prices a lot, they get more customers. Yeah, people

517
00:26:52,080 --> 00:26:54,240
Speaker 2: fly more. Those empty seats start to fill up. But

518
00:26:54,280 --> 00:26:57,920
Speaker 2: there's another kind of big sweep of history thing happening,

519
00:26:58,440 --> 00:27:02,640
Speaker 2: and that is a change in the way people think

520
00:27:02,680 --> 00:27:06,800
Speaker 2: about business and government and regulation. And you know, we

521
00:27:06,880 --> 00:27:10,160
Speaker 2: talked before about this kind of mid century world where

522
00:27:10,160 --> 00:27:13,560
Speaker 2: the government was just much more involved in the economy

523
00:27:13,560 --> 00:27:16,280
Speaker 2: in lots of ways and how that worked for people.

524
00:27:16,880 --> 00:27:20,760
Speaker 2: But you know, now we're in the seventies, and the

525
00:27:20,840 --> 00:27:24,080
Speaker 2: seventies are a bad economic time, right. You have kind

526
00:27:24,080 --> 00:27:27,960
Speaker 2: of the rust belt is starting, and inflation is coming,

527
00:27:28,160 --> 00:27:30,399
Speaker 2: and the oil crisis is there.

528
00:27:30,720 --> 00:27:34,119
Speaker 1: And a huge distinction because when an economy is growing,

529
00:27:34,440 --> 00:27:36,920
Speaker 1: you can actually be a kind of a bad business,

530
00:27:36,960 --> 00:27:39,960
Speaker 1: you know, with heavy regulations. And every year, oh you

531
00:27:40,000 --> 00:27:43,240
Speaker 1: grow four or five percent. Everybody's happy, the government's happy,

532
00:27:43,240 --> 00:27:46,440
Speaker 1: you're happy, your customers are happy. But when an economy

533
00:27:46,480 --> 00:27:49,800
Speaker 1: starts to shrink, this is where the problems happened because

534
00:27:49,840 --> 00:27:51,000
Speaker 1: you're not used to it, and.

535
00:27:50,960 --> 00:27:55,400
Speaker 2: People start to rethink regulation. It's happening kind of popularly

536
00:27:55,520 --> 00:27:59,960
Speaker 2: and academically scholarly, right. So the scholarly piece comes out

537
00:27:59,960 --> 00:28:02,840
Speaker 2: of the University of Chicago. Of course, this economist named

538
00:28:02,840 --> 00:28:06,480
Speaker 2: George Stigler. In the early seventies, actually right around the

539
00:28:06,480 --> 00:28:08,800
Speaker 2: time Southwest is just getting its first flight off the ground,

540
00:28:08,840 --> 00:28:13,760
Speaker 2: Stigler publishes a paper called A Theory of Economic Regulation,

541
00:28:14,520 --> 00:28:17,239
Speaker 2: winds up being a hugely influential paper helps him get

542
00:28:17,240 --> 00:28:19,320
Speaker 2: the Nobel Prize later on, and he lays out the

543
00:28:19,400 --> 00:28:22,720
Speaker 2: key idea on the first page he writes this. He writes,

544
00:28:22,960 --> 00:28:27,840
Speaker 2: as a rule, regulation is acquired by the industry and

545
00:28:27,960 --> 00:28:31,520
Speaker 2: is designed and operated primarily for its benefit.

546
00:28:31,920 --> 00:28:34,840
Speaker 1: So what he's saying is you like to think government

547
00:28:34,880 --> 00:28:37,920
Speaker 1: regulation is cracking down on those evil businesses in order

548
00:28:37,920 --> 00:28:40,520
Speaker 1: to protect the guys. Yeah, yeah, yeah, But in fact,

549
00:28:40,640 --> 00:28:46,120
Speaker 1: what he's saying is that industries, especially incumbent players, want

550
00:28:46,160 --> 00:28:51,480
Speaker 1: the regulation to keep out scrappy independence trying to come

551
00:28:51,560 --> 00:28:52,480
Speaker 1: up and take your business.

552
00:28:52,640 --> 00:28:56,239
Speaker 2: Yes, he is saying regulation exists for the benefit of

553
00:28:56,360 --> 00:29:01,640
Speaker 2: the regulated businesses. And there is an economic term associated

554
00:29:01,640 --> 00:29:05,960
Speaker 2: with this. It's regulatory capture, which means the regulators are

555
00:29:06,000 --> 00:29:08,360
Speaker 2: captured by the industry they're regulating.

556
00:29:08,720 --> 00:29:11,280
Speaker 1: So the FAA at the time might include people who

557
00:29:11,320 --> 00:29:13,720
Speaker 1: worked at all the big airlines, and after you work

558
00:29:13,840 --> 00:29:16,320
Speaker 1: at the FAA, where are you going to get a job? Yes, Oh,

559
00:29:16,400 --> 00:29:18,400
Speaker 1: I don't know. How about American airlines?

560
00:29:18,520 --> 00:29:21,320
Speaker 2: Yeah, yes, And in Stigler's theory, and I think it's

561
00:29:21,320 --> 00:29:23,720
Speaker 2: fair to say, in fact, they were captured by the

562
00:29:23,720 --> 00:29:26,640
Speaker 2: airlines they were regulating. And you know, there's a case

563
00:29:26,680 --> 00:29:29,040
Speaker 2: that when the airlines were just getting going back in

564
00:29:29,080 --> 00:29:32,080
Speaker 2: the thirties, maybe it was reasonable for the government to

565
00:29:32,200 --> 00:29:34,400
Speaker 2: regulate them. Right, maybe they would have priced each other

566
00:29:34,440 --> 00:29:36,960
Speaker 2: out of business, maybe they would have cut corners in

567
00:29:36,960 --> 00:29:40,640
Speaker 2: a way that made it dangerous because of competition. But

568
00:29:41,040 --> 00:29:45,600
Speaker 2: forty years later, to still be blocking new airlines on

569
00:29:45,680 --> 00:29:50,520
Speaker 2: the grounds that they'd be too cheap, Like, that's regulatory capture.

570
00:29:50,560 --> 00:29:54,320
Speaker 2: And it resonated not just as an academic idea, but

571
00:29:54,440 --> 00:29:58,760
Speaker 2: as a popular idea. And it's interesting the timing of

572
00:29:58,800 --> 00:30:01,440
Speaker 2: this and the politics of this, because you know, the

573
00:30:01,480 --> 00:30:05,280
Speaker 2: sort of standard story of this is it happened in

574
00:30:05,280 --> 00:30:07,840
Speaker 2: the eighties under Ronald Reagan. Right, Ronald Reagan brought this

575
00:30:07,880 --> 00:30:11,640
Speaker 2: Conservative revolution where he and the federal government deregulated the economy.

576
00:30:11,680 --> 00:30:14,680
Speaker 2: But that's not true in the case of airlines. This

577
00:30:14,760 --> 00:30:18,160
Speaker 2: started in the seventies. Ted Kennedy was a big proponent

578
00:30:18,200 --> 00:30:22,880
Speaker 2: of deregulating the airlines, and Jimmy Carter, the Democratic president

579
00:30:22,880 --> 00:30:26,800
Speaker 2: in the late seventies, appointed this skeptic of regulation to

580
00:30:27,040 --> 00:30:30,480
Speaker 2: run the federal airline regulator. The CAAB was at the

581
00:30:30,760 --> 00:30:34,800
Speaker 2: Civilian Aviation Board. I believe that was this board that

582
00:30:34,800 --> 00:30:37,560
Speaker 2: did all the pricing and stuff. And in nineteen seventy eight,

583
00:30:37,680 --> 00:30:41,960
Speaker 2: Congress passed a law to deregulate the airlines, bipartisan. Carter

584
00:30:42,080 --> 00:30:46,320
Speaker 2: signed it into law. So now all of these rules

585
00:30:46,320 --> 00:30:48,440
Speaker 2: about who can fly wear and what they can charge

586
00:30:48,480 --> 00:30:52,200
Speaker 2: that have guided almost the entire industry but not Southwest,

587
00:30:52,480 --> 00:30:53,160
Speaker 2: are gone.

588
00:30:53,280 --> 00:30:56,160
Speaker 1: And remember, at this time, people thought there was something

589
00:30:56,560 --> 00:30:59,800
Speaker 1: very broken about America and American capitalism because in the

590
00:30:59,880 --> 00:31:03,959
Speaker 1: nineteen seventies we're also seeing this sudden influx of Japanese cars,

591
00:31:04,280 --> 00:31:07,480
Speaker 1: which they feel are cheaper and built better, and there

592
00:31:07,560 --> 00:31:10,040
Speaker 1: was this overwhelming sense I mean, I guess President Carter

593
00:31:10,120 --> 00:31:13,360
Speaker 1: said it as this malaise like we're a country that

594
00:31:13,440 --> 00:31:16,040
Speaker 1: doesn't innovate that and part of the problem is the

595
00:31:16,080 --> 00:31:17,520
Speaker 1: government at this point.

596
00:31:17,480 --> 00:31:22,960
Speaker 2: Yes, and so now airlines are deregulated, you would think

597
00:31:22,960 --> 00:31:26,800
Speaker 2: this would allow for a wave of innovation. Right Southwest

598
00:31:26,880 --> 00:31:28,920
Speaker 2: is like prime to You're told.

599
00:31:28,680 --> 00:31:30,840
Speaker 1: The story like it's about to change everything.

600
00:31:31,120 --> 00:31:34,959
Speaker 2: It's really interesting what happens because they can go wild,

601
00:31:35,560 --> 00:31:39,200
Speaker 2: but they don't, really, they don't. And I think it

602
00:31:39,360 --> 00:31:42,560
Speaker 2: really shows sort of the difference between their kind of

603
00:31:42,960 --> 00:31:46,040
Speaker 2: public persona the corporate brand on the one and their

604
00:31:46,840 --> 00:31:50,160
Speaker 2: behavior as a company on the other. Like think about it, right,

605
00:31:50,240 --> 00:31:55,200
Speaker 2: Like their reputation is the goofy mavericks, you know, the

606
00:31:55,200 --> 00:31:58,880
Speaker 2: flight attendants making dad jokes during the safety announcements, and

607
00:31:58,920 --> 00:32:02,600
Speaker 2: like there's this famous basically publicity stunt one time where

608
00:32:02,720 --> 00:32:06,160
Speaker 2: there was a trademark dispute with some other company plane

609
00:32:06,240 --> 00:32:09,880
Speaker 2: Smart pla any Smart, right, and they decide they're going

610
00:32:09,920 --> 00:32:12,640
Speaker 2: to settle it by Herbteller her having an arm wrestling

611
00:32:12,680 --> 00:32:15,120
Speaker 2: match with the guy from the other company. And they

612
00:32:15,120 --> 00:32:18,240
Speaker 2: did this like pro wrestling match, and Herb loses and

613
00:32:18,280 --> 00:32:20,200
Speaker 2: gets carried out of the room on a stretcher with

614
00:32:20,240 --> 00:32:23,320
Speaker 2: an IV bag of wild turkey, right, and he rides

615
00:32:23,360 --> 00:32:26,640
Speaker 2: a Harley Davidson and whatever. This is the brand, but

616
00:32:26,840 --> 00:32:31,520
Speaker 2: from a business standpoint, from an efficiency standpoint, Southwest is

617
00:32:31,560 --> 00:32:35,239
Speaker 2: nothing like that. They are, in fact, incredibly disciplined, and

618
00:32:35,320 --> 00:32:39,320
Speaker 2: so what you see is in the decades after deregulation.

619
00:32:40,040 --> 00:32:43,680
Speaker 2: It's the other airlines that are going wild, transforming themselves,

620
00:32:43,720 --> 00:32:47,880
Speaker 2: spending tons of money, going bankrupt, and Southwest is the

621
00:32:47,880 --> 00:32:51,360
Speaker 2: one that is cautious and disciplined. If they were like

622
00:32:51,480 --> 00:32:54,040
Speaker 2: Maverick outliers in any way, it was that it was

623
00:32:54,080 --> 00:32:56,320
Speaker 2: by being like cautious and efficient.

624
00:32:55,960 --> 00:32:59,200
Speaker 1: Which is amazing, right, all that cigarettes and whiskey and

625
00:32:59,320 --> 00:33:02,160
Speaker 1: the moment, the moment the market goes free. What you

626
00:33:02,280 --> 00:33:05,040
Speaker 1: realize is maybe what I was talking about about what

627
00:33:05,080 --> 00:33:09,440
Speaker 1: Warren Buffett said, which is in a business like this,

628
00:33:09,880 --> 00:33:12,400
Speaker 1: the way you're going to win is to just be

629
00:33:12,720 --> 00:33:16,200
Speaker 1: ruthless about your bottom line. Yeah, about your costs. Yeah,

630
00:33:16,240 --> 00:33:18,600
Speaker 1: there's no advantage of one airline over another. You can

631
00:33:18,640 --> 00:33:21,160
Speaker 1: try all the discos you want, but it's essentially a

632
00:33:21,160 --> 00:33:24,360
Speaker 1: commodity product, and in a commodity product, you have to

633
00:33:24,440 --> 00:33:25,400
Speaker 1: watch every cent.

634
00:33:25,680 --> 00:33:28,080
Speaker 2: Robert, I've prepared for you a list, a level list.

635
00:33:28,440 --> 00:33:33,440
Speaker 2: Five ways in which other airlines went wild and Southwest didn't.

636
00:33:33,560 --> 00:33:38,000
Speaker 2: We's still a few years after deregulation. Number five, super

637
00:33:38,000 --> 00:33:42,600
Speaker 2: Premium Comfort, economy class plus. So you know, right, so

638
00:33:42,680 --> 00:33:45,040
Speaker 2: there was first class, and there was whatever business class

639
00:33:45,040 --> 00:33:47,880
Speaker 2: and premium economy comfort plus more leg room, even more

640
00:33:47,960 --> 00:33:51,640
Speaker 2: leg room. And you know there is a logic to this, right,

641
00:33:51,680 --> 00:33:55,360
Speaker 2: which is, oh, different people will pay different prices. You know,

642
00:33:55,440 --> 00:33:57,520
Speaker 2: if people want to pay for more for more, let's

643
00:33:57,640 --> 00:34:00,960
Speaker 2: do that. Southwest is like, you know what, we got

644
00:34:00,960 --> 00:34:03,680
Speaker 2: one kind of seat. It's just a regular seat. We'll

645
00:34:03,680 --> 00:34:05,440
Speaker 2: fly you from one place to another in that seat.

646
00:34:06,240 --> 00:34:11,439
Speaker 2: Number four, selling tickets everywhere. Oh so, travel agents were

647
00:34:11,480 --> 00:34:14,200
Speaker 2: still big in the eighties, and then you know, in

648
00:34:14,239 --> 00:34:17,839
Speaker 2: the nineties, the Internet comes along and you get your

649
00:34:18,120 --> 00:34:21,680
Speaker 2: orbits and your expedias coming along, you know, online travel sites.

650
00:34:21,719 --> 00:34:22,640
Speaker 1: I'm a kayak man.

651
00:34:23,080 --> 00:34:26,600
Speaker 2: Southwest didn't care that much about travel agents and was

652
00:34:26,640 --> 00:34:30,439
Speaker 2: not even on orbits or Expedia or kayak actually until

653
00:34:30,480 --> 00:34:33,239
Speaker 2: like last year forever. Basically, I don't know if you

654
00:34:33,239 --> 00:34:34,080
Speaker 2: ever noticed that if you.

655
00:34:34,000 --> 00:34:35,680
Speaker 1: Did a kayacation, they did a d you'd have to

656
00:34:35,680 --> 00:34:37,440
Speaker 1: do separate searches for Southwest.

657
00:34:37,480 --> 00:34:41,120
Speaker 2: And so there's a straightforward reason for this. When you

658
00:34:41,160 --> 00:34:43,560
Speaker 2: buy a plane ticket through a travel agent or through

659
00:34:43,600 --> 00:34:47,520
Speaker 2: Expedia or kayak, the intermediary gets some of that money,

660
00:34:48,000 --> 00:34:51,040
Speaker 2: and Southwest wants to get all of that money, and

661
00:34:51,080 --> 00:34:52,680
Speaker 2: so they're just like, no, we're not going to sell

662
00:34:52,719 --> 00:34:53,600
Speaker 2: through those intermediaries.

663
00:34:53,600 --> 00:34:57,080
Speaker 1: It's so funny, right, airlines are this glamour business, or

664
00:34:57,080 --> 00:35:01,480
Speaker 1: they were for decades, And like the airline CEOs at

665
00:35:01,800 --> 00:35:04,000
Speaker 1: Delta American, they don't want to be trying to save

666
00:35:04,600 --> 00:35:06,520
Speaker 1: what is half a percent one percent.

667
00:35:07,000 --> 00:35:09,720
Speaker 2: They want to sell more tickets that not Southwest okay,

668
00:35:09,760 --> 00:35:16,120
Speaker 2: number three hubs hubs. So after deregulation, now remember, airlines

669
00:35:16,120 --> 00:35:18,640
Speaker 2: can fly wherever they want. They're not constrained by the government,

670
00:35:18,719 --> 00:35:21,399
Speaker 2: and they're like, we're gonna fly everywhere. And the way

671
00:35:21,400 --> 00:35:24,319
Speaker 2: we're going to do that is the hub and spoke model, Right,

672
00:35:24,400 --> 00:35:27,239
Speaker 2: So we're going to pick a city and tons of

673
00:35:27,239 --> 00:35:28,680
Speaker 2: flights are going to go in and out of that city,

674
00:35:28,680 --> 00:35:30,359
Speaker 2: and that way people can go wherever they want. They

675
00:35:30,360 --> 00:35:32,200
Speaker 2: just got to go through, you know, Atlanta if you're

676
00:35:32,200 --> 00:35:37,880
Speaker 2: flying Delta or Dallas if you're flying American Southwest. No, No,

677
00:35:38,040 --> 00:35:41,080
Speaker 2: Southwest is like, you know what, We're just going to

678
00:35:41,120 --> 00:35:44,879
Speaker 2: fly people from Phoenix to la and we're gonna fly

679
00:35:45,080 --> 00:35:46,760
Speaker 2: ten flights a day and it's going to be cheaper

680
00:35:46,800 --> 00:35:48,560
Speaker 2: and it's gonna be great. We're not in the business

681
00:35:48,560 --> 00:35:50,160
Speaker 2: of flying people wherever they want to go. We're in

682
00:35:50,160 --> 00:35:54,680
Speaker 2: the business of flying profitable routes where we can sell cheap,

683
00:35:54,719 --> 00:35:55,520
Speaker 2: reliable tickets.

684
00:35:55,560 --> 00:35:57,480
Speaker 1: They've done the research, they know that people are paying

685
00:35:57,480 --> 00:35:59,240
Speaker 1: a lot of money. They know that they can undercut

686
00:35:59,239 --> 00:36:01,640
Speaker 1: the current fairs and that there will be enough people

687
00:36:01,640 --> 00:36:02,280
Speaker 1: to fill the place.

688
00:36:02,520 --> 00:36:04,719
Speaker 2: Yes, and by the way, when they go into a

689
00:36:04,760 --> 00:36:09,480
Speaker 2: new city, they typically go into not the main airport.

690
00:36:09,600 --> 00:36:09,680
Speaker 1: Right.

691
00:36:09,760 --> 00:36:10,680
Speaker 2: Have you flown Southwest?

692
00:36:10,760 --> 00:36:13,200
Speaker 1: Oh? Yes, I see a lot of the country in

693
00:36:13,280 --> 00:36:15,040
Speaker 1: strange small airports. Yeah.

694
00:36:15,160 --> 00:36:18,360
Speaker 2: I used to fly San Diego to Oakland all the time,

695
00:36:18,440 --> 00:36:20,800
Speaker 2: So you know in San Francisco, San Francisco's the big airport.

696
00:36:20,960 --> 00:36:26,160
Speaker 1: The Oakland to Burbank's that's San Francisco to La to

697
00:36:26,239 --> 00:36:28,280
Speaker 1: other people, that's to me, it is Oakland.

698
00:36:29,080 --> 00:36:31,359
Speaker 2: And there's there is a reason for this, right, it's

699
00:36:31,920 --> 00:36:35,520
Speaker 2: those airports tend to have cheaper gates. Right, airlines have

700
00:36:35,600 --> 00:36:39,440
Speaker 2: to pay for gatespace Southwest. You know their passengers are

701
00:36:39,480 --> 00:36:43,720
Speaker 2: not flying onto Tokyo or whatever. If your American airlines

702
00:36:43,760 --> 00:36:48,040
Speaker 2: you've got to go to JFK or LAX or SFO Southwest.

703
00:36:48,120 --> 00:36:50,640
Speaker 2: Is that they're not in that business. And also those

704
00:36:50,680 --> 00:36:52,840
Speaker 2: airports tend to be less crowded, which makes it easier

705
00:36:52,880 --> 00:36:55,120
Speaker 2: to do a fast turn right, they get jammed up less.

706
00:36:55,360 --> 00:36:57,360
Speaker 1: Oh interesting, right, because you can get right on the

707
00:36:57,800 --> 00:37:00,719
Speaker 1: right on the runway number two. Yes, that's where we are.

708
00:37:00,960 --> 00:37:05,640
Speaker 2: Planes. After deregulation airlines like we can fly anywhere. And

709
00:37:05,680 --> 00:37:07,680
Speaker 2: for little routes, we're gonna get little planes, and for

710
00:37:07,760 --> 00:37:09,840
Speaker 2: medium sized routes, we're gonna get medium planes, and for

711
00:37:10,080 --> 00:37:13,160
Speaker 2: big routes, we're gonna get big planes. Southwest does not,

712
00:37:13,960 --> 00:37:17,359
Speaker 2: with one very brief exception, they have flown one kind

713
00:37:17,360 --> 00:37:22,160
Speaker 2: of plane the whole time. The Boeing seven thirty seven, which,

714
00:37:22,280 --> 00:37:24,880
Speaker 2: in keeping with the Southwest vibe, is not a tiny plane.

715
00:37:25,160 --> 00:37:27,320
Speaker 2: It's not a giant plane. It's just a plane.

716
00:37:27,640 --> 00:37:31,960
Speaker 1: It's so funny, right, Boring is their competitive advantage.

717
00:37:32,040 --> 00:37:34,879
Speaker 2: Yeah, and like just think about the efficiencies on this one, right,

718
00:37:34,960 --> 00:37:37,200
Speaker 2: I mean from the small ones in mgwoes you I

719
00:37:37,239 --> 00:37:39,600
Speaker 2: only got to print one seatback card. Yeah.

720
00:37:39,640 --> 00:37:41,479
Speaker 1: The pilots can fly any plane, any plane.

721
00:37:41,560 --> 00:37:43,600
Speaker 2: Yeah yeah, yeah, yeah, Well you need a pilot gets sick,

722
00:37:43,640 --> 00:37:45,719
Speaker 2: you know, is this pilot certified on this plane? Yes?

723
00:37:45,760 --> 00:37:48,200
Speaker 2: The answer is always yes for Southwest, even you know,

724
00:37:48,320 --> 00:37:50,680
Speaker 2: the things like getting the baggage out, all the logistics,

725
00:37:50,719 --> 00:37:52,920
Speaker 2: it's always the same if they need to swap in

726
00:37:52,960 --> 00:37:55,200
Speaker 2: a new plane, they always got the right plane. It

727
00:37:55,239 --> 00:37:59,120
Speaker 2: creates this incredible efficiency of standardization.

728
00:37:59,760 --> 00:38:02,640
Speaker 1: This would be enough for any business. But you're telling

729
00:38:02,640 --> 00:38:04,800
Speaker 1: me there's one more. The number one reason.

730
00:38:04,960 --> 00:38:06,880
Speaker 2: Yes, and it's kind of a meadow reason. It's kind

731
00:38:06,880 --> 00:38:09,520
Speaker 2: of it kind of flows through all of these. The

732
00:38:09,640 --> 00:38:13,240
Speaker 2: number one reason that Southwest was able to stay efficient

733
00:38:13,280 --> 00:38:16,919
Speaker 2: and profitable when all the other airlines went wild. They

734
00:38:16,960 --> 00:38:20,000
Speaker 2: never tried to be number one. Nice think about this.

735
00:38:20,120 --> 00:38:22,920
Speaker 2: I actually think this is really an important one and

736
00:38:23,040 --> 00:38:28,160
Speaker 2: useful to think about. Airlines tend to attract big ego CEOs, right,

737
00:38:28,200 --> 00:38:30,799
Speaker 2: I mean, most big company CEOs have big egos. But

738
00:38:30,840 --> 00:38:33,520
Speaker 2: the airline business, as we've been discussing, is a bad business.

739
00:38:33,520 --> 00:38:35,560
Speaker 2: You're not getting into it because you want to be rich.

740
00:38:35,880 --> 00:38:37,560
Speaker 2: You're getting into it because, like, you want to fly

741
00:38:37,719 --> 00:38:39,960
Speaker 2: the big planes. You want to beat everybody else. You

742
00:38:40,000 --> 00:38:43,200
Speaker 2: want to be the most glamorous airline in the sky.

743
00:38:43,280 --> 00:38:44,880
Speaker 1: You're right, and they're kind of obsessed with this in

744
00:38:44,920 --> 00:38:47,799
Speaker 1: the same way that broadcast TV used to be. Like

745
00:38:47,880 --> 00:38:50,560
Speaker 1: ABC's number one this week, NBC's number one the next week,

746
00:38:50,640 --> 00:38:52,440
Speaker 1: and they want to be the number one airline in

747
00:38:52,440 --> 00:38:53,799
Speaker 1: the world. In fact, when they are, don't they put

748
00:38:53,800 --> 00:38:56,560
Speaker 1: that on their ads, like more people fly so and

749
00:38:56,600 --> 00:38:57,840
Speaker 1: so than any other airline.

750
00:38:57,880 --> 00:38:59,720
Speaker 2: And you really see this, like when you read histories

751
00:38:59,760 --> 00:39:02,680
Speaker 2: of the period, they're like personally, the CEOs are personally

752
00:39:02,719 --> 00:39:08,760
Speaker 2: obsessed with beating their rival, and Southwest is not. There's

753
00:39:08,800 --> 00:39:14,920
Speaker 2: this really simple but great quote from Herbteller market share

754
00:39:15,000 --> 00:39:17,560
Speaker 2: has nothing to do with profitability.

755
00:39:18,520 --> 00:39:21,839
Speaker 1: Oh no, it's so. It's so true.

756
00:39:21,920 --> 00:39:24,120
Speaker 2: We don't want to fly more people than anybody else.

757
00:39:24,160 --> 00:39:27,280
Speaker 2: We just want to make more money than we spend

758
00:39:27,440 --> 00:39:28,160
Speaker 2: flying people.

759
00:39:28,520 --> 00:39:30,480
Speaker 1: This is such a This whole story is like an

760
00:39:30,520 --> 00:39:34,080
Speaker 1: indictment of the way Americans do business, at least for

761
00:39:34,120 --> 00:39:37,160
Speaker 1: a certain period of time. Right that they want the regulations.

762
00:39:37,200 --> 00:39:40,759
Speaker 1: They don't want to compete. They want to be number one,

763
00:39:41,200 --> 00:39:43,600
Speaker 1: even if it means it costs their investors' money.

764
00:39:44,200 --> 00:39:47,480
Speaker 2: But not Southwest. And this is why I think this

765
00:39:47,640 --> 00:39:51,880
Speaker 2: is at the core of Southwest success. Right Like every

766
00:39:51,920 --> 00:39:55,880
Speaker 2: other major airline that still exists that was around at

767
00:39:55,880 --> 00:39:59,040
Speaker 2: the regulation has gone bankrupt at least once, some more

768
00:39:59,080 --> 00:40:04,600
Speaker 2: than once. Southwest has not. They have been profitable every

769
00:40:04,680 --> 00:40:08,680
Speaker 2: year for fifty years, with the exception of the pandemic

770
00:40:08,719 --> 00:40:14,240
Speaker 2: of twenty twenty. But as we will discuss after the break,

771
00:40:15,160 --> 00:40:17,400
Speaker 2: a lot of those things from that list of what

772
00:40:17,560 --> 00:40:46,800
Speaker 2: made Southwest great, we're about to cause it some real trouble. Okay,

773
00:40:46,840 --> 00:40:49,759
Speaker 2: So we're back with the Southwest story. Southwest has this

774
00:40:49,880 --> 00:40:52,920
Speaker 2: amazing run, not just a year after year, but decade

775
00:40:52,920 --> 00:40:57,880
Speaker 2: after decade, and by the time Herbkellerer dies in twenty nineteen,

776
00:40:58,400 --> 00:41:02,759
Speaker 2: Southwest is carrying more passengers than any US airline, not

777
00:41:02,840 --> 00:41:06,200
Speaker 2: that they care, but that's amazing. They're big and successful.

778
00:41:07,040 --> 00:41:10,279
Speaker 2: But trouble is coming. They're about to hit this run

779
00:41:10,320 --> 00:41:14,400
Speaker 2: of trouble, and a lot of ways the same things

780
00:41:14,640 --> 00:41:17,600
Speaker 2: that made them successful for all those years are going

781
00:41:17,680 --> 00:41:21,120
Speaker 2: to be key causes of their of their problems. The

782
00:41:21,160 --> 00:41:24,720
Speaker 2: first thing that goes wrong, it starts in like late

783
00:41:24,800 --> 00:41:29,240
Speaker 2: twenty eighteen early twenty nineteen, when there are two separate

784
00:41:29,320 --> 00:41:32,680
Speaker 2: plane crashes. One is in Indonesia, one is in Ethiopia.

785
00:41:32,680 --> 00:41:36,960
Speaker 2: They're different airlines, but both are Boeing seven thirty sevens,

786
00:41:37,160 --> 00:41:39,080
Speaker 2: so it's a huge news deal. It was a big

787
00:41:39,120 --> 00:41:42,759
Speaker 2: deal because it was the newest version of the seven

788
00:41:42,800 --> 00:41:47,080
Speaker 2: thirty seven, the seven thirty seven Max, and in March

789
00:41:47,120 --> 00:41:51,280
Speaker 2: of twenty nineteen, the FAA grounds all seven thirty seven

790
00:41:51,360 --> 00:41:56,240
Speaker 2: Maxes in the US, So these are seven thirty sevens. Remember,

791
00:41:56,320 --> 00:42:00,040
Speaker 2: Southwest is the airline that only flies seven thirty sevens,

792
00:42:00,040 --> 00:42:04,880
Speaker 2: which has been great until now, but now, unsurprisingly they

793
00:42:04,920 --> 00:42:08,000
Speaker 2: have more seven thirty seven Maxes than any other airline

794
00:42:08,360 --> 00:42:11,480
Speaker 2: and they get hammered, right like, they now have to

795
00:42:11,520 --> 00:42:14,200
Speaker 2: cut back on their service. To be clear, they don't

796
00:42:14,200 --> 00:42:16,919
Speaker 2: have to shut down. They're not flying solely seven thirty

797
00:42:16,920 --> 00:42:19,400
Speaker 2: seven maxis, some of the older seven thirty sevens, but

798
00:42:19,480 --> 00:42:22,800
Speaker 2: they lose something like a billion dollars in revenue because

799
00:42:22,840 --> 00:42:23,280
Speaker 2: of this.

800
00:42:23,280 --> 00:42:28,239
Speaker 1: This is the classic trade off between efficiency and resilience. Yeah, yeah, right,

801
00:42:28,280 --> 00:42:31,280
Speaker 1: And we saw this a lot in the pandemic with shipping.

802
00:42:31,320 --> 00:42:34,600
Speaker 1: You know, you've had a real stuff time delivery, a

803
00:42:34,640 --> 00:42:37,319
Speaker 1: really efficient supply chain, you were also the one most

804
00:42:37,360 --> 00:42:39,680
Speaker 1: at risk for something going wrong because you didn't have

805
00:42:39,719 --> 00:42:41,240
Speaker 1: a lot of other sources for your materials.

806
00:42:41,360 --> 00:42:44,640
Speaker 2: Yes, so in this analogy, Southwest was super efficient, but

807
00:42:44,760 --> 00:42:48,560
Speaker 2: they had this huge risk just sitting there. So they

808
00:42:48,600 --> 00:42:50,600
Speaker 2: lose a billion revenue. They cost some of that back

809
00:42:50,600 --> 00:42:53,200
Speaker 2: from Boeing, but you know it's a blow, not a

810
00:42:53,360 --> 00:42:57,040
Speaker 2: not a death blow, but a blow. And then twenty twenty,

811
00:42:57,040 --> 00:43:00,880
Speaker 2: of course you get the pandemic all airlines only you're

812
00:43:00,920 --> 00:43:04,359
Speaker 2: since seventy three that Southwest didn't turn a profit. Bad,

813
00:43:04,440 --> 00:43:08,719
Speaker 2: but again not not devastating. It's after the pandemic that

814
00:43:08,760 --> 00:43:12,680
Speaker 2: things keep going wrong and get worse for Southwest. Twenty

815
00:43:12,719 --> 00:43:17,920
Speaker 2: twenty two, the big legacy airlines, Delta, United American, they

816
00:43:17,920 --> 00:43:18,600
Speaker 2: are doing great.

817
00:43:18,760 --> 00:43:21,319
Speaker 1: There was this rebound travel, right, everybody had saved up

818
00:43:21,320 --> 00:43:23,279
Speaker 1: their money and they were like, I'm going to Europe.

819
00:43:23,440 --> 00:43:26,000
Speaker 1: I'm taking the big planes, I'm going stimulus checks.

820
00:43:26,080 --> 00:43:28,359
Speaker 2: Government sends you a check, you just sign it over

821
00:43:28,600 --> 00:43:30,960
Speaker 2: to Delta and go to Europe. And you know, this

822
00:43:31,040 --> 00:43:34,640
Speaker 2: is a moment when a lot of people are feeling rich, right,

823
00:43:34,640 --> 00:43:36,719
Speaker 2: Like when you look at people's bank balances at this time,

824
00:43:36,800 --> 00:43:39,160
Speaker 2: it's wild like people in fact not richer. Yeah, and

825
00:43:39,200 --> 00:43:41,200
Speaker 2: so this is a moment when you will pay for

826
00:43:41,560 --> 00:43:44,680
Speaker 2: premium economy comfort plus, right, this is a moment when

827
00:43:44,680 --> 00:43:49,040
Speaker 2: you will fly to Europe. And all of those behaviors

828
00:43:49,080 --> 00:43:52,120
Speaker 2: are not Southwest behaviors. Right. This is not a simple plane.

829
00:43:52,120 --> 00:43:54,839
Speaker 2: This is not Phoenix to la this is not weird

830
00:43:54,880 --> 00:43:57,760
Speaker 2: little airports, right, So this is a moment when everybody

831
00:43:57,760 --> 00:44:01,120
Speaker 2: else is coming back and Southwest is kind of muddling along.

832
00:44:01,520 --> 00:44:06,160
Speaker 2: And then really the big blow. The big blow comes

833
00:44:06,280 --> 00:44:11,440
Speaker 2: in December of twenty twenty two, not long before Christmas,

834
00:44:11,480 --> 00:44:15,680
Speaker 2: this giant winter storm hits the East Coast and upper Midwest.

835
00:44:16,320 --> 00:44:20,000
Speaker 2: Airports shut down, lots of airlines cancel flights, you know,

836
00:44:20,120 --> 00:44:20,640
Speaker 2: up and down.

837
00:44:21,320 --> 00:44:23,960
Speaker 1: Luckily, there's not news crews who would like to go

838
00:44:24,040 --> 00:44:26,440
Speaker 1: out to the airports and stand there for forty eight

839
00:44:26,440 --> 00:44:27,080
Speaker 1: hours straight.

840
00:44:27,239 --> 00:44:30,080
Speaker 2: Luckily it's not Christmas time when there's no news, and

841
00:44:30,160 --> 00:44:32,600
Speaker 2: they're so happy to go to the airport with people

842
00:44:32,600 --> 00:44:33,040
Speaker 2: sleeping on.

843
00:44:33,040 --> 00:44:35,439
Speaker 1: The ground, I could verify this was a big deal.

844
00:44:35,560 --> 00:44:38,640
Speaker 2: This was a big deal. And for most airlines it's like, yes,

845
00:44:39,000 --> 00:44:41,680
Speaker 2: there's a storm, and now a day, two days later,

846
00:44:41,760 --> 00:44:45,040
Speaker 2: we're back up and running and everything's fine. But Southwest

847
00:44:45,080 --> 00:44:51,080
Speaker 2: at this moment has this epic, epic collapse. They cannot

848
00:44:51,200 --> 00:44:54,400
Speaker 2: get things going, and the storm has passed, but Southwest

849
00:44:54,520 --> 00:44:59,920
Speaker 2: is still largely grounded. They cancel more than sixteen thousand flights,

850
00:45:00,000 --> 00:45:04,000
Speaker 2: They leave something like two million people stranded, and when

851
00:45:04,040 --> 00:45:07,000
Speaker 2: they figure out what went wrong, it turns out it

852
00:45:07,080 --> 00:45:11,200
Speaker 2: was this one internal software system that was supposed to

853
00:45:11,280 --> 00:45:14,840
Speaker 2: reassign Southwest crew members when a flight got canceled or

854
00:45:14,880 --> 00:45:19,160
Speaker 2: rescheduled and it just completely failed and they couldn't get

855
00:45:19,200 --> 00:45:21,560
Speaker 2: it back up. So think of this, right, like the

856
00:45:21,600 --> 00:45:25,759
Speaker 2: company doesn't even know where their flight crews are, and

857
00:45:25,800 --> 00:45:27,799
Speaker 2: the crews themselves, like they want to work, they want

858
00:45:27,840 --> 00:45:30,640
Speaker 2: to get things going in Yeah, the crews themselves have

859
00:45:30,719 --> 00:45:34,400
Speaker 2: to actually like call on the phone like ordinary schmuck

860
00:45:34,440 --> 00:45:36,719
Speaker 2: passengers to find out where to go to work. They

861
00:45:36,719 --> 00:45:39,120
Speaker 2: have to wait, you know, hours on hold. When they

862
00:45:39,120 --> 00:45:41,680
Speaker 2: get through. People don't even know because like some poor

863
00:45:41,719 --> 00:45:43,560
Speaker 2: person at headquarters is trying to figure all this out

864
00:45:43,600 --> 00:45:46,040
Speaker 2: on a piece of paper or something. It's a disaster

865
00:45:46,200 --> 00:45:46,920
Speaker 2: for Southwest?

866
00:45:47,680 --> 00:45:50,880
Speaker 1: Was it because of Southwest's cost cutting? Was this one

867
00:45:50,920 --> 00:45:52,600
Speaker 1: of the ways they cheaped out by having like a

868
00:45:53,000 --> 00:45:54,600
Speaker 1: nineteen seventies internal system.

869
00:45:54,760 --> 00:45:59,400
Speaker 2: So the CEO, perhaps predictably, said no, no, this was

870
00:45:59,480 --> 00:46:02,279
Speaker 2: just like an unfortunate you know actually I think used

871
00:46:02,280 --> 00:46:06,800
Speaker 2: the phrase perfect storm. But the union leaders at the company,

872
00:46:06,920 --> 00:46:09,719
Speaker 2: the people you know who had been negotiating with the

873
00:46:09,719 --> 00:46:11,919
Speaker 2: CEO for years, said no, no, we have been telling

874
00:46:12,200 --> 00:46:14,600
Speaker 2: for years that this system is out of date and

875
00:46:14,640 --> 00:46:16,920
Speaker 2: it's going to fail, So maybe it was because they

876
00:46:16,920 --> 00:46:19,600
Speaker 2: were too cheap. You know what is efficient and what

877
00:46:19,680 --> 00:46:23,360
Speaker 2: is too cheap. In any case, this is a disaster

878
00:46:23,480 --> 00:46:27,080
Speaker 2: for Southwest right, days and days of news coverage. So

879
00:46:27,080 --> 00:46:30,040
Speaker 2: Southwest winds up paying something like seven hundred and fifty

880
00:46:30,360 --> 00:46:36,399
Speaker 2: million dollars in reimbursements and penalties. And now things are

881
00:46:36,480 --> 00:46:39,560
Speaker 2: bad for the company right. Their profits are stagnant, even

882
00:46:39,600 --> 00:46:42,800
Speaker 2: as the industry is coming back. Their stock price falls

883
00:46:42,840 --> 00:46:45,560
Speaker 2: by more than fifty percent between twenty twenty one and

884
00:46:45,600 --> 00:46:48,600
Speaker 2: twenty twenty three. By twenty twenty four, the stock is

885
00:46:48,640 --> 00:46:51,280
Speaker 2: still below where it was before the pandemic.

886
00:46:52,200 --> 00:46:54,360
Speaker 1: I feel like if Herb kellerher were still around, he

887
00:46:54,400 --> 00:46:57,839
Speaker 1: would say go with the plan, like this is what

888
00:46:57,880 --> 00:47:02,399
Speaker 1: our company does. Stay the course and yes there will

889
00:47:02,480 --> 00:47:07,560
Speaker 1: be disasters that happen, but like we have the better

890
00:47:07,560 --> 00:47:08,840
Speaker 1: business model. Go go go.

891
00:47:09,520 --> 00:47:11,959
Speaker 2: I mean, it's interesting to think about him having died

892
00:47:12,400 --> 00:47:15,279
Speaker 2: like just before Southwest ran into so much trouble. Is

893
00:47:15,280 --> 00:47:18,360
Speaker 2: that correlated? I don't know. In any case, that is

894
00:47:18,440 --> 00:47:20,640
Speaker 2: basically what Southwest was trying to do, just to keep

895
00:47:20,680 --> 00:47:24,520
Speaker 2: being Southwest. But if you're a publicly traded company with

896
00:47:24,600 --> 00:47:28,520
Speaker 2: a still a pretty good brand and your stock price

897
00:47:28,680 --> 00:47:29,520
Speaker 2: is way down.

898
00:47:30,960 --> 00:47:33,160
Speaker 1: What happens to you You get a call from Wall Street.

899
00:47:33,239 --> 00:47:35,040
Speaker 2: You get a call from Wall Street. Right, And in

900
00:47:35,080 --> 00:47:38,880
Speaker 2: this case, it was an activist hedge fund called Elliot

901
00:47:39,440 --> 00:47:42,960
Speaker 2: that bought something like ten percent, more than ten percent

902
00:47:43,080 --> 00:47:47,000
Speaker 2: of the company's stock. And what Elliott does is this

903
00:47:47,080 --> 00:47:48,759
Speaker 2: kind of thing. They buy up stock and try and

904
00:47:48,840 --> 00:47:49,920
Speaker 2: turn companies around.

905
00:47:50,000 --> 00:47:52,239
Speaker 1: Yeah, you accumulate until you have to announce how much

906
00:47:52,239 --> 00:47:54,719
Speaker 1: you own of the company, and then you write a

907
00:47:54,760 --> 00:47:56,839
Speaker 1: strongly worded letter to the.

908
00:47:56,760 --> 00:47:59,480
Speaker 2: Board to the board. So in its letter to the

909
00:47:59,480 --> 00:48:03,560
Speaker 2: board in twenty twenty four, Elliott writes, quote, while Southwest

910
00:48:03,560 --> 00:48:06,600
Speaker 2: has a proud history, that history is not an argument

911
00:48:06,640 --> 00:48:10,239
Speaker 2: for supporting poor leadership and sticking with the strategy that

912
00:48:10,360 --> 00:48:13,360
Speaker 2: no longer succeeds in the mid or an airline industry.

913
00:48:13,760 --> 00:48:16,320
Speaker 1: This is what they do, and they're hoping, they're taking

914
00:48:16,360 --> 00:48:18,840
Speaker 1: the bat that they can make dramatic changes, maybe not

915
00:48:19,000 --> 00:48:21,640
Speaker 1: long term changes, but maybe some short term changes to

916
00:48:21,680 --> 00:48:24,000
Speaker 1: increase the value of the company and then get out

917
00:48:24,040 --> 00:48:24,560
Speaker 1: of the business.

918
00:48:25,280 --> 00:48:28,480
Speaker 2: And they're saying, like their idea is, Southwest, you should

919
00:48:29,080 --> 00:48:31,759
Speaker 2: become more like everybody else. Right, That is the subtext

920
00:48:31,840 --> 00:48:33,959
Speaker 2: of a strategy that no longer succeeds in the modern

921
00:48:34,000 --> 00:48:36,080
Speaker 2: airline industry. Oh and also they wanted to fire the CEO,

922
00:48:36,120 --> 00:48:37,800
Speaker 2: of course, because they always wanted to fire the CEO.

923
00:48:38,440 --> 00:48:41,040
Speaker 2: But what's interesting to me is that other part, right,

924
00:48:41,040 --> 00:48:43,800
Speaker 2: their strategy no longer succeeds in the modern airline industry

925
00:48:44,280 --> 00:48:47,000
Speaker 2: because in a lot of ways, if you think about

926
00:48:47,160 --> 00:48:49,880
Speaker 2: Southwest at the time of deregulation and the rest of

927
00:48:49,920 --> 00:48:51,839
Speaker 2: the industry or in the eighties when they're all going

928
00:48:51,880 --> 00:48:54,920
Speaker 2: wild like, in some ways, it's the rest of the

929
00:48:54,920 --> 00:48:59,000
Speaker 2: industry that has become more like Southwest. Right. What made

930
00:48:59,000 --> 00:49:03,759
Speaker 2: Southwest different was really cheap prices, right, But now there

931
00:49:03,760 --> 00:49:06,920
Speaker 2: are ultra low cost carriers with really cheap prices. They

932
00:49:06,920 --> 00:49:10,600
Speaker 2: are also you can fly basic economy on Delta.

933
00:49:10,440 --> 00:49:13,960
Speaker 1: As I do every time. I'm wearing extra sweaters because

934
00:49:13,960 --> 00:49:15,680
Speaker 1: I can't fit into my luggage and sitting.

935
00:49:15,520 --> 00:49:18,040
Speaker 2: Across from you in the road just one from the

936
00:49:18,080 --> 00:49:20,120
Speaker 2: back of the plane, you pid less close to the bathroom,

937
00:49:20,320 --> 00:49:22,480
Speaker 2: you know. Even in terms of vibes, right, think about

938
00:49:22,560 --> 00:49:24,799
Speaker 2: vibes when Southwest launch, they were like the friendly hey

939
00:49:24,880 --> 00:49:26,719
Speaker 2: where your pal airline and the others are like the

940
00:49:26,719 --> 00:49:29,600
Speaker 2: more formal kind of corporate airlines now, like every company

941
00:49:29,719 --> 00:49:33,399
Speaker 2: is your pal, right, yes, And when you fly now, right,

942
00:49:33,440 --> 00:49:36,880
Speaker 2: when you fly now and you see college students flying

943
00:49:36,920 --> 00:49:40,200
Speaker 2: for the weekend, you see ordinary people who are not

944
00:49:40,280 --> 00:49:45,840
Speaker 2: business people flying. When you see people flying who aren't rich, frankly,

945
00:49:46,000 --> 00:49:49,800
Speaker 2: who aren't you know, upper middle class, like that is Southwest.

946
00:49:50,480 --> 00:49:54,719
Speaker 1: This is fascinating. So I'm right in a way that's

947
00:49:54,760 --> 00:49:57,879
Speaker 1: sticking with the plan is the most efficient way to go.

948
00:49:58,000 --> 00:50:01,440
Speaker 1: But what I didn't include is that other airlines are

949
00:50:01,480 --> 00:50:04,640
Speaker 1: also doing the same plan. Your competitive advantage was that

950
00:50:04,719 --> 00:50:07,759
Speaker 1: you were cheaper and more nimble, able to make these

951
00:50:07,800 --> 00:50:09,480
Speaker 1: decisions better than other airlines.

952
00:50:09,560 --> 00:50:15,360
Speaker 2: And once everyone does it, what do you got? So, so,

953
00:50:15,440 --> 00:50:17,680
Speaker 2: what has Southwest done under this pressure? Well, they didn't

954
00:50:17,680 --> 00:50:22,319
Speaker 2: fire the CEO, but they are changing, right, There were

955
00:50:22,360 --> 00:50:25,759
Speaker 2: still those things about Southwest that were different. You know,

956
00:50:25,840 --> 00:50:27,839
Speaker 2: they still had one kind of seat. You still didn't

957
00:50:27,840 --> 00:50:33,360
Speaker 2: get a seat assignment. No longer. Starting on January twenty seventh,

958
00:50:33,480 --> 00:50:37,360
Speaker 2: twenty twenty six, Southwest passengers will have the choice of standard,

959
00:50:37,400 --> 00:50:39,320
Speaker 2: Preferred or extra legroom.

960
00:50:39,560 --> 00:50:42,520
Speaker 1: I'm a little sad. Yeah, end of an era, I

961
00:50:42,600 --> 00:50:44,600
Speaker 1: mean end of an era. Yeah, it was a pain

962
00:50:44,680 --> 00:50:47,520
Speaker 1: in the ass era. By end of an era, I

963
00:50:47,520 --> 00:50:49,959
Speaker 1: mean it was a good run. It was a great

964
00:50:50,040 --> 00:50:52,880
Speaker 1: rout for the airline industry. Like I'd take forty eight

965
00:50:52,920 --> 00:50:53,839
Speaker 1: years for.

966
00:50:53,760 --> 00:50:57,120
Speaker 2: The first time in the history of Southwest Everybody's gonna

967
00:50:57,120 --> 00:51:00,120
Speaker 2: buy an assigned seat. Not me.

968
00:51:00,600 --> 00:51:03,480
Speaker 1: I'm going Herb Kellerherst style. I'm gonna just walk on

969
00:51:03,480 --> 00:51:04,880
Speaker 1: the plane and sit wherever I want to.

970
00:51:06,680 --> 00:51:07,160
Speaker 3: I love it.

971
00:51:09,239 --> 00:51:11,399
Speaker 2: That's the end of the show. We'll put a list

972
00:51:11,440 --> 00:51:14,000
Speaker 2: of sources in the show nuts. That's the end of

973
00:51:14,000 --> 00:51:14,239
Speaker 2: the show.

974
00:51:14,360 --> 00:51:17,879
Speaker 1: Sei show Nuts in the Airline.

975
00:51:18,560 --> 00:51:20,600
Speaker 2: That's the end of the show. We'll put a list

976
00:51:20,640 --> 00:51:23,160
Speaker 2: of the sources in the show notes. I do want

977
00:51:23,200 --> 00:51:25,560
Speaker 2: to mention one book that I found particularly useful. It's

978
00:51:25,560 --> 00:51:30,120
Speaker 2: called Hard Landing. It's by Thomas Petsinger, Junior, and it's

979
00:51:30,120 --> 00:51:32,480
Speaker 2: an old book. It's the story of what happened right

980
00:51:32,520 --> 00:51:34,879
Speaker 2: around deregulation, kind of before, during, and after, and it's

981
00:51:35,200 --> 00:51:36,880
Speaker 2: a very good nonfiction book.

982
00:51:37,520 --> 00:51:41,400
Speaker 1: Our showrunner is Ryan Dilly, our producer is Gabriel Hunter Chang.

983
00:51:41,480 --> 00:51:45,000
Speaker 2: And our engineer is Sarah Bruguier. I'm Jacob Goldstein. I'm

984
00:51:45,040 --> 00:51:47,280
Speaker 2: Robert Smith. We'll be back next week with another episode.

985
00:51:47,320 --> 00:51:52,240
Speaker 2: Of business History, a show about the street business Robert Smith.

986
00:51:52,320 --> 00:51:55,400
Speaker 2: As you know, there is nowhere in Pushkin's office to

987
00:51:56,480 --> 00:51:59,239
Speaker 2: make a video to make a video podcast, which is unfortunate.

988
00:51:59,480 --> 00:52:02,080
Speaker 1: We tried and it was described as two gray men

989
00:52:02,080 --> 00:52:03,160
Speaker 1: in a gray box.

990
00:52:03,120 --> 00:52:07,239
Speaker 2: And reasonably so fortunately for us. In an amazing coincidence,

991
00:52:07,600 --> 00:52:10,480
Speaker 2: literally down the hall from Pushkin's office, there is the

992
00:52:10,520 --> 00:52:14,279
Speaker 2: showroom of a company called Buzzy Space. This is a

993
00:52:14,280 --> 00:52:16,879
Speaker 2: company is where we're sitting right now, and what they

994
00:52:16,880 --> 00:52:20,200
Speaker 2: do is they design furniture and acoustic solutions that make

995
00:52:20,600 --> 00:52:23,880
Speaker 2: I'm reading here workplace is more comfortable, more creative, and

996
00:52:23,960 --> 00:52:24,480
Speaker 2: more fun.

997
00:52:25,280 --> 00:52:29,399
Speaker 1: I would even say cozy. Their furniture is like sort

998
00:52:29,440 --> 00:52:34,160
Speaker 1: of curved and interesting colors, and I guess keeps things quiet.

999
00:52:34,280 --> 00:52:38,040
Speaker 2: Yes, honestly, I wish our office was this showroom. You

1000
00:52:38,040 --> 00:52:42,320
Speaker 2: can find more at Buzzy dot space. That's buzz I

1001
00:52:43,320 --> 00:52:44,000
Speaker 2: dot Space.