A Good Idea Gone Bad

 What happens if you have a really good idea but don't have all the money you need to make it a reality? You get yourself listed on the NYSE and raise money the good old fashioned American way. 

The only problem is those pesky things known as shareholders. They want the value of the stock they own to continue to go up, and dividends to be there every quarter. But we'll come back to dividends a little later in the broadcast. The initial IPO for Southwest Airlines stock was $11.00 on June 8, 1978 when it went public. The stock peaked at $64.82 on January 2, 2018. (It closed on December 29th at $33.88). If you had invested $100 in the IPO on June 8, 1978, and re-invested your dividends until today, your account would be worth $99,065!!! WOW  (This includes stock splits. All of these figures are my calculations, and may be off a little; I'm not a stock trader, and that math kind of confuses me.)

Talk about a return on your investment! But what creates those dividends and that great share value? It doesn't happen overnight, nor does it happen by accident. The founders of Southwest Airlines, Herb Kelleher and Rollin King, stated in their business plan a goal to pay a dividend to shareholders every quarter. Probably, they did this to attract shareholders who could put up a lot of money for the IPO. Management then and now has kept that promise-but at what cost? 

Well, the week just ending has been possibly the worst airline business failure in the history of American aviation. Winter storm Elliott, a bomb cyclone, hit on December 21st causing flight delays for all airlines. Southwest, however, had some bigger issues; Elliott was just the straw that broke the camel's back. 

Southwest Airlines has not upgraded its computer systems (reservations, equipment and staffing) for many years; and there were not enough people on staff at headquarters to even answer phone calls from crew members asking for their assignments. The old computer system could not handle the complicated ballet of crews, equipment, and weather all at once. Management did not have an emergency plan in place to cover this contingency; Southwest was not sure where it's planes were, where it's crews were and where the luggage was. It was a total systemic meltdown, and the fault lies with a management team that has been more focused on shareholder value, and Wall Street opinion, than on planning, upkeep and system maintenance.         

Now, where was I? Oh, yes a good idea. Southwest Airlines was, and still may be, a good idea. But an even better idea would be to remember why you are in business; in this case, flying airplanes and transporting customers to their desired destinations, on time and safely. Take good care of your customers, and the stock value will take care of itself. Investments in employees, equipment and infrastructure that enables you to take good care of customers will pay off, in more ways than one. Sadly, Southwest is not the only major company that cares more about share value then customers, but it is one of the most visible cases in recent history. There are a couple of "big box" home improvement stores, and some chain drug stores, that also show signs of the same ailment. 

I hope management of Southwest learns a lesson from this failure and brings the airline back to its old self, a low-cost no-frills airline that provided good customer service. But it will be a long time before I fly Southwest again. 

Thanks for reading, as always, your comments are welcome, just click the pencil in the white box below! 

And, have a Happy New Year!

R.M. "Bob" Hartman