Motley Fool Money - Live from Austin!

Episode Date: March 1, 2019

  MercadoLibre hits a new high. Booking Holdings falls on guidance. And Etsy crafts a twenty-percent rise. On this week’s show – live from Austin, Texas - analysts Andy Cross and Jason Moser dig into those stories and talk Square, Teladoc, and Lucky Charms-like beer. And we revisit Motley Fool CEO Tom Gardner's conversation with Southwest Airlines co-founder Herb Kelleher.  Thanks to Airbnb for supporting Motley Fool Money. Go to airbnb.com/fool and start hosting you’ll receive a $100 Amazon Gift Card if you generate $500 in booking value by May 30. Terms and conditions apply. Learn more about your ad choices. Visit megaphone.fm/adchoices

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The best thing they'll like But you can get my... From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Full Money Radio Show. I'm Chris Hill, joining me this week's senior analyst, Jason Moser, and Andy Cross. Thanks for being here, guys. Hey, Chris. We're coming to you from Austin, Texas.

We're here for an investing conference. We are not in the studio. We're on the outskirts of a bar here at the hotel, and we actually have a live audience in front of us. Checking out the dozens of listeners joining us. We've got the latest. headlines from Wall Street, we've got a very special interview with the late, great Herb Kelleherer that we're going to bring to you. And as always, we'll give an inside look at the

stocks on our radar. But since the theme of this conference is global investing, let's start with a couple of international brands. Fourth quarter results from Mikado Libre sent the stock up 20 percent, a dominant e-commerce player in Latin America. Macado Libro shares hitting a new all-time high this week, Jason. Yeah, I mean, this was really a strong core, but virtually every metric. I mean, They basically at this point own the Latin America, the e-commerce market. And we've talked about this in the lobby here after some of our conversations today. It's hard to figure how Amazon could come in here one day and take share from Mercado Libre at this point, because not only had they developed this robust e-commerce platform, but really the Mercado Pago part of the business,

their payments part of the business, has grown to be something that's just astounding. I mean, we talk about war on cash investments. Mercado Libre certainly is worth putting at the top of the list there. I mean, total payment volume through that platform surpassed $5 billion for the first time ever. So, I mean, this is not just an e-commerce play. This is a payments play. Again, I don't know how a competitor comes in there and really take share from them at this point. So when you look at getting some global exposure to e-commerce to tech, to fintech, all that stuff, Mercado Libre just seems like a no-brainer. Well, and as tough as the Latin American market has had it in the economy,

economies down there continue to struggle and have a tough go at it. It's nice to see Mercado Libre have some actual momentum behind it now. Yeah, and I mean, really, the other part to this puzzle that I think is going to play on their favor over many years to come, really, it's the emergence of the middle class in Latin America in general. I mean, that is a middle class that is continuing to grow more consumers having more purchasing power. That will definitely play in Mercado Libre's financials as well.

You really think Amazon is unable to disrupt this business? I have a hard time believing they could go in there and take away share at this point. I mean, you have a point where businesses get in and establish a position. And really, I think it's not only the e-commerce platform, but it's that payments part. That's a really sticky aspect of any business. It's just going to be difficult for any company to get in there and really take share. You know, I'm kind of disappointed that Amazon didn't go in there and try to acquire them at some point earlier in the game. But if they want to do that now, they're going to have to pay up for it.

Booking Holdings is the parent company of priceline and booking.com. shares falling 11% on Thursday after fourth quarter results came in with lowered guidance for 2019. Help me out here, Andy. Isn't booking holdings? Aren't they typically pretty conservative with their guidance? Yeah, they are, Chris. I mean, it was actually a pretty good quarter. Revenue was up 16%, maybe a little bit light. It was up 21% in constant currency when you have put into effect the stronger dollar. Earnings per share blew away the estimates at $22.49. That was up 33%. And cash flow, free cash flow was up 12%. So overall, I think it was a pretty good quarter travel bookings were up 9%.

That was maybe a little bit lighter on two. The concern that I think investors saw, and we saw it in the stock price, but some of the guidance was a little bit lower. Earnings at $10.90 to $11.20 a little bit below estimates. There's a lot of foreign currency exposure with booking. 80% of its sales are done internationally. the strong dollar not helping. So that's starting to have a little bit of impact. Hotel room night's book estimate for the quarter up 6 to 8% and total gross bookings, 5 to 7%. So a little bit of

a deceleration some of the growth has some investors concerned. One of the things we've talked about recently on the show is share buybacks. And one thing that caught my eye in this report is you look at 2018, booking holdings spent about $6 billion on share buybacks. That's much more than they've done in years past. This is a management team that has done a great job of growing the business. Is it safe to assume we trust them with that type of capital allocation? Because I'm a little surprised they went that high. Well, I think so. I mean, the amount of cash they generate and there's consistency in the earnings they have and some of the new initiatives they're making I think warrants it to give them the benefit of the doubt to be able to invest that capital

for shareholders. I know Jason and I and you have talked a lot about the concerns about some share buybacks, but for this business and considering how they can invest it and where they continue to invest it into their marketing spend and get more efficient with that, I think looking at the cash, they can generate warrants to be able to buy back the stock at pretty good prices. Yeah, and we put those share buybacks under a microscope with a lot of companies. I think it was last week. We were given stance.com a little bit of a hard time because what they were doing was seemed

borderline criminal at one point. I mean, at least with booking.com, you look at that share count over time. it is coming down. So it'd be one thing if that share count was going up. That was something we were holding against stamps.com last week. But at least with booking.com, that share count is coming down. That is the idea with share repurchases, make those fewer shares more valuable over time. You know, one interesting point they introduced this quarter was that the bookings through their alternative properties.

So these are things that compete with like the Airbnb's. 40% of activebooking.com customers have booked property, an alternative property, property in 2018. So you're booking hotels through booking.com and you actually are also booking an alternative property like a home rental through booking.com. Etsy's fourth quarter profit and revenue came in higher than expected. Shares up 20% this week. I get it, Jason. Because I mean, everything was up for Etsy. Users were up, sellers were up. It's the kind of week that makes you want to say hey now. Yeah. I mean, we talked a lot about Etsy today in our eight minute conversations around the tables here with all of our members.

it was just some really great conversation there, but when you look at what this business has done, I mean, this was another great quarter. The metrics that matter are all headed in the right direction. Active sellers are up, buyers are up. The gross merchandise sales grew over 22% to $1.2 billion, and they threw out a pretty interesting statistic there, too. There was $19,000 in gross merchandise sales per minute on Cyber Monday. So clearly they're doing something right, and I think a lot of it really is they've established themselves. as that brand for that community, that niche in crafts and art and whatnot. I mean, this really is the place to go. In this metric, you know, we talk a lot about with Wayfair, that repeat purchase metric, and it looks like Etsy is doing the same thing. They talk about habitual buyers, and those are

buyers who spent $200 or more over the course of a year and have made purchases on six or more days in the last 12 months. That's their most important buyer metric, and it's up a 21.7% for the quarter. That is just a very profitable part of the business. And again, worth noting it is profitable. They're bringing in a lot of money. I held Josh Silverman, the CEO of the year for me on our review show, if you remember, at the end of 2018. And it looks like he's just keeping it going into 2019. Who is the Pepsi to their Coke? Because there are a lot of places to buy stuff online, but in terms of the niche that Etsy has carved out, I can't name who it is. Well, so I think Amazon really tried to go in there and give them a run for their money at one point.

really that didn't gain any traction. But an interesting topic that came up in some of our conversations today, it was about folks who maybe are selling on Etsy and perhaps get a little bit too big for that platform. And they're moving over onto Shopify's platform, another company we love here at the Fool. So I think Shopify is a business out there that can certainly give them a run for their money. They do similar things. But there's definitely, there's a brand equity there with Etsy that certainly gives them a little bit of a leg up. Square continues to do its part in the war on cash. Square's holiday quarter results look good. Andy, Thursday was one of those weird days that makes me glad I'm not a day trader. I mean, the stock was down a pretty big pre-market because of the guidance and by the end of

the day, Square was back up in positive territory. Well, I think also Square is one of those businesses that continues to deliver. I mean, their gross payment volume was up $23 billion, was up 28%. Adjusted revenue at 464 million up 64%. That's a slight deceleration from last quarter, but still pretty exceptional for the size of that business. Adjusted EBITDA, the operating profits up almost a double to 81 million, and on the earnings per share, up 75%. So Jack Dorsey owns 14.5% of the stock talking about building out the square ecosystem, which is not just the payment readers, but their cash app and their Square card, which is partnered with MasterCard. 25% of U.S. are now underbanked or not banked, so the Square card and these different solutions that Square

continues to build is good for shareholders, good for clients, and you're seeing that with the performance that they continue to deliver. Yeah, I'm really glad you mentioned that word underbanked, because I think that is the most important word when it comes to companies like Square and PayPal, and I think it's easy for folks who have a banking relationship are just used to that. There is a big part of the population out there that is underbanked or unbanked at all. And Square and PayPal are developing solutions for those folks. And that is a big market opportunity that's out there. Why do you think we saw what we saw with the stock?

Because, I mean, Jack Dorsey is a CEO with a lot of experience. Square is not the new kid on the block anymore. And part of me wonders if there's just, on some level, in at least some parts of Wall Street, a fundamental misunderstanding of what this business is. I think there's a lot to digest with their earnings reports and seeing where they're going into the square capital side of the business and more business lending, that definitely introduces some uncertainty, some risk that maybe you wouldn't have seen before.

Again, it's really difficult to account for the day-to-day machinations of the market. And to your point, that's why we don't day trade. Yeah, and new CFO on board, but the full-year sales guy ends up 40% deceleration from the other growth. So maybe the headline number is not looking so good, but the more you hear from Jack Dorsey, you continue to believe in the square story. Coming up, we are fans of beer and we are fans of breakfast cereal. We're just not sure we're fans of the latest culinary innovation in the craft beer industry. Details coming up.

Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy yourself stocks based solely on what you hear. Welcome back to Motley Fool Money coming to you live from Austin, Texas, in front of a live audience. Chris Hill.

here with Jason Moser and Andy Cross. Teledoc ended the fiscal year, not with a bang, but a whimper. Fourth quarter results looked pretty good, but guidance was weaker than Wall Street was hoping for. Teledoc selling off on Thursday. And Jason, I mean, you look at the stock, and the last time Teladoc was at this level three weeks ago. I mean, I was going to say, it's plummeted to levels not seen since the beginning of the month. Listen, I mean, if you're a Teladoc investor, and I am, and I hope a lot of you out there are, I think you should be very happy with the way this business is progressing.

This was a strong quarter and it was a strong year by virtually, see what I did there? Virtually. Virtually every metric. Actually, they exceeded guidance in a lot of cases on sales and visits. I think the market reaction initially was to just a smidge light on revenue guidance for 2019. I've told you how I feel about that expectations game. Chris, I really don't care about it. And it was really a wild ride this stock took because right after that release came out,

I mean, the stock sold off close to 20% and after hours finished up down about 6, 6.5% for the day. I think people kind of came to their senses. I mean, listen, this is a business that is doing all the right things. Total revenue grew 59% for the quarter. Organic revenue was up 33%. And we know there have been some acquisitions in there to grow their offering to become more of a comprehensive offering, so to speak. They're actually working on an access to a cross-border solution so that it will be a United States and can. health care platform. And that's something that really doesn't exist today in the telemedicine

sector. And then we can't forget about the Medicare Advantage 2020 plan. There's going to be 20 million or so additional patients that will open up to telemedicine services via Medicare Advantage. And that's going to grow the potential opportunity for them to bring more members into their model and also even just fee only customers as well. So we've seen buy-in from the regulatory side. Telemedicine is real. It's happening. And I think the telemedicine. is one of the companies that's leading the way. I was going to say, if they can open up to other countries, doesn't that, I mean, the upside is nearly limitless.

Well, it is a big world out there, and access to health care is something that people need. And certainly the Internet has disrupted virtually everything else in our lives. And having used Teledoc services before, it's a great first step in initiating a doctor's visit. If you don't have to go to the office, it's really nice not to go if you can get everything taken care of with a little video chat on your phone. Our email address is Radio at Fool.com. You can also follow the show on Twitter.

Hit us up with a question. We actually got a question on Twitter about JAB Holdings, which is the private company that has just been gobbling up all manner of restaurants and coffee chains over the last few years, including Pete's coffee, asking, hey, if JAB Holdings is considering spinning off the coffee properties into an IPO, and reportedly they are, Is that something you'd be interested in? I'd certainly be interested, Andy, and looking at the S-1. Yeah, I definitely would be.

I mean, this is a very large, I think it's the second largest roaster, coffee roaster in the world behind Nestle, or retailer at least. They have about 12% of the market, according to the economists. Some very big brands, Kierig, Dr. Pepper, which may be part of this. We don't know if Panera would be part of this or not. So it's a, JAB is a very well-run private equity firm. They've been, as you mentioned, Chris, gobbling up. lots of different properties. So we'll be very interested to look at the S-1 and think about this is a

company that we want to invest in. Yeah, no question. I mean, I think you look at coffee is good business. And I mean, if you have a company that has a portfolio of coffee offerings, I mean, I can't see why, you know, we wouldn't want to at least dig in a little bit further. Well, and as we've seen with others, I mean, JAB has got property, they've got the packaged goods and they've got the retail locations. Yeah. And I mean, the whole thing with that Curig acquisition, I mean, really bringing a lot of great coffee into the home in a simple fashion. I mean, that's something you're going to find a lot of those curigs out there installed all over the world. I think it translates maybe a little bit better than that soda stream because you don't have to worry about replacing cartridges.

You know, they have plenty of opportunity out there. I will say I'm a very loyal Nespresso user, though, so they're competing right against espresso. You know, angry Uncle Joe, he says a lot of good things about that Nespresso as well. Granted, he's half the way around the world, but still. On last week's show, we talked about Boston Beer Company, the parent company of Samuel Adams. They've been crushing it lately, in part because of limited edition brews the company has been producing. So maybe we can blame Boston beer for this next story. This weekend, Smartmouth Beer, a brewery based in Virginia, is unveiling Saturday morning marshmallow IPA,

a beer that tastes like Lucky Charms breakfast cereal. The company says the beer is, quote, made with pounds of marshmallows, some of which we toasted, along with tropical fruity caly calypso hops, the result is magically delicious. Not in a hundred years. Too fruity for me, man. Come on on on. I mean, listen, let's take one for the team here, right? I mean, this is that boots on the ground market research

that we're known for, the selfless act of getting out there for all of our subscribers or members and really giving them that firsthand account of how that might be. I mean, listen, it's beer, it's cereal. I mean, what's wrong with putting them together? When we get back to Virginia, you let me know how that goes. Let me tell you something really quick here, and folks here will appreciate this. My wife put together a six-pack for me the other day from the store and included in there one bottle of Shiner Smoors beer. Now, I don't know if anyone out here has ever heard of that, but this was the first time I tried it. And I got to say, it was actually pretty good. That toasty sort of marshmallow flavor. I felt like it was around a campfire, Chris. Let's get to the stocks on our radar this week. Our man, Dan Boyd, is not behind the glass. He's here at the table with us. And he couldn't be more excited because he's got a brand-news.

soundboard complete with sound effects. That's right, Chris. I do. And I've only, I've been told I can only use one. So I'm going to use it judiciously. Okay. Jason Moser, you're up first. What stock is on your radar this week? Well, I tell you, everyone out there today, you inspired me to go with the selection here. BJ's wholesale club, ticker is BJ. They have earnings coming out next Wednesday. We had a lot of great conversations today about the power of membership models. And Amazon and Costco really took most of those conversations. But, you know, BJ's is a company that went public again here recently, and it's an East Coast concept mostly, but still a relatively small one. And I've, you know, I've been to a BJA's before back

when we lived in Georgia. I think this could be something we need to take a closer look at. Dan? Jason, do you think the guy with the jackhammer across the street while we were recording was having any fun? It sounded like he was having a lot of fun. Thank you, Jason. Andy, real quick, what are you looking at? Austin's own Chewy's reports fourth quarters on March 7. And the stock has really been a bad taste in enchilado over the past year. So I'm looking for some growth margins under pressure from the cost side with labor costs increasing and comp sales at the zero to 1%.

So looking for some love for Chewies next week, Dan. I love it. I love it, Andy. All right, guys, thanks for being here. Thanks, guys. If there was a Mount Rushmore of business leaders from Texas, Southwest Airlines co-founder, Herb would be on it for sure. Up next, a conversation between Mr. Keller and Motley Fool CEO, Tom Gardner. Stay right here. This is Motley Full Money.

All right, before we get to Tom Gardner's interview with Herb Keller, her, quick shout-out to Airbnb. Whether you're looking for some side cash or steady income, hosting on Airbnb might just be the best investment you haven't made yet. Worried about your property? Airbnb offers a host guarantee that helps protect your property in the unlikely event that something goes wrong. It's free to list your home, and you're the boss when you host on Airbnb. Host when you want, how you want. List one bedroom or the entire place. It's all up to you. On this show, we talk about generating income with stocks.

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Again, receive a $100 Amazon gift card if you generate $500 in booking value by May 30th by going to Airbnb. That's A-I-R-B-B-N-B.com slash fool. And start hosting. Welcome back to Motley Full Money. I'm Chris Hill. Earlier this year, Herb Keleher, the legendary co-founder of Southwest Airlines, died at the age of 87. He defied the odds by creating an airline that produced market-crushing returns for investors. In 2017, Motley Fooled co-founder Tom Gardner sat down with Kelleher to talk about his company's unique culture, the business of airlines, and a lot more.

Tom started by asking Kelleher how it all started. Herb, what happened on March 12th of 1931? It was a boon day for the entire globe, Tom, if I do say so much. myself because a highly intelligent, really visionary, and very handsome baby was born and named Herb. Who was Harry Kelleher? My father. And what was his work and life?

Well, he was the plant superintendent for the Campbell Soup Company in Camden, New Jersey, and then he became the general manager of the Campbell Soup Company, and they had only one plan at that time. And so that was his occupation up until his death. And who was Ruth Moore? My mother. And what can you tell us about Ruth? Well, she was working at the Campbell Soup Company, which was where she met my father. And after our family was blown apart at the beginning of World War II, Tom, one of my brothers was killed early in 1942, and another one off in the service, and my father died in early in 1943, and my other sister became an expediter for RCA.

You know, it was involved in war work. And suddenly, my mother and I were there alone from six to two within a year and a half for two years, and she was just fabulous. Because she covered everything with me. Ethics, the way you should treat people, business. We used to sit up even when I was 10 and 12 and talk until 3 or 4 in the morning. And she was absolutely fantastic in that respect because she was not only a nurturing mother,

but she also fed my mind. So the early stages of the definition of South West strategy, I do wonder when you talk about your mother and what she taught you around the dinner table or went into the wee hours of the morning about respecting other people. about and even the energy of or the dynamic of flying shouldn't just be for people who are wealthy it should be available to everyone the egalitarian nature yeah she was very egalitarian in that respect she was a great teacher because she told me that that I should not necessarily pay obeisance to

position or title because she said pay attention to the individual the individual may have a grand position or title but have feet of clay, you know, which I think all of us have to agree can be the case. And she also encouraged me to read very widely and unusually adult books, you know, for someone my age. And she stimulated my curiosity and a whole lot of things that probably never would have gotten into. And curiosity, I think, is one of the great things that can be very, very helpful.

to you because you're always looking for something different and how it might fit in, you know, to what you're doing. So I've never adhered to the philosophy that curiosity killed the cat. I look at it as curiosity informed the cat. I think Charlie, she played a big role in that respect, and also, you know, the political aspects of it, very helpful having that experience, fighting these battles in the Congress and in the Texas legislature. Why do so many airlines go bankrupt and why has Southwest Airlines never laid off a single employee? I mean, those are, they're so extremely at polar opposites. I mean, really, the industry we know has created very little economic value in aggregate going back to its inception.

That's very true. And yet Southwest Airlines has created, has been, well, certainly during your time, it was the best performing stock on the S&P 500. And since then, it's been a wonderful stock as well all the way through. no layoffs. Why? I mean for a layperson that's sitting out there saying I have no idea why this airline's successful and all the other ones continually failed, went through bankruptcy, he came back, went bankrupt again, etc. Some of them three times. Yeah. Well, first of all, and I think this has something to do with history and learning something about history. I was well aware that the airline industry was a very difficult industry.

As you pointed out at one point, it had a net loss from its inception, which means it's fairly difficult, you know, fairly scary. And I said, you know, you hear about regression to the mean, and I'm not quarrying with that as a formula, but how long is it going to take to regress? Is it five years? 25 years? 38 years? And so what we're going to do is we are always going to be very, very strong

from the balance sheet standpoint. Number one, we were one time for a long time. We're the only airline had an investment grade rating from the financial community. We're going to have lots of liquidity. And my mantra was we want to manage in good times

so that we do well in bad times. And there you get into the no-furlow policy because if you just hire a bunch of people willy-nilly doing good times, guess what you're doing? You're firing them doing bad times. So we were always well set up to ride through the bad times and market share was not our focus. Size in and of itself is unimportant.

I would rather have 4% of the market and be profitable than have 24% of the market and lose money. So we're not going to talk about market share at all. It was verbote. I don't know if you've read Peter Thiel's book Zero to One or Know About Peter Thiel. I do know about him. And he said basically from an investor standpoint when people pitch companies to him, when they talk about how large their market is and how he said, I want to know the smallest piece that you're going to dominate.

Because I know off of that, you have the opportunity to grow. Exactly. So the other airlines weren't doing that. They were trying to get as many. There were at war with each other. Who had the most airplanes and who get the most routes from the CAB and that sort of thing. And we just chewed all that. And we opened a lot of secondary airports, satellite airports.

And people initially said, oh, you'll never make a success out of a satellite airport. work while there's hobby, there's love. You know, I can run through about five or six more of them. And, of course, they were much more efficient to operate from, no backups. They were a lot closer and more convenient for an awful lot of people. And so we did things unconventionally that way. And we try to keep our work rules very simple to promote the efficiency of the airline. And kind of, you know, operated on the philosophy that airplanes don't make money on the ground.

They only make money in the air. Passengers don't pay it just to sit them. They pay you to fly. So very high utilization productivity. What would be a gap in fare between you and the competitor at any point in history? I mean, you could name one today or go back 25 years and say, we flew from point A to point B for X and they did it for 2X or whatever the gap. Yes, some of those contrasts.

Some of those contrasts are really amazing. Do you have time for one that's kind of... Please. It's kind of like a burlesque. Plenty of time. We went into BWI, right? And U.S. Air was the leading carrier there. And the round trip fair to Cleveland from BWI was like,

I don't know, $340 or something like that. And we reduced it to $56. You know, that's a considerable drop. And then U.S. Air found out we had a Friends Fly Free program. It was 2450. They matched that. That's right. On a Friends Fly Free basis, okay?

We went to $19 between BWI and Cleveland. So that's a pretty big saving, you know, $19 instead of $349. And the traffic increased by 1,500% in the first year of service. That's an exaggeration. But most markets we went into, popularity of flight. Increased enormously, enormously. I'm talking 100%, 200%, 300%, 300% within a year.

So presumably, some of the ways. that you hold those costs down for passengers is efficiency. Right. Hard work of everyone who's coming to work. Exactly. Probably not the highest salaries in the industry. I don't know whether that's true or not, you can tell me. But how can you have cost containment and balance sheet management and a great corporate culture?

I mean, those things, we see that, we think there's a big tension there and why isn't there at some? You know what? of mine recently wrote a paper that he sent to me and in it he said, corporations are always succumbing to the tyranny of no rather than the genius of yes. And what he was pointing out is that people sit down and say, well, we can either have low-cost and lousy customer service, everything's a compromise. great customer service and high costs. And we said, no.

You can have low costs and great customer service. And guess what? We're not offering you less for less fair. We're offering you more for less fare. And part of that, of course, was our culture. First of all, the warrior spirit of our employees who pitched in in every battle. Secondly, the fun and warmth and hospitality that our people provided to our passengers. And thirdly, the kind of culture that was upbeat.

We didn't ask people to change and become robots or automaton's when they came to work. We kept telling them, look, we hired you because you're you. Did anyone take that too far? Well, what happened? Yeah. Me, Herb? I'm not going to wear clothes to work today. Well, that's...

You put your finger on it, her usual. When we had somebody who did something extraordinary, we didn't put in new rules pertaining to the whole company or one of its departments. We just sat down with them individually and talked to them and said, you cannot do that. But, you know, if every time there's a... sort of anecdotal incident. A new policy comes in place.

You put in a new policy, you're gradually strangling yourself with bureaucracy. As a matter of fact, when I saw a ticket agent in San Antonio, after I became CEO, trying to answer a customer's question by going through these two loose-leaf manuals, you know, looking for page 73, capital A, you know, small I, you know, we burn them. We burn them. And what we said was we have a substitute. It's called guidelines for leaders. And the first sentence was, these are just guidelines.

Feel free to break them. We were unleashing our people to be themselves with the customer. And Colleen Barrett, of course, played a great role in that. And she called it her flexibility policy. And basically she was saying, look, you know, we work like crazy to hire the right people with the right attitudes, positive, you know, generous, carry. Yeah. And so just unleash them. Coming up, Herb Kellerher reflects on the principles of leadership.

Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Let's get back to Tom Gardner's interview with the late great Herb Kellerher. If you had, let's say, two or three leadership principles, if you had to boil them down to two or three, maybe you've just sort of touched on one of them, but I hate to just try and get a little sound bite, but what would be your top two or three principles as a leader?

I would say that, number one, you have to look out for the well-being of others more than you do for your own. Number two, that you have to really rejoice in your people and their accomplishments and praise them and recognize them all the time for what they have achieved. And be humble, I think. Be humble. Never think you've done something so great, you know, that now you're at the top of the pyramid because that's when the pyramid starts to collapse and you slide down on your face, you know, and never be complacent.

How about two or three principles of business strategy that might apply more broadly than just the airline industry? For an entrepreneur or a CEO that's looking at their game plan, and that maybe is overlooked the responsibility of having a strong balance sheet so that you can be resilient in a down period, or so maybe two or three strategic principles? Well, first of all, if one, One of your principles is that you're not going to furlough. That in and of itself is an incentive to stay lean, even when times are really good. You know, it's a discipline and a valuable one, I think.

Number two, particularly with respect to young entrepreneurs, including myself, they're optimists, Tom, and I think, and that optimism is needed, you know, to be an entrepreneur, year one. I ought to be interviewing you, but sometimes you don't realize how long it's going to take and how much capital it's going to take to bring it to realization. And so you don't raise enough money at the beginning. And sometimes with the young people, I have found representing young people who want to start up their own businesses. I found that they think that just having the idea is all they have to do. And I keep telling them, no, there's a lot of sweat that goes into it.

You know, you just don't announce your idea and suddenly golden coins start raining down from heaven like a manna on you. And there's a hell of a lot of lonely work to do to make it come to pass and to be successful. But the thing that I have always emphasized is culture. because I think that is the most powerful competitive weapon that you can have because it's intangible. It's spiritual. You can't buy it. You know, other airlines can buy airplanes. They can leave space.

But if they don't have the kind of outgoing, participative, happy, devoted culture that you have, you're going to have the edge on them. was told our people that the intangibles are more important than the tangibles. Is there a single story that comes to you right now, and maybe not across all South West history, about the employee or teammate of yours at Southless Airlines that did something remarkable for somebody else on their team or for one of the passengers? Well, I'll tell you what, I've got several stories that just jumped into my mind. There are thousands of them. But these will serve as, you know, exemplars. with respect to what you asked.

And one of them is that a lady had a flat tire in the parking lot at a terminal, air terminal, and our station manager stops and says, let me change that tire for you. And she said, well, I don't think you should because, you know, I didn't fly on Southwest Airlines. That doesn't make any difference. I just want to help you change your tire, no matter who you flew on. And we honor people for the great things they do outside Southwest Airlines, not just inside, great things they do in society in general. Last question talked about being a founder and the amount of number of hours of sleep you've got on average.

The decades that you've put into it. I know that you don't really have probably any regrets, but why don't you? You've given so much of your life to one organization. Do you have any sense of, gosh, I wonder if I'd taken five years and gone and done that, my life might have had this. So how do you view your commitment to a single ship that you've been sailing on for 50 years? I have no regrets whatsoever because if a father has a daughter or a son, I believe that father is going to commit himself to a single ship for as long as that ship is afloat. And so I've always said, you know, I'm so fortunate because my avocation is simultaneously my vocation. So there's no challenge, there's no tension, there's no hostility between the two.

I'm doing what I love to do for a company I love and helped to create and for people that I adore. And what could be more rewarding, more enjoyable than that. I refer to our people as my fountain of youth. I said, you know, Ponce de Leon was in the wrong place looking for the fountain of youth. in Florida, he should have come to work for Southwest Airlines. That's where you find your fountain of youth from our people. You can watch Tom's entire interview with Herb Keller, on The Motley Fool's channel on YouTube. Just go to YouTube.com slash The Motley Fool. That's going to do it for this week's edition of Motley Fool Money. Shows engineered by Dan Boyd and Steve Broido. Our producer is

Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.