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This is only “a failure” if the loss from this is worse than all of the money they have saved over the years by running so lean. This type of event is the obvi

This is only “a failure” if the loss from this is worse than all of the money they have saved over the years by running so lean. This type of event is the obvious possible downside that is well known when you structure a company this way. It’s not that events like this aren’t expected, it’s that prepping for them costs more than the loss from not being able to absorb them.

dgb23 5y ago
I‘m sure you‘re just describing what is, but... The human element doesn’t matter at all? Their workers are fed up. This tunnel visioning on financial metrics is so superficial and narrow that it makes me angry. A company is a community of interacting, real people, not a video game.
- WalterBright 5y ago
  Going out of business doesn't help the workers, either.
  - dgb23 5y ago
    My point is: "If you only look at financial statements, you lose the big picture" and not "don't look at financial statements".
- supertrope 5y ago
  Southwest is one of the better carriers in terms of customer satisfaction and not racing to the lowest fare.
craftinator 5y ago
> This is only “a failure” if the loss from this is worse than all of the money they have saved over the years by running so lean. Don't forget all of the future losses by losing the trust of both the customers and the employees. > it’s that prepping for them costs more than the loss from not being able to absorb them This assumes that they can absorb these losses.
- dotancohen 5y ago
  > Don't forget all of the future losses by losing the trust of both the customers and the employees. Who's going to remember this? Even a large percentage of the stranded passengers are likely to fly Southwest again to save $36 on a flight. > This assumes that they can absorb these losses. If they couldn't, then they could very very likely receive a bailout or other assistance. It is the existence of these safetynets that allows these businesses to operate so lean. The cynical might say that bailouts encourage the practice.
  - TeMPOraL 5y ago
    > Who's going to remember this? Even a large percentage of the stranded passengers are likely to fly Southwest again to save $36 on a flight. You can see how this is a problem, right? This essentially means the market is not working as it should - instead of improving quality of service, it makes people absorb the bad experience, ad infinitum. The market is not able to deliver feedback to the companies, who instead rely on some degree of "capacity for suck" in their customers, and the fact that there's a new sucker born every minute - by the time they burn out a cohort of their clients, a new population of naive, hopeful people shows up to replace them.
    - dotancohen 5y ago
      > You can see how this is a problem, right? Without a doubt. I am among the cynical.
    - kortilla 5y ago
      “I don’t like what people prefer” is not “the market has failed”. If people want cheap flights, they will keep flying southwest and deal with the occasional problems that come with dancing on a razors edge.
    - cornel_io 5y ago
      I don't think people will be as forgiving of this as GP thinks. I will certainly not book with them for my next N flights unless I hear that they have massively changed their tune.
smsm42 5y ago
The money they earned in the past are already spent and forgotten. The failure is now. So for the people who got the bonuses in the past it may be worth it (that's probably why they did it), but for the company as an ongoing concern it certainly isn't. It's like eating a lot of unhealthy foods and later getting sick - maybe some people consider it worth it, but most people kinda regret it when they get sick.
- toyg 5y ago
  The thing is, a company isn't a person. In fact, LTDs were effectively invented in order to dissociate company lifecycles from human ones. So, from a purely rational perspective, if the company makes $100m profit over 10 years then gets "sick", well, job done - you just start another one and carry on. Money doesn't care for future consequences; if anything, inflation puts pressure on disposing of profits quickly while postponing losses (and risk), even if doing so will eventually kill the company. Extreme "financialization" of our ways of production has given us great rates of efficiency and innovation, at the expense of long-term stability.
  - piva00 5y ago
    > So, from a purely rational perspective, if the company makes $100m profit over 10 years then gets "sick", well, job done - you just start another one and carry on. Money doesn't care for future consequences; if anything, inflation puts pressure on disposing of profits quickly while postponing losses (and risk), even if doing so will eventually kill the company. This is a purely financial take, not necessarily a purely rational one. I say that because it's pretty easy to dismiss all the human aspect of a company dying, all the suffering it creates as something to not be taken "rationally" but what it actually means is to push the human-factor into the statistics field and be done with it. I don't agree with this worldview.
- kortilla 5y ago
  A company around for 100 years that returns 2% per year is worse than one that returns 100% per year for 5 years and then folds. Companies shouldn’t exist for the sake of longevity.
dredmorbius 5y ago
Operating a business is a lot like flying an airline in one respect: It's not your average hight above the zero point that matters so much as never, ever going below it. Failure to maintain altitude above ground level and failure to maintain solvency are in many ways equivalent. Both domains involve taking risks, but with severe consequences when either risks are miscalculated or ground truths change. Financial bets can be hedged in ways flight profiles often cannot be, and Southwest are credited for doing this (with fuel purchase futures notably), but there's a sense in which businesses are arbitraging latent risks for present profits in ways which can prove catastrophic. (Venture start-ups are particularly prone to this IMO.) Southwest's single-airframe fleet affords efficiencies, but also risks should faults arise with that airframe or subsystems of it (as with the 737 MAX scenario).
- maxerickson 5y ago
  Wouldn't the relevant analogy be operating income? It's usually not a problem for a business to incur a short term operating loss.
  - dredmorbius 5y ago
    "Solvency", writ large, is ability to service debts. It's not quite as simple as cash-on-hand, turnover, or profitability. Start-ups without revenues or net profits may be solvent if investment capital is available, premised on future profitability or a viable exit strategy. But it's fairly strongly related.
    - maxerickson 5y ago
      For a plane, solvency would be airworthiness, not altitude.
      - dredmorbius 5y ago
        That's not the way I'm picturing it. Airworthiness is more an overall assessment of risk. A substantially compromised aircraft, with expert piloting and favourable weather, can still land successfully. A fully-airworthy aircraft experiencing CFIT won't. Nor will one flown into unanticipated adverse conditions such as violent weather, volcanic ash, or wind shear. And of course, a sufficiently crippled craft cannot be landed successfully no matter what. (An additional case is of a landing with partial survival of passengers and crew. We'll omit that.) Airworthiness increases he probability of a successful flight. It's neither strictly necessary, nor sufficient. It is part of the overall risk assessment, effectively a creditworthiness rating. An airworthiness certificate is a specific certification of such airworthiness.

dgb23 5y ago

I‘m sure you‘re just describing what is, but... The human element doesn’t matter at all? Their workers are fed up. This tunnel visioning on financial metrics is so superficial and narrow that it makes me angry. A company is a community of interacting, real people, not a video game.

WalterBright 5y ago
Going out of business doesn't help the workers, either.
- dgb23 5y ago
  My point is: "If you only look at financial statements, you lose the big picture" and not "don't look at financial statements".
supertrope 5y ago
Southwest is one of the better carriers in terms of customer satisfaction and not racing to the lowest fare.

craftinator 5y ago

> This is only “a failure” if the loss from this is worse than all of the money they have saved over the years by running so lean. Don't forget all of the future losses by losing the trust of both the customers and the employees. > it’s that prepping for them costs more than the loss from not being able to absorb them This assumes that they can absorb these losses.

dotancohen 5y ago
> Don't forget all of the future losses by losing the trust of both the customers and the employees. Who's going to remember this? Even a large percentage of the stranded passengers are likely to fly Southwest again to save $36 on a flight. > This assumes that they can absorb these losses. If they couldn't, then they could very very likely receive a bailout or other assistance. It is the existence of these safetynets that allows these businesses to operate so lean. The cynical might say that bailouts encourage the practice.
- TeMPOraL 5y ago
  > Who's going to remember this? Even a large percentage of the stranded passengers are likely to fly Southwest again to save $36 on a flight. You can see how this is a problem, right? This essentially means the market is not working as it should - instead of improving quality of service, it makes people absorb the bad experience, ad infinitum. The market is not able to deliver feedback to the companies, who instead rely on some degree of "capacity for suck" in their customers, and the fact that there's a new sucker born every minute - by the time they burn out a cohort of their clients, a new population of naive, hopeful people shows up to replace them.
  - dotancohen 5y ago
    > You can see how this is a problem, right? Without a doubt. I am among the cynical.
  - kortilla 5y ago
    “I don’t like what people prefer” is not “the market has failed”. If people want cheap flights, they will keep flying southwest and deal with the occasional problems that come with dancing on a razors edge.
  - cornel_io 5y ago
    I don't think people will be as forgiving of this as GP thinks. I will certainly not book with them for my next N flights unless I hear that they have massively changed their tune.

smsm42 5y ago

The money they earned in the past are already spent and forgotten. The failure is now. So for the people who got the bonuses in the past it may be worth it (that's probably why they did it), but for the company as an ongoing concern it certainly isn't. It's like eating a lot of unhealthy foods and later getting sick - maybe some people consider it worth it, but most people kinda regret it when they get sick.

toyg 5y ago
The thing is, a company isn't a person. In fact, LTDs were effectively invented in order to dissociate company lifecycles from human ones. So, from a purely rational perspective, if the company makes $100m profit over 10 years then gets "sick", well, job done - you just start another one and carry on. Money doesn't care for future consequences; if anything, inflation puts pressure on disposing of profits quickly while postponing losses (and risk), even if doing so will eventually kill the company. Extreme "financialization" of our ways of production has given us great rates of efficiency and innovation, at the expense of long-term stability.
- piva00 5y ago
  > So, from a purely rational perspective, if the company makes $100m profit over 10 years then gets "sick", well, job done - you just start another one and carry on. Money doesn't care for future consequences; if anything, inflation puts pressure on disposing of profits quickly while postponing losses (and risk), even if doing so will eventually kill the company. This is a purely financial take, not necessarily a purely rational one. I say that because it's pretty easy to dismiss all the human aspect of a company dying, all the suffering it creates as something to not be taken "rationally" but what it actually means is to push the human-factor into the statistics field and be done with it. I don't agree with this worldview.
kortilla 5y ago
A company around for 100 years that returns 2% per year is worse than one that returns 100% per year for 5 years and then folds. Companies shouldn’t exist for the sake of longevity.

dredmorbius 5y ago

Operating a business is a lot like flying an airline in one respect: It's not your average hight above the zero point that matters so much as never, ever going below it. Failure to maintain altitude above ground level and failure to maintain solvency are in many ways equivalent. Both domains involve taking risks, but with severe consequences when either risks are miscalculated or ground truths change. Financial bets can be hedged in ways flight profiles often cannot be, and Southwest are credited for doing this (with fuel purchase futures notably), but there's a sense in which businesses are arbitraging latent risks for present profits in ways which can prove catastrophic. (Venture start-ups are particularly prone to this IMO.) Southwest's single-airframe fleet affords efficiencies, but also risks should faults arise with that airframe or subsystems of it (as with the 737 MAX scenario).

maxerickson 5y ago
Wouldn't the relevant analogy be operating income? It's usually not a problem for a business to incur a short term operating loss.
- dredmorbius 5y ago
  "Solvency", writ large, is ability to service debts. It's not quite as simple as cash-on-hand, turnover, or profitability. Start-ups without revenues or net profits may be solvent if investment capital is available, premised on future profitability or a viable exit strategy. But it's fairly strongly related.
  - maxerickson 5y ago
    For a plane, solvency would be airworthiness, not altitude.
    - dredmorbius 5y ago
      That's not the way I'm picturing it. Airworthiness is more an overall assessment of risk. A substantially compromised aircraft, with expert piloting and favourable weather, can still land successfully. A fully-airworthy aircraft experiencing CFIT won't. Nor will one flown into unanticipated adverse conditions such as violent weather, volcanic ash, or wind shear. And of course, a sufficiently crippled craft cannot be landed successfully no matter what. (An additional case is of a landing with partial survival of passengers and crew. We'll omit that.) Airworthiness increases he probability of a successful flight. It's neither strictly necessary, nor sufficient. It is part of the overall risk assessment, effectively a creditworthiness rating. An airworthiness certificate is a specific certification of such airworthiness.