Maurice J. Gallagher, Jr. "Management Challenges from the Tarmac to 30,000 feet"

That's gonna be a lot of things to follow and to deal with. But as the Dean said, I'll take you through a little bit of just what I've done. I'm basically an aviation junkie. I've got kerosene in my veins, all those little types of things. And I was fortunate enough to be involved in the airline business at the start of it, which really was 1978, October, when Congress passed the Deregulation Act and President Carter at the time signed the bill. Prior to that time, those of you old enough flew around in a regulated environment. The Civil Aeronautics Board, everything was fixed. You had fixed fares, you had fixed routes, and if you wanted to do anything, you went back and applied and had your lawyers spend thousands, tens of thousands of dollars, and then they said no, you can't raise fares, you can't change routes. So PSA and Southwest were very much successful intrastate carriers in Texas and here in California, and based on that model, deregulation was passed. And there was a tremendous amount of deregulation passed in that timeframe which has really helped the business world and, I think, the country as well. Banking deregulation, you had transportation with trucking and things like that, airline. And so today, you have a much more robust world because of this stuff. But let me take you through the latest venture. I'm actually just going to go to the maps. So this is, as the Dean said, this is my third time. The first one was a commuter business, and again, at the foster beginning of deregulation, the airline business in this country was all point-to-point. You didn't have hub-and-spoke. And if you look at a natural way you'll move things, things being packages, people, whatever, they're gonna be most efficient when you're running them through a what they call a hub, and you feed that hub, you do all the changeover, and you leave. FedEx, Fred Smith started Federal Express in 1973, and guess what city he chose? He chose Memphis. Why did he choose Memphis? It's in the center of the country. It had good weather, south, it's not north. So that was how that all got started, and that was the natural evolution that you've seen in the aviation world with your big hubs in Chicago, Dallas, Atlanta is a huge hub. You've got some East Coast hubs, the West Coast hubs that launch your international stuff, Newark, San Francisco, and things like that. We were fortunate to be the feeder to that hub system, and we joined up with United with a company called WestAir, and my partner and I bought the company in '83. It was ten little airplanes, three or four million dollars of business, mortgage money, you know what to get into it. Well, we were right place, right time, and we sold that company when it was doing $270 million ten years later, a hundred airplanes, 2,500 people. Went into ValuJet, as we mentioned. There was a very good company. The thing about that company that I was really very proud of us, we pushed ticketless. Up until that time, you had to have a piece of paper to be on an airplane, and it turns out that paper was just the cash, that was your cash receipt. The sales effort was not tied to the cash receipts effort, so you had to bring your cash and give it to the ticket clerk to get on the airplane, and we said that's stupid. So we built the automation and we put that sales and the cash together, and we started that in '93. It was a 486 tower with 30 passes or 30 things that were wrong on the res system and 30 were running the operation, and that's how we started that company that did $500 million worth of business in the space of 24 months. So it was a great place, great time. I might add, if you wanted to make money and kind of get involved in start-up airlines, it's a pretty good place because you could, if you did it right, you could do something. I must tell you, every time I leave the airline business, I find out how hard it is to get people to give you money. It's pretty easy to get somebody to buy a ticket on an airplane, but I tried the telephone business, selling somebody a phone line in 1998 for $15 a month. That was damn hard. So anyway, I've got a bias towards this. But I got involved in this business in 2001. A friend of mine who started it was the IT guy, brilliant guy, but he wasn't terribly good at some of this stuff, and he got himself sideways. I became the largest creditor, and we took over the company in July '01. That's what they had. What do you do? I got a certificate. That's the tough thing to get. Fly, you know, if the FAA said we could do this, the government said we could do it. I lived in Las Vegas at the time, and so we started looking at different ways to make this thing work because that was about throwing good money after bad, as they say. I already lost the other money, so the extent of this was I'm gonna do everything that everybody different and everybody else does. If you're entrepreneurial and you're looking for investment, for instance, don't bring people a me-too business plan. If you think you've got a better pizza shop and you can be Joe on the corner, and Joe's been there for 10 years and Joe's got a great pizza and he's got a great following, he's got signs, he's got market, why are you gonna be able to be Joe at his game? It's not to say you can't, but that's a pretty bold undertaking, a bit arrogant frankly, too. But if you can put a twist on things and do it better, so the twist here was to focus on leisure against the business. The airline business is focused on two types of people historically. The biggest chunk of that thing is what I call OPM, those are people that use other people's money, and then there's the YM sector, your money. And that Southwest got built on your money and PSA. So those are the types of things, and we built this on a leisure-based customer who is a YM customer. And so we started doing different things, and in about three or four years we figured out how to do it: how to size the airplane, what frequency, how to structure the business as far as all those things. So virtually everything we've done is 180 degrees different than everybody else relative to we fly airplanes and we need pilots and mechanics and things like that, but as far as the business model goes, our frequency patterns are different, our customers differ, we keep all of our airplanes in one place so it's a better functional operation from a cost perspective. And if you're going to fly a leisure customer, they're incredibly price sensitive. So this is 2004. The formula is pretty good. We've got older airplanes that we don't fly a lot. We fly them half as much as the Southwest does, for instance, and so that model right there is starting to work pretty good, and we look to expand it. And so now we were into Florida. So this is 2007. We opened up Orlando in 2005 and we did St. Pete in 2007. And so the model just keeps growing. And the interesting thing about it is people weren't interested in competing with us. If you're going to start your own business, I recommend first and foremost finding a niche that is pretty rock-solid. Not to say you can't make other things work, but if you have a niche that you know really fits you well, and you know, I kind of feel sorry for people that go into high-tech business and try and build a business because you're guaranteed to be obsoleted in what, pick a period of time, right? Three years, four years. Everyone, anybody ever remember Wang? You know, Wang was the best word processor you ever saw. You bought a whole system and you put it there and you paid lots of money for that system. No, sorry, Mr. Wang, it didn't last. The nice thing about this business is bodies don't change. You know, we're getting a little bigger times and stuff, but people want to move and they've got money to move, so they're not going to obsolete this business. You can run yourself out of business if you don't have proper economics, but it's a business that has long longevity to it, particularly our customer. Our customer is probably an older customer, 50-ish, 45, baby boomers, got money, want to travel. And you'll notice a pattern: the blue dots are where we sell most of our tickets, the other dots are where people want to go. So we take those people from the cold north and we move them to the south. So that's that sudden fun leisure destination. And once again, you can see down at the bottom, at this point we had 50 aircraft, 76 cities, and 171 routes. Anybody understand the power of a network? They're exponential. The more points you have and the more you can connect them, you get the ability to really leverage the network. So as we build more destinations and more cities, we start seeing the connection. And the other thing you can see here as far as routes go, probably from Lake Michigan on down to the Dakotas, those people can go both directions. Otherwise, if you're east or west of that, you're going to go to the east or the west respectively. So we don't fly long-haul. We won't take you transcon. We'll just take you from kind of little east of Chicago to Vegas or the Dakotas to Florida. This is our 2016 setup, August. We have 83 airplanes, 111 cities, and 322 routes. Only about 85% of those are competitive. So our model has really been bulletproof, not kind of, it has been, and it has worked exceedingly well. We're 52 quarters profitable. We lead the industry in margins. This year, with oil being down, we're 30% operating margins. You go back to study the history of the airline business, three and four percent were good operating margins at one time. They're not good operating margins, but that was considered reasonable. Balance sheets are being remade. Delta, American, United are all doing exceptionally well. It's a good time for transportation in this country, and you want that. You want those guys to be successful so they can invest in new airplanes, they can afford to improve their products. Doing things when an industry is always on the edge of bankruptcy is tough. It's tough to do. So you're really seeing a renovation in the industry, and the consolidation that went on in the last few years has been good for the industry. Consumers may not think so, and you also have the congressional types who want to legislate this business. Unfortunately, they're experts because they fly once a week back to their district, right? So they know all the things they need to do. There, Mr. Schumer is suggesting that he wants to legislate seat sizes, so that we have to have a particular seat. So I think there's a yearning in certain tea parties for deregulation or re-regulation, I should say. Anyway, the Dean said we're just a $3 billion market cap. We've grown to a billion two in revenues. Let me just back up a little bit. So there's this five-year summary of the revenues and expenses. Operating margins and percentages for an airline to produce a 37% operating margin is kind of unheard of, but that's okay. I like that. We're on the receiving end of it. My benefit is that I still own 20% of the company. So when a lot of people in this industry historically, when they get their stock, the airline industry has a parabola effect on a public company. If you look at JetBlue, they skyrocketed up to $55 a share and then way back down to the single digits. People like to sell on the way up or at the top, right? So I've fortunately held on to mine because I just felt it was a great investment and we were really different. So it's been a great investment. And you know, we also were the least capitalized company in many generations. We did it, I wrote checks out of my own account for $3 million for working capital, and that's it. JetBlue had $170 million. So those are differentiators. We had to make this work because if we didn't, it was yours truly who was gonna be out some more money. That bad money was going to continue to be bad. But you can see the earnings per share, and in particular the end of '15, we jumped up substantially. That's the benefits of oil. And then the balance sheet, we've paid back to shareholders over $600 million in the past six, seven years. So we keep those ratios up, their return on capital, return on investment. This again, second and on in the business. So anyway, that's an overview as to where we are. Why don't you come on up? I got a book list up there too, if you ever get around to that.

Certainly it brought me to the business. But the interesting thing, you find a lot of people who bring different disciplines aren't successful. And I hope there aren't any pilots in the room, but for whatever, if you're a pilot and a commercial pilot, they've been notoriously unsuccessful because they don't think of the business aspects more so than they do of just the operational aspects. And it's business, it's never one element. It's not just revenue and it's not just expense. It's a combination of the two. And you have to be in the right place. You have to be objective and you've got to be, you know, kind of really on your game with your numbers and knowing how to price, knowing where the market is. And so it's certainly the passion gets you into it. At that point, you better be on your game because, and this is any industry, you know, to start up. What's to me, and one of our investors, we have T. Rowe Price, those of you guys have been in stock over literally since we went public in '06, '07, and they said the hardest thing they've seen is to take a startup company and turn it into a billion dollar plus organization. That is, you know, that's all the things about growing from an infant to an adult and all the things you have to do and the systems you have to put in place and the management that has to grow with it. We have over 3,000 people now, and we did that first thing you saw, we had 50 people. So how do you grow that? How do you put your personnel in place? How do you not, you know, make the mistake, stub your toe, or just not keep up with what you have to do?

The real surprises, I was able to kind of stay on top of it because I was not a big company guy. I mean, I haven't worked in big organizations. And you know, if you bring somebody out of a United, American, or Delta, and they've got a $37 billion business, they see systems, they see processes, they're not afraid of size. The hardest part of this business growth is you, we've been through three management teams. And a guy who can run five airplanes, a person who can do that, their ability to scale up to run 80 airplanes is a completely different management skill than it was then. Frankly, there's been only two people who have kind of done the journey inside our organization from the get-go, and one of them is our CFO, and he's 37 years old, and he gets it. He was able to kind of step back and not only grow in his skill, 'cause he came in as a bookkeeper, you know, and he's now CFO, so he grew his own skill, but he grew his management skills to stay on top of a 3,000-person organization from a 50-person organization. And that's that Rubik's Cube of how do you put all those pieces together to do it. And frankly, we had a lot of people that just couldn't keep up. And it's a tough thing to do because the organization needs that manager that can take it up or stay on top of 80 airplanes. It's completely different systems and processes than it is even 40 airplanes and 20 airplanes. So those are the tough things.

I think certain people have instincts for it. Like this gentleman, our CFO I'm talking about, he just has a great way with people. And you see the people that they're empathetic. This guy is always reaching out to people. He's talking to them. He's got a friendly way about him, but he's nobody's fool. And then the second piece of that is you've got to be honest with your people, and you've got to be able to talk to somebody and tell them what's not working, and if they can't move on or fix it, you've got to make changes. We do what we call a forced ranking in the organization. We've got 43 directors. We put all the vice presidents in the room, and everybody's got to sit there and talk about their people. So if you've got four or five directors, and you know, here's Joe and Harry and Sally, and then everybody gets ranked. Well, this one guy we have in the organization now has got four directors, three directors that are in the last three or four. You sit back and you go, you know, Joe, that's not a good... And this isn't one guy, this is kind of a balloting of, you know, you then you just tally it up. So it's what people think. And what you find is that cumulative knowledge, there are no secrets inside of organizations. There are no secrets inside of families. You know who the strong people are and you know who the weak people are. And if an organization does not cleanse itself, it's a pond that continually, you know, takes care of the algae and keeps itself clean. If it doesn't do it, the good people will leave. They're always the first to leave because they know they can go do something else. Very difficult to do. It's tough. That computer screen, you know, give you the answer you want. That person is going to talk back to you. And I've only had one person in my 30 years plus of doing this that's said to me after I told him I didn't think he was doing a very good job, said, you know, you're right, I need to fix it. Yeah, one person. And people are very defensive about their own beliefs and such. And I think they know in their heart of hearts that things are telling them we're probably accurate and true, but it's hard for people to admit to it.

The first guy got me going was a fella named Terry Ashton. And he was a former senior executive at Hughes Airwest, and they're based in Las Vegas back in the '70s. And he joined our little company up there, the WestAir one that you saw, and came in later as CEO. And I learned a tremendous amount from him, just the skills of talking to people. And unfortunately, the business we, a jet startup at that time in 1981, and it didn't work. It was a bad management team with a bad business product at a bad time. And of course, Mr. Ferris who was running United sat on us as well. So it was an MBA of the first order. But Terry was a terrific mentor. And then a business partner I've just had great respect for, Robert Priddy. He started ASA Airlines, which was ultimately a Delta Connection carrier and then was sold to SkyWest here in the last few years. But brilliant guy, just a no-nonsense fellow and kind of bottom-line fellow. So those guys have been really key. And you know, a number of other guys. My business partner in many years, we were a yin and yang. And if you go into business with somebody, do not go into business with the same as you. My college roommate married, he was looking, he came a lawyer and he married a lawyer. That lasted about a year, you know. He don't want to come home to that every night. So I was the financial type and more of a kind of geeky one, and Tim, my partner, was Mr. Marketing and could control a room. And we were a good team together, dynamic. We fit each other's weaknesses and strengths were multiplied because of what his capabilities were. But you know, learning experience all the time.

You know, I guess I'm not surprised that I got into business. I've always had, I think they were all wired in a certain way, and I knew early on, looking back on myself, that I was entrepreneurial and I wanted to do something. I was always looking at an angle to do this or to do that. And I wake up thinking about things. And I tell my kids that you really figure out what you want to do or what you are when you catch yourself daydreaming. And what is your mind default to? What do you go back to? What do you twist over? You know, and that's what really floats your boat. That's what you should do. And business was mine. I wasn't sure where I'd go. But I know the one, the best class I remember from Berkeley, I was a bad MBA student, I might add. I was cynical, and I just, I wasn't the right guy. And I didn't have any business experience either, which was probably a problem. But the one class that came through that was really interesting is they brought over these senior guys, probably my age or a little younger at the time, and I was fascinated listening to them talk. Head of Transamerica, I can't remember their name, the boutique banking shop, investment bankers that took Apple public in '78, '79, and People's Express. And you just listen to these guys talk, and their no-nonsense, they were really just good guys, good stories, great perception of what made it work, what didn't work, the mistakes they made. You know, and I was just really, I never missed that class. So it was good.

You know, IT is, I don't know with business, IT is more of a science-oriented thing rather than a business say. You know, historically my sense of business has been, particularly graduate schools, not so much the IT side, but you know, accounting, marketing, those types of things. But IT is, you know, some of the best guys in IT are not good college students. They just don't think that way. They're not wired that way. The hardest thing with IT is to, one, find good quality people. And what's quality? It's tough to find management in IT that can both sit down and code and then turn around and manage people. Because when you're doing IT, you're wired a certain way, and that doesn't mean you want to talk to a lot of people. And furthermore, you're not comfortable talking to a lot of people. And further, you're not comfortable confronting people. And so organizationally, it's a real challenge to put IT together with both the management structure that you need. And then on top of it, you've got this customer internally in many cases you got to please. It's called all these departments. So you not only have to manage your own people, you've got to manage and be nice to the customers. And customers are jerks sometimes. You know, so we've fought a lot of battles. And the guy who runs our IT shop is a brilliant guy, but he's a pain in the ass. You know, I mean, he just gets into guys' faces. And in his defense, the users a lot of times don't know what they want. So you're building stuff, and a user who can kind of sit down, and I tell people the worst person to define the use for an IT tool is the user himself or herself because they just don't get it, how to structure it. And furthermore, you never want to build an IT program where you sit down and write a book this thick of all the prerequisites. You want to start with a germ and build a little one-room shack, and then you build the second level, and you build the third level, and you tack it on. And then once you have some ideas, you then have kind of a bigger picture where you can go. But you've got to get something in somebody's hands quickly. Having said that, that's hard to do. So I joked that we're an IT shop that flies airplanes. If you're selling your business song on the web, where 93% of our sales come through the web, and you don't control your own res system and all your own aspects of that. And mind you, the travel company that I mentioned, we sell third-party products. So we sell hotel packages, we sell rental cars, we sell different features and such, and we want to do more of that. But that's all IT centric. And how you present it, how you package it, how you price it, how do you discount it? You know, what's the rules engine you have to put together? You know, when you're putting these things in play, pretty complex stuff. So it's a skill set that I don't know, it's the coding is how most these guys start. But you know, you can take a good manager and make them a manager of IT. And I think in many cases, you'll find in organizations that that manager is probably a weak coder or the like, but he or she have good skills in managing people. But they understand the business enough that they can talk to management and they can cross that bridge. Because really, what IT is, is nothing more than crossing bridges. You know, somebody who can walk across that bridge and talk to IT and then turn around and talk to users. Those are valuable people inside an organization. Some people are more valuable than others. And we've got about seven or eight of those product managers that to me are the most valuable people in the organization because if they walk out the door, I haven't got anybody that can replace them because they've got all this institutional knowledge and they know how to work both sides. And it's, you know, I don't wake up in a sweat with those guys. Well, I make sure we TLC them.

Well, when I started my first company, WestAir, we were in Chico at first, then we moved to Fresno in '85, '86. And I met a fellow named Mitch Lue there who is a brilliant, brilliant guy. He had a shop of about seven or eight people, IT, and he was doing things back then that were just amazing. And he came over, and I've always been very IT centric. And he rewrote all of our operational stuff. At that time, we were part of the United Network, so they had the front end, the Apollo reservation system, and then when you checked in at the gate, that was Apollo. But he did the flight operations, the maintenance, and all those things. And so when we went to ValuJet, we started ticketless. I was a big believer that tickets were a waste of time and money and the like. And so he built the front end. He wrote one of the first stand-alone reservation systems for the airline industry in 1993, and he did it in 90 days. That's dropped jaw when you think about the ability to do things. So we started that airline in late October of '93. We advertised, people called us, we took their information, we fed it back to them their flight schedules, we took their credit card over the phone, we verified the credit card, no internet mind you, and we posted the books that night. So if you bought your ticket with us, we took your money, we put it on the books, and we set up the liability, what we call the air traffic liability. When you showed up at the ticket counter, you know, Gallagher, you just say your name, hit the G, we give you a plastic boarding card, and that now did all the accounting in the background. It was all integrated, and it was slick. We had three people in accounting, and we did $10 million of business in the first month. Revolutionized the business. And you all today use ticketless because Mikey never see that commercial, the food commercial, you know, with the cereal. We were Mikey, and that was okay. I like being Mikey. I'm willing to stick my neck out. But Mitch did all that, and then he started Allegiant because he loved the business so much in '97. I was not a part of it, and I lent him some money in 2000, 2001 because the world started cutting upside down. And he put it through Chapter 11 when he had to, and I came out the back end as the biggest creditor. So that was me. And with what you saw, that first map up there, summer of '01, right before 9/11.

We stopped hedging in 2007. We were the first company to stop it. And back then, the Wall Street types, it was kind of like you check a box: are you hedging? Yes. So we started looking at it. There's a couple of real fundamental problems with hedging fuel. It's a business we don't know. So you buy a hedge, and there's a couple of fundamental ways you buy a hedge. You buy a spread around the dog of the things. So if it's a $50 barrel of oil, you can buy a hedge that says we'll pay you if it goes over $60, but if it goes below $40, you got to pay us. And so most guys would put that type of hedge on, right? And I, you know, we started thinking about it. And you look at what is the reason you hedge? You know, you hedge because you're supposedly managing your revenues and matching expenses and fuel and the like. But the problem is that oil was so volatile in the last 10 years, 12 years, particularly. If you graph the price of oil, it went from the space of a year and a half, it went from $50 a barrel up to $147. And at the time, Goldman Sachs' analysts were saying oil was going to $200 a barrel. So what happened to you if you bought a hedge along that way? If you're United Airlines, they bought hedges at $125, $130 because that's going to $200. If it goes to $200, they'll be out of business because you can't take the fares up at the same pace. But the problem is, well, it hit $147, then it fell like a stone, and it was at $35 a barrel eight months later. So what happened to United on the way down on that hedge? They had to pay money out like crazy because they went below that $40 bucks. And this is a cash-and-carry business. There's no credit in this. So their balance sheet is just getting consumed. Southwest did refinancing on airplanes at 15% because they're a big hedge company. So we quit it in '07, and we didn't have any of those problems. Plus, we killed it when oil fell, and we didn't have any overhead. In the past year, you've heard of Delta taking a couple billion dollars of losses, Southwest has, because they bought these hedges when oil in early '14 was at $100 a barrel or something like that, and they're hedging it at that, and it starts coming down. I mean, they just got to pay up. So it's been good for us. Furthermore, if you buy an oil hedge, you're speculating. There's no transparency. You don't know what's inside them. You don't know what it costs to put that on. Furthermore, in the US, you can't get a pure hedge. You can't buy a jet fuel hedge. You have to buy heating oil or you have crack spreads and all kinds of technical things that go on. So we're just fine with that. If oil goes up strongly, guess what we do? We pull our capacity back. We stop offering seats at prices that don't support that price of oil. And when oil falls, guess what I do on the other side? I start expanding because I've got better margins. We are now running at a 30% operating margin, which is unheard of in the business. So no, I don't hedge, and we don't want to hedge. Last but not least, it is the most miserable accounting exercise you've ever seen. I don't know if you've gotten into hedge accounting or all that stuff. The PCAOB and the accountants sit around thinking up stuff that is unbelievable. I study, nothing personal, but some of you guys going into professional accounting, I used to do that, I might add. It's a tough world out there with the PCAOB on top of you. But we still need you. We still need you.

Well, with regard to corporate governance, I assume you mean how we treat stockholders and board of directors. The directors, okay. I have a very simple mantra. I'm a big believer in stockholder benefits. People invest, they want you to do things right. And as I tell our management team, when we run the company right, it's our company to run. When we run it bad, the board and the company, they take over. And so our board, we have six guys including myself, six people, and the board's been in place for many, many years. We're 52 quarters strong in earnings. We have the best margins in the business. We have issues, there's no doubt about that. And you know, so but that board, I like a small board personally. And so I've put people on or asked people to join the board that have different disciplines. The former CEO of Air Canada is on our board. The former CEO of a lawyer who worked in Washington DC, he's a CEO of World Airways. We have a former president of a subsidiary of American Eagle. I worked with him in early life, Gary. He's a maintenance expert. The CEO from AirCal, Air Canada's a marketing sales expert. Linda Marvin, our former CFO, she runs our Audit Committee, things like that. So all these different disciplines. Another gentleman is out of the hotel business, so that helps our third-party products. So those folks are tremendous assets for us. I'm very sensitive to their needs and what they think. But you know, when you do well and we've been growing, we turn a lot of capital. Stock price has gone up. We went public at $18, and we're $170 now. We hit $230 last year, and you know, we've got a little spike. So the business has been successful. And it's, you know, my big concern is now on corporate governance. You're seeing two schools. I don't know if you remember the big fight that went on at HP here about two or three years ago. And there was a new chairman that came in, this lady, and I'm not sure what her name was. She got into a fight with a lot of the older guys who were on the company and were more entrepreneurial. And you've got this politically correct way of running a company now where you've got to do all these right things, and the last thing you talk about is what's good for the business. And so there's this internal fight going on. And you're seeing a lot of it. We have our annual meeting in May, and people write in and they continually push us to technically change these rules. And I'm kind of old school, and I'm a pain in the ass about some of this stuff because what we've done is work getting great shareholder returns. And so do we want to change? And I have to be a little more liberal thinking, frankly. But if you lose that gusto for what makes the business work and what's proper to run that business, I think that you're gonna see a lot of corporations turn into pretty average performers. But they'll be politically correct, and they'll have all these folks that are coming in, you know, writing rules about you got to do this, we've got to do that. So I might add, none of our management have employment agreements. I don't believe in those. We pay a simple bonus out of based on performance. We pay pretty low basic salaries. You make your money on the upside. We pay 7%, we accrue 7% bonus every year, and it's taken our people to some of the best paid in the industry. But it's all based on results. It's not based on fixed contracts or things like that. I don't take a salary. I haven't taken a salary for years. I'll get a bonus if we do well. But I'm a stockholder first and foremost.

You know, education certainly helps. I think if I'd tell you to do one thing, it's learn accounting. You know, learn how to just, that's the language of business. I think read up on a lot of people skills. And the other thing that most people start out with, the worst thing you can do to a young company is give them too much money because they don't learn how to do things inexpensively, efficiently. And I've seen more companies killed because they just have lots of money and they're out buying all the things that don't matter, you know, furniture and stuff like that. We made our furniture when I first got into the thing. We went down at night and we bought plywood and we sat there at 7 o'clock at night hammering nails and sanding it and slacking it, and that was our desks. You know, and it was just that's what you had to do. And so start small. Figure out if your product's got a place in the marketplace. Be honest with yourself. And you know, start in your garage if you have to. But that's a smaller business. You know, if you can raise venture capital and the like, you got to put a good management team together and you know, be on your game, be able to talk a lot of different disciplines. That's a little more sophisticated plan and the like. There aren't too many Mark Zuckerbergs around, you know, they can sit there as a sophomore in college and Bill Gates, and the next thing you know they've got B's behind their name. That's the exception, not the rule. But you know, it's just a passion and an energy. And understand that the odds are against you, but you can't think that way. I've never had anybody bring me a business plan that I didn't think they weren't going to kill it. And you know, the objective guy sitting across the table, it's your dream of my money, so let's sort this out.

Well, the ValuJet situation, they had the unfortunate accident in '96, and it was a really fundamental accident. It's a classic case of how do you manage a bad PR situation. And the accident happened in the Everglades, and they couldn't get the plane out of there. And so it was on national TV, and there were people in a hotel down the street, the family and relatives, who thought that people were still alive at the bottom of the Everglades. It was really a crazy time. And so you know, the name ValuJet became persona non grata. And so what the company did after about another year, year and a half, is they went out and bought this little airline called AirTran and rebranded themselves. So AirTran was ValuJet with a couple other airplanes, but rebranded. And that was done in '98, '99. And that company was then sold to Southwest for, I think, $2 billion here a couple years ago. But the AirTran didn't get bought, it was just a small merger, take the name and move on. It's a tough legacy at that point.

Interesting question. The airline business was a pretty luxurious business for a lot of years, CAB and even up through the early '90s. Marketing, nobody, the irony of ironies is the airline industry had the most sophisticated pricing, up to a million pricing changes a day based on demand, very sophisticated, but they had no product management. The product was all the same. And so we started, we were one of the first people, for instance, to start what we call ancillary revenues. So as we got into this in 2003, I was talking to my partners at the time and I said, you know, the price of fuel is going to go up and we can't keep raising fares. And I don't know what it is psychologically, but if somebody gets to our website and they've got $79 as a price point, they'll do it. And I need $110. I can't put $110 up because they won't even start the transaction. But once they psychologically have gotten that $79 seat, they'll think that well, certainly I want to sit up front. Anybody ever fly Southwest before this current situation? You remember what happened with Southwest? If you didn't get there an hour ahead of time, what people do? They'd line up, they would stand there for an hour. Well, what does that tell you? There's a value. And what does everybody do when they get on a Southwest airplane? Where do they sit? Front, back. Front has value. The back of the airplane isn't as valuable. People will pay for that stuff. So we started putting seating assignment things like that in there. And so you've seen an evolution of product in the last 10 years. And in '08, when the world got so tough, the big guys started charging for bags. We started charging for bags. We had 1.1 bags per person. A 150-seat airplane, that's 165 bags. We raised our rates and started charging you to put a bag. That dropped to 0.55. So now I'm carrying half the bags. I don't have to take them to altitude, I don't lose them, I don't damage them. And the last piece we did is we started charging for overhead because people were bringing steamer trunks into the cabinet. Now people are very trainable. They will react to economics. We're economic animals. We will do what you tell us to do. And so you know, now you can't put anything in the overhead, so we started charging for overhead. You can put something free under the airplane. But we're a low-cost carrier. And if you want to go from A to B, and here's my ideal customer: you go to the internet, you buy your ticket, you go to the gate, you get your boarding pass electronically, you get on the airplane, and you get off the airplane, and you put your stuff under the seat. After that, I'm selling you services. That's what I sell you: A to B. And so the consumer today, it's a long way to get around. The consumer today is upset about, I think, information that isn't well disseminated because the way the architecture of these global distribution systems work. So you could buy an American situation, and you buy it on Expedia, and they don't tell you on Expedia that it's going to cost you $20 for your bag. And you get to the airport, you go to check your bag, and what do you mean you didn't tell me? Well, that's a connection issue, and there's a lot of background stuff that goes on with that. In our case, you can't get our stuff except on our website, so you never have that surprise. You may not like it, but you'll do it. My kind of hard-ass statement is it's not whether people like it or not, it's whether they do it. Because nobody likes to pay for it. But at the end of the day, when our price including bags and all this stuff is still half of what you pay on somebody else, people are very rational on how they make that decision. So you know, culminate all of this with tight airplanes, full airplanes, TSA being a pain in the butt, you know, problems. You've got the DOT that made an arbitrary rule about three hours sitting on our tarmac. Not a good thing. But you sit on a tarmac for three hours and then we take you back to the gate when I could have taken off. And so there are unintended consequences happen all the time. And so what you have today is a lot of canceled flights. Airlines just cancel flights quick. The DOT will tell you no, they don't do that, but there's data out there that proves it. You go back before it, and they cancel because they're just not going to put up with the headache of being fined $25,000 a person on an airplane. So you know, it's the bus service today. There's nothing elegant about it. You don't get products that you'd like to have because people don't want to pay for it. It's as simple as that. And in our case, you're spending your money. We give you the product that is basic. There's nothing fancy about it. It's all single-class service. You buy your first-class seat, as someone joked, when you buy the exit window, exit type of thing. But do the majors like it? Yes, they do because they're making money, and that's good for everybody, all things considered.

The quality I cannot tolerate is you know, you got to be able to work within a team environment. The indispensable quality is that you come in and you can work unsupervised, that you bring a positive outlook to the job every day, that you're there to work with the team and to succeed. And you know, a thousand people pulling in the same direction is an unstoppable force. A thousand people that aren't working together and running around knocking heads, it's chaos. So you know, we got to get those people. And that's my job. And I try and lead from the back, so to speak. I'm there cajoling, pushing, helping. And as I tell our senior guys, you have two things to do when you wake up: you take care of your people, do all the necessary to make their job easier so that they wake up thinking about their job. And secondly, are the processes and the systems where they need to be to do their job properly? Tools, are they doing it? Do you understand what those systems are, processes? And are we improving those to become more efficient and stay on top of our game? So we've got good people too, I might add. I'm real proud of our team and our folks.

You're probably closer to it than I am. I've encouraged you to read and to really understand things. But you know, if you look about what's going on, a lot of the traditional jobs, manufacturing jobs that moved offshore, we're automating a lot of jobs. If you can do automation, you can name your tune. If you're a mechanic or you can work with computers and things like that, you can name your tune. You know, there's other jobs. If you're good at what you do, you're gonna succeed. You still need the same basic functions. You know, you need a personnel department, you need sales, you need product development, you need engineering execution. All those functions are part and parcel of a successful business. And you know, business is still important in this country, and it will be going forward. And you know, being in a program like this is just a lot of leg up. You're around a lot of good people, and you've got a lot of good leading-edge theories and ideas. But one of the things I said to the folks at dinner, I said continue to read, continue to educate yourself. I still do that to this day. So I'm always inquisitive and interested in what works and what doesn't work.