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Square and Teladoc Roller Coaster Extravaganza

By Chris Hill – Updated Apr 10, 2019 at 6:24PM

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Despite some very sharp sell-offs and rebounds, these companies are still fantastic long-term bets.

In this week's Motley Fool Money, host Chris Hill and Motley Fool contributors Jason Moser and Andy Cross come to you from Austin with the biggest market movers and shakers. Shares of MercadoLibre (MELI -0.36%) hit a new high, and Amazon (AMZN -0.59%) may have missed its chance to snap up this growth machine. Etsy (ETSY -2.94%) continues to crush just about every metric, and the market definitely took notice. Square (SQ -1.94%) flew all over the chart after reporting earnings, but long-term shareholders can remain confident about the Square story. Shares of Teladoc (TDOC 3.43%) tanked on a bit of a weak report, but telemedicine is only getting bigger from here and Teladoc is establishing a strong foothold. And, as always, the guys share some stocks on their radar. Stay tuned after the news for an interview between Motley Fool cofounder Tom Gardner and the late, great Herb Kelleher of Southwest Airlines (LUV 0.03%) about his wildly successful, industry-defying business.

A full transcript follows the video.

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This video was recorded on March 1, 2019.

Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me this week: senior analysts Jason Moser and Andy cross. Thanks for being here, guys! 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.


Check it 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 Kelleher 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 MercadoLibre sent the stock up 20%. A dominant e-commerce player in Latin America. MercadoLibre shares hitting a new all-time high this week, Jason.

Jason Moser: This was really a strong quarter by virtually every metric. They basically at this point own the Latin American e-commerce market. 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 MercadoLibre at this point. Not only have 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. We talk about war on cash investments, MercadoLibre is certainly worth putting at the top of the list there. Total payment volume through that platform surpassed $5 billion for the first time ever. 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 takes share from them at this point. When you look at getting some global exposure to e-commerce, to tech, to fintech, all that stuff, MercadoLibre seems like a no-brainer.

Andy Cross: And as tough as the Latin American market has had it, and the economies down there continue to struggle and have a tough go at it, it's nice to see MercadoLibre have some actual momentum behind it now.

Moser: The other part to this puzzle that I think is going to play out in their favor over many years to come, it's the emergence of the middle class in Latin America in general. That's a middle class that is continuing to grow. More consumers having more purchasing power. That will definitely play into MercadoLibre's financials as well.

Hill: You really think Amazon is unable to disrupt this business?

Moser: I have a hard time believing they could go in there and take away share at this point. You have a point where businesses get in and establish a position. 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. 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.

Hill: Booking Holdings (BKNG -1.55%) is the parent company of Priceline and 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 typically pretty conservative with their guidance?

Cross: Yeah, they are, Chris. 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 put into effect the stronger dollar. Earnings per share blew away the estimates at $22.49. That was up 33%. Free cash flow was up 12%. Overall, I think it was a pretty good quarter. Travel bookings were up 9%, that was maybe a little bit lighter, too. 

The concern that I think investors saw, and we saw it in the stock price, 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. That's starting to have a little bit of impact. Hotel room nights booked estimate for the quarter up to 6% to 8% and total gross bookings 5% to 7%. A little bit of deceleration. Some of the growth has some investors concerned.

Hill: One of the things we've talked about recently on the show is share buybacks. 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.

Cross: I think so. The amount of cash they generate, the consistency in the earnings they have, some of the new initiatives they're making, I think warrants giving 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, considering how they can invest it and where they continue to invest it into their marketing spend and get more efficient with that, looking at the cash, they can generate warrants to be able to buy back the stock at pretty good prices.

Moser: Yeah, and we've put those share buybacks under a microscope with a lot of companies. I think it was last week we were giving a little bit of a hard time because what they were doing seemed borderline criminal at one point. At least with, you look at that share count over time, it is coming down. It'd be one thing if that share count was going up. That was something we were holding against last week. At least with, that share count is coming down. That's the idea with share repurchases -- make those fewer shares more valuable over time.

Cross: One interesting point they introduced this quarter was that the bookings through their alternative properties -- these are things that compete with Airbnb -- 40% of active customers have booked an alternative property in 2018. You're booking hotels through, and you actually are also booking an alternative property like a home rental through

Hill: Etsy's fourth quarter profit and revenue came in higher than expected. Shares up 20% this week. I get it, Jason. Everything was up for Etsy. Users were up, sellers were up.

Moser: It's the kind of week that makes you want to say hey, now! We talked a lot about Etsy today in our eight-minute conversations around the tables here with all of our members. It was some really great conversation there. 

When you look at what this business has done, 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. 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. 

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, this really is the place to go. We talk a lot about with Wayfair the repeat purchase metric. It looks like Etsy is doing the same thing. They talk about habitual buyers, buyers who spend $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 21.7% for the quarter. That is a very profitable part of the business. 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 in our review show, if you remember, at the end of 2018. It looks like he's just keeping it going into 2019.

Hill: Who is the Pepsi to their Coke? 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.

Moser: I think Amazon tried to go in there and give them a run for their money at one point. It didn't gain any traction. 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 The Fool. 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 a brand equity there with Etsy that certainly gives them a little bit of a leg up.

Hill: 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. The stock was down pretty big pre-market because of the guidance, and by the end of the day, Square was back up in positive territory. 

Cross: Square is one of those businesses that continues to deliver. Their gross payment volume was up $23 billion, 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. Earnings per share up 75%. 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. households are now underbanked or not banked, so the Square card and these different solutions that Square continues to build are good for shareholders, good for clients. You've seen that with the performance that they continue to deliver.

Moser: I'm really glad you mentioned that word, underbanked. That's the most important word when it comes to companies like Square and PayPal. It's easy for folks who have a banking relationship, they're just used to that. There is a big part of the population out there that is underbanked or unbanked at all. Square and PayPal are developing solutions for those folks, and that's a big market opportunity that's out there.

Hill: Why do you think we saw what we saw with the stock? Jack Dorsey is a CEO with a lot of experience. Square is not the new kid on the block anymore. 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.

Moser: I think there's a lot to digest with their earnings reports. 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. To your point, that's why we don't day trade.

Cross: Yeah. A new CFO on board. But the full-year sales guidance up 40%. A deceleration from the other growth, so maybe the headline numbers not looking so good. But the more you hear from Jack Dorsey, you continue to believe in the Square story.

Hill: Teladoc 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. Teladoc selling off on Thursday. Jason, you look at the stock, and the last time Teladoc was at this level... three weeks ago. 

Moser: I was going to say, it's plummeted the levels not seen since the beginning of the month! [laughs] Listen, if you're a Teladoc investor -- and I am, and I hope a lot of you out there are too -- 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, the stock sold off close to 20% in after-hours, finished down about 6.5% for the day, I think people came to their senses. 

Listen, this is a business that is doing all the right things. Total revenue grew 59% for the quarter. Organic revenue was up 33%. We know there have been some acquisitions to grow their offering to become more of a comprehensive offering. They're actually working on access to a cross-border solution so that it will be a United States and Canada healthcare platform. 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. That's going to grow the potential opportunity for them to bring more members into their model and also even fee-only customers as well. We've seen buy-in from the regulatory side. Telemedicine is real, it's happening, and I think that Teladoc is one of the companies that's leading the way.

Hill: I was going to say, if they can open up to other countries, the upside is nearly limitless.

Moser: It's a big world out there. Access to healthcare is something that people need. Certainly, the internet has disrupted virtually everything else in our lives. Having used Teladoc's 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.

Hill: Our email address is [email protected]. 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 Peet'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, at looking at the S-1.

Cross: Yeah, definitely. This is a very large, I think it's the second-largest coffee roaster in the world behind Nestlé, retailer at least. They have about 12% of the market according to The Economist. Some very big brands. Keurig Dr Pepper, which might be part of this. We don't know if Panera will be part of this or not. JAB is a very well-run private equity firm. As you mentioned, they've been gobbling up lots of different properties. We'll be very interested to look at the S-1 and think about this as a company that we want to invest in.

Moser: Yeah, no question. Coffee is good business. If you have a company that has a portfolio of coffee offerings, I can't see why we wouldn't want at least dig in a little bit further.

Hill: As we've seen with others, JAB has the packaged goods and they've got the retail locations.

Moser: Yeah. The whole thing with that Keurig acquisition bringing a lot of great coffee into the home in a simple fashion. You're going to find a lot of those Keurigs out there installed all over the world. It translates maybe a little bit better than that SodaStream because you don't have to worry about replacing cartridges. They have plenty of opportunity out there.

Cross: I will say, I'm a very loyal Nespresso user, though. They're competing against Nespresso.

Moser: You know, Uncle Joe says a lot of good things about that Nespresso as well. He's halfway around the world, and still.

Hill: 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. 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 "made with pounds of marshmallows, some of which we toasted, along with tropical fruity Calypso hops. The result is magically delicious." Not in 100 years!

Cross: Too fruity for me, man!

Moser: Come on, let's take one for the team here! 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, our members, and really giving them that firsthand account of how that might be. Listen, it's beer, it's cereal. What's wrong with putting them together?

Hill: When we get back to Virginia, you let me know how that goes.

Moser: Let me tell you something really quick here. 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 S'mores beer. I don't know if anyone out here has ever heard of that, but this was the first time I tried it. And I have to say, it was actually pretty good. That toasty sort of marshmallow flavor, I felt like I was around a campfire, Chris.

Hill: 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-new soundboard, complete with sound effects. 

Dan Boyd: That's right, Chris! I do. I've been told I can only use one, so I'm going to use it judiciously. 

Hill: Jason Moser, you're up first. What stock is on your radar this week?

Moser: I tell you, everyone out there today, you inspired me to go with this selection here. BJ's Wholesale Club, ticker BJ. They have earnings coming out next Wednesday. We had a lot of great conversations today about the power of membership models. Amazon and Costco took most of those conversations. BJ's went public again recently. It's an East Coast concept mostly, but still a relatively small one. I've been to a BJ's before back when we lived in Georgia. I think this could be something we need to take a closer look at.

Hill: Dan?

Boyd: Jason, do you think the guy with the jackhammer across the street while we were recording was having any fun?

Moser: It sounded like he was having a lot of fun. 

Boyd: Thank you, Jason!

Hill: Andy, really quick, what are you looking at?

Cross: Austin's own Chuy's reports fourth quarters on March 7th. The stock has really been a bad-tasting enchilada 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 of 0% to 1%. Looking for some love for Chuy's next week, Dan.

[wild applause sound]

Boyd: I love it! I love it, Andy!

Hill: Guys, thanks for being here!

Moser: Thank you!

Cross: Thanks, Chris!


Hill: Earlier this year, Herb Kelleher, 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 Fool 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.


Tom Gardner: Herb, what happened on March 12th of 1931?

Herb Kelleher: It was a boom day for the entire globe, Tom, if I do say so myself because a highly intelligent, really visionary, and very handsome baby was born and named Herb.

Gardner: Who is Harry Kelleher?

Kelleher: My father.

Gardner: And what was his work and life?

Kelleher: He was the plant superintendent for the Campbell Soup Company in Camden, New Jersey. Then he became the general manager of the Campbell Soup Company. They had only one plant at that time. That was his occupation up until his death.

Gardner: And who was Ruth Moore?

Kelleher: My mother.

Gardner: And what can you tell us about Ruth?

Kelleher: Well, she was working at the Campbell Soup Company, which was where she met my father. 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 1943, and my other sister became an expediter for RCA, was involved in war work -- and suddenly my mother and I were there alone from six to two within a year-and-a-half or two years. 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 03:00 or 04:00 in the morning. She was absolutely fantastic in that respect because she was not only a nurturing mother, but she also fed my mind.

Gardner: The early stages of the definition of Southwest's strategy, I do wonder when you talk about your mother and what she taught you around the dinner table or into the wee hours of the morning, about respecting other people, and even the energy or the dynamic of, flying shouldn't just be for people who are wealthy. It should be available to everyone. The egalitarian nature.

Kelleher: Yeah, she was very egalitarian in that respect. She was a great teacher because she told me that I should not necessarily pay obeisance to position or title. She said, "Pay attention to the individual. The individual may have a grand position or title but have feet of clay," 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 for someone my age. She stimulated by curiosity in a whole lot of things that I probably never would have gotten into. 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 to what you're doing. I've never adhered to the philosophy that curiosity killed the cat. I look at it as, curiosity informed the cat. [laughs] She played a big role in that respect, and also the political aspects of it. Very helpful, having that experience, fighting these battles in the Congress and in the Texas Legislature.

Gardner: Why do so many airlines go bankrupt. And why has Southwest Airlines never laid off a single employee? They're so extremely at polar opposites. The industry, we know, has created very little economic value in aggregate going back to its inception.

Kelleher: That's very true.

Gardner: And Southwest Airlines 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? For a person that's sitting out there saying, "I have no idea why this airline is successful and all the other ones continually failed, went through bankruptcy, came back, went bankrupt again, etc."?

Kelleher: [laughs] Some of them three times. Yeah. Well, first of all -- 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, fairly scary. And I said, you hear about regression to the mean, and I'm not quarreling with that as a formula, but how long is it going to take to regress? Is it five years? 25 years? 38 years? What we're going to do is, we are always going to be very, very strong from the balance sheet standpoint, No. 1. One time, for a long time, we were the only airline that had an investment-grade rating from the financial community. We're going to have lots of liquidity. My mantra was, "We want to manage in good times so that we do well in bad times." There you get into the no-furlough policy, because if you just hire a bunch of people willy nilly during good times, guess what you're doing? You're firing them during 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 verboten.

Gardner: I don't know, if you've read Peter Thiel's books Zero to One or know about Peter Thiel. 

Kelleher: I do know about him.

Gardner: He said, basically, from a from an investor standpoint, when people pitch companies to him, when they talk about how large their market is, he said, "I want to know the smallest piece that you're going to dominate. And I know off of that if you'll have the opportunity to grow."

Kelleher: Exactly.

Gardner: So, the other airlines weren't doing that. They were trying to get as many --

Kelleher: They were at war with each other, who had the most airplanes and who'd get the most routes from the CAB and that sort of thing. We eschewed all that. We opened a lot of secondary airports, satellite airports. People initially said, "Oh, you'll never make a success out of a satellite airport." Well, there's Hobby, there's Love. 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. We did things unconventionally that way. We tried to keep our work rules very simple to promote the efficiency of the airline, and kind of operated on the philosophy that airplanes don't make money on the ground, they only make money in the air. Passengers don't pay just to sit in them, they pay to fly. So very high utilization, productivity.

Gardner: What would be a gap in fare between you and a competitor at any point in history? 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 was.

Kelleher: Some of those contrasts are really amazing. Do you have time for one that's kind of --

Gardner: Please!

Kelleher: It's kind of like a burlesque. [laughs] 

Gardner: Plenty of time!

Kelleher: We went into BWI. U.S. Air was the leading carrier there. The roundtrip fare to Cleveland from BWI was... I don't know, $340 or something like that. We reduced it to $56. That's a considerable drop. U.S. Air found out we had a "Friends Fly Free" program. It was $24.50. They matched that, on a "Friends Fly Free" basis. So we went to $19 between BWI and Cleveland. [laughs] 

So that's a pretty big saving, $19 instead of $349. The traffic increased by 1,500% in the first year of service. [laughs] That's an exaggeration, but most markets we went into increased --

Gardner: Popularity of flight.

Kelleher: -- enormously. I'm talking 100%, 200%, 300%, within a year.

Gardner: Presumably, some of the ways that you hold those costs down for passengers is efficiency, hard work of everyone who's coming to work.

Kelleher: Exactly.

Gardner: Probably not the highest salaries in the industry? I don't know whether that's true or not, you can tell me. How can you have cost containment and balance sheet management and a great corporate culture? Those things, we think there's a big tension there. Why isn't there at Southwest?

Kelleher: You know what? A friend 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." What he was pointing out is that people sit down and say, "Well, we can either have low costs and lousy customer service" --

Gardner: Everything's a compromise.

Kelleher: -- "or 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 fare, we're offering you more for less fare". 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 automatons when they came to work. We kept telling them, "Look, we hired you because you're you."

Gardner: Did anyone take that too far? [laughs] 

Kelleher: Yeah.

Gardner: [laughs] "I'm me, Herb! I'm not going to wear clothes to work today!"

Kelleher: You put your finger on it, per 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 --

Gardner: A new policy comes of it.

Kelleher: -- 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, [laughs] small i, you know? We'd burn them. We'd burn them. And what we said was we have a substitute, it's called Guidelines for Leaders. The first sentence was, "These are just guidelines. Feel free to break them." We were unleashing our people to be themselves with the customer. Colleen Barrett, of course, played a great role in that. She called it her Flexibility Policy. Basically she was saying, "Look, we work like crazy to hire the right people with the right attitudes. Positive, generous, caring. So just unleash them."

Gardner: If you had, let's say, two or three leadership principles, if you had to boil them down to two or three -- maybe you just touched on one of them -- I hate to just try and get a little soundbite, but what would be your top two or three principles as a leader?

Kelleher: I would say that, No. 1, you have to look out for the wellbeing of others more than you do for your own. No. 2, 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. Be humble, I think. Be humble, never think you've done something so great 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. [laughs] Never be complacent.

Gardner: 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 maybe has overlooked the responsibility of having a strong balance sheet so that you can be resilient in a down period. So, maybe two or three strategic principles?

Kelleher: Well, first of all, if 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. It's a discipline, and a valuable one, I think. No. 2, particularly with respect to young entrepreneurs, including myself, they're optimists, Tom, and that optimism is needed to be an entrepreneur. You're 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, so you don't raise enough money at the beginning. And sometimes, representing young people who want to start up their own businesses, I've 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. [laughs] You don't just announce your idea, and suddenly golden coins start raining down from heaven like manna on you. There's a hell of a lot of lonely work to do to make it come to pass and to be successful."

The thing that I have always emphasized is culture. 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. Other airlines can buy airplanes, they can lease 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. I always told our people that the intangibles are more important than the tangibles.

Gardner: Is there a single story that comes to you right now -- maybe not across all Southwest's history -- about the employee or teammate of yours at Southwest Airlines that did something remarkable for somebody else on their team, or for one of the passengers?

Kelleher: 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 exemplars with respect to what you asked. One of them is that a lady had a flat tire in the parking lot at an 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 I didn't fly on Southwest Airlines." He said, "That doesn't make any difference. I just want to help you change your tire, no matter who you flew on." [laughs] 

And we honor people for the great things they do outside Southwest Airlines, not just inside, the great things they do in society in general.

Gardner: Last question. You talked about being a founder and the number of hours of sleep you got on average, the decades that you put into it. I know that you probably don't really have 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 had taken five years and gone and done that, my life might have had this?" How do you view your commitment to a single ship that you've been sailing on for 50 years?

Kelleher: I have no regrets whatsoever, because if a father has a daughter or a son, I believe that father has got to commit himself to a single ship for as long as that ship is afloat. I've always said I'm so fortunate because my advocation 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. What could be more rewarding, more enjoyable, than that? I've referred to our people as my fountain of youth. I've said Ponce Deleon 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!


Hill: You can watch Tom's entire interview with Herb Kelleher on The Motley Fool's channel on YouTube. Just go to That's going to do it for this week's edition of Motley Fool Money. The show is engineered by Dan Boyd and Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Andy Cross owns shares of Booking Holdings, Boston Beer, Mastercard, and PepsiCo, Inc. Chris Hill owns shares of Amazon and PayPal Holdings. Jason Moser owns shares of Amazon, Booking Holdings, Etsy, Mastercard, PayPal Holdings, Square, Teladoc Health, and Twitter. Tom Gardner owns shares of Chuy's Holdings, Mastercard, Shopify, Square, and Twitter. The Motley Fool owns shares of and recommends Amazon, Booking Holdings, Boston Beer, Chuy's Holdings, Etsy, Mastercard, MercadoLibre, PayPal Holdings, Shopify, Southwest Airlines, Square,, Teladoc Health, Twitter, and Wayfair. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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