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✈️ Why Southwest Airlines is spending big

Yesterday, we asked the Twitter machine which of our 4 email subject lines from Wednesday’s email did best:What’s your guess? (Answer in the footer)

PLUS: Netflix’s new pricing, explained.

The Hustle

Yesterday, we asked the Twitter machine which of our 4 email subject lines from Wednesday’s email did best:

  • McDonald’s is back
  • McDonald’s is crushing it
  • How McDonald’s came back
  • Ronald McDonald is livin’ large

What’s your guess? (Answer in the footer)

The Big Idea
airplane gif

While the air travel industry struggles, Southwest Airlines is aggressively expanding. Why?

Captain Obvious says, “Air travel is down big in 2020.”

He’s right.

According to the Wall Street Journal, US airlines are offering 42% fewer flights this month compared to last November — and the biggest players (United, American Airlines, and Delta) lost a jarring $23.5B through September.

But amidst this carnage, one airline — Southwest Airlines (with the glorious ticker symbol $LUV) — has actually decided to expand.

Southwest will add 10 new cities to its network by end-2021

Launched in the late 1960s by former corporate lawyer Herb Kelleher, the airline has always zigged while others zagged.

One major zig: prioritizing employee happiness. “Your employees come first,” Kelleher once said. “And if you treat your employees right, guess what? Your customers come back, and that makes your shareholders happy.”

Among Kelleher’s other zigs:

  • Cutting unnecessary services and offerings
  • Focusing on point-to-point flight routes instead of a “hub-and-spoke model” with lots of layovers
  • Utilizing secondary airports (e.g., Chicago-Midway instead of Chicago-O’Hare)

Southwest has lost $2.2B+ this year… 

but the airline is well-positioned to expand for 3 reasons:

  • It enjoys a lower cost structure than other airlines.
  • It has less debt than its competitors (and more cash than debt).
  • It focuses on domestic routes, where air travel is showing some early signs of rebounding.

The Southwest playbook: expanding during crises

During the financial crisis of 2009, Southwest moved into Logan (Boston) and LaGuardia (New York) airports.

Kelleher, who Fortune once called America’s best CEO, had previously spurned these primo locations as “too crowded and expensive.” But he couldn’t pass up the opportunity.

The new cities contributed 20% of the airline’s 2010 revenue growth — and a decade later, Southwest is clearly trying to recreate the magic.

It’s a ballsy bet

Southwest will snap its 47-year profitability streak in 2020, and it may have to furlough staff for the 1st time ever.

In recent years, the airline’s lower cost advantage has been eroded by the rise of budget airlines, and the reduction of fees by major carriers.

The founding myth of Southwest is that Kelleher drew up the first routes on a cocktail napkin. He died last year — but he’d probably be happy to see his expansion strategy live on.

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  • Apple’s olive branch: The iPhone maker is lowering its App Store commission rate to 15% for developers making <$1m a year. Amidst App store antitrust talk, this is a big deal.
  • Zoombombin’ no more: A new feature from the video chat beast will alert hosts when unwelcome guests are trying to access a room.
  • Next-gen concerts: 33m viewers tuned in to watch an animated Lil Nas X pump out 4 shows via gaming platform Roblox, which is prepping for an IPO.
  • “Bro. You gotta get in.” The popular 2017 refrain is back in style as Bitcoin tops $18k, continuing a torrid run.
  • Um, there’s a mistake… auto-grading bots are evaluating kids’ tests and often failing to get the answers right. Hopefully, the bots aren’t falling for these classic cheats.
Fitness Freaks

Strava, everyone’s favorite fitness tracking app, just raised $110m

Ever have a friend claim, “I was really good at high school track” without a shred of evidence? Enter Strava.

Founded in 2009, the app allows users to share fitness activities with friends, track running and cycling routes, and participate in virtual competitions.

And it just raised a $110m round to keep the party going.

2020 has been good to Strava

Strava counts a long list of pro athletes among its users, but its recent growth goes far beyond ultra-marathoners and triathletes.

In 2020, Strava has notched 70m users at a pace of 2M new users per month — most of whom use the platform’s free tools.

A paid tier (currently $5 per month) offers route planning, segment competitions, and goal setting. It’s been estimated that ~2.2% of users pay for the upgrade, which equates to an annual run rate of $90m+ based on the present pricing.

Strava for X

While Strava supports a wide range of activities, the majority of their features are limited to biking, running, and swimming. This means there’s an opportunity to serve niche interests that Strava isn’t covering.

As recently reported in Trends, horseback riding, fishing, and bird-watching are all activities with devoted hobbyists that would be a great fit for Strava’s social-network component.

The opportunity could be lucrative. If you thought marathoners were hardcore, you should meet some “twitchers.”

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The business insurance trusted by top startups

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It’s thorough —  Their risk assessment tool shows you what potential exposures and avoidable risks your business should be preparing for.

If your startup is uninsured, use our special link to get a 5% discount and up to $2,500 off your insurance coverage. 

Click today, covered tomorrow →

Labor Markets
phone operator

What the automation of telephone operators can tell us about future jobs

The fear that “automation will take our jobs” goes back centuries. When Johannes Gutenberg introduced the printing press in the mid-1400s, a whole class of scribes was put out of work.

During the pandemic, the rapid transition to digital everything has exacerbated these fears.

Against this backdrop, an interesting new research paper from James Feigenbaum and Daniel P. Gross looks at “Automation and the Fate of Young Workers.”

Going back to phone operator times

Per Gross, one of the biggest labor shocks of the 20th century was the automation of telephone operators, a common entry-level role for young women in the 1920s.

At the time, AT&T was the country’s largest employer and had hundreds of thousands of operators on its payroll. Over the next 50 years, it replaced humans with mechanical dials and switches.

By the 1960s, these dials handled more than 60% of AT&T’s network.

What happened to the labor market?

The research found divergent results for two cohorts of labor:

  • Existing operators that were automated away were “less likely to be working in the next decade.”
  • New entrants to the labor market were able to find stepping-stone roles in jobs with similar requirements (typists, secretaries).

Of course, 2020 is a much different situation than 1920. But this is an interesting reminder that labor markets have historically had the capacity to adjust to massive shocks.

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…And Chill
tv remote

Why Netflix is changing its pricing strategy

If you’re a meticulous observer of your monthly credit card statement you may notice your recurring Netflix charge edge up this cycle.

A few weeks ago the streaming giant announced upcoming changes that will see plan prices increase by $1-2/mo.

While a buck or two more may seem small, the gradual increases will have a huge impact on profits when spread across Netflix’s 193M global subscribers.

An older, more mature Netflix

Roughly 18 months removed from its last price increase, what might seem like a standard bump comes at a critical time for the company.

With the world homebound during the 2020 lockdowns, Netflix saw a massive surge in demand, attracting almost 16m signups in Q1.

But during Q2 (July-September), Netflix managed just 2.2m signups — over a million fewer than Wall Street had projected.

Why jack up prices now?

According to Entertainment Strategy Guy — an anonymous media insider with an extremely descriptive name — Netflix has reached a mature phase of its business, prompting CEO Reed Hastings to shift the company’s focus from revenue to profit.

For many users, Netflix has become a more valued service during the pandemic.

But when normal times return and, you know, we can do things again, the platform’s pricing boost may see a moment of reckoning.

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GIF of the day
hand wrestling gif

In 1992, Southwest Airlines motto was “Just Plane Smart,” which was eerily similar to the motto for Stevens Aviation, “Plane Smart.” As you can expect from 2 firms that have such an affinity for puns, the trademark dispute was settled by an arm-wrestling match.

Despite smoking a cigarette and wearing a headband, Southwest CEO Herb Kelleher somehow lost the “Malice in Dallas” but was allowed to keep the motto in exchange for a $5k charity donation and dropping all legal claims. (YouTube)

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