Southwest Airline's Sugar High

Brit Ryle

Posted February 8, 2023

I happened to catch Southwest at a weak moment for them. I’m not sure I’ve ever seen a company have such a bad stretch of luck. If it actually was just bad luck…

The first one, at Christmas time, was bad weather. Not much anyone can do about that. Southwest had no choice but to cancel 2500 flights. 

The second time Southwest ruined thousands of people’s travel plans, that was all on Southwest. The airline’s phone system and scheduling system both failed. 

Pre-pandemic, all the airlines were making a ton of money – more profit than in the entire history of the airline biz. Remember what Southwest and all the others did with their blockbuster profits? Hint: in Southwest’s case, they didn’t spend one dime updating their systems. 

Southwest literally spent all of its money on share buybacks.

Now, I have no problem with companies buying back their stock. In fact, I kinda like it. When a company buys back its stock, it lowers the divisor for calculating earnings per share (net profit /shares outstanding = earnings per share). 

Companies that are growing earnings tend to have rising stock prices, too – regardless of why earnings are growing. I consider share buybacks like a discretionary dividend. Say a company comes into more loot than it can spend on the company — like say for upgrading an obsolete scheduling system — and doesn’t want to take on the commitment of a higher dividend. Because cutting a dividend is bad. Always. It’s amateurish and doesn’t leave investors feeling that everything’s fine and that the company knows what it’s doing.

At least Southwest didn’t do that. Instead, they spent their software money on financial candy and got one hell of a sugar crash. 

I read that this blunder is gonna cost Southwest $825 million. And I’m happy to tell you that I got a little Southwest payola even though I didn’t participate in the fiasco. I nabbed a roundtrip flight to Baltimore to have a couple dinners with my son for $220 bucks. 

I haven’t seen the young man since Thanksgiving – totally worth it. Except I’m writing this in a stupid Starbucks that only offers 45 min parking so I have to be a little concise today and I bet I get towed anyway cuz that’s how I roll (in an Uber to pick up my towed car).

A Self Playing Guitar

My son is in his Junior year at University of Maryland’s engineering school. He’s smart. And I’ll tell you: having kids that are smarter than me is a great comfort. So over burritos at our go -to College Park restaurant, my son tells me he’s going to make a self playing guitar. 

His plan is to build a four pronged thingamajig on a slide that can move up and down the fretboard and then program it to hammer out simple chords. I asked if his thingamajig would be like a robotic hand, which would be pretty cool. But he educated me: robotics isn’t dextrous enough to play a guitar. I didn’t know that.

I know what you’re thinking: that’s an awful lot of work for somebody too lazy to actually learn how to play a guitar, right?. 

Well here’s the thing. All he has to do is build the four pronged thingamajig. He says he can get ChatGPT to do the programming…

If you don’t know, ChatGPT is Microsoft’s AI system. I say “system” because right now, in the first iteration, it’s a web based app. You go to the website and you can use voice commands and get it to do web based stuff for you. 

ChatGPT was released in October. It took one month to get to a million users, much faster than Instagram, Facebook or any of the others. 

My son’s been working with it for about a month and he’s convinced it can knock out the programming he wants in about 5 minutes. Do you know how much software developers make to write this kind of code? This is seriously disruptive stuff. And Microsoft is going to integrate it into all its products — Excel, Word and most importantly, to its azure cloud business. 

It occurred to me two weeks ago that I needed to get my butt gear and get some investment ideas going for you. There aren’t many. 

Microsoft is definitely one of the best moves you can make right now…

I added another one to my watch list about a month ago, c3.AI, Inc. (NASDAQ: AI). Of course I was taking my time doing my due diligence, no real sense of urgency. But, shares of c3.AI (NASDAQ: AI) have ramped like 80% in the two weeks since I realized I needed to get my butt in gear on this AI stuff…

I’ll deliver a full report on c3.AI on Friday. But if you wanna get sneaky and grab some shares, I will applaud your cunning.

That’s it for me today, take care and I’ll talk to you on Friday.

Brit Ryle
Chief Editor and Strategist 
Pro Trader Today