Growth at Any Price – Including No Growth

Guest blog by Gene ColterTh12410
When my mom travels from my home to JFK airport this week, chances are her Florida-bound JetBlue flight will be substantially delayed, just as my dad’s flight was last week.

It won’t be the airline’s fault – New York-area airports have on-time arrival/departure percentages that rival the test scores of “successful” college football teams – but every little hiccup gets me thinking about what’s gone terribly wrong with the airline that only a short while ago had been the promise of the industry. More to the point, JetBlue stands as an object lesson on the mission that drives – and damages – many of America’s greatest companies.

JetBlue is near to hitting a couple of notable anniversaries. The discount carrier was founded almost a decade ago in 1998, and it was almost a year ago that JetBlue made worldwide headlines after allowing weather-bound passengers to spend 10 hours on the tarmac and canceling over 1,000 flights.

The root cause of that debacle – and the inevitable travel delays of the Colter brood – is not weather. It is JetBlue’s overreaching for “growth,” a sin that’s so common among notable public companies and their backers that we have trouble even recognizing its pervasiveness.

Please know that your blogger does not own sandals and hugs no trees. (In fact, given the latter’s tendency to invade his basement, he must often be physically detained by contractors from trying to cut down every tree in his heavily wooded Northern New Jersey neighborhood.) But the fact stands that there are reasonable growth strategies – often evidenced by their long-term parameters – and growth-right-here-right-now-don’t-care-how-it-happens strategies.

When David Neeleman founded JetBlue, he showed signs of getting it all right: limited, controlled reach; disdain for the all-over-the-place pricing and hub-and-spoke system that had damaged the major carriers; dynamite customer service; and a serious commitment to managing costs.

But Neeleman is also a “serial entrepreneur” and a man who seems to treat his much-discussed attention-deficit disorder as a public-relations messaging point. More to the point – and this is the real killer – JetBlue is a public company, with all the attendant quarter-to-quarter demands that entails. We should have known.

So it was a couple of years ago that Neeleman — since replaced in the top job, though he remains the company’s non-executive chairman – added another type of aircraft to JetBlue’s stable, plus a bunch more routes and a new training center. Costs – in an industry already legendary for high fixed costs – soared. The future is by no means bright for the airline with good TV, fun-loving attendants and tasty blue-corn chips.

Business luminaries with much more serious chops than I will see that I am making a lonely argument about controlled growth, and they will dismiss it. Yet the fact remains that sometimes – many times – companies would be better off reining in their urges to soar ahead and instead settle for steady profits and good cash flow, picking their spots for big strategic moves that will bring another wave of sustainable growth.

Just ask JetBlue, which posted losses for the last two years and whose stock price is near-grounded at about $6. Even fans of the airline have noted that it has grown too fast to manage its challenges.

It’s unfair (though certainly convenient) to single out JetBlue. Many companies have similarly stumbled. Countless more will follow. And even successful multinationals suffer at the hands of U.S. public markets, which, make no mistake, are a tremendous asset, perhaps more so than government and any other social entity.

Consider, for example, McDonald’s. The Golden Arches have pretty much penetrated every market they can operate in. Analysts ding the stock because it is no longer a “growth company.” But the cash flow from “Billions and Billions Served” is amazing, and what’s wrong with cash and the profits they produce? I suspect the company could fund itself from operations for eternity, or easily turn to banks or bond markets should it need to fatten up its customers, er, coffers. Does it even need to be public anymore?

So, as the New Year approaches, make your way to the airport and settle in for your long (long) trip home. Perhaps you can kill some time by working on a plan to take McDonald’s private.

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Speaking of public companies, anyone who wants to get the real read on what the economy’s fate will be in 2008 would do well to skip the government data and instead turn to the companies’ financial reports. Your goal is to determine whether companies are spending down their cash piles. Right now, most aren’t. If that trend continues no amount of consumer spending or Federal Reserve intervention will keep the economy’s trajectory from looking like JetBlue’s stock chart.

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