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Company understands it's about earnings, not market share

Does Herb Kelleher know something about creating shareholder value that other CEOs don’t know? Perhaps he understands that in the domestic airline market earnings don’t necessarily increase with market share. Or in economics speak, changes in earnings with respect to a changes in market share may be very inelastic.

Herb Kelleher understands – as no other sitting airline CEOs seems to – this fundamental principle about competition: given

• A capital intensive industry,
• With few meaningful scale efficiencies,
• Delivering a highly perishable product,
• Within a partly regulated infrastructure,
• Operated by talented professionals,
• In a very price sensitive market, with
• Free entry and court protected exit,
• Shareholder value can best be created organically. How? By maximizing the satisfaction of employees, passengers, suppliers, partners, and shareholders. Here is the corollary to that fundamental principle:

In airlines, building market share through mergers short circuits the creation of satisfied stakeholders.

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