00:00:11 · John Collison, Scott Kirby
[00:00:11] S1: Scott Kirby took over United Airlines in May 2020 at the height of the pandemic. Refusing to play defense, he's made massive bets on fleet expansion, premium seats, and Starlink Wi Fi, creating differentiation in the hugely competitive airline market. So you did a big fleet order during COVID that looked risky. Was it risky? [00:00:32] S0: You know, I didn't think it was. So back during COVID, every single expert in the world said travel demand is gonna be down by 50% forever. That's like what everyone said. One other point, like you should ignore the experts outside of two sigma. The tales, experts are terrible. And I just thought they were all wrong. That I thought COVID was going be deep and last a long time, travel demand would recover. Everyone else around the globe was shrinking so we did the biggest, the exact opposite. Like literally every global long haul airline in the world except for United permanently retired part of their wide body fleets. We looked at that and said, We think the premise is wrong and it's just a huge opportunity to do the opposite, do the biggest aircraft order in history, which we did. And I remember telling our board, when they asked, they said the same thing. This seems like a really big risk. Like everyone else is shrinking and you're gonna do the biggest How big was the order? 200 wide bodies and then we did another several 100 narrow bodies. [00:01:26] S1: Okay, pretty big.
00:01:26 · John Collison, Scott Kirby, Ben Thompson
[00:01:26] S1: Okay, pretty big. [00:01:27] S0: Know, and those are airplanes that list for, that we get a big discount, but you know, they list for like $400,000,000. Sure, yeah, yeah. And I told our board like, this is one of those cases because everyone else is shrinking, we don't have to be right. We just have to be not totally wrong if we're not... So it's just one of those situations where the odds are so stacked in your favor. And like people out here at Silicon Valley do this kind of stuff all the time where figure out something that, you know, you have a different view than everyone else and go big on it. And if it works, the returns are huge. You know, and the downsides are smaller. So find But those just been [00:02:08] S2: the cycle with large capital purchases is actually also a tech story that's relevant with memory. Like, Samsung came to dominate memory by systematically investing into every downturn because it's very cyclical. And obviously it's hugely beneficial today. The flip side of that is everyone wants to invest when it's at its peak. Have we gone full circle and now
00:02:08 · Ben Thompson, Scott Kirby, John Collison
[00:02:08] S2: the cycle with large capital purchases is actually also a tech story that's relevant with memory. Like, Samsung came to dominate memory by systematically investing into every downturn because it's very cyclical. And obviously it's hugely beneficial today. The flip side of that is everyone wants to invest when it's at its peak. Have we gone full circle and now [00:02:29] S0: Yeah, it's you want to invest when everyone else, when things are down and not invest when things are up. I mean, for us, and probably for like memory, it's a little harder too because our assets are so long lived. For us, our assets are thirty year. I guess for a chip factory it's less because the technology moves away. But it's a thirty year life. So like we're going go through several recessions and we're going to go through several ups and downs. So it's a little harder to do that. But you get better terms, get better deals, you know, like we got really good pricing, you know, for example, during the downturn. [00:03:00] S1: You're the only person ordering here? [00:03:01] S0: Because we're the only one in the world. And we sort of launched the market. Like, you know, for Boeing, they kind of could go to other customers and say, look, United believes you should too. Right.
00:03:01 · Scott Kirby, John Collison
[00:03:01] S0: Because we're the only one in the world. And we sort of launched the market. Like, you know, for Boeing, they kind of could go to other customers and say, look, United believes you should too. Right. [00:03:11] S1: So I remember... It's very striking. I remember that period of people over extrapolating COVID. Like the tech version of that was companies deciding that they're going to be fully remote forever, and a lot of companies decided that, and then were like, wait a second. No, that's not right. Why were people so wrong on the travel side of things? Because [00:03:30] S0: there are two things that are human nature that are mistakes. One is to extrapolate the current into the future. Assume that everything that's happening today is going to continue into the future. And two, trusting people on surveys. Surveys are the absolute worst way to figure out what's going to happen in the future. Because the reason travel experts thought travel, they did surveys and people were terrified. Like everyone's dying. Right. And you ask them, Are you going to travel internationally Yeah. No. It's like, but, and that was true of what they thought at the time. But like once it was over, of course they were going to go back to traveling again. So ignore... And by the way, I said this sort of like, experts live in the world of two standard deviations. They force fit everything into things that they've already seen. And so when things happen outside two standard deviations, when the tails happen, which is where you create all the The frequency
00:03:30 · Scott Kirby, John Collison
[00:03:30] S0: there are two things that are human nature that are mistakes. One is to extrapolate the current into the future. Assume that everything that's happening today is going to continue into the future. And two, trusting people on surveys. Surveys are the absolute worst way to figure out what's going to happen in the future. Because the reason travel experts thought travel, they did surveys and people were terrified. Like everyone's dying. Right. And you ask them, Are you going to travel internationally Yeah. No. It's like, but, and that was true of what they thought at the time. But like once it was over, of course they were going to go back to traveling again. So ignore... And by the way, I said this sort of like, experts live in the world of two standard deviations. They force fit everything into things that they've already seen. And so when things happen outside two standard deviations, when the tails happen, which is where you create all the The frequency [00:04:19] S1: in finance, the frequency of Six Sigma events is...
00:04:19 · John Collison, Scott Kirby
[00:04:19] S1: in finance, the frequency of Six Sigma events is... [00:04:22] S0: That's where I first started. You know, like, know, VAR, valuation at risk is the dumbest model in history. It's stupid. Like, you know, things that shouldn't happen in the history of the universe happen once every five years because it's a dumb, dumb, fundamentally flawed mathematical model that assumes everything is normally distributed. It's not. And it's just the perfect... I had a debate when I was getting my master's degree back in the 90s. This was about black souls. You know, this is such a dumb model for valuing options. Like, because it assumes a normal distribution. The world's not normally distributed. The tails are much fatter in everything that matters. And anyway, that applies to everything, but especially in a crisis. [00:05:04] S1: Black Scholes has a lot of assume a spherical cow like assumptions baked into it. Okay, love hearing you talk about the over fixation on surveys, But like the travel industry, the airline industry loves surveys. United probably surveys people up the wazoo. And definitely at Stripe, find we need to deprogram people a bit because in tech, people love running things via metrics and you can outsource your thinking to the dashboards and And so we're trying to encourage people to... I mean, your opinions should survive contact with reality, but the metrics are not going to tell you what to do. That sounds like...