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Lessons from SAS' Success

Posted October 29, 1998

— As we come close to beginning a new year, a certain sense of uneasiness about the business environment is evident that hasn't been around for several years. What is your business plan for 1999, and do you intend to make changes because of economic uncertainty?

I recently gained some insight into what's on the mind of one of North Carolina's most successful entrepreneurs as he guides his company into a new year.SAS InstitutePresident Jim Goodnight suggests focusing on two areas: retaining and re-training employees, and learning more about your customers.

Goodnight's company, the largest privately held software concern in the world, has proved its mettle at taking care of employees by establishing an enviable turnover rate of 4 percent.

As for the future, he said this during a recent economic conference that SAS hosted inCary: "People's skills and their ability to meet new challenges must continually change and expand along with business needs. Because, ultimately, it's people behind the technology -- not the technology itself -- that will make the real difference in a company's success."

The other area, learning more about customers, is a bit more self-serving. Goodnight advocates a concept he calls Customer Relationship Management (CRM), which essentially is defined as building a strong database so that you can mine it for opportunities to fulfill customer needs. SAS, of course, writes software that does just that.

Nonetheless, Goodnight illustrates how knowledge about customers can boost profits. A retail catalogue company, for example, uses its database to calculate the probability of each customer buying a given product. "They know everything from what time of year an individual customer might buy a specific item to whether sales are higher for certain kinds of items," Goodnight said.

"We're not in the business of predicting the future," he says. "Our business is predicting the problems our customers face -- and the solutions they will need to overcome those problems."

While on the subject of Goodnight, you'll recall that he's the man who stepped up a couple of years ago when Durham'sMidway Airlines(MDWY/Nasdaq) was gasping for air. He bought the carrier and then hired an industry veteran, Robert Ferguson, to run it.

Ferguson has engineered an impressive little success, giving the company a profitable footing and taking it public last year. Midway has since turned in five straight profitable quarters -- increasing revenues from $47.6 million in June 1997 to $55.7 million in June of this year. Net has nearly doubled from $2.7 million to $5.3 million.

In spite of these numbers, that are being produced with more passengers and more efficient use of the company's jets, Midway's stock skidded off the taxi way this summer and has since remained mired in the muck. But that's largely an industry problem: Midway soared with all air carriers to new heights in July, when its stock price hit $23, but it has since fallen as low as $9.

Why? Midway's stock was downgraded by an analyst in September, but the bigger challenge has been a sell-off of the industry by investors. Here's what I mean: Through October 9, the Standard & Poors Airline Index lost 18.4 percent compared to a 1.3 percent decline for the S&P Super 1500.

Among about a half-dozen similar U.S. carriers, Midway's stock remains in the "attractive" category as the company continues to boost its all-important "load factor" -- the percentage of seats filled on any given flight. Where the industry is expected to set a record of 71.1 percent load factor this year, Midway brought in a respectable 65.8 percent during the third quarter.

The most worrisome item on Midway's financial sheet is a substantial $80.1 million debt, particularly in an industry as risky as air travel. The company needs to make progress in reducing that debt.

Meanwhile, investors should be aware that it will probably take a revival of positive investor sentiment toward the entire industry for Midway's stock to pull back to its IPO price of $14 and then march forward. But analysts are bullish that the sentiment will again turn positive, and Midway is rated a "buy." Have a prosperous week. Dale Gibson is a Raleigh-based journalist who publishesThe Gibson Report,a weekly electronic newsletter focused on North Carolina business. Questions or comments may be directed to him by e-mail at dale@gibsonreport.com or by phone at 919-834-1033.

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