WEBVTT - Union Pacific Nears Norfolk Deal to Create $200 Billion Railroad 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.840 Eastern on applecar Play and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.080 or watch us live on YouTube. 0:00:23.520 --> 0:00:26.200 All right, I've been following the railroad stocks, folks. That's 0:00:26.200 --> 0:00:29.200 where I started my career, covering the railroad stocks. Here's 0:00:29.240 --> 0:00:31.520 a headline I never thought i'd see, and that's like 0:00:31.600 --> 0:00:35.120 nineteen eighty six Union Pacific Northern Southern. 0:00:34.800 --> 0:00:36.879 In advanced talks. I never thought i'd see that. 0:00:36.920 --> 0:00:40.680 Lee Klascow, Senior transport analyst for Bloomberg Intelligence. 0:00:41.200 --> 0:00:42.600 Lee putting a. 0:00:42.520 --> 0:00:47.720 West western railroad Union Pacific together with a eastern railroad 0:00:47.720 --> 0:00:51.720 at Norfolk Southern, creating a east to west true railroad. 0:00:51.880 --> 0:00:54.160 Can that happen? Will the regulators allow that to happen? 0:00:55.680 --> 0:00:59.920 I mean it's possible, given where the surface transport to 0:01:02.120 --> 0:01:06.240 rules are now as it relates to large acquisitions, you know, 0:01:06.280 --> 0:01:10.199 we give it a relatively low probability, maybe twenty five 0:01:10.280 --> 0:01:14.720 thirty five percent chance of happening. The STV is actually 0:01:14.720 --> 0:01:19.000 in August reviewing some of its rules to streamline some 0:01:19.040 --> 0:01:21.080 of the processes that it deals with. 0:01:21.760 --> 0:01:23.160 But you know, it's not impossible. 0:01:23.280 --> 0:01:25.920 But again, you know, we think that the probability is 0:01:25.959 --> 0:01:29.000 below fifty percent. If it were to happen, it would 0:01:29.080 --> 0:01:32.399 create the first transcon railroad, and that. 0:01:32.360 --> 0:01:33.000 Could be good. 0:01:33.440 --> 0:01:37.240 It could be good because a railcar would be touched 0:01:37.319 --> 0:01:40.160 less because it would wouldn't have to maybe be interchanged 0:01:40.200 --> 0:01:43.280 with other railroads, and that does you know, the more 0:01:43.319 --> 0:01:47.320 time a railcar is touched, the more times something could 0:01:47.360 --> 0:01:51.960 go wrong, and so that would would would probably reduce 0:01:53.920 --> 0:01:58.240 I would have to say it probably could reduce some accidents. 0:01:58.640 --> 0:02:02.640 It could also reduce car for the railroads in general. 0:02:02.720 --> 0:02:03.880 So it could be a good thing. 0:02:04.080 --> 0:02:06.240 You know, shippers might have an issue with it because 0:02:06.280 --> 0:02:09.360 they might be afraid, you know, even though that Norfolk, 0:02:09.400 --> 0:02:15.480 Southern Union, Pacific don't necessarily compete, you know, against each 0:02:15.520 --> 0:02:18.320 other directly, you know, they might be concerned that, you know, 0:02:18.400 --> 0:02:21.800 losing one of the large Class one rails would result 0:02:21.880 --> 0:02:26.080 in less competition. And the railroads for the STB hurdle 0:02:26.360 --> 0:02:29.160 have to prove that this deal is in the public interest. 0:02:29.240 --> 0:02:30.800 So you know, you're going to have a lot of 0:02:30.840 --> 0:02:35.000 constituency and stakeholders voice their opinions both for the deal 0:02:35.040 --> 0:02:37.440 and against the deal. And again that's all assuming that 0:02:37.520 --> 0:02:41.040 these two parties can come to an agreement. You know, 0:02:41.080 --> 0:02:43.600 we put out a note last week where we thought, 0:02:43.639 --> 0:02:46.440 you know, the enterprise value for that transaction could be 0:02:46.440 --> 0:02:49.400 in the high eighty eighty billion, So we'll see, you know, 0:02:49.639 --> 0:02:52.560 what kind of deal the two can hammer out. 0:02:52.720 --> 0:02:54.200 All right, But you're kind of going along the track 0:02:54.240 --> 0:02:56.640 that I was. I was thinking of LA track. 0:02:56.720 --> 0:02:57.079 I get it. 0:02:57.680 --> 0:02:58.200 I got. 0:03:00.160 --> 0:03:02.480 Little railroad humor, railroad humor. 0:03:03.360 --> 0:03:06.320 Can you go more into the regulations because you started 0:03:06.360 --> 0:03:08.640 talking about that, But what are some more of those 0:03:08.960 --> 0:03:12.280 sticking points that could cause this maybe not to go through? 0:03:13.400 --> 0:03:17.320 Well, you know, we've seen a couple large mergers. The 0:03:17.400 --> 0:03:21.160 last large one was Canadian Pacific and Kansas City Southern. 0:03:21.520 --> 0:03:25.560 Kansas City Southern was the smallest Class one railroad and 0:03:25.600 --> 0:03:27.840 they were exempt from these new rules that went to 0:03:27.919 --> 0:03:30.480 an effect in two thousand and one. And the rules 0:03:30.560 --> 0:03:34.040 kind of came about because Burlington Northern and Canadian National 0:03:34.080 --> 0:03:37.920 were looking to merge, and so even though they had 0:03:38.720 --> 0:03:41.520 a lower bar, it took quite some time for the 0:03:41.560 --> 0:03:42.240 deal to close. 0:03:42.280 --> 0:03:43.800 I think it was about eighteen months. 0:03:44.040 --> 0:03:48.240 You know, we suspect that under the current rules, a 0:03:48.320 --> 0:03:52.080 deal between Union Pacific and Norfolk Southern could take about 0:03:52.120 --> 0:03:55.520 two years to get STP approval, So it's going to 0:03:55.560 --> 0:03:56.560 be a long process. 0:03:56.600 --> 0:03:57.480 So even if the. 0:03:57.440 --> 0:04:00.320 Two come out tomorrow and say hey, we're in a 0:04:00.360 --> 0:04:03.560 deal and the shareholders approve it, you know, this could 0:04:03.600 --> 0:04:06.800 be two years until we see an actual trans con railroad. 0:04:07.280 --> 0:04:09.960 So Lee, I'm going to go get my floppy disc 0:04:09.960 --> 0:04:12.520 out circle nineteen eighty eight. I got my Union Pacific 0:04:13.120 --> 0:04:15.400 and my Norfolk Southern earnings models there. I'm going to 0:04:15.480 --> 0:04:19.880 put them together like they're merging. What cost do I 0:04:19.920 --> 0:04:21.880 take out? What are the synergies do you think? What's 0:04:21.920 --> 0:04:25.320 the reason for doing this deal? So it's pretty interesting. 0:04:25.360 --> 0:04:28.359 So, you know, Norfolk Southern went through its own cost 0:04:28.400 --> 0:04:32.640 cutting process as it started to embrace precision scheduling railroading. 0:04:32.760 --> 0:04:35.160 For those that aren't familiar with it, it's pretty much 0:04:35.160 --> 0:04:37.480 six sigma for the rail industry. So it's just about 0:04:37.520 --> 0:04:41.880 sweating assets and they laid off people and so you know, 0:04:42.440 --> 0:04:44.000 it's not like there's a lot of fat there. 0:04:44.040 --> 0:04:46.080 But you know, what I suspect is that. 0:04:45.960 --> 0:04:49.120 They maybe you know, they'll maybe Lean laying off some 0:04:49.680 --> 0:04:53.760 people in corporate, you know, because you don't need two CEOs, 0:04:53.800 --> 0:04:57.480 you don't need two CFOs, you don't need necessarily as 0:04:57.480 --> 0:05:00.960 many salespeople and accountants. So there's the there's that aspect 0:05:01.040 --> 0:05:04.680 of it. And also, you know, if they are able 0:05:04.760 --> 0:05:09.320 to provide a lower cost service, they might be able 0:05:09.360 --> 0:05:13.200 to even though they can raise rates, provided at a 0:05:13.200 --> 0:05:16.200 lower costs to shippers. So I think that's going to 0:05:16.240 --> 0:05:19.480 be the big What can they do for shippers is 0:05:19.560 --> 0:05:23.200 can they lower the cost curve because of the fact 0:05:23.279 --> 0:05:26.279 that you know, again the railcar is being touched less, 0:05:26.480 --> 0:05:28.799 and are they able to pass that on to shippers. 0:05:28.920 --> 0:05:30.960 I think if they can make a case for that, 0:05:31.680 --> 0:05:35.520 they'll have an easier time of getting getting a deal done. 0:05:35.800 --> 0:05:38.560 All right, Lean the last like twenty seconds. Second quarter 0:05:38.560 --> 0:05:39.680 results anything stand out. 0:05:41.320 --> 0:05:45.599 Pacifics did really well. Their network is operating well. You know, 0:05:45.640 --> 0:05:48.080 they had some issues during the pandemic that seems well 0:05:48.120 --> 0:05:52.599 behind it. You know, their goal is to have the 0:05:52.640 --> 0:05:55.960 lowest operating ratio, which is an inverse to an EBIT margin, 0:05:56.040 --> 0:05:58.200 to lower the better, and it seems like they're going. 0:05:58.200 --> 0:05:59.279 To deliver on that. 0:06:00.160 --> 0:06:01.800 Thanks so much for joining us, really appreciate it. 0:06:01.880 --> 0:06:03.920 This could be a really cool time in the railroad 0:06:03.920 --> 0:06:06.240 industry if you can get a East West railroad for 0:06:06.279 --> 0:06:08.680 the first time in the United States. Lead classical senior 0:06:08.720 --> 0:06:11.960 transport antls for Bloomberg Intelligence again the news for US 0:06:12.080 --> 0:06:16.839 railroad geeks, Union, Pacific, Norfolk Southern in advanced talks. 0:06:16.880 --> 0:06:17.280 How did they? 0:06:17.279 --> 0:06:19.080 I mean, if you're in advanced talks, you must have 0:06:19.200 --> 0:06:21.640 some layers somewhere telling you, yeah, we can pass this thing. 0:06:21.520 --> 0:06:22.800 We can get this past the regulators. 0:06:22.920 --> 0:06:26.000 I don't know that, but two years oh yeah, oh boy, 0:06:26.080 --> 0:06:28.120 this is These are railroad people. They're not like the 0:06:28.120 --> 0:06:30.120 fastest out there. 0:06:30.800 --> 0:06:34.520 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:06:34.600 --> 0:06:37.640 weekdays at ten am Eastern on Apple, Cocklay and Android 0:06:37.680 --> 0:06:41.000 Auto with the Bloomberg Business app, Listen on demand wherever 0:06:41.040 --> 0:06:44.160 you get your podcasts, or watch us live on YouTube. 0:06:44.520 --> 0:06:47.960 You're listening to Bloomberg Intelligence. I'm Lise Matteo alongside Paul Sweeney, 0:06:48.240 --> 0:06:50.200 and let's get to Tesla right. It posted one of 0:06:50.200 --> 0:06:54.080 its worst quarters in years, revenue falling twelve percent, and 0:06:54.160 --> 0:06:56.800 there could be even more tough times ahead. So let's 0:06:56.839 --> 0:06:59.039 find out more. Dig into this with Steve Manny's Bloomberg 0:06:59.080 --> 0:07:01.920 Intelligence Global Autos and Industrials Research Matter. 0:07:02.160 --> 0:07:02.920 See why don't you start? 0:07:02.920 --> 0:07:04.920 I we're telling us what the biggest portion of that 0:07:04.960 --> 0:07:07.400 revenue drop? Where did it come from? 0:07:07.640 --> 0:07:11.320 Well, the revenue drop drop was mainly from you know, 0:07:11.360 --> 0:07:14.640 weaker sales in Europe, you know, still the model y 0:07:14.840 --> 0:07:18.320 ramping up. I think on the call with I think 0:07:18.360 --> 0:07:20.480 the reason why the stock is down the most is 0:07:20.560 --> 0:07:25.080 really the outlook. You know, nothing, nothing, you know, earth 0:07:25.160 --> 0:07:28.360 shattering from the outlook. Uh, you know, and they also 0:07:28.520 --> 0:07:30.720 kind of be kind of they were kind of cautious 0:07:31.200 --> 0:07:33.200 about the rest of the year and maybe into the 0:07:33.240 --> 0:07:34.200 twenty twenty. 0:07:33.920 --> 0:07:38.640 Six Steve, what do we know about the the position 0:07:38.720 --> 0:07:38.960 of the. 0:07:38.920 --> 0:07:40.760 Tesla brand right now? 0:07:40.800 --> 0:07:42.920 And is it something that can be to the extent 0:07:42.960 --> 0:07:45.200 it's been harmed, say in Europe where they have seen 0:07:45.240 --> 0:07:46.600 some weakness, can it be repaired. 0:07:46.720 --> 0:07:47.360 What's the feeling. 0:07:48.960 --> 0:07:52.520 Uh, it's it's tough. It's gonna take time. I think 0:07:52.520 --> 0:07:55.840 it's It would be really helpful if Elon must uh 0:07:56.000 --> 0:07:59.760 kind of walk, uh, stay away from the politics for 0:07:59.840 --> 0:08:04.720 the moments and really focus on the business and marketing 0:08:04.760 --> 0:08:08.240 its vehicles. You know, it is a nice vehicle model. 0:08:08.280 --> 0:08:13.320 Why the man has picked back up after the changeover 0:08:13.480 --> 0:08:16.520 earlier this year. The volume is not there yet. But 0:08:17.360 --> 0:08:20.720 the issue here is, you know, they've just launched a 0:08:20.760 --> 0:08:24.680 new vehicle, but the seventy five hundred tax credit in 0:08:24.720 --> 0:08:28.720 the US is going away, So the trajectory, the growth 0:08:28.760 --> 0:08:33.319 trajectory for that new vehicle and gross margin has been 0:08:34.280 --> 0:08:38.280 you know, has been derailed. And look, we're actually looking 0:08:38.800 --> 0:08:41.720 for twenty twenty five deliveries to be you know, about 0:08:41.760 --> 0:08:45.280 five percent lower than what consensus is saying at one 0:08:45.320 --> 0:08:48.400 point five to seven sou and we're probably going to 0:08:48.480 --> 0:08:53.600 see you know, the revision on consensus deliveries in twenty 0:08:53.640 --> 0:08:56.880 twenty six by another five percent. So it's going to 0:08:56.920 --> 0:09:00.880 be some tough time for the automaker. I mean, the 0:09:01.040 --> 0:09:05.079 one one couple of bright spot that could offset it's 0:09:05.160 --> 0:09:07.559 gonna be you know, the extended version of the Model 0:09:07.679 --> 0:09:11.439 Y in China, you know, no longer vehicles a lot 0:09:11.559 --> 0:09:14.880 more space in the back seat does help sales over there. 0:09:15.520 --> 0:09:18.400 And there's you know, there's a new cheaper vehicle that 0:09:18.400 --> 0:09:22.320 they're supposed to launch in the second half, so hopefully 0:09:22.440 --> 0:09:26.680 that could offset. But you know, execution is key. Execution 0:09:26.840 --> 0:09:27.200 is key. 0:09:27.559 --> 0:09:30.120 Yeah, people were waiting to hear more about that affordable vehicle. 0:09:30.400 --> 0:09:33.280 So speaking of which is Tesla? Is it an auto business? 0:09:33.360 --> 0:09:35.960 Is it an AI robotics company? Is it a tech company? 0:09:36.040 --> 0:09:36.120 Like? 0:09:36.200 --> 0:09:39.480 What is Tesla? And could we possibly see it maybe 0:09:39.480 --> 0:09:41.520 even break up like some of these bigger companies have. 0:09:42.400 --> 0:09:45.640 Oh, I think as a combination. They I don't think 0:09:45.679 --> 0:09:48.160 they're going to break that up. You know, you know, 0:09:48.200 --> 0:09:52.800 Elon Musk and Tesla is very focused on physical AI, 0:09:53.280 --> 0:09:56.240 you know, very different than the ll ms that you 0:09:56.320 --> 0:10:00.920 hear from Google. You know, they're actually you know, building robots, 0:10:01.040 --> 0:10:05.520 robots on wheels and humanoid robots with optimists. So it's 0:10:05.520 --> 0:10:06.400 it's quite different. 0:10:06.880 --> 0:10:06.960 Uh. 0:10:07.080 --> 0:10:10.520 You know, for them to actually build out physical AI, 0:10:11.000 --> 0:10:13.360 they knew they do need the hardware they need to 0:10:13.400 --> 0:10:16.480 continue to build cars, right, and cars is a critical 0:10:16.520 --> 0:10:22.199 component of their success, especially even in early days of autonomy. 0:10:22.640 --> 0:10:25.800 You know, there's still it's still a cash generator for them, 0:10:26.480 --> 0:10:29.920 you know, even though you know, free cash flow has dropped, 0:10:30.080 --> 0:10:34.400 but it's still an important business for them to generate 0:10:34.480 --> 0:10:38.120 cash invest in in physical AI. So I don't see 0:10:38.120 --> 0:10:41.400 that breaking apart. It's you know, it's a critical component 0:10:41.440 --> 0:10:43.040 of their entire business. 0:10:44.200 --> 0:10:46.000 I don't know, Steve, I'm putting on my banker hat 0:10:46.120 --> 0:10:47.760 I said, I spin out that car company. 0:10:47.760 --> 0:10:48.240 Who cares. 0:10:48.360 --> 0:10:50.679 Let's focus on all the other stuff that he seems 0:10:50.679 --> 0:10:51.760 to be all fired up about. 0:10:52.040 --> 0:10:54.000 But Steve talked to us about tariffs. 0:10:54.040 --> 0:10:54.199 Here. 0:10:54.920 --> 0:10:57.800 Looks like one of the key aspects of the Japan deal, 0:10:58.840 --> 0:11:00.920 as we know, is maybe the autos coming in from 0:11:01.000 --> 0:11:05.840 Japan will have only a fifteen percent tariff on that. 0:11:06.000 --> 0:11:07.839 What did the US automakers think about that? 0:11:09.000 --> 0:11:12.360 Well, I think it's good news. You can see, you know, GM, 0:11:12.400 --> 0:11:14.520 when they announced their earnings it was down I think 0:11:14.559 --> 0:11:17.560 eight nine percent, and then it kind of recover a 0:11:17.600 --> 0:11:21.080 lot of that yesterday on the back of the announcement 0:11:21.160 --> 0:11:24.600 that US and Japan had come to terms on a 0:11:24.640 --> 0:11:28.880 trade deal, and what it means is fifteen percent at 0:11:28.960 --> 0:11:33.320 least fifteen percent tariff. And look, GM has a lot 0:11:33.360 --> 0:11:36.480 of you know, some of the most popular vehicles coming 0:11:36.520 --> 0:11:39.200 from Korea, and the hopes is that, you know, Korea 0:11:39.320 --> 0:11:42.520 and US can can make the same deal. But look, 0:11:42.720 --> 0:11:45.000 it's it's far from over. 0:11:45.559 --> 0:11:46.000 Okay. 0:11:46.760 --> 0:11:49.679 What Tesla talked about yesterday and how the tariffs are 0:11:49.679 --> 0:11:53.079 going to impact their sales is not the impact not 0:11:53.200 --> 0:11:55.760 just on them, it's for the whole US auto industry. 0:11:56.240 --> 0:12:01.880 Don't forget right, next year the USMS, the US, Mexico 0:12:01.920 --> 0:12:05.720 and Canada trade free trade Agreement comes up for renegotiation, 0:12:06.360 --> 0:12:09.640 UH in twenty twenty six, and uh, you know, the 0:12:09.679 --> 0:12:15.560 automakers here depend on that trade agreement significantly to to 0:12:15.559 --> 0:12:19.440 to to lower costs. So I wouldn't be surprised if 0:12:19.800 --> 0:12:22.840 Trump comes in and wants to kind of tear that 0:12:22.960 --> 0:12:26.960 apart and UH renegratation, you renegotiate the whole thing. 0:12:27.480 --> 0:12:27.680 UH. 0:12:27.760 --> 0:12:29.120 That that that's there's. 0:12:28.960 --> 0:12:30.880 A lot uncertainty around that, and we don't have a 0:12:30.960 --> 0:12:34.199 lot of visibility. So so the whole tariff story is 0:12:34.240 --> 0:12:35.439 not over yet. 0:12:35.880 --> 0:12:38.480 So Stephen must go so voice some concerns on the 0:12:38.520 --> 0:12:41.240 call about the size of his stake in the company, 0:12:41.840 --> 0:12:44.400 suggesting it should be larger. I mean, how did investors 0:12:44.400 --> 0:12:45.120 take that statement? 0:12:46.440 --> 0:12:49.080 Well, you know, there's been a lot of back and 0:12:49.120 --> 0:12:54.040 forth between uh Tesla and the courts on you know, 0:12:54.720 --> 0:13:00.560 Elon must pay package. Essentially, he's he's not getting paid, 0:13:01.320 --> 0:13:04.480 you know, for what he's doing for the company, you know, 0:13:04.679 --> 0:13:08.679 as much as he deserves. So I think there's a 0:13:09.280 --> 0:13:12.480 I mean, there's a point, there's a strong argument for 0:13:12.960 --> 0:13:13.839 him getting paid. 0:13:14.200 --> 0:13:14.800 But we'll see. 0:13:14.920 --> 0:13:18.600 There's a shareholder meeting coming up and I think I 0:13:18.600 --> 0:13:22.559 think the shareholders will revote on this issue, and uh, 0:13:23.000 --> 0:13:25.280 you know, hopefully he gets he gets paid for his 0:13:25.400 --> 0:13:27.040 contribution for the company. 0:13:27.679 --> 0:13:29.360 All right, Steve, thanks so much. Appreciate that. 0:13:29.400 --> 0:13:32.640 Steve Man Global Autos Industrials Research Channels for Bloomberg Intelligence 0:13:33.200 --> 0:13:34.840 joining us from Princeton. 0:13:36.760 --> 0:13:40.480 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:13:40.559 --> 0:13:43.920 weekdays at ten am Eastern on Applecarplay and Android Auto 0:13:44.040 --> 0:13:47.120 with the Bloomberg Business App. Listen on demand wherever you 0:13:47.160 --> 0:13:50.120 get your podcasts, or watch us live on YouTube. 0:13:50.559 --> 0:13:52.840 All right, I'm looking at some airline earnings here today 0:13:52.880 --> 0:13:55.120 and stocks are not reacting well. I'm looking at America 0:13:55.160 --> 0:14:00.239 Airlines that stock is trading down, love which is Southwest 0:14:00.920 --> 0:14:03.240 that is also trading down. There definitely some concerns out 0:14:03.280 --> 0:14:05.800 there about the consumer and flights and demand and all 0:14:05.800 --> 0:14:08.400 that kind of stuff on the airline front. See Philip 0:14:08.440 --> 0:14:12.120 joins his deputy team leader for Global Aviation sid What 0:14:12.120 --> 0:14:14.120 are you seeing from American and south West? 0:14:14.200 --> 0:14:15.080 Is their team out there? 0:14:15.600 --> 0:14:18.040 The team seems to be that there isn't as much 0:14:18.080 --> 0:14:21.920 bullishness about the recovery that United Airlines and Delta air 0:14:21.920 --> 0:14:25.480 Lines pointed out last week, So they're sort of more 0:14:25.560 --> 0:14:28.960 cautious about the outlook, and they're talking about how they're 0:14:29.040 --> 0:14:31.520 still like they're still having to discount, they're still having 0:14:31.560 --> 0:14:35.120 to sort of offer incentives, which is crazy in the 0:14:35.200 --> 0:14:38.440 sort of the busy summer season. Summers typically when airlines 0:14:38.440 --> 0:14:40.880 tend to make most of their money, they're very rarely, 0:14:40.960 --> 0:14:44.240 if ever discounts on travel, and so it does so 0:14:44.400 --> 0:14:48.239 seem to be pointing towards a sort of consumer recovery 0:14:49.080 --> 0:14:51.520 still being in the holding pattern rather than sort of 0:14:51.600 --> 0:14:54.400 out there and everyone sort of back to spending as much. 0:14:54.600 --> 0:14:57.320 Can you talk about the difference with American being more 0:14:57.360 --> 0:14:58.880 exposed to the domestic. 0:14:58.520 --> 0:15:02.080 Market, So American typically has a lot of flights in 0:15:02.120 --> 0:15:04.080 the US, I mean, they have much larger presence in 0:15:04.080 --> 0:15:07.920 the US versus Delta and United, which have more international offerings. 0:15:08.200 --> 0:15:10.760 And also, I mean we heard from American CEO saying 0:15:10.800 --> 0:15:14.360 that business travel isn't yet backs as much as they 0:15:14.400 --> 0:15:17.240 expected it to be. And that's in contrast to what 0:15:17.440 --> 0:15:20.200 Ed Bastian of Delta talked about last week where he 0:15:20.240 --> 0:15:23.080 said business travel is beginning to take off again. So 0:15:23.120 --> 0:15:26.280 we're still we're seen contrasting images from the sort of 0:15:26.320 --> 0:15:29.400 American and Southwest. I mean, Southwest is a leisure carrier, 0:15:29.840 --> 0:15:32.920 and they're sort of in the midst of adding more fees. 0:15:32.960 --> 0:15:36.160 They're adding more in terms of offering basic economy, they're 0:15:36.200 --> 0:15:40.120 offering check they're starting discharge for check baggage, They've started 0:15:40.120 --> 0:15:42.760 to sell seats, and so they're in a bit of 0:15:42.800 --> 0:15:45.920 a different situation. But American Airlines, I mean, their bread 0:15:45.920 --> 0:15:49.280 and butter is flying people around the Americas, and that 0:15:49.520 --> 0:15:51.680 is sort of still a big question mark as to 0:15:51.800 --> 0:15:54.880 where the recovery is at the moment and whether it'll 0:15:54.880 --> 0:15:58.760 hold up, especially the green shoots that they've been talking about. 0:15:59.080 --> 0:16:03.000 Southwest Airlines, doctor uh seeing some red here at down 0:16:03.000 --> 0:16:07.680 eleven percent. Here symbol is luv Love for love Field, 0:16:07.680 --> 0:16:11.840 which was their main airport when they started Southwest they 0:16:11.880 --> 0:16:14.920 called out a billion dollars from terror fallout. 0:16:14.960 --> 0:16:16.760 Where did that number come from? What's that represented? 0:16:16.800 --> 0:16:20.480 So they offered a one point seven billion e bit 0:16:20.560 --> 0:16:22.080 dug it at the start of the year. That's what 0:16:22.120 --> 0:16:25.200 they expected to make in twenty twenty five. And now 0:16:25.240 --> 0:16:28.960 they've sort of they reinstated a estimate for the year. 0:16:29.000 --> 0:16:31.280 They expect between six hundred and eight hundred million in 0:16:31.400 --> 0:16:35.680 EBIT and they're saying that the decline in that estimate 0:16:35.720 --> 0:16:37.320 that they had from the start of the year to now, 0:16:37.560 --> 0:16:39.920 that's the impact of the macro conditions. 0:16:40.400 --> 0:16:41.320 And so because I. 0:16:41.240 --> 0:16:44.640 Can I'm trying to think terraffs, I guess terrafune repair 0:16:44.800 --> 0:16:46.880 parts or something like that, or is it just the 0:16:47.000 --> 0:16:49.720 uncertainly created by teriffs they're describing that. 0:16:49.960 --> 0:16:53.400 Exactly that they're talking about the macro environment and buying that. 0:16:53.440 --> 0:16:55.000 Do you think, uh, they. 0:16:54.960 --> 0:16:56.760 Are to something. I mean, there has been there has 0:16:56.800 --> 0:16:59.960 been a slump in travel. I mean the immediately after 0:17:00.080 --> 0:17:03.000 the sort of the tariffs who announced and the whole 0:17:03.120 --> 0:17:06.560 shade wars and everything else, people did started start pulling 0:17:06.600 --> 0:17:10.160 back on spending. People stopped buying holidays because they sort 0:17:10.200 --> 0:17:13.399 of are more concerned about their economic certainty. And that 0:17:13.560 --> 0:17:15.560 seems to be the STrenD that continuing at the moment, 0:17:15.600 --> 0:17:18.199 where people are still not quite sure if they're going 0:17:18.240 --> 0:17:20.800 to have the money that they need to spend on holidays. 0:17:21.119 --> 0:17:24.200 And that's really where Southwest Allianes is sort of seeing 0:17:24.240 --> 0:17:27.480 a big hole in its finances because they need people 0:17:27.480 --> 0:17:29.359 to go on holiday in order to be able to 0:17:29.960 --> 0:17:30.840 actually make money. 0:17:30.920 --> 0:17:31.959 Yeah, no kidding. 0:17:32.800 --> 0:17:34.760 So did they see I'm kind of going through the story. 0:17:34.760 --> 0:17:38.040 I didn't see anything about them gaining passengers from all 0:17:38.080 --> 0:17:41.679 those air traffic control issues over with United stub over 0:17:41.720 --> 0:17:43.879 at Newark. Was there anything that they talked about. 0:17:44.119 --> 0:17:45.280 They didn't talk about Newark. 0:17:45.320 --> 0:17:48.560 And I mean, obviously United Airlines had a big impact 0:17:48.600 --> 0:17:52.320 from the Newark fallout, but typically given the fact that 0:17:52.400 --> 0:17:56.280 Newark's a big international hub for United Airlines and Southwest 0:17:56.280 --> 0:17:59.840 Allianes typically flies within the US and within the Americas, 0:18:00.920 --> 0:18:03.760 that business might have gone on to other carriers who 0:18:03.800 --> 0:18:06.560 operate from Newark as well. New York Airports. 0:18:07.080 --> 0:18:09.040 Yeah, I've been finding out of Newark my entire life. 0:18:09.480 --> 0:18:11.240 And I'll tell you what. It was a dumblem. 0:18:12.000 --> 0:18:15.160 But Terminal A that's nice. That renovation is awesome. 0:18:15.320 --> 0:18:16.640 I mean, and if they can do to the other 0:18:16.840 --> 0:18:18.960 terminals what they did to Terminal A, then we're then 0:18:18.960 --> 0:18:21.359 we got something there. So I'll stick up for Newark 0:18:21.400 --> 0:18:25.119 Airport at EWR anytime. More or less, it's been generally okay, 0:18:25.440 --> 0:18:27.440 although they tend to when you land. You tended to 0:18:27.480 --> 0:18:29.920 sit on the tarmac waiting for a gate. That really 0:18:30.800 --> 0:18:32.679 bothers me now and I let everybody know about it, 0:18:33.280 --> 0:18:35.320 all right, Sid, thanks so much for joining U, said Philip, 0:18:35.359 --> 0:18:39.600 deputy team leader for a global abitation here at Bloomberg News. 0:18:39.760 --> 0:18:42.040 Joining us live here in our Bloomberg Interact Approper Studio. 0:18:43.680 --> 0:18:47.359 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:47.440 --> 0:18:50.560 weekdays at ten am Eastern on Apple Coarcklay and Android 0:18:50.560 --> 0:18:53.880 Auto with the Bloomberg Business App. Listen on demand wherever 0:18:53.920 --> 0:18:57.640 you get your podcasts, or watch us live on YouTube at. 0:18:57.640 --> 0:19:00.280 Least Teo Paul Sweeney live here in our Bloomberg Active 0:19:00.280 --> 0:19:04.920 Brokeer Studio. Stream live on YouTube as well. Alphabet. I 0:19:04.960 --> 0:19:07.200 think that's Google. I can't remember. They report us some 0:19:07.240 --> 0:19:09.280 numbers last night after close. I thought they were really good. 0:19:09.400 --> 0:19:11.960 Stocks up a couple of percent. Some people are bummed 0:19:11.960 --> 0:19:14.199 because they took up their CAPEX number a lot. I 0:19:14.320 --> 0:19:16.399 view that as a positive. I don't know, because I 0:19:16.400 --> 0:19:18.480 think they're spending money to make money. It's one of 0:19:18.520 --> 0:19:20.840 those things, Mandy saying. Joints is here. He covers all 0:19:20.880 --> 0:19:24.000 the technology stuff for Bloomberg Intelligence. Mandy hope should take 0:19:24.040 --> 0:19:26.320 away from the Google results. 0:19:26.600 --> 0:19:29.600 I mean the fact that they are able to grow 0:19:29.680 --> 0:19:33.400 their search business double digit at that kind of run 0:19:33.520 --> 0:19:36.920 rate two hundred ten billion dollar plus. Like, think of 0:19:37.080 --> 0:19:41.760 how many incremental dollars they added just by virtue of 0:19:41.840 --> 0:19:45.439 that eleven percent growth in the two hundred ten billion 0:19:45.520 --> 0:19:49.560 dollar business. And that is where you know, the real 0:19:50.200 --> 0:19:53.520 strength lies with a company like alphabet They are overlaying 0:19:53.560 --> 0:20:00.399 Gemini across their family apps. AI overviews is actually driving 0:20:00.480 --> 0:20:05.360 ten percent more queries and aioverviews is now used by 0:20:05.520 --> 0:20:08.720 two billion monthly active users. So Google Search has five 0:20:08.760 --> 0:20:13.600 billion monthly active users. Imagine aioverviews being used by two 0:20:13.640 --> 0:20:15.200 billion monthly active users. 0:20:15.240 --> 0:20:17.680 So they got the UI part right. 0:20:18.160 --> 0:20:21.280 Gemini as a standalone app has got four hundred and 0:20:21.320 --> 0:20:25.440 fifty million monthly active users. Imagine if everyone started paying 0:20:25.440 --> 0:20:28.840 a twenty dollars subscription like chatchipt, this could become one 0:20:28.880 --> 0:20:32.920 hundred billion dollar business. In addition to search and then 0:20:33.000 --> 0:20:34.960 YouTube I'm not even talking about you know. 0:20:37.240 --> 0:20:39.919 All the strengthen YouTube and way more. So this is 0:20:39.960 --> 0:20:40.760 a powerhouse. 0:20:40.800 --> 0:20:43.240 When it comes to four hundred billion dollar run rate, 0:20:43.520 --> 0:20:45.040 they will be at the end of the year. 0:20:45.480 --> 0:20:47.320 So can you explain something to me, because when the 0:20:47.359 --> 0:20:50.000