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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Matthew Lizzetti

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Speaker 1: joins us now with Deutsche Banking. Away from your Arch

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Speaker 1: recession call, you let on that among I think all

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Speaker 1: of market economics, your call for interest rates is like

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Speaker 1: Richard Claared is the former vice chair writing in The Economists, No,

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Speaker 1: we're not going to get back to two percent, not

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Speaker 1: back to one. But what does our world look like

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Speaker 1: with an inflation that gets back to two point six

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Speaker 1: three point two that kind of level the clarita level.

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Speaker 2: Yeah, so I think that's closer to where we expect

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Speaker 2: to be by the end of this year. We have

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Speaker 2: corpse around three and a half percent. You know, that

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Speaker 2: is a lot of progress from where we are today.

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Speaker 2: I would agree with Governor Waller's comments recently that over

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Speaker 2: the past year you've basically seen very little progress, and

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Speaker 2: we can point to different components that have moved back

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Speaker 2: and forth, but the reality is we haven't seen much

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Speaker 2: progress over the past year. I think getting back down

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Speaker 2: to three and a half percent for the FED that matters.

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Speaker 3: In the context of what the labor market looks like.

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Speaker 2: So if you still have a four percent or below

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Speaker 2: unemployment rate, you have a FED where the FED funds

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Speaker 2: rate is probably higher, certainly not as cutting rates, but

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Speaker 2: if that's occurring within the context of a recession where

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Speaker 2: the unoplunt rate has ers into four and a half

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Speaker 2: for five percent, which is the context that we expect,

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Speaker 2: is that that'll be what triggers the FED to be

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Speaker 2: cutting rates there.

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Speaker 1: And then to add that into your GDP call, do

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Speaker 1: you have a diminished inflation a disinflation into a slowing

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Speaker 1: real GDP level or quarter to quarter movement that gets

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Speaker 1: us down to a new diminished nominal GDP?

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Speaker 2: We do, you know, we have modestly positive growth in

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Speaker 2: Q three, we have negative growth beginning in Q four

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Speaker 2: into this the first half of next year.

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Speaker 1: Sub four percent nominal GDP.

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Speaker 2: It is when you add in where inflation is we

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Speaker 2: only ape point six percent growth for this year, so

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Speaker 2: it is sub four percent nominal GDP. But I think

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Speaker 2: really for the Fed, it's, you know, the context of

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Speaker 2: what is happening with the labor market.

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Speaker 3: I think that's been the key area of debate.

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Speaker 2: We've seen slowing there, but I think across most of

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Speaker 2: the metrics, still four million more job openings and unplayed individuals.

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Speaker 2: The private quits rate actually ticked up recently. The Atlanta

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Speaker 2: Fed wage growth tracker hasn't shown any progress in coming down.

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Speaker 3: I think that's really the crux for the Fed.

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Speaker 4: A lot of people lean on the projections coming from

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Speaker 4: the Federal Reserve, the Cordly SCP, the Summary of Economic projections.

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Speaker 4: There's not much daylight between your rates call and their

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Speaker 4: rates call for this year. In fact, there's no daylight

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Speaker 4: at all. Where is the some daylight between you and

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Speaker 4: the Federal Reserve when you look at that outlook, Yeah.

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Speaker 2: I would note I think they've come a little bit

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Speaker 2: closer to us over time, Yeah, and that too, but

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Speaker 2: at the moment, there is, you know, for this year,

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Speaker 2: very little daylight.

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Speaker 3: There is greater daylight.

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Speaker 2: Into twenty twenty four, and they have their path, which

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Speaker 2: I think is this gradual cutting path under something that

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Speaker 2: looks somewhat like a soft landing, even with the unployment

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Speaker 2: rate rising by one percentage points, and they're just kind

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Speaker 2: of gliding back towards neutral. Our expectations that they have

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Speaker 2: to cut more aggressively that you get a recession the

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Speaker 2: unployment rate rises. We have two hundred and twenty five

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Speaker 2: basis points of cuts between Q one and Q three

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Speaker 2: of next year. There is, you know, no doubt, a

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Speaker 2: gap between us and where the FED is in the

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Speaker 2: market at the moment by the end of the year,

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Speaker 2: but that gap has been diminished. You know, we're at

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Speaker 2: a four point six percent or so FED funds rate

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Speaker 2: at the end of this year, and that seems quite

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Speaker 2: reasonable to me within the context of, you know, you

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Speaker 2: might have a recession beginning in Q four.

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Speaker 5: Can you dove tell that idea of more aggressive rate

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Speaker 5: cuts in twenty twenty four with what we've heard from

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Speaker 5: the banks just now, which was supposed to be really

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Speaker 5: telling from an economic perspective, we would finally know how

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Speaker 5: bad this credit crunch or credit kurf, fufflow or whatever

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Speaker 5: you want to call it was. Now we're living in

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Speaker 5: this sort of like, man, what did we learn We're

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Speaker 5: not sure. I mean, how much have you learned from this?

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Speaker 3: Yeah, I think not much yet.

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Speaker 2: You know, we're hearing from a lot of the larger banks,

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Speaker 2: which were anticipated to be a beneficiary of some of

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Speaker 2: the stress in the smaller and medium sized banks. In

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Speaker 2: terms of of you know, the fed's H four and

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Speaker 2: H eight data. We've seen decreasing stress in the Fed's

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Speaker 2: balance sheet, which I think has been a positive. It's

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Speaker 2: giving us some sense that we're beyond, hopefully beyond the

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Speaker 2: acute phase of what's been hanging happening in the banking sector.

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Speaker 2: But I think everybody's anticipating that we're still going to

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Speaker 2: have this tightening of lending conditions, tightening of credit conditions

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Speaker 2: that takes place.

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Speaker 3: That reduces growth.

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Speaker 2: That is part of our baseline expectation, but at the

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Speaker 2: moment it's mostly scenario analysis. We really can't have a

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Speaker 2: great idea of how much things are going to titan.

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Speaker 2: We'll get the FED Senior Loan Officer Survey in early May.

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Speaker 2: I expect that's going to be quite negative, just given

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Speaker 2: when that was occurring, kind of around the peak stress

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Speaker 2: that we were seeing going back.

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Speaker 5: To twenty twenty four. In your belief that the Fed's

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Speaker 5: going to cut much more aggressively. What's the threshold, what's

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Speaker 5: the bar going to be for them to be more

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Speaker 5: aggressive with rate cuts?

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Speaker 2: Yeah, I think it's you know, are we seeing a

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Speaker 2: recession take place? You know, their forecast for the unemployment

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Speaker 2: rate is that it rises up to four point six

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Speaker 2: percent and stays there. You don't ever really see that

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Speaker 2: in a recession. You know, these things are nonlinear. If

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Speaker 2: a rise fifty basis points, you get a recesion, it

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Speaker 2: rises by at least two percentage points. And so I

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Speaker 2: think if you have something that looks more like a

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Speaker 2: typical recession, which is basically our forecast, you get a

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Speaker 2: two percentage point rise in the unemployment rate, then I

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Speaker 2: think we should expect that they will be cutting rates.

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Speaker 2: I think they've been very clear they're not going to

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Speaker 2: repeat the mistakes of the nineteen seventies the way that

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Speaker 2: I would kind of view the mistakes of the nineteen seventies,

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Speaker 2: where that they cut the real rate from very positive

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Speaker 2: territory to very negative real territory very quickly. We don't

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Speaker 2: expect them to do that this time around. They can

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Speaker 2: cut rates pretty materially and still have a positive real

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Speaker 2: FAED funds.

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Speaker 4: Right, It's so unfair of me to ask this, But

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Speaker 4: is that forecast a political forecast? Do you think there's

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Speaker 4: a political element to it to say four point five

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Speaker 4: year round four six four six, next two years? How

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Speaker 4: much I'll phrase it differently because I know you've don't

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Speaker 4: want answer this. How much political heat would they get

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Speaker 4: if they were forecasting anything higher than four and a

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Speaker 4: half percent and described exactly what you think is going

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Speaker 4: to play out?

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Speaker 2: Yeah, I don't know if it's as much politics as

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Speaker 2: there's a confidence channel from how the Fed is forecasting things,

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Speaker 2: and so they have a different role to play than

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Speaker 2: I do. They can impact sentiment in the economy, They

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Speaker 2: can impact I think overall confidence and therefore can impact

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Speaker 2: what the actual outcome for the economy is. And so

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Speaker 2: I think you know that should be viewed within that.

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Speaker 2: You know, both their inflation forecast, but also what they're

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Speaker 2: showing with the unemployment rate. It's notable, I think, nonetheless,

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Speaker 2: that they're showing the unemployment rising as much as it has.

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Speaker 2: It's notable that in the minutes the Fed staff you know,

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Speaker 2: very clearly has a baseline mild recession. You know, these

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Speaker 2: things don't happen very often from the Fed's perspective. So

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Speaker 2: I think it is a commitment in showing that they

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Speaker 2: are willing to take the necessary actions to get inflation down.

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Speaker 4: So it's almost soros poper esque that you can shape

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Speaker 4: the events you anticipate. It's almost something sol fulfilling about

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Speaker 4: unemployment forecasts at a feder reserve.

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Speaker 1: One of the best conversations I ever had was the

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Speaker 1: younger George Soros talking about Carl Popper in the early

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Speaker 1: nineteen fifties at LSE. This is economic epistol, homology, religion,

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Speaker 1: I say at UCLA, and the ideas you get out

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Speaker 1: front and then can you reframe things as you go along?

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Speaker 1: That's the narratives reframing if you will.

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Speaker 4: And Matt, this was smart, always says thought you. I

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Speaker 4: thought we'd get there on a full cost. Here we

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Speaker 4: are at the Federal Reserve. Matt, thank you.

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Speaker 6: Right now.

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Speaker 1: Gerard Cassidy joins us. He's been such a friend of

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Speaker 1: the show to give us perspective across these many different

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Speaker 1: types of banks, not all pooled together and gered. I

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Speaker 1: want to start with a sentence buried in their very

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Speaker 1: clear press release, which is all about Morgan Stanley all

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Speaker 1: about what you and I have witnessed over decades. In

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Speaker 1: all this turmoil, down down, down, down down, wealth Management

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Speaker 1: moved from a five point nine billion revenue stream to

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Speaker 1: six point six billion. Boy, Gerard, is that talk about

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Speaker 1: why everybody wants to copy Morgan's Stanley?

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Speaker 7: Tom, You're absolutely right. You know, the wealth management business

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Speaker 7: is a more predictable, steady, any type of business versus

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Speaker 7: the more volatile institutional business that you guys have been

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Speaker 7: talking about. Tom, you mentioned about how amongst the investment

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Speaker 7: banking revenues have declined, not just for Morgan Standing but

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Speaker 7: for the group, but wealth management. You're right that differentiates

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Speaker 7: well Morgan Standing from his peers, and under Gorman's leadership,

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Speaker 7: he's the one that drove this over the last ten years.

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Speaker 4: Jeff, we've had all the big banks report. Now who

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Speaker 4: won the quarter?

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Speaker 7: I would say that, you know, the JP Morgan numbers

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Speaker 7: probably stand out out, John as winning the quarter. They

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Speaker 7: certainly drove those numbers through that net interest revenue line.

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Speaker 7: Certainly they also had you know, relatively decent capital markets businesses,

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Speaker 7: but it was all against expectations. The numbers, as you

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Speaker 7: guys have pointed out, relative to a year ago, is

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Speaker 7: still very weak, especially in investment banking. But I'm going

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Speaker 7: to put Jack Morgan at the top of the list.

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Speaker 5: We've been focusing very closely on total deposits some of

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Speaker 5: the regional banks here in Morgan Stanley reports first quotal

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Speaker 5: total deposits been low. The estimate three hundred and forty

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Speaker 5: seven point five billion versus the estimate of three hundred

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Speaker 5: and fifty two point two billion. Does that matter or

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Speaker 5: is this basically not a question? It's a rounding error

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Speaker 5: that we don't have to pay attention to Gerrard, I think.

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Speaker 7: It's I don't want to say we don't pay attention

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Speaker 7: don't pay attention to it, since we pay attention to everything.

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Speaker 7: But I think you're going down the right path least

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Speaker 7: that it's not a material issue of deposits. We have

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Speaker 7: to remember that, you know, the Feederal Reserve is implementing

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Speaker 7: quantitative tightening with the intention of reducing deposits out of

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Speaker 7: the banking system after they created over three trillion under QE.

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Speaker 7: So the entire banking system is going to see their

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Speaker 7: deposit shrink. And the real question is the mix of

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Speaker 7: your deposits and the regional banks, and the big money

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Speaker 7: center banks as well as Morgan's have good core consumer deposits,

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Speaker 7: which are critical.

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Speaker 5: What's going to be the profit driver at a firm

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Speaker 5: like Morgan Stanley if investment banking doesn't pick back up,

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Speaker 5: if you are seeing transactions in the capital markets atrophy.

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Speaker 7: Yeah, Lisa, it's really the critical question for these investment banks.

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Speaker 7: You know, it's out of their control, of course, in

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Speaker 7: dictating how the market's going to behave in investment banking.

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Speaker 7: So hopefully the first checkpoint will be monetary policy. The

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Speaker 7: FED has to stop raising rates. So if we get

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Speaker 7: to that terminal rate in the second quarter, hopefully the

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Speaker 7: second half of the year, you'll see a pick up

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Speaker 7: in the investment banking activity because it's a more stabled landscape.

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Speaker 8: Ji Ed.

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Speaker 1: I look at the twenty thirteen letter of Morgan Stanley

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Speaker 1: written by mister Gorman, and there's a subtitle investing in

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Speaker 1: our businesses, How's he advanced doing, How's he trade doing?

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Speaker 1: And all the other things he pieced together to win

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Speaker 1: wealth management in managing people's money.

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Speaker 6: Tom.

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Speaker 7: It's a very good point because they have not only

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Speaker 7: grown organically, but inorganically through the acquisitions that you just

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Speaker 7: identified and as we know in the asset management business,

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Speaker 7: which is of course EAT, advanced economies of scale are critical.

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Speaker 7: And so as they built their economies of scale, including

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Speaker 7: their organic growth as well as other acquisitions in the

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Speaker 7: asset management business, that has obviously helped them on the

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Speaker 7: E trade. It's also given them a diversity of customers.

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Speaker 7: As you know, E trade is more of a self

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Speaker 7: directed product line versus the traditional Morgan Stanley wealth management business,

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Speaker 7: so it diversifies their revenues and you have to give

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Speaker 7: Gorman credit from doing those acquisitions.

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Speaker 4: Just to wrap things up, just one question to you.

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Speaker 4: We've asked this to investors, I'd love it from a

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Speaker 4: bank countless just to answer it. Do you see the

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Speaker 4: banking events of the last month as a one event

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Speaker 4: that we can leave behind or the beginning of a

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Speaker 4: process that leads to time of financial conditions? How does

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Speaker 4: a bank can list answer that question?

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Speaker 7: I you know, from the get go, John I was

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Speaker 7: saying to myself it was a one off event, and

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Speaker 7: the reason being is that those business models that Silicon

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Speaker 7: Valley Signature had were so different. Now that doesn't mean

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Speaker 7: we're not going to see somewhat tighter lending conditions, Not

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Speaker 7: so much because of what happened in March, as it

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Speaker 7: might be called March madness. It really has to do

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Speaker 7: with what the outlook is for the economy. And as

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Speaker 7: Jamie Diamond said on his call, you know it's not

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Speaker 7: a credit crunch. Yes, maybe there's a thumb on the scale.

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Speaker 7: But banks are into business to lend money at risk

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Speaker 7: adjusted rates of return, and if they see good risk

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Speaker 7: adjusted rates of return, they're going to lend money. So

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Speaker 7: that's the real critical question, what is the outlook, Not

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Speaker 7: necessarily what happened in March.

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Speaker 4: Jared, thanks for bamb but it's so much through much

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Speaker 4: match and ascent through aankful as well to break down

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Speaker 4: somebody's earnings. JERRH. Cassidy of MBC Capital Market.

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Speaker 1: Lizanne Saunders joins us now with Charles schraub Lizen. The

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Speaker 1: clear and present for you is factor analysis. My problem

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Speaker 1: is maybe I've got five ideas or ten ideas. Torsten

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Speaker 1: Slock over to Apollo says, maybe there's twenty ideas. How

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Speaker 1: do you find the twenty first security to own? I mean,

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Speaker 1: it's just really difficult out there to do stock selection

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Speaker 1: towards quality and positive free cash flow.

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Speaker 8: Well, interestingly, the last couple of weeks you have seen

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Speaker 8: a more definitive bias from a factor perspective toward and

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Speaker 8: this may seem obvious, but it's finally working its way

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Speaker 8: into factors. Is interest coverage? So and by the way,

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Speaker 8: second to that would be strength of profit margins. So

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Speaker 8: I think this is really a story of who can

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Speaker 8: maintain profit margins in a declining nominal inflation environment, which

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Speaker 8: had been a real support for pricing power. Now we're

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Speaker 8: going to have to see who's actually got the pricing

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Speaker 8: power and who can come cover that interest. But as

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Speaker 8: we've always said, you can apply factor based screening across

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Speaker 8: the spectrum of markets. Too many people think you have

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Speaker 8: to start with a sector or two and then apply

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Speaker 8: screening within You can find value characteristics or factors within

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Speaker 8: stocks and areas that might be perceived as just in

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Speaker 8: the growth area.

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Speaker 1: What you just heard their folks bottle This is off

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Speaker 1: of Tuo share Schande of the Massachusetts Institute of Technology

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Speaker 1: a million years ago. I can't say enough about the

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Speaker 1: need to go cross sector in analysis as within sector.

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Speaker 1: This is gospel for me in Lizan. Okay, Lizanne, I've

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Speaker 1: gone cross sectors. Let's go type two negative. What do

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Speaker 1: I want to avoid?

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Speaker 8: I think you want to avoid to some degree the opposite.

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Speaker 8: You want to avoid the companies that are not self funding,

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Speaker 8: the zombie companies that don't have the EBITDAH to cover

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Speaker 8: interest expense, that can only fund their operations on the

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Speaker 8: back of additional leverage. We had I think close to

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Speaker 8: thirty percent of the Russell two thousand at one point

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Speaker 8: last year could be classified as zombie. Are pretty close

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Speaker 8: to zombie companies, So I would certainly avoid those, and

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Speaker 8: you do get a lift like we saw in January

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Speaker 8: down the quality spectrum in the nonprofitable area. But I

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Speaker 8: think this is decidedly a place where you want to

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Speaker 8: focus on what's deer, you know, positive earning to revisions,

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Speaker 8: the interests covered, strength of balance sheet, high cash, low debt.

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Speaker 8: The opposite represents where you want to avoid right now.

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Speaker 5: Is the pain trade just higher even among some of

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Speaker 5: these zombies at a time where a lot of people

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Speaker 5: point to stimulus that hasn't been fully worked out of

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Speaker 5: the system yet.

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Speaker 8: I think the pain trade probably is still a bit higher.

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Speaker 8: If you look at institutional speculators recently, they did hit

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Speaker 8: a pretty extreme short position in the S and P

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Speaker 8: five hundred that, by the way, hasn't always been a

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Speaker 8: contraring indicator. Sometimes they're sort of dead on, as was

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Speaker 8: the case in September of two thousand and seven. But

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Speaker 8: I do think some of the short term rallies that

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Speaker 8: we've seen in this market, particularly concentrated in January, did

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Speaker 8: represent a lot of short covering and the pain associated

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Speaker 8: with that. So there is still a decent amount of

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Speaker 8: bearish positioning and that could provide some support for the market.

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Speaker 8: But I also think the market has recently gotten a

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Speaker 8: little bit overbought, not to mention the fact that we've

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Speaker 8: reverted back short term anyway to a negative correlation between

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Speaker 8: bond yields and stock prices. So this recent move up

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Speaker 8: in bond yields has been met, certainly on a day

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Speaker 8: like today with a little bit more weakness in the

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Speaker 8: equity market, and I think that negative correlation is likely

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Speaker 8: to persist, maybe even in a secular way.

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Speaker 5: Wait, this is important lis in because a lot of

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Speaker 5: people are wondering, okay, can we go back to sixty forty.

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Speaker 5: Black Rock Investment Institute said please don't not yet, it

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Speaker 5: isn't time, And what you just pointed to what you

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Speaker 5: just said in terms of a secular change, would suggest

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Speaker 5: you agree.

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Speaker 8: So from the sixties to nineties, kind of mid to

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Speaker 8: late sixties to the mid to late nineties, you almost

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Speaker 8: the entire period, on a rolling one hundred and twenty

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Speaker 8: day basis, had a negative correlation between bond yields and

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Speaker 8: stock prices because that was an era of more inflation volatility,

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Speaker 8: so often when yields were going up, it was reflecting

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Speaker 8: inflation having been let out of the bag. Again negative

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Speaker 8: for the equity market. Then fast forward to the Great

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Speaker 8: Moderation era as coined by Larry Summers, basically the twenty

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Speaker 8: plus years heading into the pandemic, almost an entire period,

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Speaker 8: save for a brief period in two thousand and eight,

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Speaker 8: you had a positive correlation because even during that era,

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Speaker 8: when yields were going up, it was typically not reflecting

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Speaker 8: an inflation problem but stronger growth, positive for the equity market.

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Speaker 8: I think we're going back to that environment life the

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Speaker 8: thirty years prior to the Great Moderation, which is more

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Speaker 8: inflation volatility. That is not the same thing as saying

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Speaker 8: inflation is going to stay high in a secular way,

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Speaker 8: but just more volatility and inflation. And for the newbies

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Speaker 8: out there who haven't been around as long as I have,

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Speaker 8: it's just a different investing backdrop. It's not necessarily significantly worse,

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Speaker 8: it's just different relative to the air of the Great moderation.

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Speaker 1: The era we're in. Leazan and Schwab is a guilty

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Speaker 1: victim of this is selling us on index funds and

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Speaker 1: we're all indexed up to our eyeballs, and we're particularly

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Speaker 1: indexed up to broad indexes. Are we over indexed and

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Speaker 1: we have to go more specific narrow index or dare

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Speaker 1: I say, even individual stock selection.

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Speaker 8: So we've alwaysous the benefit of having both passive strategies

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Speaker 8: within a portfolio and active strategies. And as you all know,

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Speaker 8: last year was a year where active had its best

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Speaker 8: year relative to benchmarks since two thousand and five. And

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Speaker 8: I do think in general that the playing field is

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Speaker 8: getting more level, that active has the ability to operate

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Speaker 8: relative to passive in a beneficial way on like what

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Speaker 8: we have seen in the recent decade or two. And

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Speaker 8: I think in part that has to do with the

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Speaker 8: return of the risk free rate, the fact that when

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Speaker 8: you had rates at zero and negative in other parts

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Speaker 8: of the world. It kind of mucked with price discovery

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Speaker 8: and capital misallocation, and I think we are reconnecting fundamentals

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Speaker 8: to prices. And I think that that price discovery that

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Speaker 8: is allowed by the return of the risk free rate,

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Speaker 8: I think is to the benefit of active That does

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Speaker 8: not mean sell all your passive funds and you know,

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Speaker 8: become a stock picker. I think there's still a home

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Speaker 8: for both. But I think active managers are just operating

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Speaker 8: on a a better field right now in terms of

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Speaker 8: being able to outperform benchmarks.

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Speaker 4: Listen a clinic from you as a whites Thanks for

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Speaker 4: bamitis this morning. Lassan sounds a child swab on this

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Speaker 4: secuity market.

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Speaker 1: Right now. And this is a joy because Lisa and

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Speaker 1: I have no idea what we're talking about. It is

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Speaker 1: the guy who changed the airline business. Yes, it came

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Speaker 1: over to the United States, but more than anything, Michael

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Speaker 1: O'Leary is someone that the United Kingdom and all of

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Speaker 1: continental Europe knows. I learned this from my daughter the

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Speaker 1: first time she said, Dad, Dublin this weekend. For John Pharaoh,

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Speaker 1: it's simple. The flight he takes us from London is

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Speaker 1: it Luton? John?

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Speaker 4: How do you pronounce it, Lieutenant.

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Speaker 1: Luton Airport, Luten to Naples sixty eight dollars.

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Speaker 4: I can't remember visit Lutenant Stanstead. I think with Stansted

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Speaker 4: to Bari that's what we used to do.

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Speaker 1: Okay, there it is. Why don't you bring in mister

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Speaker 1: O'Leary since you've thrown five thousand times on ryanair.

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Speaker 4: Mach a, good morning, So let's talk about how business

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Speaker 4: is going, because in the United States we look at

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Speaker 4: some of the airlines here and things are booming. Is

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Speaker 4: it the same thing, Michael over in Europe?

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Speaker 6: Good morning guys, Yes, it is. It's booming and getting boom.

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Speaker 6: Your easy Jet to release quite an up, quite an

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Speaker 6: uptempo pre result statement yesterday. I'm afraid we have our

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Speaker 6: full year results at the end of May, so I'm

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Speaker 6: in a closed period. Can't comment other than what we

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Speaker 6: previously said. Is as we emerge out of COVID, demand

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Speaker 6: for air travel across Europe this year is very strong.

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Speaker 6: Pricing is rising. We're seeing the benefit of people going

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Speaker 6: back traveling all summer long, and there's an invasion of

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Speaker 6: Europe being I'm pleased tosable report being taken place by

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Speaker 6: Americans coming over here to play our golf courses, visit

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Speaker 6: our beaches, joining our cultural experiences. And I'm very pleased

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Speaker 6: to welcome the Bloomberg New Economy Gateway Conference here to

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Speaker 6: the Garden of Ireland in Wicklow this morning. Although I'm

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Speaker 6: suffering from hay fever, it's not a good day to

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Speaker 6: be in the Garden of Ireland.

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Speaker 4: Well, Michael, I'm sorry to miss you over in Ireland.

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Speaker 4: Let's pick up europe capacity. There is a frustration with

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Speaker 4: travelers in the United States. When's the capacity coming back

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Speaker 4: on so that we can get better airline fares and

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Speaker 4: we can be a little bit more comfortable my call.

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Speaker 4: How disciplined are you being about that?

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Speaker 6: We're not. We're taking as many aircraft as we can

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00:22:15,680 --> 00:22:18,480
Speaker 6: from Boeing this summer. We're going to be operating. We've

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00:22:18,480 --> 00:22:20,280
Speaker 6: planned to cary about one hundred and eighty five million

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00:22:20,320 --> 00:22:23,800
Speaker 6: passengers this year, which is up about thirty percent on

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00:22:23,880 --> 00:22:26,159
Speaker 6: our pre COVID numbers. So as soon as we can

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00:22:26,160 --> 00:22:28,880
Speaker 6: get the aircraft from Boeing, we're flying them. But overall,

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00:22:29,000 --> 00:22:31,399
Speaker 6: short old capacity in Europe will still be down around

443
00:22:31,400 --> 00:22:34,080
Speaker 6: five or ten percent on pre COVID capacity. Some of

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00:22:34,119 --> 00:22:36,879
Speaker 6: the European airlines have gone bus that Thomas Cookes flyve

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00:22:37,520 --> 00:22:40,800
Speaker 6: Alatalia Tap have only returned at half the size they

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00:22:40,840 --> 00:22:41,600
Speaker 6: previously were.

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00:22:41,800 --> 00:22:43,000
Speaker 3: Aircraft capacity in.

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00:22:42,960 --> 00:22:48,000
Speaker 6: Germany, where Lufthanse is doubling prices, is only operated eighty

449
00:22:48,040 --> 00:22:50,800
Speaker 6: percent of pre COVID. So capacity is a challenge, and

450
00:22:50,840 --> 00:22:53,359
Speaker 6: I think over the medium term, you know, the inability

451
00:22:53,400 --> 00:22:56,399
Speaker 6: of Airbus and Boeing to deliver any meaningful increase in

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00:22:56,440 --> 00:22:58,600
Speaker 6: production means I think capacity is going to continue to

453
00:22:58,640 --> 00:23:01,760
Speaker 6: be challenging for the next two three five years.

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00:23:02,520 --> 00:23:05,280
Speaker 1: Look where we are and amaze sitting on the runways.

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00:23:05,320 --> 00:23:08,760
Speaker 1: It's about a limitation of airports, whether it's continental Europe

456
00:23:08,840 --> 00:23:11,960
Speaker 1: or the United States, maybe even Asia, but there just

457
00:23:12,000 --> 00:23:15,000
Speaker 1: this doesn't seem to be enough airports and enough gates.

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00:23:15,280 --> 00:23:17,760
Speaker 1: Are you waking up every morning saying to yourself, we've

459
00:23:17,800 --> 00:23:21,879
Speaker 1: got to get the underlying infrastructure rebuilt for two thousand

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00:23:21,880 --> 00:23:22,399
Speaker 1: and thirty.

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00:23:23,160 --> 00:23:26,440
Speaker 6: No, I think it's a differential tom between the US

462
00:23:26,440 --> 00:23:29,879
Speaker 6: market and in Europe. In Europe there's many more airports available.

463
00:23:30,359 --> 00:23:32,520
Speaker 6: There is a focus on three the big hub airports

464
00:23:32,560 --> 00:23:35,200
Speaker 6: he throwed Paris and Frankfurt, Maine, which have never really

465
00:23:35,240 --> 00:23:36,040
Speaker 6: worked that efficiently.

466
00:23:36,080 --> 00:23:37,200
Speaker 4: Those hub and spoke.

467
00:23:37,000 --> 00:23:41,480
Speaker 6: Airports they're challenging, but there's lots of other airports, second

468
00:23:41,880 --> 00:23:45,320
Speaker 6: city airports and secondary airports at main cities, which essentially

469
00:23:45,320 --> 00:23:47,720
Speaker 6: where Ryanair flies to. The big challenge for US in

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00:23:47,760 --> 00:23:50,480
Speaker 6: Europe is air traffic control, which continues to be a mess.

471
00:23:51,080 --> 00:23:54,280
Speaker 6: The French air traffic controllers going on their recreational striking

472
00:23:54,400 --> 00:23:56,720
Speaker 6: two three times a week. The French, who's been on

473
00:23:56,840 --> 00:23:59,520
Speaker 6: service legislation to protect the French dimentiic flights and they

474
00:23:59,560 --> 00:24:03,119
Speaker 6: cancel the overflights. Okay, We've been calling repeatedly on the

475
00:24:03,119 --> 00:24:05,920
Speaker 6: European Commission or Sula vonder Lane to get do something

476
00:24:06,160 --> 00:24:08,800
Speaker 6: to protect overflights. So we don't have any issue with

477
00:24:08,800 --> 00:24:10,280
Speaker 6: the French going on strike, but if they're going to

478
00:24:10,280 --> 00:24:12,840
Speaker 6: go on strike in France, cancel the French flights and

479
00:24:12,920 --> 00:24:15,600
Speaker 6: leave the Spanish, the German and the Italian flights alone.

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00:24:15,760 --> 00:24:19,439
Speaker 5: As recreational striking takes up around Europe and frankly, probably globally,

481
00:24:19,480 --> 00:24:22,119
Speaker 5: I'm curious how much that JACKSCEP salaries and allows people

482
00:24:22,359 --> 00:24:24,480
Speaker 5: to observe some of the price increases that you've put

483
00:24:24,520 --> 00:24:27,159
Speaker 5: out there for Ryanair tickets, and we've seen pretty much

484
00:24:27,200 --> 00:24:29,440
Speaker 5: across the board. It is getting more expensive and people

485
00:24:29,480 --> 00:24:32,320
Speaker 5: are paying it without even thinking when does it become

486
00:24:32,359 --> 00:24:35,080
Speaker 5: too much? Have you sort of tested the barriers of

487
00:24:35,119 --> 00:24:36,520
Speaker 5: when people start pushing back.

488
00:24:37,200 --> 00:24:39,159
Speaker 6: I don't think, Lisa, we've tested the barriers. But I

489
00:24:39,240 --> 00:24:41,720
Speaker 6: mean it's a very unusual. I find myself in a

490
00:24:41,760 --> 00:24:44,480
Speaker 6: very unusual situation here in Europe. Everybody's talking all way

491
00:24:44,480 --> 00:24:48,480
Speaker 6: too long about energy crisis, consumer prices, rising interest rates,

492
00:24:48,560 --> 00:24:51,399
Speaker 6: Yet fundamentally we're dealing with an economy across you over

493
00:24:51,520 --> 00:24:54,480
Speaker 6: there's full employment. People are receiving their wages at the

494
00:24:54,560 --> 00:24:56,320
Speaker 6: end of every month, and they're spending money. I mean,

495
00:24:56,359 --> 00:24:58,560
Speaker 6: I think that it feels almost like I know what

496
00:24:58,560 --> 00:25:01,080
Speaker 6: the nineteen twenties were like after the Spanish Flu or

497
00:25:01,119 --> 00:25:03,040
Speaker 6: the First World War, but it's almost like people are

498
00:25:03,040 --> 00:25:06,440
Speaker 6: determined to spend and spend on travel in particular. I

499
00:25:06,520 --> 00:25:08,560
Speaker 6: think they're being locked up for two years with COVID

500
00:25:08,600 --> 00:25:11,439
Speaker 6: has driven people back to the beaches of Europe. People

501
00:25:11,560 --> 00:25:13,639
Speaker 6: have money and they are spending it. It is very

502
00:25:13,680 --> 00:25:16,600
Speaker 6: difficult to get a restaurant, reservation, a hotel or a

503
00:25:16,640 --> 00:25:19,280
Speaker 6: flight in Europe, and now Ryan Air is still offering

504
00:25:19,320 --> 00:25:21,440
Speaker 6: the lowest fares in every market in which we operate,

505
00:25:21,480 --> 00:25:24,320
Speaker 6: which is right across Europe. But even we're seeing our fares.

506
00:25:24,640 --> 00:25:28,359
Speaker 6: Last year we saw fares rise by fourteen fifteen percent.

507
00:25:28,760 --> 00:25:31,280
Speaker 6: We think this summer and I'm on record and say,

508
00:25:31,520 --> 00:25:33,400
Speaker 6: you know, I think it'll be maybe we might get

509
00:25:33,400 --> 00:25:36,480
Speaker 6: to double digit again, maybe ten percent increase in airfares.

510
00:25:36,880 --> 00:25:39,399
Speaker 6: But that's two years in a row of double digit

511
00:25:39,680 --> 00:25:43,119
Speaker 6: airfare increases. So people are spending. I think we're nowhere

512
00:25:43,119 --> 00:25:46,159
Speaker 6: near American level of airfars. You know, Southwest average fair

513
00:25:46,200 --> 00:25:48,159
Speaker 6: last year was about one hundred and ten bucks. Our

514
00:25:48,200 --> 00:25:50,720
Speaker 6: average fair last year was forty four euros. So it's

515
00:25:50,720 --> 00:25:53,280
Speaker 6: still much cheaper to fly in Europe, but there's no

516
00:25:53,320 --> 00:25:56,119
Speaker 6: doubt that it is getting a little bit more expensive,

517
00:25:56,320 --> 00:25:58,720
Speaker 6: particularly as we moved through the summer of twenty twenty three.

518
00:25:58,760 --> 00:26:01,240
Speaker 6: But remember this is the air industry, and when things

519
00:26:01,280 --> 00:26:03,520
Speaker 6: are going well, it means the next crisis is probably

520
00:26:03,520 --> 00:26:04,840
Speaker 6: about four days.

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Speaker 4: Away, Michael, or another strike. Michael, thank you for being

522
00:26:08,240 --> 00:26:11,199
Speaker 4: with us today, Michael Alarid Ryan as CEO.

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