Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: joins us now with Deutsche Banking. Away from your Arch
Speaker 1: recession call, you let on that among I think all
Speaker 1: of market economics, your call for interest rates is like
Speaker 1: Richard Claared is the former vice chair writing in The Economists, No,
Speaker 1: we're not going to get back to two percent, not
Speaker 1: back to one. But what does our world look like
Speaker 1: with an inflation that gets back to two point six
Speaker 1: three point two that kind of level the clarita level.
Speaker 2: Yeah, so I think that's closer to where we expect
Speaker 2: to be by the end of this year. We have
Speaker 2: corpse around three and a half percent. You know, that
Speaker 2: is a lot of progress from where we are today.
Speaker 2: I would agree with Governor Waller's comments recently that over
Speaker 2: the past year you've basically seen very little progress, and
Speaker 2: we can point to different components that have moved back
Speaker 2: and forth, but the reality is we haven't seen much
Speaker 2: progress over the past year. I think getting back down
Speaker 2: to three and a half percent for the FED that matters.
Speaker 3: In the context of what the labor market looks like.
Speaker 2: So if you still have a four percent or below
Speaker 2: unemployment rate, you have a FED where the FED funds
Speaker 2: rate is probably higher, certainly not as cutting rates, but
Speaker 2: if that's occurring within the context of a recession where
Speaker 2: the unoplunt rate has ers into four and a half
Speaker 2: for five percent, which is the context that we expect,
Speaker 2: is that that'll be what triggers the FED to be
Speaker 2: cutting rates there.
Speaker 1: And then to add that into your GDP call, do
Speaker 1: you have a diminished inflation a disinflation into a slowing
Speaker 1: real GDP level or quarter to quarter movement that gets
Speaker 1: us down to a new diminished nominal GDP?
Speaker 2: We do, you know, we have modestly positive growth in
Speaker 2: Q three, we have negative growth beginning in Q four
Speaker 2: into this the first half of next year.
Speaker 1: Sub four percent nominal GDP.
Speaker 2: It is when you add in where inflation is we
Speaker 2: only ape point six percent growth for this year, so
Speaker 2: it is sub four percent nominal GDP. But I think
Speaker 2: really for the Fed, it's, you know, the context of
Speaker 2: what is happening with the labor market.
Speaker 3: I think that's been the key area of debate.
Speaker 2: We've seen slowing there, but I think across most of
Speaker 2: the metrics, still four million more job openings and unplayed individuals.
Speaker 2: The private quits rate actually ticked up recently. The Atlanta
Speaker 2: Fed wage growth tracker hasn't shown any progress in coming down.
Speaker 3: I think that's really the crux for the Fed.
Speaker 4: A lot of people lean on the projections coming from
Speaker 4: the Federal Reserve, the Cordly SCP, the Summary of Economic projections.
Speaker 4: There's not much daylight between your rates call and their
Speaker 4: rates call for this year. In fact, there's no daylight
Speaker 4: at all. Where is the some daylight between you and
Speaker 4: the Federal Reserve when you look at that outlook, Yeah.
Speaker 2: I would note I think they've come a little bit
Speaker 2: closer to us over time, Yeah, and that too, but
Speaker 2: at the moment, there is, you know, for this year,
Speaker 2: very little daylight.
Speaker 3: There is greater daylight.
Speaker 2: Into twenty twenty four, and they have their path, which
Speaker 2: I think is this gradual cutting path under something that
Speaker 2: looks somewhat like a soft landing, even with the unployment
Speaker 2: rate rising by one percentage points, and they're just kind
Speaker 2: of gliding back towards neutral. Our expectations that they have
Speaker 2: to cut more aggressively that you get a recession the
Speaker 2: unployment rate rises. We have two hundred and twenty five
Speaker 2: basis points of cuts between Q one and Q three
Speaker 2: of next year. There is, you know, no doubt, a
Speaker 2: gap between us and where the FED is in the
Speaker 2: market at the moment by the end of the year,
Speaker 2: but that gap has been diminished. You know, we're at
Speaker 2: a four point six percent or so FED funds rate
Speaker 2: at the end of this year, and that seems quite
Speaker 2: reasonable to me within the context of, you know, you
Speaker 2: might have a recession beginning in Q four.
Speaker 5: Can you dove tell that idea of more aggressive rate
Speaker 5: cuts in twenty twenty four with what we've heard from
Speaker 5: the banks just now, which was supposed to be really
Speaker 5: telling from an economic perspective, we would finally know how
Speaker 5: bad this credit crunch or credit kurf, fufflow or whatever
Speaker 5: you want to call it was. Now we're living in
Speaker 5: this sort of like, man, what did we learn We're
Speaker 5: not sure. I mean, how much have you learned from this?
Speaker 3: Yeah, I think not much yet.
Speaker 2: You know, we're hearing from a lot of the larger banks,
Speaker 2: which were anticipated to be a beneficiary of some of
Speaker 2: the stress in the smaller and medium sized banks. In
Speaker 2: terms of of you know, the fed's H four and
Speaker 2: H eight data. We've seen decreasing stress in the Fed's
Speaker 2: balance sheet, which I think has been a positive. It's
Speaker 2: giving us some sense that we're beyond, hopefully beyond the
Speaker 2: acute phase of what's been hanging happening in the banking sector.
Speaker 2: But I think everybody's anticipating that we're still going to
Speaker 2: have this tightening of lending conditions, tightening of credit conditions
Speaker 2: that takes place.
Speaker 3: That reduces growth.
Speaker 2: That is part of our baseline expectation, but at the
Speaker 2: moment it's mostly scenario analysis. We really can't have a
Speaker 2: great idea of how much things are going to titan.
Speaker 2: We'll get the FED Senior Loan Officer Survey in early May.
Speaker 2: I expect that's going to be quite negative, just given
Speaker 2: when that was occurring, kind of around the peak stress
Speaker 2: that we were seeing going back.
Speaker 5: To twenty twenty four. In your belief that the Fed's
Speaker 5: going to cut much more aggressively. What's the threshold, what's
Speaker 5: the bar going to be for them to be more
Speaker 5: aggressive with rate cuts?
Speaker 2: Yeah, I think it's you know, are we seeing a
Speaker 2: recession take place? You know, their forecast for the unemployment
Speaker 2: rate is that it rises up to four point six
Speaker 2: percent and stays there. You don't ever really see that
Speaker 2: in a recession. You know, these things are nonlinear. If
Speaker 2: a rise fifty basis points, you get a recesion, it
Speaker 2: rises by at least two percentage points. And so I
Speaker 2: think if you have something that looks more like a
Speaker 2: typical recession, which is basically our forecast, you get a
Speaker 2: two percentage point rise in the unemployment rate, then I
Speaker 2: think we should expect that they will be cutting rates.
Speaker 2: I think they've been very clear they're not going to
Speaker 2: repeat the mistakes of the nineteen seventies the way that
Speaker 2: I would kind of view the mistakes of the nineteen seventies,
Speaker 2: where that they cut the real rate from very positive
Speaker 2: territory to very negative real territory very quickly. We don't
Speaker 2: expect them to do that this time around. They can
Speaker 2: cut rates pretty materially and still have a positive real
Speaker 2: FAED funds.
Speaker 4: Right, It's so unfair of me to ask this, But
Speaker 4: is that forecast a political forecast? Do you think there's
Speaker 4: a political element to it to say four point five
Speaker 4: year round four six four six, next two years? How
Speaker 4: much I'll phrase it differently because I know you've don't
Speaker 4: want answer this. How much political heat would they get
Speaker 4: if they were forecasting anything higher than four and a
Speaker 4: half percent and described exactly what you think is going
Speaker 4: to play out?
Speaker 2: Yeah, I don't know if it's as much politics as
Speaker 2: there's a confidence channel from how the Fed is forecasting things,
Speaker 2: and so they have a different role to play than
Speaker 2: I do. They can impact sentiment in the economy, They
Speaker 2: can impact I think overall confidence and therefore can impact
Speaker 2: what the actual outcome for the economy is. And so
Speaker 2: I think you know that should be viewed within that.
Speaker 2: You know, both their inflation forecast, but also what they're
Speaker 2: showing with the unemployment rate. It's notable, I think, nonetheless,
Speaker 2: that they're showing the unemployment rising as much as it has.
Speaker 2: It's notable that in the minutes the Fed staff you know,
Speaker 2: very clearly has a baseline mild recession. You know, these
Speaker 2: things don't happen very often from the Fed's perspective. So
Speaker 2: I think it is a commitment in showing that they
Speaker 2: are willing to take the necessary actions to get inflation down.
Speaker 4: So it's almost soros poper esque that you can shape
Speaker 4: the events you anticipate. It's almost something sol fulfilling about
Speaker 4: unemployment forecasts at a feder reserve.
Speaker 1: One of the best conversations I ever had was the
Speaker 1: younger George Soros talking about Carl Popper in the early
Speaker 1: nineteen fifties at LSE. This is economic epistol, homology, religion,
Speaker 1: I say at UCLA, and the ideas you get out
Speaker 1: front and then can you reframe things as you go along?
Speaker 1: That's the narratives reframing if you will.
Speaker 4: And Matt, this was smart, always says thought you. I
Speaker 4: thought we'd get there on a full cost. Here we
Speaker 4: are at the Federal Reserve. Matt, thank you.
Speaker 6: Right now.
Speaker 1: Gerard Cassidy joins us. He's been such a friend of
Speaker 1: the show to give us perspective across these many different
Speaker 1: types of banks, not all pooled together and gered. I
Speaker 1: want to start with a sentence buried in their very
Speaker 1: clear press release, which is all about Morgan Stanley all
Speaker 1: about what you and I have witnessed over decades. In
Speaker 1: all this turmoil, down down, down, down down, wealth Management
Speaker 1: moved from a five point nine billion revenue stream to
Speaker 1: six point six billion. Boy, Gerard, is that talk about
Speaker 1: why everybody wants to copy Morgan's Stanley?
Speaker 7: Tom, You're absolutely right. You know, the wealth management business
Speaker 7: is a more predictable, steady, any type of business versus
Speaker 7: the more volatile institutional business that you guys have been
Speaker 7: talking about. Tom, you mentioned about how amongst the investment
Speaker 7: banking revenues have declined, not just for Morgan Standing but
Speaker 7: for the group, but wealth management. You're right that differentiates
Speaker 7: well Morgan Standing from his peers, and under Gorman's leadership,
Speaker 7: he's the one that drove this over the last ten years.
Speaker 4: Jeff, we've had all the big banks report. Now who
Speaker 4: won the quarter?
Speaker 7: I would say that, you know, the JP Morgan numbers
Speaker 7: probably stand out out, John as winning the quarter. They
Speaker 7: certainly drove those numbers through that net interest revenue line.
Speaker 7: Certainly they also had you know, relatively decent capital markets businesses,
Speaker 7: but it was all against expectations. The numbers, as you
Speaker 7: guys have pointed out, relative to a year ago, is
Speaker 7: still very weak, especially in investment banking. But I'm going
Speaker 7: to put Jack Morgan at the top of the list.
Speaker 5: We've been focusing very closely on total deposits some of
Speaker 5: the regional banks here in Morgan Stanley reports first quotal
Speaker 5: total deposits been low. The estimate three hundred and forty
Speaker 5: seven point five billion versus the estimate of three hundred
Speaker 5: and fifty two point two billion. Does that matter or
Speaker 5: is this basically not a question? It's a rounding error
Speaker 5: that we don't have to pay attention to Gerrard, I think.
Speaker 7: It's I don't want to say we don't pay attention
Speaker 7: don't pay attention to it, since we pay attention to everything.
Speaker 7: But I think you're going down the right path least
Speaker 7: that it's not a material issue of deposits. We have
Speaker 7: to remember that, you know, the Feederal Reserve is implementing
Speaker 7: quantitative tightening with the intention of reducing deposits out of
Speaker 7: the banking system after they created over three trillion under QE.
Speaker 7: So the entire banking system is going to see their
Speaker 7: deposit shrink. And the real question is the mix of
Speaker 7: your deposits and the regional banks, and the big money
Speaker 7: center banks as well as Morgan's have good core consumer deposits,
Speaker 7: which are critical.
Speaker 5: What's going to be the profit driver at a firm
Speaker 5: like Morgan Stanley if investment banking doesn't pick back up,
Speaker 5: if you are seeing transactions in the capital markets atrophy.
Speaker 7: Yeah, Lisa, it's really the critical question for these investment banks.
Speaker 7: You know, it's out of their control, of course, in
Speaker 7: dictating how the market's going to behave in investment banking.
Speaker 7: So hopefully the first checkpoint will be monetary policy. The
Speaker 7: FED has to stop raising rates. So if we get
Speaker 7: to that terminal rate in the second quarter, hopefully the
Speaker 7: second half of the year, you'll see a pick up
Speaker 7: in the investment banking activity because it's a more stabled landscape.
Speaker 8: Ji Ed.
Speaker 1: I look at the twenty thirteen letter of Morgan Stanley
Speaker 1: written by mister Gorman, and there's a subtitle investing in
Speaker 1: our businesses, How's he advanced doing, How's he trade doing?
Speaker 1: And all the other things he pieced together to win
Speaker 1: wealth management in managing people's money.
Speaker 6: Tom.
Speaker 7: It's a very good point because they have not only
Speaker 7: grown organically, but inorganically through the acquisitions that you just
Speaker 7: identified and as we know in the asset management business,
Speaker 7: which is of course EAT, advanced economies of scale are critical.
Speaker 7: And so as they built their economies of scale, including
Speaker 7: their organic growth as well as other acquisitions in the
Speaker 7: asset management business, that has obviously helped them on the
Speaker 7: E trade. It's also given them a diversity of customers.
Speaker 7: As you know, E trade is more of a self
Speaker 7: directed product line versus the traditional Morgan Stanley wealth management business,
Speaker 7: so it diversifies their revenues and you have to give
Speaker 7: Gorman credit from doing those acquisitions.
Speaker 4: Just to wrap things up, just one question to you.
Speaker 4: We've asked this to investors, I'd love it from a
Speaker 4: bank countless just to answer it. Do you see the
Speaker 4: banking events of the last month as a one event
Speaker 4: that we can leave behind or the beginning of a
Speaker 4: process that leads to time of financial conditions? How does
Speaker 4: a bank can list answer that question?
Speaker 7: I you know, from the get go, John I was
Speaker 7: saying to myself it was a one off event, and
Speaker 7: the reason being is that those business models that Silicon
Speaker 7: Valley Signature had were so different. Now that doesn't mean
Speaker 7: we're not going to see somewhat tighter lending conditions, Not
Speaker 7: so much because of what happened in March, as it
Speaker 7: might be called March madness. It really has to do
Speaker 7: with what the outlook is for the economy. And as
Speaker 7: Jamie Diamond said on his call, you know it's not
Speaker 7: a credit crunch. Yes, maybe there's a thumb on the scale.
Speaker 7: But banks are into business to lend money at risk
Speaker 7: adjusted rates of return, and if they see good risk
Speaker 7: adjusted rates of return, they're going to lend money. So
Speaker 7: that's the real critical question, what is the outlook, Not
Speaker 7: necessarily what happened in March.
Speaker 4: Jared, thanks for bamb but it's so much through much
Speaker 4: match and ascent through aankful as well to break down
Speaker 4: somebody's earnings. JERRH. Cassidy of MBC Capital Market.
Speaker 1: Lizanne Saunders joins us now with Charles schraub Lizen. The
Speaker 1: clear and present for you is factor analysis. My problem
Speaker 1: is maybe I've got five ideas or ten ideas. Torsten
Speaker 1: Slock over to Apollo says, maybe there's twenty ideas. How
Speaker 1: do you find the twenty first security to own? I mean,
Speaker 1: it's just really difficult out there to do stock selection
Speaker 1: towards quality and positive free cash flow.
Speaker 8: Well, interestingly, the last couple of weeks you have seen
Speaker 8: a more definitive bias from a factor perspective toward and
Speaker 8: this may seem obvious, but it's finally working its way
Speaker 8: into factors. Is interest coverage? So and by the way,
Speaker 8: second to that would be strength of profit margins. So
Speaker 8: I think this is really a story of who can
Speaker 8: maintain profit margins in a declining nominal inflation environment, which
Speaker 8: had been a real support for pricing power. Now we're
Speaker 8: going to have to see who's actually got the pricing
Speaker 8: power and who can come cover that interest. But as
Speaker 8: we've always said, you can apply factor based screening across
Speaker 8: the spectrum of markets. Too many people think you have
Speaker 8: to start with a sector or two and then apply
Speaker 8: screening within You can find value characteristics or factors within
Speaker 8: stocks and areas that might be perceived as just in
Speaker 8: the growth area.
Speaker 1: What you just heard their folks bottle This is off
Speaker 1: of Tuo share Schande of the Massachusetts Institute of Technology
Speaker 1: a million years ago. I can't say enough about the
Speaker 1: need to go cross sector in analysis as within sector.
Speaker 1: This is gospel for me in Lizan. Okay, Lizanne, I've
Speaker 1: gone cross sectors. Let's go type two negative. What do
Speaker 1: I want to avoid?
Speaker 8: I think you want to avoid to some degree the opposite.
Speaker 8: You want to avoid the companies that are not self funding,
Speaker 8: the zombie companies that don't have the EBITDAH to cover
Speaker 8: interest expense, that can only fund their operations on the
Speaker 8: back of additional leverage. We had I think close to
Speaker 8: thirty percent of the Russell two thousand at one point
Speaker 8: last year could be classified as zombie. Are pretty close
Speaker 8: to zombie companies, So I would certainly avoid those, and
Speaker 8: you do get a lift like we saw in January
Speaker 8: down the quality spectrum in the nonprofitable area. But I
Speaker 8: think this is decidedly a place where you want to
Speaker 8: focus on what's deer, you know, positive earning to revisions,
Speaker 8: the interests covered, strength of balance sheet, high cash, low debt.
Speaker 8: The opposite represents where you want to avoid right now.
Speaker 5: Is the pain trade just higher even among some of
Speaker 5: these zombies at a time where a lot of people
Speaker 5: point to stimulus that hasn't been fully worked out of
Speaker 5: the system yet.
Speaker 8: I think the pain trade probably is still a bit higher.
Speaker 8: If you look at institutional speculators recently, they did hit
Speaker 8: a pretty extreme short position in the S and P
Speaker 8: five hundred that, by the way, hasn't always been a
Speaker 8: contraring indicator. Sometimes they're sort of dead on, as was
Speaker 8: the case in September of two thousand and seven. But
Speaker 8: I do think some of the short term rallies that
Speaker 8: we've seen in this market, particularly concentrated in January, did
Speaker 8: represent a lot of short covering and the pain associated
Speaker 8: with that. So there is still a decent amount of
Speaker 8: bearish positioning and that could provide some support for the market.
Speaker 8: But I also think the market has recently gotten a
Speaker 8: little bit overbought, not to mention the fact that we've
Speaker 8: reverted back short term anyway to a negative correlation between
Speaker 8: bond yields and stock prices. So this recent move up
Speaker 8: in bond yields has been met, certainly on a day
Speaker 8: like today with a little bit more weakness in the
Speaker 8: equity market, and I think that negative correlation is likely
Speaker 8: to persist, maybe even in a secular way.
Speaker 5: Wait, this is important lis in because a lot of
Speaker 5: people are wondering, okay, can we go back to sixty forty.
Speaker 5: Black Rock Investment Institute said please don't not yet, it
Speaker 5: isn't time, And what you just pointed to what you
Speaker 5: just said in terms of a secular change, would suggest
Speaker 5: you agree.
Speaker 8: So from the sixties to nineties, kind of mid to
Speaker 8: late sixties to the mid to late nineties, you almost
Speaker 8: the entire period, on a rolling one hundred and twenty
Speaker 8: day basis, had a negative correlation between bond yields and
Speaker 8: stock prices because that was an era of more inflation volatility,
Speaker 8: so often when yields were going up, it was reflecting
Speaker 8: inflation having been let out of the bag. Again negative
Speaker 8: for the equity market. Then fast forward to the Great
Speaker 8: Moderation era as coined by Larry Summers, basically the twenty
Speaker 8: plus years heading into the pandemic, almost an entire period,
Speaker 8: save for a brief period in two thousand and eight,
Speaker 8: you had a positive correlation because even during that era,
Speaker 8: when yields were going up, it was typically not reflecting
Speaker 8: an inflation problem but stronger growth, positive for the equity market.
Speaker 8: I think we're going back to that environment life the
Speaker 8: thirty years prior to the Great Moderation, which is more
Speaker 8: inflation volatility. That is not the same thing as saying
Speaker 8: inflation is going to stay high in a secular way,
Speaker 8: but just more volatility and inflation. And for the newbies
Speaker 8: out there who haven't been around as long as I have,
Speaker 8: it's just a different investing backdrop. It's not necessarily significantly worse,
Speaker 8: it's just different relative to the air of the Great moderation.
Speaker 1: The era we're in. Leazan and Schwab is a guilty
Speaker 1: victim of this is selling us on index funds and
Speaker 1: we're all indexed up to our eyeballs, and we're particularly
Speaker 1: indexed up to broad indexes. Are we over indexed and
Speaker 1: we have to go more specific narrow index or dare
Speaker 1: I say, even individual stock selection.
Speaker 8: So we've alwaysous the benefit of having both passive strategies
Speaker 8: within a portfolio and active strategies. And as you all know,
Speaker 8: last year was a year where active had its best
Speaker 8: year relative to benchmarks since two thousand and five. And
Speaker 8: I do think in general that the playing field is
Speaker 8: getting more level, that active has the ability to operate
Speaker 8: relative to passive in a beneficial way on like what
Speaker 8: we have seen in the recent decade or two. And
Speaker 8: I think in part that has to do with the
Speaker 8: return of the risk free rate, the fact that when
Speaker 8: you had rates at zero and negative in other parts
Speaker 8: of the world. It kind of mucked with price discovery
Speaker 8: and capital misallocation, and I think we are reconnecting fundamentals
Speaker 8: to prices. And I think that that price discovery that
Speaker 8: is allowed by the return of the risk free rate,
Speaker 8: I think is to the benefit of active That does
Speaker 8: not mean sell all your passive funds and you know,
Speaker 8: become a stock picker. I think there's still a home
Speaker 8: for both. But I think active managers are just operating
Speaker 8: on a a better field right now in terms of
Speaker 8: being able to outperform benchmarks.
Speaker 4: Listen a clinic from you as a whites Thanks for
Speaker 4: bamitis this morning. Lassan sounds a child swab on this
Speaker 4: secuity market.
Speaker 1: Right now. And this is a joy because Lisa and
Speaker 1: I have no idea what we're talking about. It is
Speaker 1: the guy who changed the airline business. Yes, it came
Speaker 1: over to the United States, but more than anything, Michael
Speaker 1: O'Leary is someone that the United Kingdom and all of
Speaker 1: continental Europe knows. I learned this from my daughter the
Speaker 1: first time she said, Dad, Dublin this weekend. For John Pharaoh,
Speaker 1: it's simple. The flight he takes us from London is
Speaker 1: it Luton? John?
Speaker 4: How do you pronounce it, Lieutenant.
Speaker 1: Luton Airport, Luten to Naples sixty eight dollars.
Speaker 4: I can't remember visit Lutenant Stanstead. I think with Stansted
Speaker 4: to Bari that's what we used to do.
Speaker 1: Okay, there it is. Why don't you bring in mister
Speaker 1: O'Leary since you've thrown five thousand times on ryanair.
Speaker 4: Mach a, good morning, So let's talk about how business
Speaker 4: is going, because in the United States we look at
Speaker 4: some of the airlines here and things are booming. Is
Speaker 4: it the same thing, Michael over in Europe?
Speaker 6: Good morning guys, Yes, it is. It's booming and getting boom.
Speaker 6: Your easy Jet to release quite an up, quite an
Speaker 6: uptempo pre result statement yesterday. I'm afraid we have our
Speaker 6: full year results at the end of May, so I'm
Speaker 6: in a closed period. Can't comment other than what we
Speaker 6: previously said. Is as we emerge out of COVID, demand
Speaker 6: for air travel across Europe this year is very strong.
Speaker 6: Pricing is rising. We're seeing the benefit of people going
Speaker 6: back traveling all summer long, and there's an invasion of
Speaker 6: Europe being I'm pleased tosable report being taken place by
Speaker 6: Americans coming over here to play our golf courses, visit
Speaker 6: our beaches, joining our cultural experiences. And I'm very pleased
Speaker 6: to welcome the Bloomberg New Economy Gateway Conference here to
Speaker 6: the Garden of Ireland in Wicklow this morning. Although I'm
Speaker 6: suffering from hay fever, it's not a good day to
Speaker 6: be in the Garden of Ireland.
Speaker 4: Well, Michael, I'm sorry to miss you over in Ireland.
Speaker 4: Let's pick up europe capacity. There is a frustration with
Speaker 4: travelers in the United States. When's the capacity coming back
Speaker 4: on so that we can get better airline fares and
Speaker 4: we can be a little bit more comfortable my call.
Speaker 4: How disciplined are you being about that?
Speaker 6: We're not. We're taking as many aircraft as we can
Speaker 6: from Boeing this summer. We're going to be operating. We've
Speaker 6: planned to cary about one hundred and eighty five million
Speaker 6: passengers this year, which is up about thirty percent on
Speaker 6: our pre COVID numbers. So as soon as we can
Speaker 6: get the aircraft from Boeing, we're flying them. But overall,
Speaker 6: short old capacity in Europe will still be down around
Speaker 6: five or ten percent on pre COVID capacity. Some of
Speaker 6: the European airlines have gone bus that Thomas Cookes flyve
Speaker 6: Alatalia Tap have only returned at half the size they
Speaker 6: previously were.
Speaker 3: Aircraft capacity in.
Speaker 6: Germany, where Lufthanse is doubling prices, is only operated eighty
Speaker 6: percent of pre COVID. So capacity is a challenge, and
Speaker 6: I think over the medium term, you know, the inability
Speaker 6: of Airbus and Boeing to deliver any meaningful increase in
Speaker 6: production means I think capacity is going to continue to
Speaker 6: be challenging for the next two three five years.
Speaker 1: Look where we are and amaze sitting on the runways.
Speaker 1: It's about a limitation of airports, whether it's continental Europe
Speaker 1: or the United States, maybe even Asia, but there just
Speaker 1: this doesn't seem to be enough airports and enough gates.
Speaker 1: Are you waking up every morning saying to yourself, we've
Speaker 1: got to get the underlying infrastructure rebuilt for two thousand
Speaker 1: and thirty.
Speaker 6: No, I think it's a differential tom between the US
Speaker 6: market and in Europe. In Europe there's many more airports available.
Speaker 6: There is a focus on three the big hub airports
Speaker 6: he throwed Paris and Frankfurt, Maine, which have never really
Speaker 6: worked that efficiently.
Speaker 4: Those hub and spoke.
Speaker 6: Airports they're challenging, but there's lots of other airports, second
Speaker 6: city airports and secondary airports at main cities, which essentially
Speaker 6: where Ryanair flies to. The big challenge for US in
Speaker 6: Europe is air traffic control, which continues to be a mess.
Speaker 6: The French air traffic controllers going on their recreational striking
Speaker 6: two three times a week. The French, who's been on
Speaker 6: service legislation to protect the French dimentiic flights and they
Speaker 6: cancel the overflights. Okay, We've been calling repeatedly on the
Speaker 6: European Commission or Sula vonder Lane to get do something
Speaker 6: to protect overflights. So we don't have any issue with
Speaker 6: the French going on strike, but if they're going to
Speaker 6: go on strike in France, cancel the French flights and
Speaker 6: leave the Spanish, the German and the Italian flights alone.
Speaker 5: As recreational striking takes up around Europe and frankly, probably globally,
Speaker 5: I'm curious how much that JACKSCEP salaries and allows people
Speaker 5: to observe some of the price increases that you've put
Speaker 5: out there for Ryanair tickets, and we've seen pretty much
Speaker 5: across the board. It is getting more expensive and people
Speaker 5: are paying it without even thinking when does it become
Speaker 5: too much? Have you sort of tested the barriers of
Speaker 5: when people start pushing back.
Speaker 6: I don't think, Lisa, we've tested the barriers. But I
Speaker 6: mean it's a very unusual. I find myself in a
Speaker 6: very unusual situation here in Europe. Everybody's talking all way
Speaker 6: too long about energy crisis, consumer prices, rising interest rates,
Speaker 6: Yet fundamentally we're dealing with an economy across you over
Speaker 6: there's full employment. People are receiving their wages at the
Speaker 6: end of every month, and they're spending money. I mean,
Speaker 6: I think that it feels almost like I know what
Speaker 6: the nineteen twenties were like after the Spanish Flu or
Speaker 6: the First World War, but it's almost like people are
Speaker 6: determined to spend and spend on travel in particular. I
Speaker 6: think they're being locked up for two years with COVID
Speaker 6: has driven people back to the beaches of Europe. People
Speaker 6: have money and they are spending it. It is very
Speaker 6: difficult to get a restaurant, reservation, a hotel or a
Speaker 6: flight in Europe, and now Ryan Air is still offering
Speaker 6: the lowest fares in every market in which we operate,
Speaker 6: which is right across Europe. But even we're seeing our fares.
Speaker 6: Last year we saw fares rise by fourteen fifteen percent.
Speaker 6: We think this summer and I'm on record and say,
Speaker 6: you know, I think it'll be maybe we might get
Speaker 6: to double digit again, maybe ten percent increase in airfares.
Speaker 6: But that's two years in a row of double digit
Speaker 6: airfare increases. So people are spending. I think we're nowhere
Speaker 6: near American level of airfars. You know, Southwest average fair
Speaker 6: last year was about one hundred and ten bucks. Our
Speaker 6: average fair last year was forty four euros. So it's
Speaker 6: still much cheaper to fly in Europe, but there's no
Speaker 6: doubt that it is getting a little bit more expensive,
Speaker 6: particularly as we moved through the summer of twenty twenty three.
Speaker 6: But remember this is the air industry, and when things
Speaker 6: are going well, it means the next crisis is probably
Speaker 6: about four days.
Speaker 4: Away, Michael, or another strike. Michael, thank you for being
Speaker 4: with us today, Michael Alarid Ryan as CEO.
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