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Speaker 2: Getting back to the stock market earnings coming in here,
Speaker 2: we had Delta put up some decent numbers. You're better
Speaker 2: than decent numbers, and a stock's trading up about seven
Speaker 2: and a half percent here today. So we want to
Speaker 2: break it down what it means for Delta, what it
Speaker 2: means for the airlines, how are they dealing with higher
Speaker 2: fuel costs, and what it might look like as we
Speaker 2: get ready for the summer travel season. George Ferguson helps
Speaker 2: us out here. He's a senior aerospace, defense and airlines analyst,
Speaker 2: amateur sailor as well for Bloomberg Intelligence.
Speaker 3: Joining us in Princeton.
Speaker 2: George, what'd you learned today from Delta?
Speaker 4: Well, I guess what we learned first is that as
Speaker 4: we inspected, capacity probably has to come out of this market.
Speaker 4: I think if fuel prices stay where they are, the
Speaker 4: airlines all have to drive affares higher and at higher fares,
Speaker 4: you're going to have to start to cut capacity. Delta
Speaker 4: was adding some of the least capacity in two Q.
Speaker 4: We were looking at Syrium databases to get sort of
Speaker 4: total number of seats they're adding to their network. They're
Speaker 4: adding a little bit less than two percent. So they're
Speaker 4: talking about going to zero growth in two Q and
Speaker 4: not be able to recoup all of what they need
Speaker 4: in fares to get profitability back to what it was
Speaker 4: last year. The challenge here will be American growing at
Speaker 4: three percent according to Syrium, and United growing at eight
Speaker 4: ish nine percent, high single digits. So interesting to see
Speaker 4: what their competitors say about knocking capacity out of the
Speaker 4: marketplace to try to get pricing power.
Speaker 5: Air What does that effort usually look like, George, when
Speaker 5: they reduce capacity? Is it I assume it's not from
Speaker 5: the most profitable routes, but you know, maybe some routes
Speaker 5: that are less frequently used or is it regional routes
Speaker 5: how or does every airline approach this differently?
Speaker 4: I think you're I think you've got it right right.
Speaker 4: The Delta already talked about that on the call as well.
Speaker 4: They'll start to knock out the least profitable routes, right,
Speaker 4: And we would imagine that means routes where you're competing
Speaker 4: against you know, one of your rivals in the marketplace,
Speaker 4: and so the consumer gets less choice and then ends
Speaker 4: up having to pay a bit more. Uh, you know,
Speaker 4: I think Look, I think some of their international routes
Speaker 4: are performing pretty well. They talked about strength into into
Speaker 4: Europe still so maybe not much out of there. They
Speaker 4: talked about weakness in New Mexico, especially with some of
Speaker 4: the unrest we've seen around Mexico, so we'd probably see
Speaker 4: cuts in there. And my guess is they'll look at
Speaker 4: the domestic market pretty closely and look where they're flying
Speaker 4: against competitors and decide what they want to pull and
Speaker 4: what they want to keep.
Speaker 2: George to the stent that the airlines are trying to
Speaker 2: pass along some of their higher fuel costs to customers.
Speaker 2: What's the price elasticity of a US flyer these days?
Speaker 4: That's that's pretty challenging, right. I think that the price
Speaker 4: elasticity is going to be less for Delta America and
Speaker 4: United with a premium flyer. And if you look at
Speaker 4: Delta's results, they were, you know, the basic cabin was
Speaker 4: getting the least amount of capacity gains and fares were
Speaker 4: starting to turn positive in that basic cabin, but their
Speaker 4: premium cabins are where, or premium seating is where they're
Speaker 4: showing some of the bigger gains. So I think their
Speaker 4: elasticity on those premium seats is a lot lower than
Speaker 4: the elasticity on that basic seat. So what does that mean.
Speaker 4: That means is we get into earning season and we
Speaker 4: get into these carriers that are carrying a lot more
Speaker 4: economy passengers. I'm more concerned about their earning in this
Speaker 4: quarter and going forward, but there's clearly some elasticity on
Speaker 4: the premium seats as well.
Speaker 5: George, we heard from Delta that they've quantified the cost
Speaker 5: of higher fuel through June at more than two billion dollars,
Speaker 5: and last month they saw a four hundred million dollars
Speaker 5: spike in fuel costs in just the first two weeks
Speaker 5: of March. Nevertheless, Delta, sticking with its full yar forecast.
Speaker 5: If oil stays at these levels and does not return
Speaker 5: to its pre war levels of seventy dollars a barrel,
Speaker 5: do you expect an updated outlook from Delta.
Speaker 4: That's a good question, right, They've pulled the full year now,
Speaker 4: I think if the volatility stays where it is right now,
Speaker 4: Delta is going to be reticent to give you, you know,
Speaker 4: sort of full year guidance. Even the guidance for two
Speaker 4: Q it looks, you know, it's it's it's got some
Speaker 4: pretty decent wide variations on it, so you can see that,
Speaker 4: you know, I think they're reticent to give you even
Speaker 4: a lot on the quarter. I mean, you know, fuel
Speaker 4: prices here, we just doubled fuel prices in what a month,
Speaker 4: a month and a half in that environment, and that's
Speaker 4: one of the most important expenses for an airline. Last year,
Speaker 4: it would have been, you know, in the similar quarter
Speaker 4: have been something like fifteen percent of Delta revenue. Now
Speaker 4: it's going to be thirty percent consumed by fuel. When
Speaker 4: fuel is bouncing around at these levels of volatility, I
Speaker 4: think they're going to be really hard pressed to want
Speaker 4: to give you full of your guidance or sort of increase,
Speaker 4: you know, the tightness of their guidance.
Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: All right, Mary Ross Gilbert is our senior equity analyst
Speaker 5: covering retail, and we want to get to some earnings.
Speaker 5: It's not often that you have a retail company come
Speaker 5: out with earnings at this point in the earning season,
Speaker 5: but every once in a while it does happen.
Speaker 3: So, yeah, the retailers are usually a month late.
Speaker 5: They're usually a monthly, and then they're off schedule with
Speaker 5: what the rest of the companies are doing. Right now,
Speaker 5: let's talk about Levi's right now, because Levi's has boosted
Speaker 5: its outlook, it's direct to consumer strategy appears to be
Speaker 5: paying off. Mary, tell us a little bit more about
Speaker 5: what we've learned about Levi's when it comes to its outlook.
Speaker 6: Yeah, So, when it comes to its outlook, and when
Speaker 6: you think about the beat in the quarter and what
Speaker 6: the company said on their earnings call, is that the
Speaker 6: beat was really driven by the wholesale side of the business,
Speaker 6: clearly direct to consumer led growth, you know, was up
Speaker 6: double digits, up about ten percent. But when you look
Speaker 6: at the wholesale business that was very strong in the quarter,
Speaker 6: and because of that, that's where they got sort of
Speaker 6: the beat there. But I think that the company has
Speaker 6: always done a very good job managing investor expectations. We
Speaker 6: completely expected a beaten raise. And the great news about Levi's,
Speaker 6: I think, is because last year they exited the Denizen business,
Speaker 6: so this was sort of it's kind of like a
Speaker 6: private brand that they had with Target. They also exited Dockers,
Speaker 6: so they really got out of businesses that were really
Speaker 6: dragging down the top line. And so now what you
Speaker 6: have left is really Levi's and beyond Yoga, and it's
Speaker 6: a great global brand. Resonates well. They have forty six
Speaker 6: million loyalty customers. They picked up over two million just
Speaker 6: in the first quarter alone, so you're seeing real strength here.
Speaker 6: Their campaigns are incredible. I'm sure you saw the Behind
Speaker 6: Every Original which debuted at the Super Bowl, so it's fabulous.
Speaker 6: Features doech among other stars in that campaign, and it's
Speaker 6: going to be a multi.
Speaker 3: Year drop.
Speaker 6: That's kind of like what they did with the Beyonce campaign,
Speaker 6: where you have these series of campaigns and they're really
Speaker 6: they're so fun.
Speaker 2: All Right, The TV show Love Story, John F. Kennedy
Speaker 2: Junior and Carolyn Bessett. How did does that relate the Levis?
Speaker 6: Yeah, so because the character in that film was wearing
Speaker 6: five seventeen Levis and also and you know this is
Speaker 6: sort of another brand, but Calvin Klein, and so because
Speaker 6: of that, it's kind of really ignited sales there too.
Speaker 6: So anytime you can get these benefits, you know organically,
Speaker 6: For example, Harry Styles, we wore it, you know, at
Speaker 6: an awards show along with all the dancers to War
Speaker 6: five oh ones. So he wore five O ones and
Speaker 6: they all wore five O ones. So I mean it's
Speaker 6: at the hart of culture if you look around. I
Speaker 6: was at the golf club Friday night and I saw
Speaker 6: this very stylish young lady wearing Levi's jeans with heels
Speaker 6: and you know, a beautiful blouse, and it's like wow.
Speaker 6: So yeah, that's kind of everywhere.
Speaker 5: As Alexis was reminding us, the nineties are back, and
Speaker 5: it's a Levi's five seventeen the men's boot cut jeans
Speaker 5: that Carolyn Bessett Kennedy, or the character portraying Carolyn Bassett
Speaker 5: Kennedy was wearing. We should mention as well that the
Speaker 5: CEO of Levi's will be on Bloomberg Business Week this afternoon.
Speaker 5: Michelle Gass will be speaking with Tim Senovik and Krol Masser,
Speaker 5: so be sure to tune.
Speaker 3: In for that.
Speaker 5: Yeah, Mary, these kinds of pop culture sparked, you know,
Speaker 5: trends for certain genes. How long do they last for?
Speaker 3: Is this something just for this quarter?
Speaker 5: It cann't go on for a while?
Speaker 6: Oh no, this can go on for a while. And actually,
Speaker 6: Levis is known for their campaigns over many decades. You
Speaker 6: can go back several decades and find some absolutely amazing
Speaker 6: campaigns that the brand has done. So they've always been
Speaker 6: focused on being right at the center of culture. That's
Speaker 6: sort of the language or the ethos that they always
Speaker 6: talk about, and they've always been successful doing that. So, yes,
Speaker 6: this is going to continue to go on, you know, forever, really,
Speaker 6: and all the other brands are getting involved.
Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 2: Twenty twenty six is expected to be a year where
Speaker 2: there's going to be some huge IPOs coming out of
Speaker 2: AI in particular, but also arguably the biggest of all
Speaker 2: time is going to be Elon Musk and SpaceX. That's
Speaker 2: come up, folks. Max chaffickin he follows all things Elon.
Speaker 2: He's a Bloomberg Business Week senior reporter. He's in San
Speaker 2: Francisco here today. Max, what's the latest on potential IPO
Speaker 2: of SpaceX?
Speaker 7: Right? So, this was a confidential IPO filing last week
Speaker 7: from SpaceX, Elon Musk's rocket company, which is now also
Speaker 7: Elon Musk's AI company, because in February he merged SpaceX
Speaker 7: with Xai, which is which owns Twitter but also makes
Speaker 7: the chatbot at Chatbot that is competitive with Anthropic and
Speaker 7: Open AI. And what is happening right now is bankers
Speaker 7: from SpaceX are shopping this thing, trying to take the temperature,
Speaker 7: and the idea is to get this out very quickly.
Speaker 7: You know, they're talking about as early as June and
Speaker 7: at valuations that are very high. You know, we've seen
Speaker 7: a bunch of different reports. But earlier this week Bloomberg
Speaker 7: said that in some cases talking about valuations over to trillion,
Speaker 7: you know, putting that in perspective, it would make SpaceX,
Speaker 7: you know, one of the most valuable companies.
Speaker 3: In the world.
Speaker 7: We are going to see some other big IPOs, and
Speaker 7: I don't think we know for sure which one will
Speaker 7: be the biggest anthropic A lot of good news coming
Speaker 7: out of that company lately. They are trying to go
Speaker 7: public and open AI as well. So it's kind of
Speaker 7: a race between these three companies to get out first
Speaker 7: and go biggest.
Speaker 3: What do we know, Max about the financials of Spacexi.
Speaker 7: Well, we know a little bit because all those SpaceX
Speaker 7: is a private company. It's been private for a very
Speaker 7: long time. They've done tender offers, the stock has or
Speaker 7: the equity has traded on secondary markets. This is the
Speaker 7: company that has done pretty well reports suggesting that and
Speaker 7: Bloomberg Intelligence estimates suggesting revenues just under twenty billion dollars,
Speaker 7: mostly coming from Starlink, that is the satellite internet business
Speaker 7: that SpaceX operates. You also have a significant revenue coming
Speaker 7: from government contracts. AX provides launches for the US government
Speaker 7: now at two trillion dollars. Though this is it's a
Speaker 7: very small company to be worth two trillion dollars, So
Speaker 7: most of the valuation is going to come essentially from
Speaker 7: the future, which is how Elon Musk always likes it.
Speaker 7: The latest story from Musk is data centers in space exactly.
Speaker 3: How about control here? Elon Musk is he going to
Speaker 3: probably keep control of this company? Is there maybe a
Speaker 3: super voting stock being discussed.
Speaker 7: I believe they're talking about super voting, although not one
Speaker 7: hundred percent sure on that one. And the truth is
Speaker 7: it doesn't really matter. Elon Musk doesn't have super voting
Speaker 7: with Tesla, but he does control it. Because of the
Speaker 7: kind of unique relationship Elon Musk has with his investors,
Speaker 7: My assumption is he will get control. He's been fighting
Speaker 7: for control with Tesla, whether it's through super voting shares
Speaker 7: or some other mechanism. But yes, the expectation is he
Speaker 7: is going to run the company as the you know,
Speaker 7: sole ceo soul decider, just as it is in Tesla.
Speaker 2: Is there you know?
Speaker 3: I guess among Tesla investors.
Speaker 2: There's also the hope or potential that Spacexi, once it
Speaker 2: is public, will just roll up and buy Tesla and
Speaker 2: put all of Elon's toys in one place.
Speaker 3: What are you hearing about that?
Speaker 7: Yeah, I think that is widely regarded not just among
Speaker 7: kind of Tesla investors, not just among Elon Musk's fans,
Speaker 7: but you know also people who are looking at SpaceX
Speaker 7: ipio as a strong possibility, partly because Musk has kind
Speaker 7: of hinted at that this data center in space plan
Speaker 7: involves a massive chip fab, the so called terrafab, which
Speaker 7: yesterday Elon Musk announced a partnership with Intel, big American
Speaker 7: chip maker, that is a SpaceX Tesla joint venture. You
Speaker 7: also have this situation where the shareholder bases are going
Speaker 7: to be pretty similar, so SpaceX is IPO. They're talking
Speaker 7: about as as much as thirty percent, maybe even more
Speaker 7: retail shareholders. That's a lot of retail shareholders. That's the
Speaker 7: kind of Elon Musk fan community. Those are, of course
Speaker 7: the same people that hold space Tesla shares. So you know,
Speaker 7: I think one risk here is a question of do
Speaker 7: they have enough money? Are there enough of those people
Speaker 7: to bid up both stocks or are you going to
Speaker 7: see people selling Tesla shares maybe to buy SpaceX shares
Speaker 7: something like that, And so you could imagine arguments for hey,
Speaker 7: it'd be simpler. This same CEO, we're kind of pushing
Speaker 7: in the same direction, which is AI. Why not just
Speaker 7: put them together. This will get very messy if Elon
Speaker 7: Musk actually tries to pull this off, because even though
Speaker 7: Tesla is controlled by Elon Musk, there's still a lot
Speaker 7: of shareholders that you know, this would be this would
Speaker 7: be controversial, be a mega inside transaction. There would be
Speaker 7: questions about valuation. So I think a lot of things
Speaker 7: would have to fall into place for that to actually.
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