WEBVTT - Delta Predicts $2 Billion Fuel Hit With CEO Cautious on Outlook 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. You're listening to the

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<v Speaker 2>Getting back to the stock market earnings coming in here,

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<v Speaker 2>we had Delta put up some decent numbers. You're better

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<v Speaker 2>than decent numbers, and a stock's trading up about seven

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<v Speaker 2>and a half percent here today. So we want to

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<v Speaker 2>break it down what it means for Delta, what it

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<v Speaker 2>means for the airlines, how are they dealing with higher

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<v Speaker 2>fuel costs, and what it might look like as we

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<v Speaker 2>get ready for the summer travel season. George Ferguson helps

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<v Speaker 2>us out here. He's a senior aerospace, defense and airlines analyst,

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<v Speaker 2>amateur sailor as well for Bloomberg Intelligence.

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<v Speaker 3>Joining us in Princeton.

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<v Speaker 2>George, what'd you learned today from Delta?

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<v Speaker 4>Well, I guess what we learned first is that as

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<v Speaker 4>we inspected, capacity probably has to come out of this market.

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<v Speaker 4>I think if fuel prices stay where they are, the

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<v Speaker 4>airlines all have to drive affares higher and at higher fares,

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<v Speaker 4>you're going to have to start to cut capacity. Delta

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<v Speaker 4>was adding some of the least capacity in two Q.

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<v Speaker 4>We were looking at Syrium databases to get sort of

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<v Speaker 4>total number of seats they're adding to their network. They're

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<v Speaker 4>adding a little bit less than two percent. So they're

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<v Speaker 4>talking about going to zero growth in two Q and

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<v Speaker 4>not be able to recoup all of what they need

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<v Speaker 4>in fares to get profitability back to what it was

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<v Speaker 4>last year. The challenge here will be American growing at

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<v Speaker 4>three percent according to Syrium, and United growing at eight

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<v Speaker 4>ish nine percent, high single digits. So interesting to see

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<v Speaker 4>what their competitors say about knocking capacity out of the

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<v Speaker 4>marketplace to try to get pricing power.

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<v Speaker 5>Air What does that effort usually look like, George, when

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<v Speaker 5>they reduce capacity? Is it I assume it's not from

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<v Speaker 5>the most profitable routes, but you know, maybe some routes

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<v Speaker 5>that are less frequently used or is it regional routes

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<v Speaker 5>how or does every airline approach this differently?

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<v Speaker 4>I think you're I think you've got it right right.

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<v Speaker 4>The Delta already talked about that on the call as well.

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<v Speaker 4>They'll start to knock out the least profitable routes, right,

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<v Speaker 4>And we would imagine that means routes where you're competing

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<v Speaker 4>against you know, one of your rivals in the marketplace,

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<v Speaker 4>and so the consumer gets less choice and then ends

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<v Speaker 4>up having to pay a bit more. Uh, you know,

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<v Speaker 4>I think Look, I think some of their international routes

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<v Speaker 4>are performing pretty well. They talked about strength into into

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<v Speaker 4>Europe still so maybe not much out of there. They

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<v Speaker 4>talked about weakness in New Mexico, especially with some of

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<v Speaker 4>the unrest we've seen around Mexico, so we'd probably see

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<v Speaker 4>cuts in there. And my guess is they'll look at

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<v Speaker 4>the domestic market pretty closely and look where they're flying

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<v Speaker 4>against competitors and decide what they want to pull and

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<v Speaker 4>what they want to keep.

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<v Speaker 2>George to the stent that the airlines are trying to

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<v Speaker 2>pass along some of their higher fuel costs to customers.

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<v Speaker 2>What's the price elasticity of a US flyer these days?

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<v Speaker 4>That's that's pretty challenging, right. I think that the price

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<v Speaker 4>elasticity is going to be less for Delta America and

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<v Speaker 4>United with a premium flyer. And if you look at

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<v Speaker 4>Delta's results, they were, you know, the basic cabin was

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<v Speaker 4>getting the least amount of capacity gains and fares were

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<v Speaker 4>starting to turn positive in that basic cabin, but their

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<v Speaker 4>premium cabins are where, or premium seating is where they're

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<v Speaker 4>showing some of the bigger gains. So I think their

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<v Speaker 4>elasticity on those premium seats is a lot lower than

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<v Speaker 4>the elasticity on that basic seat. So what does that mean.

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<v Speaker 4>That means is we get into earning season and we

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<v Speaker 4>get into these carriers that are carrying a lot more

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<v Speaker 4>economy passengers. I'm more concerned about their earning in this

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<v Speaker 4>quarter and going forward, but there's clearly some elasticity on

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<v Speaker 4>the premium seats as well.

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<v Speaker 5>George, we heard from Delta that they've quantified the cost

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<v Speaker 5>of higher fuel through June at more than two billion dollars,

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<v Speaker 5>and last month they saw a four hundred million dollars

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<v Speaker 5>spike in fuel costs in just the first two weeks

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<v Speaker 5>of March. Nevertheless, Delta, sticking with its full yar forecast.

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<v Speaker 5>If oil stays at these levels and does not return

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<v Speaker 5>to its pre war levels of seventy dollars a barrel,

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<v Speaker 5>do you expect an updated outlook from Delta.

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<v Speaker 4>That's a good question, right, They've pulled the full year now,

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<v Speaker 4>I think if the volatility stays where it is right now,

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<v Speaker 4>Delta is going to be reticent to give you, you know,

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<v Speaker 4>sort of full year guidance. Even the guidance for two

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<v Speaker 4>Q it looks, you know, it's it's it's got some

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<v Speaker 4>pretty decent wide variations on it, so you can see that,

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<v Speaker 4>you know, I think they're reticent to give you even

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<v Speaker 4>a lot on the quarter. I mean, you know, fuel

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<v Speaker 4>prices here, we just doubled fuel prices in what a month,

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<v Speaker 4>a month and a half in that environment, and that's

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<v Speaker 4>one of the most important expenses for an airline. Last year,

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<v Speaker 4>it would have been, you know, in the similar quarter

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<v Speaker 4>have been something like fifteen percent of Delta revenue. Now

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<v Speaker 4>it's going to be thirty percent consumed by fuel. When

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<v Speaker 4>fuel is bouncing around at these levels of volatility, I

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<v Speaker 4>think they're going to be really hard pressed to want

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<v Speaker 4>to give you full of your guidance or sort of increase,

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<v Speaker 4>you know, the tightness of their guidance.

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<v Speaker 3>Stay with us. More from Bloomberg Intelligence coming up after this.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us Live

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<v Speaker 1>weekdays at ten am Eastern on Apple corplay and Android

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<v Speaker 1>auto with the Bloomberg Business App. Listen on demand wherever

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<v Speaker 5>All right, Mary Ross Gilbert is our senior equity analyst

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<v Speaker 5>covering retail, and we want to get to some earnings.

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<v Speaker 5>It's not often that you have a retail company come

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<v Speaker 5>out with earnings at this point in the earning season,

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<v Speaker 5>but every once in a while it does happen.

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<v Speaker 3>So, yeah, the retailers are usually a month late.

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<v Speaker 5>They're usually a monthly, and then they're off schedule with

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<v Speaker 5>what the rest of the companies are doing. Right now,

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<v Speaker 5>let's talk about Levi's right now, because Levi's has boosted

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<v Speaker 5>its outlook, it's direct to consumer strategy appears to be

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<v Speaker 5>paying off. Mary, tell us a little bit more about

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<v Speaker 5>what we've learned about Levi's when it comes to its outlook.

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<v Speaker 6>Yeah, So, when it comes to its outlook, and when

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<v Speaker 6>you think about the beat in the quarter and what

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<v Speaker 6>the company said on their earnings call, is that the

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<v Speaker 6>beat was really driven by the wholesale side of the business,

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<v Speaker 6>clearly direct to consumer led growth, you know, was up

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<v Speaker 6>double digits, up about ten percent. But when you look

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<v Speaker 6>at the wholesale business that was very strong in the quarter,

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<v Speaker 6>and because of that, that's where they got sort of

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<v Speaker 6>the beat there. But I think that the company has

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<v Speaker 6>always done a very good job managing investor expectations. We

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<v Speaker 6>completely expected a beaten raise. And the great news about Levi's,

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<v Speaker 6>I think, is because last year they exited the Denizen business,

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<v Speaker 6>so this was sort of it's kind of like a

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<v Speaker 6>private brand that they had with Target. They also exited Dockers,

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<v Speaker 6>so they really got out of businesses that were really

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<v Speaker 6>dragging down the top line. And so now what you

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<v Speaker 6>have left is really Levi's and beyond Yoga, and it's

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<v Speaker 6>a great global brand. Resonates well. They have forty six

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<v Speaker 6>million loyalty customers. They picked up over two million just

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<v Speaker 6>in the first quarter alone, so you're seeing real strength here.

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<v Speaker 6>Their campaigns are incredible. I'm sure you saw the Behind

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<v Speaker 6>Every Original which debuted at the Super Bowl, so it's fabulous.

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<v Speaker 6>Features doech among other stars in that campaign, and it's

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<v Speaker 6>going to be a multi.

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<v Speaker 3>Year drop.

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<v Speaker 6>That's kind of like what they did with the Beyonce campaign,

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<v Speaker 6>where you have these series of campaigns and they're really

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<v Speaker 6>they're so fun.

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<v Speaker 2>All Right, The TV show Love Story, John F. Kennedy

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<v Speaker 2>Junior and Carolyn Bessett. How did does that relate the Levis?

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<v Speaker 6>Yeah, so because the character in that film was wearing

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<v Speaker 6>five seventeen Levis and also and you know this is

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<v Speaker 6>sort of another brand, but Calvin Klein, and so because

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<v Speaker 6>of that, it's kind of really ignited sales there too.

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<v Speaker 6>So anytime you can get these benefits, you know organically,

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<v Speaker 6>For example, Harry Styles, we wore it, you know, at

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<v Speaker 6>an awards show along with all the dancers to War

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<v Speaker 6>five oh ones. So he wore five O ones and

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<v Speaker 6>they all wore five O ones. So I mean it's

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<v Speaker 6>at the hart of culture if you look around. I

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<v Speaker 6>was at the golf club Friday night and I saw

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<v Speaker 6>this very stylish young lady wearing Levi's jeans with heels

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<v Speaker 6>and you know, a beautiful blouse, and it's like wow.

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<v Speaker 6>So yeah, that's kind of everywhere.

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<v Speaker 5>As Alexis was reminding us, the nineties are back, and

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<v Speaker 5>it's a Levi's five seventeen the men's boot cut jeans

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<v Speaker 5>that Carolyn Bessett Kennedy, or the character portraying Carolyn Bassett

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<v Speaker 5>Kennedy was wearing. We should mention as well that the

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<v Speaker 5>CEO of Levi's will be on Bloomberg Business Week this afternoon.

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<v Speaker 5>Michelle Gass will be speaking with Tim Senovik and Krol Masser,

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<v Speaker 5>so be sure to tune.

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<v Speaker 3>In for that.

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<v Speaker 5>Yeah, Mary, these kinds of pop culture sparked, you know,

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<v Speaker 5>trends for certain genes. How long do they last for?

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<v Speaker 3>Is this something just for this quarter?

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<v Speaker 5>It cann't go on for a while?

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<v Speaker 6>Oh no, this can go on for a while. And actually,

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<v Speaker 6>Levis is known for their campaigns over many decades. You

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<v Speaker 6>can go back several decades and find some absolutely amazing

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<v Speaker 6>campaigns that the brand has done. So they've always been

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<v Speaker 6>focused on being right at the center of culture. That's

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<v Speaker 6>sort of the language or the ethos that they always

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<v Speaker 6>talk about, and they've always been successful doing that. So, yes,

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<v Speaker 6>this is going to continue to go on, you know, forever, really,

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<v Speaker 6>and all the other brands are getting involved.

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<v Speaker 3>Stay with us. More from Bloomberg Intelligence coming up after this.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

0:10:26.440 --> 0:10:29.160
<v Speaker 1>weekdays at ten am. He's done on Apple, Cocklay and

0:10:29.160 --> 0:10:32.440
<v Speaker 1>Android Auto with the Bloomberg Business app. Listen on demand

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<v Speaker 2>Twenty twenty six is expected to be a year where

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<v Speaker 2>there's going to be some huge IPOs coming out of

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<v Speaker 2>AI in particular, but also arguably the biggest of all

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<v Speaker 2>time is going to be Elon Musk and SpaceX. That's

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<v Speaker 2>come up, folks. Max chaffickin he follows all things Elon.

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<v Speaker 2>He's a Bloomberg Business Week senior reporter. He's in San

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<v Speaker 2>Francisco here today. Max, what's the latest on potential IPO

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<v Speaker 2>of SpaceX?

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<v Speaker 7>Right? So, this was a confidential IPO filing last week

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<v Speaker 7>from SpaceX, Elon Musk's rocket company, which is now also

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<v Speaker 7>Elon Musk's AI company, because in February he merged SpaceX

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<v Speaker 7>with Xai, which is which owns Twitter but also makes

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<v Speaker 7>the chatbot at Chatbot that is competitive with Anthropic and

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<v Speaker 7>Open AI. And what is happening right now is bankers

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<v Speaker 7>from SpaceX are shopping this thing, trying to take the temperature,

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<v Speaker 7>and the idea is to get this out very quickly.

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<v Speaker 7>You know, they're talking about as early as June and

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<v Speaker 7>at valuations that are very high. You know, we've seen

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<v Speaker 7>a bunch of different reports. But earlier this week Bloomberg

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<v Speaker 7>said that in some cases talking about valuations over to trillion,

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<v Speaker 7>you know, putting that in perspective, it would make SpaceX,

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<v Speaker 7>you know, one of the most valuable companies.

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<v Speaker 3>In the world.

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<v Speaker 7>We are going to see some other big IPOs, and

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<v Speaker 7>I don't think we know for sure which one will

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<v Speaker 7>be the biggest anthropic A lot of good news coming

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<v Speaker 7>out of that company lately. They are trying to go

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<v Speaker 7>public and open AI as well. So it's kind of

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<v Speaker 7>a race between these three companies to get out first

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<v Speaker 7>and go biggest.

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<v Speaker 3>What do we know, Max about the financials of Spacexi.

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<v Speaker 7>Well, we know a little bit because all those SpaceX

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<v Speaker 7>is a private company. It's been private for a very

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<v Speaker 7>long time. They've done tender offers, the stock has or

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<v Speaker 7>the equity has traded on secondary markets. This is the

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<v Speaker 7>company that has done pretty well reports suggesting that and

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<v Speaker 7>Bloomberg Intelligence estimates suggesting revenues just under twenty billion dollars,

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<v Speaker 7>mostly coming from Starlink, that is the satellite internet business

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<v Speaker 7>that SpaceX operates. You also have a significant revenue coming

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<v Speaker 7>from government contracts. AX provides launches for the US government

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<v Speaker 7>now at two trillion dollars. Though this is it's a

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<v Speaker 7>very small company to be worth two trillion dollars, So

0:13:08.760 --> 0:13:12.400
<v Speaker 7>most of the valuation is going to come essentially from

0:13:12.400 --> 0:13:14.920
<v Speaker 7>the future, which is how Elon Musk always likes it.

0:13:15.240 --> 0:13:20.440
<v Speaker 7>The latest story from Musk is data centers in space exactly.

0:13:21.080 --> 0:13:25.520
<v Speaker 3>How about control here? Elon Musk is he going to

0:13:25.960 --> 0:13:28.760
<v Speaker 3>probably keep control of this company? Is there maybe a

0:13:28.800 --> 0:13:30.320
<v Speaker 3>super voting stock being discussed.

0:13:31.679 --> 0:13:34.560
<v Speaker 7>I believe they're talking about super voting, although not one

0:13:34.640 --> 0:13:37.160
<v Speaker 7>hundred percent sure on that one. And the truth is

0:13:37.200 --> 0:13:40.199
<v Speaker 7>it doesn't really matter. Elon Musk doesn't have super voting

0:13:41.080 --> 0:13:43.960
<v Speaker 7>with Tesla, but he does control it. Because of the

0:13:44.280 --> 0:13:47.960
<v Speaker 7>kind of unique relationship Elon Musk has with his investors,

0:13:48.120 --> 0:13:50.920
<v Speaker 7>My assumption is he will get control. He's been fighting

0:13:51.080 --> 0:13:54.720
<v Speaker 7>for control with Tesla, whether it's through super voting shares

0:13:54.880 --> 0:13:58.000
<v Speaker 7>or some other mechanism. But yes, the expectation is he

0:13:58.080 --> 0:14:00.760
<v Speaker 7>is going to run the company as the you know,

0:14:00.880 --> 0:14:04.319
<v Speaker 7>sole ceo soul decider, just as it is in Tesla.

0:14:04.559 --> 0:14:05.640
<v Speaker 2>Is there you know?

0:14:05.679 --> 0:14:07.479
<v Speaker 3>I guess among Tesla investors.

0:14:07.760 --> 0:14:12.040
<v Speaker 2>There's also the hope or potential that Spacexi, once it

0:14:12.120 --> 0:14:15.079
<v Speaker 2>is public, will just roll up and buy Tesla and

0:14:15.120 --> 0:14:18.320
<v Speaker 2>put all of Elon's toys in one place.

0:14:19.120 --> 0:14:20.080
<v Speaker 3>What are you hearing about that?

0:14:21.600 --> 0:14:25.400
<v Speaker 7>Yeah, I think that is widely regarded not just among

0:14:25.800 --> 0:14:28.880
<v Speaker 7>kind of Tesla investors, not just among Elon Musk's fans,

0:14:28.920 --> 0:14:31.440
<v Speaker 7>but you know also people who are looking at SpaceX

0:14:31.480 --> 0:14:36.800
<v Speaker 7>ipio as a strong possibility, partly because Musk has kind

0:14:36.800 --> 0:14:40.960
<v Speaker 7>of hinted at that this data center in space plan

0:14:41.320 --> 0:14:45.640
<v Speaker 7>involves a massive chip fab, the so called terrafab, which

0:14:45.800 --> 0:14:49.280
<v Speaker 7>yesterday Elon Musk announced a partnership with Intel, big American

0:14:49.360 --> 0:14:54.240
<v Speaker 7>chip maker, that is a SpaceX Tesla joint venture. You

0:14:54.360 --> 0:14:58.480
<v Speaker 7>also have this situation where the shareholder bases are going

0:14:58.560 --> 0:15:02.880
<v Speaker 7>to be pretty similar, so SpaceX is IPO. They're talking

0:15:02.880 --> 0:15:05.520
<v Speaker 7>about as as much as thirty percent, maybe even more

0:15:05.920 --> 0:15:09.320
<v Speaker 7>retail shareholders. That's a lot of retail shareholders. That's the

0:15:10.040 --> 0:15:13.600
<v Speaker 7>kind of Elon Musk fan community. Those are, of course

0:15:13.640 --> 0:15:17.880
<v Speaker 7>the same people that hold space Tesla shares. So you know,

0:15:18.440 --> 0:15:21.200
<v Speaker 7>I think one risk here is a question of do

0:15:21.240 --> 0:15:24.400
<v Speaker 7>they have enough money? Are there enough of those people

0:15:24.720 --> 0:15:27.160
<v Speaker 7>to bid up both stocks or are you going to

0:15:27.240 --> 0:15:30.600
<v Speaker 7>see people selling Tesla shares maybe to buy SpaceX shares

0:15:30.640 --> 0:15:33.920
<v Speaker 7>something like that, And so you could imagine arguments for hey,

0:15:34.000 --> 0:15:37.320
<v Speaker 7>it'd be simpler. This same CEO, we're kind of pushing

0:15:37.320 --> 0:15:39.680
<v Speaker 7>in the same direction, which is AI. Why not just

0:15:39.760 --> 0:15:43.080
<v Speaker 7>put them together. This will get very messy if Elon

0:15:43.160 --> 0:15:46.920
<v Speaker 7>Musk actually tries to pull this off, because even though

0:15:47.160 --> 0:15:50.600
<v Speaker 7>Tesla is controlled by Elon Musk, there's still a lot

0:15:50.600 --> 0:15:52.960
<v Speaker 7>of shareholders that you know, this would be this would

0:15:53.000 --> 0:15:56.080
<v Speaker 7>be controversial, be a mega inside transaction. There would be

0:15:56.160 --> 0:15:58.320
<v Speaker 7>questions about valuation. So I think a lot of things

0:15:58.320 --> 0:16:00.119
<v Speaker 7>would have to fall into place for that to actually.

0:16:00.760 --> 0:16:05.440
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