Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: Terminal and the Bloomberg Business App. Loura Rang of FS
Speaker 2: Investments is with us alongside SoC Gen's Savanter Rishappa. Laura,
Speaker 2: let's start with you your reaction to this date. You've
Speaker 2: had five minutes to chew over it. What stands out
Speaker 2: for you?
Speaker 3: So you know, we've had now sort of four months
Speaker 3: of unfriendly inflation data and growth really continuing to surprise
Speaker 3: with the outside. Today's got to be a huge relief
Speaker 3: because some of the early numbers for April will really
Speaker 3: con firmed by this broader look and this broader data.
Speaker 3: So you know, this is a more Davis report. I
Speaker 3: feel like you have to acknowledge that I do notice
Speaker 3: the slow down and spending, especially the real spending. We're
Speaker 3: starting to get data for Q two, and you know,
Speaker 3: you tease that going into this.
Speaker 4: But we had a you know, still.
Speaker 3: Peeling back the headline number of Q one. The underlying
Speaker 3: data was fairly strong. I think we're now waiting to
Speaker 3: see how Q two shapes up. So far looks like
Speaker 3: it's also going to be a little bit slower. I
Speaker 3: think the landing maybe really sort of orchestrated in Q two.
Speaker 2: Sabatra is that landing insight.
Speaker 5: We think that the Fed's going to stay on hold
Speaker 5: for the for the domain of the year, and this
Speaker 5: data point doesn't really push this. No sense of urgency
Speaker 5: I think from the Fed with the inflation starting to
Speaker 5: ease up, you know, growth is starting to come down.
Speaker 5: But we heard from Williams yesterday and he's expecting growth
Speaker 5: in the context of two to two and a half
Speaker 5: percent for this year. Inflation core PC heading towards two
Speaker 5: and a half percent of the end of the year.
Speaker 5: There's really no urgency for the FED to cut rates
Speaker 5: anytime this year. We see the earliest had Web looking
Speaker 5: for the Fed to cut rates is after the elections
Speaker 5: of the December meeting if the data requires them to
Speaker 5: do so, but.
Speaker 1: Subadra on the margins, given the fact that this isn't
Speaker 1: necessarily a game changer, but it does confirm this idea
Speaker 1: that maybe the this inflationary trend is back on track.
Speaker 1: Does that give you more conviction actually with some of
Speaker 1: your closely held beliefs, this idea that you should buy bonds,
Speaker 1: particularly the longer end, and then inflation will come down
Speaker 1: and then essentially we will essentially normalize.
Speaker 5: You know, you can buy bonds in the long end,
Speaker 5: but it's really much more attracted to hold front end
Speaker 5: treasuries because the yields are way more attractive.
Speaker 4: And that's exactly what you're seeing investors.
Speaker 5: I mean, you're seeing AUMs in money market funds at
Speaker 5: six trillion. Money is going into the very front end
Speaker 5: of the yeal curve just because returns look very, very attractive,
Speaker 5: and the yeal curve is in and I think that
Speaker 5: that trend is here to stay until we know that
Speaker 5: the Fed is going to be cutting rates aggressively. And
Speaker 5: this is really when it gets a little bit tricky
Speaker 5: for me, because you look at the policy path that's
Speaker 5: priced in the markets. You're looking at very few cuts
Speaker 5: between now and the middle of next year, So you're
Speaker 5: looking at less than one hundred basis points of cuts
Speaker 5: by the middle of next year. So that still argues
Speaker 5: for investors to continue to plow money into the very
Speaker 5: front under the yolk of not so much in the long.
Speaker 1: End, Laura, this raises this sort of larger question, which
Speaker 1: is doesn't really matter if the Fed cuts rates once, right,
Speaker 1: I mean, it's sort of this is the issue that
Speaker 1: we have with the ECV as well. Are people looking
Speaker 1: for evidence of a real slowdown that it could lead
Speaker 1: to a protracted rate cutting cycle based on what we're
Speaker 1: seeing now? Does this data go anywhere near beginning to
Speaker 1: move us in that direction?
Speaker 3: Yeah, and maybe I'll take that question a slightly different direction,
Speaker 3: because I agree, you know, twenty five basis points, especially
Speaker 3: given where we are at over five and a quarter,
Speaker 3: is not going to move the needle tremendously on interest
Speaker 3: rate sensitive sectors of the economy. I think the question
Speaker 3: to me is, you know, we're probably not focused enough
Speaker 3: on growth, which has been so strong at three percent,
Speaker 3: Expectations of higher growth are now so built into markets.
Speaker 6: Nominal GDPP growth of.
Speaker 3: Six percent turns out is enough to power equities higher,
Speaker 3: even though rate cut expectations have been ratcheted very far back.
Speaker 3: So going forward, if that slows to five percent, you know,
Speaker 3: this isn't a big slowdown. But I think, you know,
Speaker 3: we need to pay attention to the fact that so
Speaker 3: much growth is priced into earnings expectations, and there's so
Speaker 3: much optimism price in to markets. The two way risk
Speaker 3: on growth numbers are now really significant. We haven't seen
Speaker 3: that in a year and a half.
Speaker 2: Laura, before we run away with the conversation about growth,
Speaker 2: can we just sit on inflation just for one beat longer.
Speaker 2: You've been saying for a while that we'd get stuck
Speaker 2: around three percent, you're rethinking that.
Speaker 7: Not.
Speaker 3: I still think that at the end of the year,
Speaker 3: we're going to see rent for inflation pressures continue to
Speaker 3: creep back up, and I think we're going to see
Speaker 3: the inflationary process really stuck around three percent. I don't
Speaker 3: think that stops the FED from cutting it. The economy
Speaker 3: slows a lot, but I think it makes it very
Speaker 3: hard to maneuver in a place where we're still growing
Speaker 3: at two two and a half percent.
Speaker 2: Mohammed dal Erin has been on this program and he
Speaker 2: talks about stackflation rewins. Lara, are you thinking about stackflation
Speaker 2: rewins at the back end of this year?
Speaker 3: You know, today the economy looks really solid. I'm not
Speaker 3: too worried about it because business investment is going to
Speaker 3: ratchet back up again. I think we're in a good
Speaker 3: place for the economy. I'm trying not to overthink it
Speaker 3: too much.
Speaker 2: It's about you we overthinking it when you say no
Speaker 2: rate cuts this year and you're looking at inflation. What
Speaker 2: does growth look like at the backhand of twenty four.
Speaker 5: Probably going to gradually slow down as we progress through
Speaker 5: the remainder of the year.
Speaker 4: We're not overthinking it.
Speaker 5: I think the simplest path is for the Fed to
Speaker 5: stay on hold for the remainder of the year, instead
Speaker 5: of kind of the conundrum that the ECBs and right now,
Speaker 5: where you know, the market's pricing in for a June
Speaker 5: cut and then the debate on whether they're going to
Speaker 5: cut again in July, whether they're going to cut again
Speaker 5: in September. So the sort of volatility of expectations is
Speaker 5: really what's confusing investors.
Speaker 4: So to me, a very straightforward.
Speaker 5: Path is for the Fed to stay on hold for
Speaker 5: as long as they possibly can, and then embark on
Speaker 5: maybe a cut a quarter or some sort of a
Speaker 5: very steady path of rate cuts from then on.
Speaker 4: As opposed to this back.
Speaker 1: And forth, Laura really raised this two pronged idea of
Speaker 1: both inflation and then this idea of growth.
Speaker 4: And what happens if you.
Speaker 1: Start moving out of the inflation being offset by strong
Speaker 1: growth to maybe not ciflation, but inflation not being offset
Speaker 1: as much subadri Does that make you, if there is
Speaker 1: clear slowing in growth, clear growing and spending, a little
Speaker 1: less sanguine about riskier securities within fixed income just because
Speaker 1: you both have rates on hold still enough inflation to
Speaker 1: make the Fed nervous, but it economily just doesn't have
Speaker 1: the same kind of juice in it.
Speaker 4: Yeah.
Speaker 5: Because of that, That's one of the reasons why we
Speaker 5: think that that across the yield curve, yields are going
Speaker 5: to struggle to get about that five percent level.
Speaker 4: Two year above five percent is.
Speaker 5: Going to require a much more, you know, different stance
Speaker 5: from policy. The Fed either has to hike or not
Speaker 5: cut for the next couple of years, and for the
Speaker 5: tenure to get about five percent, the market is always
Speaker 5: going to be looking towards growth slowing down in the
Speaker 5: second half, and that's really going to cap the rise
Speaker 5: and yields. So even though we've had these discussions about
Speaker 5: our star and whether our start is a lot higher
Speaker 5: and whether you know, debt and deficits start to matter,
Speaker 5: I really think that the focus at LEEDS for the
Speaker 5: second half is going to be on the slowdown and growth,
Speaker 5: and that's going to really cap the rize and yields.
Speaker 5: Ten yearls are going to struggle to get to five
Speaker 5: percent this time around.
Speaker 4: Where are you on the our star debate?
Speaker 5: You know, there's a case to be made a very
Speaker 5: sympathetic to the comments we've had from both Bill Dudley
Speaker 5: as well as Lori Logan that maybe our star is
Speaker 5: a lot higher at least a short term our star
Speaker 5: might be higher than what we're hearing from FED President Williams.
Speaker 4: But the question is how can.
Speaker 5: The FED actually act on that, because what they really
Speaker 5: need to see is the data support a higher our star.
Speaker 5: So we'll find out in maybe three to four years
Speaker 5: where our star is today. It's really hard to know
Speaker 5: where it is right now as it stands.
Speaker 1: And Laura, this sort of goes to this framework of
Speaker 1: it's hard to know where the end zone is going
Speaker 1: to be. Also, just in inflation, as Jean was mentioning,
Speaker 1: you think inflation is going to.
Speaker 4: Remain stuck at around three percent? What would you have
Speaker 4: to see to rethink that.
Speaker 1: We have Neil data coming out this morning with a
Speaker 1: note after this data came out just saying every month
Speaker 1: this year, see month of a month core inflation lower
Speaker 1: than the same month and twenty twenty three. What happens
Speaker 1: if this patterns holds into the summer, is that something
Speaker 1: that could make you rethink this idea of three percent
Speaker 1: is sort of the sticky for inflation.
Speaker 3: I think to me, the problem is that we really
Speaker 3: are don't We don't remember how much everything had to
Speaker 3: go perfectly to get inflation at two percent. You know,
Speaker 3: today we've got commodity prices really moving higher. I think
Speaker 3: rents are going to reaccelerate. Ironically, high FED you know,
Speaker 3: really restrictive FED policy has stopped home construction, which is
Speaker 3: what's needed to help, you know, unravel this whole real
Speaker 3: estate sort of stagnation and stuck at higher prices environment
Speaker 3: that we're in. You know, long story short, when you
Speaker 3: put it all together, we may well you know, see
Speaker 3: inflation dip a little bit lower.
Speaker 4: But I think my forecast is a.
Speaker 3: Longer run problem of stubborn inflation above two percent. Kind
Speaker 3: of the mirror image of where we were for the
Speaker 3: five years before COVID stuck below two percent.
Speaker 2: I always feel like it was regulating us. Thank you.
Speaker 2: They always feel personal. Those ails totally sent amounts of client.
Speaker 2: I'm just saying, yeah, I feel like the census directly,
Speaker 2: it feels like.
Speaker 1: He watches us and then scripes the screen when I speak.
Speaker 1: You have no idea what you're talking about, Primo.
Speaker 2: Just saying, which is basically what he's done on this
Speaker 2: program before.
Speaker 4: That's right, that's our friends.
Speaker 2: Apparently, I kind of believe that. Let's look ahead to
Speaker 2: next week ECP next Thursday. Then we get the payrolls
Speaker 2: report in our survey right now, keep giving you a
Speaker 2: sneak peek. Here's the latest. One eighty one hundred and
Speaker 2: eighty thousand is the meeting estimate in our survey. Previous
Speaker 2: number one seventy five. So Patrick, can we talk about
Speaker 2: next week both the ECP and a payrolls report, And
Speaker 2: let's start with payrolls and we'll finish on the European
Speaker 2: Central Bank in a couple of minutes. What are you
Speaker 2: looking for from that report next Friday.
Speaker 5: So our economists actually have a slightly higher forecast, if
Speaker 5: you will, for apparerolls than the consensus. So I wouldn't
Speaker 5: be surprised if you get a two hundred thousand inch number.
Speaker 5: The unemployment rate is going to stay below four percent
Speaker 5: for perhaps the remainder of the year. So very strong
Speaker 5: employment report is again what we're expecting for next week.
Speaker 5: But if there's any missus, that's when the market's going
Speaker 5: to react. The market's going to shrug off an upside surprise,
Speaker 5: I think, Laura.
Speaker 4: Do you agree, Yeah, I agree.
Speaker 3: The market seems to have happy ears right now. They
Speaker 3: want the rake huts. That's the news that they react
Speaker 3: to you more than you know, anything that would sort
Speaker 3: of push those back, you know, at the end of
Speaker 3: the day, when we look ahead to rate cuts and
Speaker 3: when that could happen, we're starting to push up against
Speaker 3: the election calendar. I think we're just going to kind
Speaker 3: of give up the gost slowly on a rate cut
Speaker 3: before the election and really focus on those December you know,
Speaker 3: maybe November meeting.
Speaker 2: I'm not sure. Dan investors have happy ears, but I
Speaker 2: get your point, Lara Rang of FS Investments, Lara, thank
Speaker 2: you for that. So Bato, I just wanted to give
Speaker 2: you the final word on the ECP. Big conversation around
Speaker 2: this table about central bank divergence, the limits of that divergence,
Speaker 2: how far can this ECP go without a federal reserve.
Speaker 5: So I think our European economy is set it best,
Speaker 5: which is its data independence.
Speaker 4: I mean, FED and the ECB is already.
Speaker 5: Committed to cutting rates in June, and they're going to
Speaker 5: do it even though the inflation data that we got,
Speaker 5: you know, recently, doesn't really justify them to cut rates
Speaker 5: in June. The question really becomes what happened what comes
Speaker 5: after that? And to me, what you know really dictates
Speaker 5: the price action and the bar market is divergence between
Speaker 5: the ECB and the freend. I think that that's going
Speaker 5: to keep rates between the US and Europe diverging as well,
Speaker 5: because the Fed's going to stay on hold for the
Speaker 5: remainder of the year and the ECB is going to
Speaker 5: still be biased towards cutting rates.
Speaker 2: We came into this week saying it was going.
Speaker 4: To kind of be a sleepy week. You can make
Speaker 4: your argument about whether it was or wasn't for next week.
Speaker 1: It's going to be actually massive when it comes to
Speaker 1: both the Jolts data the payrolls we've got. Of course,
Speaker 1: the ECB excise about I'm excited.
Speaker 4: Yeah, yeh, I'm excited.
Speaker 1: So I just want to know what you're most excited
Speaker 1: about of all these potential data points, the ISM data
Speaker 1: we get, manufacturing and services.
Speaker 4: So i'd start with JOLTS.
Speaker 5: I mean, if you look at the job openings, we
Speaker 5: really want to see that head towards that pre pandemic
Speaker 5: level relative to the number of unemployed. So that's a
Speaker 5: very important first metric on jobs. Beyond that, i'd be
Speaker 5: looking to hear from the ECB and what they're thinking
Speaker 5: about policy, not just for June but beyond for the
Speaker 5: remainder of the year, and then payrolls PAEROLS is very
Speaker 5: very important, and whether we keep that momentum that we've
Speaker 5: had throughout this year is going to inform us on
Speaker 5: whether the FED is going to look at perhaps cutting
Speaker 5: rates in July or September, which is not our base case,
Speaker 5: but that's something that we'd be looking towards. The FED
Speaker 5: really wants to see the job market cool off as
Speaker 5: inflation is coming down as a justification to cut rates,
Speaker 5: and they want to see that data.
Speaker 2: So often we are hitting the grand running in the
Speaker 2: monthitude Sam stowfull of CFRRA writing this, It's been rumored
Speaker 2: the between Memorial Day and Labor Day investors focus more
Speaker 2: on their tands than their portfolios. The S and P
Speaker 2: five hundred gained and average of only one point six
Speaker 2: percent in price between these two holidays since nineteen forty five.
Speaker 2: Instead of experiencing these summertime blues, it frequently enjoys a
Speaker 2: summertime snooze. Sam joins us now for more and hopefully
Speaker 2: Samue'll wake us up a little bit more than that, Sam,
Speaker 2: what do you rafflicating for?
Speaker 6: Then?
Speaker 2: For clients through the rest of this summer to sit back,
Speaker 2: chill and ignore everything.
Speaker 7: Well, good morning, Jonathan.
Speaker 8: I think certainly there's a lot of reasons why one
Speaker 8: might say that this Memorial Day through Labor Day period
Speaker 8: might be quite different from other election years since World
Speaker 8: War Two. Certainly, now we know that AI has been
Speaker 8: driving tech and semiconductors, but EI has really been driving
Speaker 8: the rest of the market. EI being earnings and inflation
Speaker 8: and now with the worry once again that the FED
Speaker 8: could be raising interest rates, possibly staying higher for longer,
Speaker 8: causing a recession. I think that's what's in a sense,
Speaker 8: causing cracks to form underneath the confidence of investors today.
Speaker 1: So does that mean that Sam, you think that people
Speaker 1: shouldn't go try to ten and they should actually be
Speaker 1: in the office actually trading, because otherwise they could lose
Speaker 1: their shirt.
Speaker 7: Very good, Lisa, I like that one.
Speaker 8: No. I think that what we typically find is that
Speaker 8: many of the groups, while they do tend to tread water, investors,
Speaker 8: do tend to gravitate towards the more defensive areas of
Speaker 8: the market. I always say that you are much better
Speaker 8: off rotating than you are retreating in this traditionally sustayed
Speaker 8: period of the year, and it's usually those areas like staples, healthcare, utilities, etc.
Speaker 8: That have done well. But I guess this time around,
Speaker 8: what we're seeing is that since the Dow hit for
Speaker 8: twenty thousand, really there's been no place to hide. The
Speaker 8: market really has been selling off quite a bit, with
Speaker 8: technology being the only group that's still in positive territory.
Speaker 1: And it seems like any kind of miss or even
Speaker 1: in line that isn't necessarily off the charts. For some
Speaker 1: of the biggest winners this year have been punished severely
Speaker 1: in terms of market reaction. I wonder if there's a
Speaker 1: larger takeaway though, when we were exploring this yesterday with
Speaker 1: Peter Oppenheimer of Goldman Sachs that at this point, at
Speaker 1: this level, based on how much yields have moved up,
Speaker 1: that is going to be the tail wagging the dog
Speaker 1: when it comes to the equity markets. It's the further
Speaker 1: that yields go up, the more punitive it becomes for
Speaker 1: the stock market.
Speaker 4: Do you believe that, Oh, yes.
Speaker 8: Because I think that's the real factor that is causing concern.
Speaker 8: I mean, our expectations had been that we would see
Speaker 8: a gradual decline in the ten year yield as the
Speaker 8: year progresses, and so obviously with it going in the
Speaker 8: opposite direction, that makes us sort of second guess our
Speaker 8: own opinions, and I think the same as being done
Speaker 8: by other investors. So our belief still is that the
Speaker 8: Fed will be cutting twice this year, September and December,
Speaker 8: obviously knowing that now September is more like a coin toss.
Speaker 7: As to whether that will happen.
Speaker 8: We also remind investors that every election year since nineteen
Speaker 8: ninety two except twenty twelve had the FED either raise
Speaker 8: or lower eight rates prior to the election, many times
Speaker 8: occurring in September. So I think the FED would love
Speaker 8: the opportunity to show that they are a political Should
Speaker 8: the data allow for that?
Speaker 4: Sam?
Speaker 6: If September is a toin cost, what does the FED
Speaker 6: need to see in the data before September to have
Speaker 6: that confidence to cut just before an election, Well, I.
Speaker 8: Think they're going to have to see today's PCE and
Speaker 8: successive PCE indicators show continued downward trend. I think we're
Speaker 8: likely to see unemployment rate maybe tick up a couple
Speaker 8: of basis points, and also just that maybe a third
Speaker 8: the second quarter GDP does not come in as the
Speaker 8: Atlanta Fed is anticipating at this point well above the
Speaker 8: three percent level.
Speaker 6: So I think the.
Speaker 8: Fed is basically going to be sticking to its mandate
Speaker 8: by saying, can we see inflation come down while not
Speaker 8: having a material impact unemployment?
Speaker 2: Sam, I just want to take the conversation. Finish this
Speaker 2: conversation somewhere where Lisa has been leaning, and I think
Speaker 2: it's an important conversation. What's happened with Salesforce in the
Speaker 2: last twenty four hours, down by about twenty percent. What
Speaker 2: happened with say doll Dow down by about fifteen percent
Speaker 2: in pre market? The down numbers, to Lisa's point earlier
Speaker 2: this morning, they weren't terrible. In fact, they were a beat.
Speaker 2: It just wasn't a big enough beat. And you're seeing
Speaker 2: a monthster move in quite a sizable company, Sam, And
Speaker 2: I'm wondering for you and the team at CFIRA the
Speaker 2: kind of signal that you're taken away from this kind
Speaker 2: of price action.
Speaker 8: Well, I think, as Lisa was saying before, that companies
Speaker 8: are being punished if they don't meet the published numbers
Speaker 8: or even the whisper numbers. Technology for this first quarter
Speaker 8: is showing a twenty five percent gain in earnings versus
Speaker 8: the earlier anticipated twenty percent rise. Also, we've seen an
Speaker 8: improvement in not only twenty twenty four but also twenty
Speaker 8: five estimates now twenty percent for the sector in twenty
Speaker 8: twenty five, but it continues to bump up against the
Speaker 8: thirty pe for the sector itself on forward twelve month earnings,
Speaker 8: which has resulted in pretty much a locked ceiling, if
Speaker 8: you will. And so with these numbers really at stretched valuations,
Speaker 8: I think there is the need for the resetting of
Speaker 8: the dials at least in the near term.
Speaker 2: Sadly saying that has some single names. That's for show.
Speaker 2: Sen starts with a FCFRA a place aside that blumbag
Speaker 2: Scott Chalance makes joined by down to Airline CEO ed
Speaker 2: Bastian in Dubai, guys, Johnson, over to you, John.
Speaker 6: Farah, thank you very much. Indeed, yep ed Bastian here
Speaker 6: in Dubai tonight. He's going to receive the at W
Speaker 6: twenty twenty four Airline of the Year award. That's why
Speaker 6: he's here. He's also here as well for the eightieth
Speaker 6: i artur AGM, which is going to be taking place
Speaker 6: here at the start of next week. But John, you
Speaker 6: bring up you bring up a couple of stories. Actually
Speaker 6: you bring up what's happening with Boeing, but you also
Speaker 6: bring up the issue that we had earlier on in
Speaker 6: the week with the American numbers and the impact that
Speaker 6: that had on the rest of the sector. Ed great
Speaker 6: to see you. Congratulations on the award. First of all, Oh,
Speaker 6: thank you guys.
Speaker 9: It's good to be with you, it's good to be
Speaker 9: in Dubai, and really proud of our team have their
Speaker 9: ability to continue delivering outstanding results for our customers. This
Speaker 9: is what makes these wards first of all very humbling
Speaker 9: to receive, but hungry to continue to win them.
Speaker 6: Yep, you've got to keep it up, don't go to
Speaker 6: keep it up. Let's talk a little bit about kind
Speaker 6: of what is happening in the market right now and
Speaker 6: those custom was that you talk about. We did see
Speaker 6: the American downgrade in terms of its guidance a few
Speaker 6: days back. I'm not going to ask you to comments
Speaker 6: on what is happening over an American, but really just
Speaker 6: to kind of get a comments on whether you're comfortable
Speaker 6: with your current guidance.
Speaker 9: Yeah, the demand has been really strong, and I think
Speaker 9: that was the issue that were the American numbers and
Speaker 9: you know the quarter. As we've indicated all along creagers
Speaker 9: the last several years, that consumer demand and that priority
Speaker 9: to invest in experience continues to be really really healthy.
Speaker 7: June for US is.
Speaker 9: Always the largest travel month of the year of the calendar,
Speaker 9: so we still have to see how June's going to go,
Speaker 9: but I'm confident it will be a good result for
Speaker 9: the full quarter, and we'll see how June runs out.
Speaker 6: Are you seeing any evidence that inflation and its inflation day?
Speaker 6: We're going to be watching those numbers that inflation is
Speaker 6: starting maybe to hit the middle class traveler. The middle
Speaker 6: class traveler is beginning to rethink maybe the attitude towards travel,
Speaker 6: which has been really strong over the last few years.
Speaker 7: I don't see it.
Speaker 9: You know, our consumer tends to be at an upper
Speaker 9: end of the income scale. Our traveler tends to go internationally.
Speaker 9: Our consumer is prioritizing travel above things. So while you
Speaker 9: may be hearing from a number of industrial sectors trade
Speaker 9: downs occurring, we're not seeing that in our numbers.
Speaker 6: Do you think you will see that? At some point?
Speaker 6: Do we go to a more normal? Is the new
Speaker 6: normal in terms of what travel is going to look like?
Speaker 6: Will this continue to persist? The store market continues to
Speaker 6: do very well, We're obviously seeing an upper end consumer
Speaker 6: that is still fairly flushed with cash. Is that something
Speaker 6: that lasts years?
Speaker 9: I think it's going to continue for quite a few
Speaker 9: years to come. One of the factors people don't give
Speaker 9: enough consideration to is our industry's capacity is lower than
Speaker 9: it's been given the constraints around OEMs, whether it's Boeing
Speaker 9: or engine issues. So our economy is a lot larger
Speaker 9: than we were historically go back pre pandemic. Yet the
Speaker 9: amount of capacity that we're all able to fly is
Speaker 9: significantly constrained, and that's what's keeping demand as well as pricing.
Speaker 6: Okay, pricing, so fares is still fairly ROBUSTI.
Speaker 9: Prefers on balance are about twenty percent higher than they
Speaker 9: were pre pandemic.
Speaker 6: You bring up business travel as well. Is that something
Speaker 6: that has come back. It's maybe come back significantly more
Speaker 6: slowly than we've seen in terms of the retail story.
Speaker 6: But is that coming back and ultimately given that bigger economy,
Speaker 6: is that a bigger number someway down the road.
Speaker 9: Well, Business business travel this year, particularly in twenty twenty four,
Speaker 9: has really stepped up. As we went through the return
Speaker 9: from the pandemic. In twenty two and twenty three, business
Speaker 9: travelers were still a bit sluggish, largely because they weren't
Speaker 9: back in their offices and they were still working from.
Speaker 7: Various remote locations.
Speaker 9: Once companies have finally laid the edict down, you needed
Speaker 9: to get back and particularly if some of those businesses
Speaker 9: started to getting a little challenge themselves. People wanted to
Speaker 9: be back in the office that opened up. They need
Speaker 9: to travel for consultancies, to go visit clients, for people
Speaker 9: to get back out on the road to see their
Speaker 9: own people.
Speaker 7: So we've seen business we see We saw about a
Speaker 7: ten point increase in business travel at the start of
Speaker 7: the year and that's continuing to climb.
Speaker 6: Middle of the topline. Okay, so we talked about that
Speaker 6: as we can get middle. What's happening in the middle
Speaker 6: of the P and L. You still seeing What kind
Speaker 6: of inflation are you seeing in the business.
Speaker 9: We're seeing inflation, but it's starting to moderate a bit.
Speaker 9: For us, the biggest part of our inflation story is wages.
Speaker 9: Is our people, which is the best type of inflation
Speaker 9: we can have, and our people continue to grow wages
Speaker 9: in the four to five percent per animal rate. We're
Speaker 9: continuing to work on productivity and efficiency so we can
Speaker 9: take some of those rates and make certain that they're productive.
Speaker 9: Increases other parts of the supply chain where the supply
Speaker 9: chain is still not where it needs to be. We
Speaker 9: talked about the engine issues.
Speaker 6: We still don't how it's just not holding you.
Speaker 9: Back, Well, it's significantly against not just Delta, it's the
Speaker 9: industry and the.
Speaker 7: Turntimes are longer.
Speaker 9: You now have turntimes on planes that could extend up
Speaker 9: to months rather than weeks.
Speaker 7: Which they should be.
Speaker 9: Parts are higher than ever, material cost are growing. You know,
Speaker 9: the manufacturers across the industry are having challenges.
Speaker 6: It doesn't sound like an economy that you're describing that
Speaker 6: the needs needs rate cuts right now.
Speaker 9: Well, it's it's an economy right now from I standpoint,
Speaker 9: that's doing well.
Speaker 7: But there's not just one consumer out there. Okay. Our
Speaker 7: consumer again tends to be in the upper end.
Speaker 9: Our consumer generate a tremendous amount of wealth and continues
Speaker 9: to have that wealth through the pandemic. The markets up,
Speaker 9: real estate's up, Unemployment is extraordinarily.
Speaker 6: I don't need more help, is basically what you're saying.
Speaker 9: The lower end. Yeah, I think there's I think there's
Speaker 9: some challenges. So that's something that the FED will will
Speaker 9: look at all the data. I don't think an airline
Speaker 9: is necessarily the.
Speaker 6: Pretty You've got a pretty good view of what's happening
Speaker 6: in the economy.
Speaker 7: Yeah, our business is doing quite well.
Speaker 6: Okay, you bring up Boeing. You talk about what's happening
Speaker 6: with the with the OEMs, Bowing and app us, but
Speaker 6: it's also the engines, as you mentioned the and Whitney
Speaker 6: engine issues that we've been seeing. How long does this last?
Speaker 6: How long? How much of a struggle is it to
Speaker 6: get hold of the kit that you need right now?
Speaker 6: How much? How long do you think the problems that
Speaker 6: we're seeing at Boeing and Airbus and Pratt and Whitney
Speaker 6: are going to be lasting for well?
Speaker 9: Right now we have no Boeing orders that we're anticipating
Speaker 9: up delivery on in the next several years. So from
Speaker 9: our standpoint, it's really an Airbus story. Air Bus has
Speaker 9: been a great partner, and Airbus continues to provide us
Speaker 9: the planes and the technology that we've been expecting for them,
Speaker 9: and they were right through the pandemic.
Speaker 7: The engines are going to be a bigger issue, particularly
Speaker 7: for us.
Speaker 9: The gear turble fan that's slowing down a little bit
Speaker 9: about the amount of new deliveries that we can take,
Speaker 9: but it's more engines than it is planes. What is
Speaker 9: causing us to do is maintain the existing fleet we
Speaker 9: have a little bit longer. So that's another cost to
Speaker 9: the business.
Speaker 6: You are well known for keeping your fleet for longer
Speaker 6: it had. The age of the average aircraft has come
Speaker 6: down a little bit over the last few years. But
Speaker 6: does that strategy work in an environment where the sustainability
Speaker 6: question comes in? If you fly all the planes, they
Speaker 6: inherently tend to be less efficient. Is that something? Is
Speaker 6: that a problem that you're going to come across at
Speaker 6: some point?
Speaker 9: I don't think so. Again, I think this is transitory.
Speaker 9: I think the OEMs will get their parts.
Speaker 7: I think they will get the transition. A lot of
Speaker 7: this is about.
Speaker 9: Labor and the fact that many of the engine not
Speaker 9: just the Tier one, but down into the tier three
Speaker 9: and tier four of the supply gen let a lot
Speaker 9: of people go. So it's experienced, it's staffing its rates.
Speaker 9: I mean, it's a very complex story. But long term,
Speaker 9: I feel good about our sustainability story. We're taking our
Speaker 9: overall footprint down in the range of one to two
Speaker 9: percent per year every year, and that's going to continue
Speaker 9: to go on, and as we get new planes, those
Speaker 9: numbers are.
Speaker 7: Going to go down faster.
Speaker 6: Politics is going to become a bigger and bigger issue
Speaker 6: over the next few weeks and months. As we approach November,
Speaker 6: when you think about who goes next to the White House,
Speaker 6: What if the next administration need to do to keep
Speaker 6: the aviation market that you've just described, this buoyant market,
Speaker 6: this market with momentum, keep it going. What do you
Speaker 6: need to see from the next administration to keep it
Speaker 6: on track?
Speaker 9: Most important thing is infrastructure investment. Maintaining the current structure
Speaker 9: is challenging, and they need to continue to modernize the technologies.
Speaker 9: They continue to need to get air traffic controllers staffed
Speaker 9: and hired and in position.
Speaker 7: To enable us to grow.
Speaker 9: And from a from an investment standpoint, that's where we
Speaker 9: were very happy to see the FAA reauthorization bill finally
Speaker 9: come about. It took unfortunately months, if not a year
Speaker 9: or year overdue in its delivery, but it's here now.
Speaker 7: And we're going to work closely with the FAA to
Speaker 7: make that happen.
Speaker 6: Just to wrap the conversation up, you feel like you
Speaker 6: are on the front foots at the moment. This is
Speaker 6: an airline that is growing. What is the capacity constraint
Speaker 6: that you are seeing right now that is going to
Speaker 6: slow your race of growth down? If I'm gonna invest
Speaker 6: in looking at delta. Is this as good as it gets?
Speaker 6: What does it get.
Speaker 7: Better from here? We're doing well on capacity growth. This year.
Speaker 9: We expect to grow our top line in the mid
Speaker 9: single digits, you know that four to six seven percent range,
Speaker 9: which I think is healthy growth consider particularly the growth
Speaker 9: we've had over these last handful of years. This year
Speaker 9: will be the highest revenues in our company's history.
Speaker 7: A support are sixty billion dollars plus remind us.
Speaker 9: And the outlook I think is strong because I think
Speaker 9: think the supply chain and the extraints are only going
Speaker 9: to get a little bit better as we moved forward.
Speaker 6: At Congratulations on the award, the ATW award that you'll
Speaker 6: be getting here a Dubai this evening. Great to see
Speaker 6: you here at Dubai. Thanks for stopping bye to see
Speaker 6: us here. Thanks guys Bloomberg. Great to be with you.
Speaker 6: Thank you very much. John from Dubai back to you.
Speaker 2: Thank you, buddy. Great to catch up and hear that
Speaker 2: conversation Guy Johnson there with the down to Airlines CEO
Speaker 2: at Bastian. This is the Bloomberg Surveillance Podcast, bringing you
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