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Let's turn our gaze to the cruising business. I know nothing about the cruising business.
That will change in October when I take my first cruise.
I know he's finally taking the plunge.
Finally taking the plunge.
But with the guy we have here now, our next guest is an expert on all this stuff. Brian Eggery covers all the fun stuff gaming, casinos, hotels, and cruises for a Bloomberg Intelligence Carnival.
What's going on in carnival here.
So they came out with but otherwise would have been a very good quarter in terms of bookings demand. Eighty five percent of the year sold actually raised revenue old guidance, but they had a cut ebit dog guidance because the cost it from fuel due.
To the war I ran.
And so the underlying demand part of the business is quite good.
You know.
The concern would be if that warn't persists. They are modeling in a level of fuel costs assumption for the second half that might not be conservative enough.
The thing that people like about these cruise lines and cruise line operators is that they have a lot of visibility into their bookings because people book years in advance or months in advances in the case of Paul Sweeney and his upcoming cruise.
But that also locks in the revenue that they brought in.
Do cruise lines add a fuel surcharge later on because you know oil prices have gone up so much, or is it something they just have to eat?
Well?
I think the revenue youild management part of it is always the science behind it because eighty five percent of booking sold. If you oversell too much and demand goes up, you're left with inventory that could have been sold at
a higher price, or you're missing inventory. You're not saying so much in terms of fuel cost surcharge, but I mean the reality is even with one hundred and fifty million dollars in offsetting cost savings from efficiencies, their estimate is that the full year impact on their adjusted income from the fuel price increases we've seen since December could be about five hundred million dollars, and our concern is that assumes eighty to ninety rent in the second half,
and what if that's much higher, that's the concern.
What's what are these cruise lines saying about their underlying demand at some point some of these inflation pressures if they do remain here a little bit longer than and maybe we initially thought fuel and in particular about other areas as well, why does that typically impact the top line for those guys.
So I think generally think speaking, cost inflation can have an impact. The assertion of the industry would be that they are relatively affordable as per day compared to other forms of vacationing and travel, and so that's been a big underpinning behind their assumption. They continue to get more consum repenetration.
And you know, people might have pre booked their cruises, but the amount that they spend is also another big, big revenue increase for these cruise line operators. I mean, that's where they make up a lot of ground. How do you expect that to play out if oil prices stay high? I mean, people are still going to go on their cruises, but they're not going to spend for the all you can drink package.
Yeah, I mean that may be a concern. Right now, the oield out look is quite favorable. It's still solid wellst single digits. Over time, an increasing portion of the overall revenuees come from either on board ticket spending or pre cruise purchases of excursions and other amenities and all that could be subject to vulnerability if there's a major change in discretionary spending.
On fuel for these big cruises. They don't use a lot of the alternative fuels, do they. They're just burning that big bunker funnel play stuff.
It mixes over time increased more more towards LNG and other forms of I guess more efficient fuel and clear fuel. I think one of the cruise lines downs now it's its first hydrogen powered ships, so they are looking at alternative uses, and a big offset to these cost increases has been few cost efficiencies. You know, the amount of metric tons of fuel consumed per passenger capacity to day
has over time gone down. So they've tried to get some offset and have gotten some offset from increased efficiencies both from the general way they operate, but as well as more efficient ships.
Well, they knows. I'm sitting on the beach in Aruba and I can see the smokestack from the.
Court there of Aruba and as it shops are docked and it's just building the black.
And you're thinking, well, I'm going to enjoy those people one.
Day exactly exactly, But boy, I could just say that's just BRUI and they don't hedge they or do they?
Carnival has not hedged historically. They've had over in past years have had some collars Norwegian and Royal Caribbean new hedge and so you know there is a cost benefit analysis to whether or not you put hedges in place.
Yeah, because George Ferguson was just telling us that the airlines.
Don't head you, well, they got messed up during the pandemic, right and they all came out worse for it.
So yep, all right, Brian, thanks so much, Brian Nigger appreciate that senior gaming and logic analyst Bloomberg Intelligence joining us live here in our Bloomberg and area.
I have a cool question hermy cruises do you go on a year?
A year?
That's that's over time. I have gone on a number of cruises double door Uh, well maybe. Of course, I've been covering the sector for longer than yeah, as long as Paul has been doing this too, So yes, long time.
Long time.
Yeah.
So I've been out on the Disney cruise a couple of times when they have a new ship. We'd fly out to l A hop in the thing. They take us out overnight.
Oh yeah, but that's that's as an analyst exactly.
So yeah, I mean I have taken a vacation cruise separate from my roles.
Yeah, there you go.
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Well, if you're anything like me, you probably feel like you spend too much time on your phone, particularly with the scrolling through the social media sites. New Year's resolutions every year usually include, you know, let's spend some less time on the personal device.
But that doesn't always work. It's tough to do.
There's actually been the subject of a lot of litigation against some of these social media platforms, Meta, Alphabet, those types of folks, and there's been some cases coming down against these companies as well. So let's see what it means for a lot of these social media companies and tech companies in general. Matthew Sheltenham joins us here. He's media litigation analyst Bloomberg Intelligence. Hey, Matt, it seems like we've had a couple of court rulings come down against
some of these social media companies. Summarize what's going on out there and does those a risk to these companies?
Yeah, So this is litigation that has been developing for the past three to four years, and it's finally in the first couple cases in line reached the stage of juris making decisions. So Meta had a loss in New Mexico State court when a jury announced a verdict of three hundred and seventy five million dollars. We also, as you said, had this California jury come down with a personal injury suit on behalf of a woman who claimed
that she was harmed by the social media's features. There, the jury came down with an initial three million dollar award against Meta and Google's YouTube and then added three million dollars of punitive damages. On top of that, these are just the very tip of the iceberg. There are a number of other cases lined up to go to juries this year, and the whole goal here is to try to shape a settlement. Potentially, these are bell weather cases to try to give information about Okay, do these
cases have legs or not? And how should that how should everyone think about trying to quantify them to settle them.
So I think pretty much if your parent out there would say, boy, my kids just spend way way too much time on their devices.
Here, what is that? What do these companies say, I mean, because otherwise they're just going to be in litigation forever.
Absolutely. I mean, I think you're looking at a lot of tough headlines here because you have a lot of parents on these juries and maybe these these you know, social media isn't the most popular thing right now, so it's going to be sort of an assault of headlines for the companies here. Now, the companies say, look that you know, there are lots of problems in the world.
We're not responsible for it.
In fact, we add a lot of value to the world as well, And there are real legal problems that the companies say with these cases. One is that the companies say, look, we have a first amend right to speak and to develop our product. We have a liability shield under federal law section two thirty. All of that sort of looms behind these jury decisions, and you can you can guarantee that the companies are going to appeal these initial decisions to higher courts on those tough legal questions.
So you know, the amounts being awarded here are immaterial to these companies. Six million dollars here, three hundred million dollars there through, and seventy five million dollars there. I mean, they're just not material to the finances of these companies. Is there a scenario where we could get really, really multi billion dollar type things that might get these attention to these companies?
So these personal injury lawsuits probably not. You know, this California case was brought by by a single person, and there's no vehicle really to bring it as a class action because damages are so individualized. The thing to watch here are the state attorney's general lawsuits and also slightly behind them, lawsuits brought by school districts, because they both offer opportunities to pool a number of supposed victims and
to bring claims on their behalf. So I think Meta has been sued by thirty to forty different state attorneys general, and a number of those cases are consolidated in federal court in California. That's a bigger ticket item, and so that's the one to watch. I think these individual personal injury suits are lowered down the line because of their individualized nature. Meta made sixty billion in profit last year and a six million dollar loss isn't a huge deal.
Has it been a deal for the stocks at all? Is this an overhanged off for these stocks thinking that or is it? Could it be like the tobacco industry where investors are like, it's just it's just costed doing business kind of thing.
Well, you know, it's been a tough couple of days for Meta stock, and there's just been a barrage of headlines on this, and as I said, this is just the beginning. But there are a lot of people that don't feel that great about social media right now and use these decisions as an opportunity to jump on top of it. And so in that sense, I think it's going to be a lingering and ongoing risk that helps drive a global settlement here to make this litigation go away.
And I think that's the decision the company's going to have to make, is do we have to make this go away sooner rather than later, or do we test these legal theories which might be pretty strong to make the stuff go away, but it's going to take a long time for those appeals to play out.
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All right, let's bring in George Ferguson. He is our senior aerospace, defense and airlines analysts. And George, there was a headline earlier this week that got my attention, which is Jet Blue looking to team up with someone looking for a partner in some capacity. It was reported from Semaphore, and Jet Blue has tried this before. It tried to merge with Spirit Airlines or tried to buy Spirit Airlines and it failed in that quest. What do we know about Jet Blue's m and a ambitions.
Yeah, So I mean, we haven't heard anything out of Jet Blue, right, but when you look at Jet Blue, you know, I think that one sort of their financial performance hasn't been great since the pandemic, partly due to this failed merger with Spirit Airlines, and so you could see as they're you know, looking out at the US market right now, or fuel prices have doubled, they probably think of demand's going to come down pretty hard. You know, it's going to be hard to sort of turn around
financial improvement in that environment. And so I'm not sure you know who sent before talk to inside, but I don't think it's hard to see how Jet Blue would be starting to think about what might be different permutations of how they could get the carrier through what I think is going to be a difficult summer for the business.
George. Typically, can airlines pass along fuel increases like we're seeing here these huge jumps and fuel prices. Can they pass that along to consumers or they that goes into their bottom line?
So I think the opportunity to pass it along is pretty good this time, and typically they do. Typically they pass it along at a lag, and so the airlines usually will go through a bumpy ride, you know, in their profits for a little period of time for I don't know, a quarter or something like that, as they're getting ticket prices up. If you look at the US airline business right now, now, though nobody hedges inside the business anymore, it used to be there there was a
smattering of airlines that hedged. Southwest is one of the bigger ones that hedged, and you might have some Alaska, some Jet Blue edging. Nobody really hedges anymore, and that means everybody has to increase ticket prices so that can remain profitable. And I think that means the move to higher ticket prices it goes faster this time.
So when they increase ticket prices, is that something that's kind of static it? You know, once it goes up, it goes up, it doesn't come back down. Or would any of them consider adding kind of a fuel search charge a way a UPS or FedEx does.
Yeah, I mean, like I always think of a fuel search charge as a way of reminding your customer that the reason you're increasing the cost of the product that you're delivering to them is because of fuel. And I think always yeah, exactly, So FedEx goes Hey, look, sorry about it. You know, the world economic environment is such that I'm gonna have to charge you more because fuel
prices are higher. Look, I think at airlines. Airlines are very competitive business, and so airlines see a lot of movement up and down in ticket prices and so so I think because of that competitiveness, yes, you could see where they would rise here. And then you know, as soon as you start to get decreases in the price of fuel, we typically see some of the airlines that want to take market share. They'll lower fares, they'll add to the airplane, you add people to the airplane, and
then the game starts over again. Right, we start moving the wrong direction in fairs. If you're a shareholder, George.
What are the airlines doing in terms of capacity? Are they adding capacity to the system, are they taking down?
What are they doing?
Yeah, so we're not seeing much yet. My colleague friends who wanted to flow put out a report this week. It's on our AI r l N dashboard. We haven't seen much movement. And my guess is that the airlines are probably waiting to see if this war could end quickly. If it ends quickly, you know, maybe they don't have to take any capacity out for summer season. Summers their peak season. They've probably sold a lot of it already.
But I think if these higher fuel prices persist, I think you'll you'll see as you get through summer they'll have to start to cut capacity to keep fares fire. And that becomes part of the risk as well. For the companies like Jeff Blue, Spirit Frontier that are that you know, cater to the lower the lower tier the traveling public. You know, the challenge is their customers are probably going to be their budgets will be stretched a
little bit more. And I think you know, if you're United and you're American, it's actually especially United in Delta and you've got a fair amount of premium travelers flying in your airplanes. They're going to they're they're not going to really be bothered, right by a twenty or thirty percent increase in their in their fair price. They're going
to keep flying. And those airlines are they're going to continue to subsidize the back of the airplane that that discount traveler, and it's going to make it harder to fill airplanes. I think at the low cost carriers here for a.
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Because it is Friday, let's just take a step away from the market action, at least for a few minutes, the word and Iran and talk a little bit about the business of sports.
Because the owners of NBA teams.
Have voted to consider expanding their league and adding franchises in a couple of other cities. Let's bring in Randall Williams, Our Bloomberg Business of Sports reporter on this story. And Randall, we're now looking at possibly a Las Vegas franchise, a Seattle franchise.
Yeah, and it was always going to be those two cities. The league was open to listening to more offers from other cities. You think Nashville, you think Kansas City, you think maybe Vancouver or Mexico City. But Seattle and Vegas are proven sports towns. Seattle used to have the SuperSonics. In Las Vegas has a bunch of different sports teams. I would consider it this or it's capital of the
world right now. So they'll be listening to bidders over the course of many months, and if they find the right price, and if the bidders get the right number, then we'll go from thirty to thirty two NBA teams.
All right, If I want an NBA team, what's going to cost me to get in the door?
I would guesstimate it is going to cost you at least eight billion dollars. They're saying seven to ten is the range. I think Seattle will go for probably between seven and eight and a half. And I think that Vegas team could easily reach nine to ten.
And who are the obvious bidders here? Who are the people who are right away going to be putting together packages?
Sure so.
Samantha Holloway, who is David Bonderman's daughter, is the owner of the Seattle Kraken. She just formed this holding company called One Roof Sports and Entertainment. She owns the arena or that has partial ownership of the arena, which is Climate Pledge Arena in Seattle. She's the heavy favorite in Seattle. In Vegas, you have Bill Foley, who is the Vegas Golden Knights owner. He controls alongside MGM and aeg T
Mobile arena. And so I think if you have arena ownership and you don't have to spend another billion and a half to two billion dollars, then that's going to enable you to get a bit ahead.
Now there.
Who knows, maybe someone does come in and say, look, I'll build a stadium in Las Vegas or in Seattle. I think it would be difficult, but those two would be my leading favorites right now.
All right, so we're just had opening day for Major League Baseball. Let me take it down to the dark side. Oh, are we going to get a work stopitch next year? Major League Baseball?
Absolutely?
I think absolutely? I think so.
I mean, look, you think about the collective bargaining sessions that we just finished with the WNBA. I think we talked about it last week. Everyone that I've talked to around sports has said that that is the prelude to what is coming with baseball, which is really a war of do they want to have the owners have a salary cap or do the players who are probably going to be negotiating for a minimum floor spending Because you have teams that are just content with not spending any
money and being loser franchises. And then you have those same owners complaining about how you have franchises like the Yankees, the Dodgers, the Blue Jays who spend so much on players that there's nothing left. So it's really going to be an argument for the heart of.
Baseball Beast or Famin in the MLB. Essentially, is there parody in the MLB? I mean, are there changes they can make to create more parody.
I'm in favor of having a minimum floor spending. And the reason for that is because you think about the NFL, and the NFL turns over playoff teams literally every single year. That doesn't mean that that team is able to win the Super Bowl, but we see a lot of turnover different teams make it, and in baseball it does feel like the same teams are winning. Now I'm in I'm
definitely rooting for the Dodgers. In terms of the dynasty effect, I think having a franchise to chase, having a franchise to beat then gives the hero and the villain side of things. The city of Los Angeles thinks they're the heroes and everybody else thinks they're the villains. At the same time, there are other franchises out there. You think about the Pittsburgh Pirates, you think about the Florida the Miami Marlins, like these are franchises that no one really
talks about. And it's because of the fact that we might not see the investment from their owners in terms of how you know, you compare that to the Yankees the Dodgers, and it does. Maybe they don't have the deep pockets, but you know, you want to be competitive, I would think, and that's not happening right now.
But this will if there is a workstopage, it will because the owners, yes, are bringing it because the owners by and large. Is it fair to say the owners won a floor here or do the owners are going to take this work stop which because they want a cap.
They want a cap.
I think the players, I mean the MLB Players Association scored probably the biggest win of any players association ever with not having a salary cap, because that's how you get a seven hundred million dollar deal or a five hundred million dollar deal. Like it's not out of the ordinary. If someone were to one day get a billion dollar contract, show, hey is going to top that right now in terms of you know, we're not paying anyone more than show hey.
But for owners like you think about the Dodgers, they just retool every single year because they can. They don't have a spending limit. And if you have an owner who's willing to pay tremendously more than another owner who might not have that, then there's going to be complaints and be like, listen, we to get control of spending because at the end of the day, this is going to become a game in which if you spend the most money, then you're going to win.
Let me just bring this full circle.
We're talking about NBA expansion to thirty two teams from the current thirty. The NFL already has thirty two teams, as does the NHL. Baseball has thirty teams. I mean, are we going to potentially see expansion of MLB franchises.
I think that Baseball will consider expansion after collective bargaining when if slash, when that ever ends. All of these things seem very dire at the beginning because they are clashing. You think about the conversations we were having about the WNBA.
A year ago.
It seemed like they were never going to come to a deal. But the reality is they will at some pointed. Yah, right exactly. They both have a vested interest in playing, and I think baseball will probably expand to Nashville. I think Nashville's could be a good baseball town. And then I'll find another city, slash location, and they'll go from there.
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