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