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Delta Airlines came out some better expected results for the quarter, saying that helped by leisure travelers and a rebounding corporate travel. How about that, said Philip joins us. He's deputy team leader for Global Aviation. Join us live here in our Bloomberg Interactive Brokers studio. Are we kind of back to pre pandemic levels in terms of air travel?
Also, there is a Dichoto me in the aviation industry at the moment where we're seeing airlines profitability, especially at the top end of the market in the premium and corporate sector. So they're doing really well. So Delta air Lines, United Airlines doing really well. At the other end of the market, does the the likes of Spirit Airlines that's
in its second bankruptcy. You've got the other sort of low cost carriers that are struggling to fill up seats, and that's partly on account of the fact that low cost carriers their customer base is still hurting from the sort of tariffs and the economic uncertainty, whereas for the top end of the market, they seem to be traveling and as normal.
Actually, yeah, it's the manifestation of the key shaped economy right where the higher income consumer is doing much better than the lower end consumer.
The CEO of Delta at Bastion said.
In the earnings report that our customer is financially in a good spot. Said, who exactly is Delta's customer because it's not the same as you said as for instance, Spirit or Southwest or even you can argue United, sure.
I mean Delta air Lines. I mean they frequently talk about how their customer is in the sort of average of over one hundred thousand earnings in one hundred thousand dollars a year in terms of earnings, and they sort of are looking for experiences. They're looking to sort of travel premium. They're not looking to sort of go coach and sort of nickel and dime their way through the aviation experience. And they're sort of more willing to splurge
on experiences. And that's sort of the post pandemic revenge traveler who is now continuing to sort of spend money on travel, and they seem to be suggesting that airlines are willing. People are willing to keep going and keep traveling and keep spending money on experiences and holidays.
If United beach their numbers this quarter, it's because what I spent ticket or really spared no expense to get over there, I needed the rest. Talk to us about just visibility. These airlines they put they have some pretty decent visibility on on their bookings.
So they do.
They've been talking about how the visibility into the into the holiday quarta, into the fourth quarter of the year is looking good at the moment they see they're seeing demand being strong as they get into the close of the year, and that's at least. Delta Airlines is talking about how they expect corporate travel to continue to be so a solid and robust in twenty twenty six. Are saying that companies that they surveyed are seeing continued appetite
for corporate travels. So it remains to be seeing what actually materializes. I mean, airlines had massive forecasts for record growth this year and then sort of liberation they came around and that sort of torpedo that and they've now sort of come back to those levels, but will remains as be seeing what surprises come out next year.
I'm so glad you bring that up because earlier this year Delta warned of an abrupt slowdown or I don't know that it actually saw when it just said it kind of was seeing it on the horizon. Has that been completely a race and turned around?
Now for the moment, it does look like it is smooth, smooth skies for them. But at the same time, we don't really know what's going to happen in the current economic environment or what demand looks like as we go into twenty twenty six, and that's something that we need to watch as the airline sort of report their fourth quarter results and sort of about their future vocalsts.
What are the big airlines, the big ones you mentioned United Deltas. What are they doing with capacity? Are they adding capacity trimming it back? I mean, I don't know if they're doing with routes. I don't know if they have enough planes, all that kind of stuff.
So they have been so Delta has been adding capacity, They've been retiring older planes and taking on new planes, and so they seem to be adding a little bit of capacity.
And we're also.
Seeing, like so United talk about how they are upgrading their fleet. They're replacing their old aircraft with seven eighty seven's and Maxes, and so we are seeing the US carriers upgrade their fleets, and that's sort of adding more capacity, especially as they upgate aircraft, so they sort of replace smaller narrow bodies with the larger eight three twenty one or the Max nine, and that sort of adds more
seats and more capacity. But then at the same time, they're also premiumizing the cabins, so they're adding more business class cabins and more premium economy than they ever did before.
Premiumizing. That is a new word. I had not heard of it.
But economy coming back from Italy was actually like the old first class in terms of really I was shocked at how much room there was this.
How how far back can you recline?
Just the normal one?
Okay, but it was just way more like mouse And it wasn't that much money. It was a couple hundred bucks to uperate, So that was pretty interesting.
No, and that's that's a big part of Delta's push right, pushing these premium products in the cabin.
What about on the ground.
What is Delta doing on the ground to really harness its customers desire for a premium experience.
So they bartnering with they have that partnership with Uber the they've sort of added more of those Delta one lounges, and they're sort of doing those credit card partnerships, and those are all sort of ways to keep customers sticky and keep them engaged because, I mean, the moment you're sort of signed into the ecosystem, you're more likely to book with them and sort of not really use price comparison websites. You're more likely to sort of keep.
Going customer for life kind of thing.
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You know, I'm a coke guy. Be with PEPSI in front of me. Fine, I'm just as happy I can realize it. But Ken Chase. He follows this stuff for living. Ken Chase, the senior consumer products analysts of Bloomberg Intelligence. Pepsi, reported some numbers a little bit better than expected. Here, Ken, tell us what you heard from our good friends at PEPSI.
Yeah, Hi, Paul, Well, PepsiCo report a number today, numbers today that we're pretty much in line, maybe a little bit above expectations. But I think they also masked persistent weak market conditions of the US across its broad food, snack, and beverage businesses. The company pretty much, you know, hit their numbers, as I said, but it didn't do much to relieve the pressure it's getting from activists, an activist
who's asking the company to do more. Basically, flat performance is just not good enough for something that's perceived or a company that's perceived as a growth company. I guess the good news is their language during the call, though, did provide investors a bit of optimism. It sounds like the company is getting it. They said they're going to ramp up innovation, they're going to be more aggressive with cost cutting. They're listening to the activist points and they
said buy a Laerds. They agree with many of them. So those are all, you know, good things to hear. You know, from an investor point of view, it's just a matter of executing and actually following through with them, I think is where the jury is out.
So I guess ken the question is is this enough for Elliott the activist semester which took about a four billion dollar steak in PepsiCo and called for a strategic review a streamlining of a snack portfolio in particular, Well.
I think think the CEO of PepsiCo mentioned that they are on the same page on a lot of fronts, but what they didn't say is one of the big things that Elliott is calling for is basically, you know, the beverage business to refranchise itself, sort of what Coca Cola does, to let the bottlers be independent rather than own those very capital intentsive businesses. They didn't go there. I'm sure that's going to be a big sticky point. What they are in agreement, though, is that innovation is
needed to be even more on Trent. You know, I covered PepsiCo. I've covered PepsiCo for a long time. They are probably on the forefront of the most innovative companies across the beverage world that I cover, and yet they're even ramping it up even more aggressively across food, aggressively
across beverage to be as on trend as possible. And on that note, you know, Bloomberg Intelligence came out with its annual consumer Beverage survey just on Monday, and some of the big findings that we're seeing is that advanced, high duration, wellness, and value are more more important than ever in the world of beverages. And it was interesting to hear PepsiCo pretty much address all three of those areas with their new product innovation. So that's encouraging.
At the end of the day, can as a company like Pepsi, is that nothing more than really a GDP kind of growth story. There's not much more you can do to goose it above that? Or is that or can they do better? Maybe that may be true in the US pool. I mean, it's such a large business, it's in most channels, it's you know, it's been around a long time obviously, but I think most people looking at this company would say, look, you have great opportunities
outside the US. There's much less price competition. You know, outside the US, people are embracing you know, these consumer goods and these brands outside the US. So that's one of the things Elliet is actually saying, provide you know, feed the capital needed outside the US to grow these business in these big growing markets, you know, like China and India and so on, Latin America. These are really
big growing markets. And to the extent that they could play more in those markets I think would be good for the enterprise in the whole.
But for those markets, would they need to take a similar approach as what they do in the US. Be more innovative, keep up with this shifting consumer taste towards healthier offerings, higher protein, portion controlled, less sugary drinks, or can they go with their old playbook.
I think it's a combination of doing what they're doing. You know, in some of these markets they have to adhere to local tastes. My guess is that a lot of these consumers are seeking the same kind of things the US though is or I should say, you know, wellness value, but the portfolios are not quite as broad outside the US. So I think it's tailoranto's the local areas and bringing some of their learnings from the US to these markets over time.
Ken talk to us about the They got about a four percent dividend yield on PEPSI. That seems pretty solid. What's their policy on dividends these days?
Oh, they're committed. I mean they know that a big shareholder base, you know, is income investors. So they are there committed. In every quarter like this one, they said, Look, we're committed to have a multi prong capital allocation policy. We're going to you know, invest in the business, you know, innovation, like I said, but they're also going to buy stockback on a you know, selected basis. They're going to commit to their growing dividend, and their balance sheet would support
them doing that. I mean, the balance sheet is in good shapes and good investment grade, and so I see this company continue to have a balanced allocation going forward.
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We were talking about the auto business in Ferrari or Ferrari, thinking this brings to mind, I don't know how these companies are going to go for the next five years, ten years in terms of that evolution, because it's kind of fits and starts.
They can't figure out next year, and some point.
The market rewards them for it. At some point the market penalizes before Craig Trudell it's his job to make a sense out of all this. He's a Global autos editor for Bloomberg News. So, Craig, can you see news from Ferrari about its cautious forecast maybe just kind of cautious commera territory on EV's. What does it tell you here from Ferrari?
Yeah, I mean, I think the market was taking in stride, you know, the the caution on EV's. I think even you know, sort of among the investor base and certainly the analysts too, there's some real concerns about, you know, just how sort of incongruous Evs are with Ferrari, and some questions about whether you know, whether they should even
bother uh going in that in that direction. Uh, you know, I think I think the shares were down a little bit, what you know, earlier this morning when they were talking about that. I think where we saw the stock really just take it on the chin, was when they came out with their their outlook you know, for through twenty thirty and I you know, I think that the profit uh you know, growth was was underwhelming. I should you know, sort of say it. It also is the case that
they are still you know, calling for growth. I think some analysts were maybe hoping for for uh you know, also some some increase in volumes, but it's not really you know what what Ferrari is about. They you know, are sort of like clockwork, you know, making a pretty set number of vehicles every year and uh, charging an awful lot of money for them, and and uh that's that's really been you know, something that's that's paid off.
And I think, you know, just the other thing to sort of keep in mind here when you look at what these shares have done, you know since they listed. You know, the shares in Milan have been trading since early twenty sixteen, the New York ones a little bit earlier than that. But this is a stock that has
absolutely been on a tear all those years since. And so you know, I yes, a sixteen percent to decline and one day, you know, sort of makes your eyes pop. But this is a company that is still valued very richly, and that makes a little bit more sense in hindsight.
And Frari also of course coming out with its first EV too, and that might be accounting for some of the caution in terms.
Of what it sees going forward.
In the story, you and your colleagues Craig talk about how not just Ferrari, but Portia and Mercedes Benz have also struggled with the electric transition. Why are wealthy buyers somewhat resistant to switching over to plug in EV's what's behind that?
Yeah, it's a really good question. I think you know, there was just this sort of working assumption that you know, the only thing that you were going to have to overcome was caught, and so you know, there was this, i think, sort of conventional wisdom. Well, oh, we'll just have you know, the folks who are most able to afford this incremental additional costs, they'll they'll fit the bill, and we'll be sort of off and running as an industry and gradually sort of work our way down price wise.
I think if if you're a luxury car buyer and you're having to pay a significant premium over you know, looking at at models that are that are the same one combustion and one electric, the electric ones a lot more. You know, it is still a decision and sort of a rational decision to a sort of second guess whether
or not you want to go electric. And I think that's what what you're seeing is is that you know, BMW and Mercedes until and unless they sort of you know, price their models closer to one another, you're you're going to have, you know, some pushback on the part of the consumer to make that transition, even as as we make progress and things like charging infrastructure and some of these hurdles that you have to overcome that or unique to EBS.
My biggest question for you know, the supercars going electric is I think a big part of the reason people buy the Ferraris the Lamborghinis is for the cool sound when they're coming down the street. What's Ferrari doing with with that part of it?
Yeah, it's it's interesting and we saw sort of, you know, and we had the indications that Ferrari was working on something in this regard to to try and sort of preserve the noise that you can make driving a Ferrari that they patented, you know, systems to kind of create essentially artificial noise, or at least to play up the noise that is made by you know, electric motors in electric vehicles. You know, I think that being said, well, we see Ferraris externally make you know, nearly as much
noise as a Ferrari supercar. I suspect that the answer to that is probably no. But I've been I've been very entertained that, you know, Dodge came out with an electric vehicle last year, and I saw a report recently that you know, an owner in Canada was ticketed for a noise violation with his electric Dodge vehicle. So, you know, maybe maybe it's for the best actually that this will become a thing of the path.
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Let's talk a little bit about the media business there. It's undergoing a certain degree of consolidation here as it tries to deal with the rising tide of YouTube among other streaming type services and digital services that have really displaced many of the traditional media businesses. And one of those is Paramount Global that was so bought by sky Dance. Larry Ellison's family now looking to take a look at Warner Brothers Discovery, another publicly traded company. Maybe those two
might get together. Check in with Githa rang Aanath and she's the media analyso over Bloomberg Intelligence. Githa talk to us about the likelihood of Paramount merging with or acquiring Warner Brothers Discovery and how that might look.
Yeah, thank you so much, Paul. So it's been a while actually, so there's been these on again, off again reports. The first time the news broke was almost a month ago. It was on September eleventh that there was this swall Street Journal article which suggested that Paramount was kind of
exploring this bid. There hasn't actually been any formal bid from Paramount, however, you know, the shares of both those companies have kind of really gone up very nicely on the news, kind of just telling us how important it is for both of them to have this consolate. If you look at Paramount. Obviously they just went through that merger. There is really very little details when it comes to what is, you know, kind of the strategy for this business.
They definitely need something big. Having a studio like Warner having a service like HBO Max, it really kind of puts them on that global media map, so they I think they definitely need it in order to kind of make this big splash in the media ecosystem. But there, you know, as days pass along and we don't get a bit, it just seems like the probability of this happening gets smaller and smaller.
Yeah, it's curious because we've been waiting for so long and the industry has been ripe for consolidation, and David Zazov, who of course runs Warner Brothers Discovery, has been talking about how consolidation is something that he anticipates and he wants to see happen. Is there role here for regulators? Is this something that they would weigh in on. Is Brendan Carr going to play any kind of role here.
So a Paramount, Yes, there is potentially a role for for any and all types of regulatory scrutiny in the Paramount. A Warner Brothers deal or a potential deal, the FCC's involvement likely wouldn't be as heavy just because there is no merger of two broadcast assets, so Warner Brothers only has streaming studio and cable networks, no broadcast networks like a Paramount which owns the CBS broadcast network. So they should get like a fairly you know, quick green signal
from the FCC. Well, all mergers are ultimately, you know, kind of a subject regulatory scrutiny. But let's remember Paramount has just gone through this whole process with the regulators, kind of getting that skydance, so they kind of know how to navigate their whole way around, you know, the regulatory ecosystem, if you will. So I don't think it should be much of a problem at all, Scarlett.
Now the New York Post, I saw some reporting, and by the way, then your post.
They do a great job covering.
The media sector, particularly on the M and A front, always have, always have. They're suggesting maybe paramount S Guidance might be talking with some private equity players about participating any potential deal, and I think they mentioned Apollo as one that they were talking with. What does that mean to you.
What that means to us is that, you know, obviously funding is a problem here. I mean, this is a big deal, Paul. You know, there was an initial a price range that was suggested by CNBC of about twenty two to twenty four dollars a share. I think David Zaslav is looking for something much much higher than that. You know, the New York Post themselves had reported that he was probably looking for something in the range of
forty dollars a share. Not sure whether he's going to be yeah, not sure whether he's going to get that, but regardless, I mean, this is a huge deal. I mean, even at that twenty two to twenty four dollars, we're looking at about a sixty billion dollar deal. So funding
is definitely going to be, you know, an issue. And that's kind of what it suggests the news article from yesterday suggests to us, Because if Paramount is kind of scouting for all of these different partners, they've talked to Apollo, as you just suggested, they're talking to Legendary. You know, funding doesn't seem to be as easy as you know, maybe we initially thought.
And also Warner Brothers is carrying a lot of debt.
I know Zaslov has made a priority of reducing leverage and he you know, has executed on a lot of that, but there is still quite a bit of debt involved here.
How willing is Skydance to take that on.
They are willing to take that on because Scarlett, you know, Warner Brothers is actually in the midst of their own restructuring. So what they had planned, even before all of this Paramount news broke, they had planned to actually split their company. So they have a TV network's business and they have their streaming and studio business, so kind of the no growth assets and the high growth assets, they're kind of
splitting those two out, and majority of the debt. They started with about fifty five billion dollars in debt, they've kind of whittled that down to about thirty thirty two billion, but majority of that thirty two billion dollars debt was actually supposed to travel with the TV network's business, with Paramount kind of coming in and making a bid for
the entire company. Even before that split actually took place, just kind of signaled that they wanted to get, you know, the entire business, and they were willing to take all of the debt, not wait for the split and wait for you know, kind of the debt to go away and then just go scoop in on the on the streaming assets. So they definitely know about the situation and seemed like they were willing to take it.
Another company that's talked that I announced they're splitting their networks away with Comcasts. Where are we on that?
So that seems to be coming pretty close now in contrast to the whole Warner Brothers Discovery split. The nice thing about the Comcast cable network split, which is by the way going to be called worsened, is that it doesn't have a lot of debt, so it has it's really a well capitalized company. Uh they're throwing about they're throwing they're throwing off about three billion dollars in ebit DA, but debt is only going to be close to about two and a half to three billion dollars. So really
well capitalized. The problem is with the cable network business, as you well know, Paul, that just the options are not looking that great U you know, affiliate revenue as we know, and is it decline with cord cutting again, advertising is going to be you know that most these ad dollars are going away from linear TV to digital outlets, so again the outlook is just very bleak, but you know that company should come on the market sometime pretty soon.
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