Bloomberg Audio Studios, Podcasts, radio news.
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie Hortern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
I am here in Atlanta, Georgia, with the CEO of Delta ed Baston here alongside me. After that earning support yesterday and that projection of twenty percent earnings per share growth in twenty twenty six, Now that you've had a day to say, jest, have you been surprised by the market's reaction and frankly by the lines of inquiry that you got yesterday?
No?
Really. First of all, thank you for coming down. It's great to have you on our campus down here in Atlanta. There were a lot of expectations. We have a lot of momentum in our business and as we're going into the year, we've seen the first part of the year that momentum picked up yet again in the early early days of January. And so as a result of that, I think our investor base was curious as to whether they see that momentum continuing to build, continue to the
flatline to bop around a little bit. And we just finished a year where we saw some pretty significant challenges, whether it was the Liberation Day impact on consumer sentiment, shutdown of the government and the airspace and the latter part of the year. So we wanted to make certain we had a little bit of wiggle room, some caution as to how we thought about projecting the year out. And so I think there was more inquiries to just
how much caution is there and what couldat look like? Right, And so I think that's more of what we saw.
So we'll get into what great could look like. Let's get into the caution and some of the things that are less foreseeable, including a proposed ten percent.
Cap on a credit card.
And it raises this question about the loyalty program at Delta, considering the fact that American Express and the partnership there contributed something like fourteen percent according to my calculations of the revenue growth over the past year. I'm just wondering how big of a hit is this.
Have you started to not that out at all? I think it's early.
I think it's premature. This that's not our business as the financial services world and the bank and climate. I think the banks that have already come out and spoken about it are expressing a tremendous amount of concern. So I understand it would require legislation, is what I'm told, and we know the challenges of getting anything through Congress these days. I also think the knock on effects are
pretty significant. When you think about what seems to be maybe a good idea to help the lower income strata, give them some income tax or text some interest rate relief, the reality is is going to eliminate their ability for credit, and it's going to freeze up tremendous amount of credit lines that the banks aren't can be able to forward to provide. So I'm not it's not my business. Of course,
we're going to work closely with America Express. The second factor is is that AMEX is a premium car provider, so that's really not the income level that we focus on in our business.
At the same time, there is a sense that's a growing part of the revenues. We saw an eleven percent increase in the contribution that this particular aspect made to Delta's revenue. So I just wonder how much do you expect that to grow? All things being.
Equal, we're expecting high single digit growth in the current year. We've been seeing double digit growth for the last several years, and it's a really important part of our business model. But I don't think it's something that we look back and start getting causert. I think this idea has a lot of roadblocks and obstacles ahead of it.
One thing that you said in an interview with the colleague talking about what could great look like is that effectively all the growth that you've seen so far has been from the premium cabin, not from the main cabin.
Why do you think that is.
Is it because just incredible strength at the premium end, or is it because of weakness in the main cabin.
I think the main reason is the demand set for the premium seats and the premium product that we offer is a continues to be.
At a record high.
The more we look at the health of the consumer.
We talk about the K.
We're at the top end of that K in terms of who our consumer is, and when you have a high demand set, that's what drives pricing strength, and that's what drives the growth that we've seen over the last several years. That said, on the main cabinet, it's still a big part of our business. It's what pays the
bills i'd like to think of. And as we see some of the rationalization that's occurring because you have a lot of lower end airlines with low end seats, too many seats chasing still enough low end consumer demand, that space is where a lot of the rationalization you see
it in the industry currently. As that backdrop continues to get into a healthier environment because all those airlines have to find a way to earn their cost of capital, they're not going to be around and so as a result of that, whatever happens there, we will benefit from that and we'll keep that premium demand set growing. So well, we're not growing in that space, but it will still be a good one for us. In terms of improvement, you've.
Talked about consolidation in the lower end of the industry and how you expect this to be a pretty big year of that as people try to justify their existence and survive. Would you play in that and anyway, would you make any acquisitions.
We're not going to comment on that question, but when you look at who Delta is, you can answer that question for yourself.
Well, I guess the other question is how much is the growth going to come from organic versus inorganic? Is there sort of a plan, especially given how much you've reduced leverage to really increase by acquisition some of your capacity.
Well, when we look at growth for US, international is a big part of our growth strategy, and we announced yesterday a big new order for the Boeing Dreamliner. We're very happy about that, excited about that. Think about our industry. They come to me, they say, where's the future for travel going to come?
From?
One hundred years old? It is international. When you think about only one in five people in the world have ever stepped foot on an airplane. That means you have to go new places, You have to find new opportunities to grow and expand, and that's going to be the statement of the second century of flight. I believe it's about making the world a much more connected place than it is today.
You know, this comes at a time the international travel growth that the rhetoric between countries has been incredibly heated and more about putting up walls. Are you concerned that that could have consequences and put barriers When you talk about the international travel and the growth that you're seeing in that sector, there.
Have always been walls. There's always been in politics. Are soilings what we look at the world today? We know the one thing that really does unite the world is when you can actually travel and see and experience and get to know people, and you bring the countries physically closer together. So yes, it's not going to be a
straight line up. You know, in this business, we know there's a lot of terribulence in the sky, not just in the business models sometimes, but when we actually do physically get connected back together and the world start come a closer place, that's where real opportunity.
Since you're talking about the demand so far this year, and you've seen I believe, record demand so far in the first week and a half of January, I'm just wondering, is it mostly still coming from premium? Is it equal across all tiers? Is it also an economy to the same degree that you're seeing in terms of the robust interest at the top end.
It continues to be. At the top end, it continues to be in business. We're seeing double digit growth in business at the start of the year. We had our largest weekly sales in our history just last week, up double digits over the same week a year ago. So if this demand set continues, we're going to have a great year.
So I have to end with this because my colleagues asked me to do this. The lounges, the regular lounges, not the Delta one. They're getting really crowded. How are you going to manage that? Considering that a lot of people have complaint about Well, we've.
Been experiencing that for the last handful of years, and it's a problem. What no good deed goes unpunished. You know, you build something great and everybody wants to be in there, and it's not doesn't feel as exclusive any longer. We've been working through that for the last several years. American Express is our close partner on that expresses building lounges. We're building new lounges where you've got the Delta one
lounges that are coming. We're going to continue to build more supply, in more capacity to take care of all of our great customers.
Stay with us.
More Bloomberg surveillance coming up after this. In another world, i'd say the President's right. These bankers want hire rates to make more money. Unfortunately, when it comes to these policies that are being recommended at the moment by the White House, the warning you're hearing in the last twenty four hours, I think is agreed by a lot of people on Wall Street. These kind of policy proposals could lead to an otherwise unjustified timing of financial conditions, high rates,
a shilling of credit availability. They are the kind of things that resident this White House does not want to say.
Right, you put a cap on something that means you're going to have less of something, and it might be actually harder, especially individuals and lower income to actually get access to having the ability to use a credit card. Which is why you're seeing a tremendous amount of pushback from a lot of economists. You see a lot of these bank CEOs not just trying to curry favorite the President of the United States calling Treasury, but if they
have to to Tyler's point. They're thinking about potential credit card that they could come out with that has a lower rate maybe for certain individuals. But this is going to be a year long story, especially since you have two bills circulating right now in Congress.
And most of us now Raem and James ed welcome to the program. So I always get to hear from you. I've been telling this is just popular spark, there's no bite. I think it could be a bite like so of this year.
Possible.
John, I think that the bigger issue for a lot of folks that I've talked to is that Interchange bill, that credit Card Competition Act. There is not a sense that we could see in Congress as a cap on those credit card in rates.
We've examined this.
There's no executive authority, even using emergency authority that exists to put this through.
But a lot of investors are nervous for a couple of reasons.
One, when Donald Trump says something, oftentimes he goes out with the most extreme position and then negotiates into something that will be considered reasonable later. So a lot of questions, is it going to be thirty six percent? Is there something else out there? And then from an investor perspective. One thing that we've talked a lot about at Raymond James is oftentimes for financials, you need one hundred reasons
to own them one reason to sell them. Investors are starting to warm up to financials again, and now all of a sudden, out of.
The blue, we start get bombarded with some of.
These one offs that get a lot of people asking, can you sustain a rally in this group if you're going to have that policy risk.
Yeah, for the fourth quarter credit cards and the new cockroaches when it comes to this legislation potentially in Congress. So you think the competition bill has a lot more legs than the actual cap on to card interest.
Rates, Yeah, Amory.
So back when I worked on Capitol Hill, one of the signature bills that I worked on for a couple of years was the Card Act hanging up here on my wall, which implemented all the consumer protections around credit card. So this is something I've worked on for more than twenty years, and what I've seen is there's not a lot of support for rate caps because there are concerns about credit availability. However, on interchange it's just a completely different fight.
You have two really well.
Heled lobbies, the retailers versus the banks. We've had Durbin in the past, strike lightning in the bottle and changed the interchange rates on debit card transactions. Marshall, a Republican from Kansas, used the kind of push by Donald Trump on rate caps to get him onto this bill on credit card competition. And whenever there's a vote on something
emory that can be the whole ballgame. There's been a concerted effort since the Durbin Amendment pass back in twenty ten on credit card or debit card interchange to never have another vote on this because when there's a vote, it's unpredictable.
I still don't think it passes.
But the risk is higher on the interchange bill than the cap on interest rates.
So do you think the banks are overreacting a little bit.
I think what the banks are doing is they're trying to figure out what they can do to put a cap on the risk. Is there something that they can do, kind of from a business perspective, to get Donald Trump to focus elsewhere. He is very focused on affordability. They are having a huge list of other things that they want to see happen in DC. The deregulatory agenda is a big tailwind for the banks. So if they don't do something on credit cards, does some of the other
parts of the deregulatory agenda get sidelined? Do they not get the relief that they're expecting on tailoring or capital return on stress tests. There's so many things that the banks have going right now in DC. They don't want this to be the thing that stops all the other benefits that they're getting out of federal regulators.
That what's been your reaction to the communication with the mayor of New York, your reaction to the communication with the senator from Massachusetts. What's the strategy there for the White House?
You know, part of the reason that Donald Trump was able to get elected in twenty sixteen and again in twenty twenty four was tapping into populism. There was a crossover between Bernie Sanders voters and folks that have voted for Donald Trump in the general election. It is not a surprise to me that he has embraced some of these conversations in the credit card ten percent cap that's
a Bernie Sanders bill. With Josh Holly, a Republican from Missouri, but he is tapping into things that he knows are popular with voters. He sees what Manami was able to do in the primary, being able to win in New York, tapping into an energy that he tapped into himself, and seeing if he can get that for the midterm elections, because he sees a midterm elections with increasing headwinds, and when he sees these headwinds, he and he alone, thinks that he can fix the problem.
And how big is that group of voters that aren't married to a political party but tap into these very ideas, you know.
It's at least ten percent.
I think that there is a good number of folks who look at DC and don't think that they're on their side. They think that things are unaffordable. And so when we have affordability as his pitch, he thinks that that's an opportunity to bring those voters or keep those voters on his side. So we're going to have a Davo speech that focuses on housing. We're going to focus on energy, and that's going to brings in Venezuela. We're focusing on the cost of credit. The fight with Jay Powell.
He's not going to say, it's a fight about kind of independence. It's about a fight about how much it costs you to run your life, and affordability is a much better place to put your kind of center that political fight versus a fight over independence, which most voters don't really focus on fed independence. It's much more the market that does. It's a hugely important thing, but it's not something that sways the average voter.
John, stay with us.
More Bloomberg Surveillance coming up after this. There's a few One Wall Street this morning. Alex Heltman of Barclay's writing, for the time being, investors will have to navigate the noise of coming Q four earnings and try to deploy capital into themes that should be agnostic to the whipsawing headlines. Alex, I'm excited for this. Tell me how to do that. Good morning, Good morning.
So keep it really simple, as simple as possible thematically, as far as we as a team of concerned.
There's one very obvious theme which.
You can deploy in a lot of different ways, and that is the US China de coupling. It's that simple, and that I think is going to be running and humming in the.
Background and at the center of that for US.
Of course, you've got topics like defense, you've got topics like commodity security, and just like US hegemony as well and anything within that, we're particularly focused on the commodity angle. We think this is like one of the most interesting themes that I've personally seen.
Let's get into that.
We're saying it in metals this morning, and it's not just precious metals gold, silver, you're seeing and camper in tin. Does that speak to the kind of things you and the team are thinking about.
Very much so.
So, look, we've seen a precious metal rally and that is obviously to do with debasement and de dollarization, all this kind of thing. Industrial metals is kind of something which we pivot to quite hard in the fourth quarter of last year, and the reason is because of that decoupling. And just to keep you the exact summary in its simplest form, US and China used to code depend on one another, or still do codepend.
On a lot of resources.
If we're moving to a world of decoupling, and we're in a sort of a detante right now up until the time in these selection is the beginning of twenty twenty eight, We've effectively got two years for these countries to secure as much resource as possible, not just physical demand, but also just the line of sight on future supply. And what's really important about that is at the moment, the US is relying on over fifty percent imports on
about forty seven critical metals and resources. It's not just rare earths, it's everything, copper, lead, lithium, electrification systems, aluminium, everything.
If that is your base case, then can we see more noise when it comes to geopolitics? The president a week ago, a little more of a week ago, captured Maduro.
He's now talking about Greenland, and.
Let's not exclude Ukraine as well, massive on critical minerals and resources as well. So yes, I think a lot of the foreign policy decisions are being driven by those two factors, by defense and commodity security.
Is this how to do with the AI trade in building out data centers or is this to increase the availability of these minerals and metals we need for our military.
Well, I think it's both of those, and on top, if you just want to run an economy, if you just want to build infrastructure, if you want to build roads and bridges and electrification of grid and modernize your entire economy. You need access to critical minerals and metals. And of course people talk a lot about the AI narrative when it's an important incremental demand for copper, but we're talking about maybe five or six percent of global
demand is coming from AI data centers. China is accounting for sixty percent of global copper demand.
Let's finish on the priceless story. So some of those metals are already training all time highs. Silver copper in a bank sector, we've seen some record highs in that sector as well, and they've gone into earning season following a massive rally. We've pushback from earning season. I just wonder if you're taking any early indicators from the way the stock has behaved in response to the earnings we've seen in the last twenty four.
Hours, specifically in the financial financials. Yeah, I mean, I think you've.
Obviously got this noise around the credit card data, which which you guys have already covered against that. You've also got to consider this still a question mark about what's going to happen within the ECM world in twenty twenty six. There's also going to be a question around the state of the consumer in twenty twenty six as well. Most people are of the view that it's going to be a very robust backdrop still for the consumer. But let's not forget we've talked about this a lot in the past.
We're still in the case shaped recovery.
There's a large number of consumers that aren't in good shape, and we have to consider those as well talking about consumer finance.
In some ways, does it make it easier to trade small caps, to be invested in small caps because they're not the target of some of the headlines to start.
The new year.
So we've been as a team very polished on small caps since around about.
July of last year.
We're beginning just to sort of temper that enthusiasm.
Just now, and it's changed just the rally well the positioning.
So positioning was a big driver of our view back in the summer when basically we had record shorts by hedge funds and asset manager that's now completely closed, actually has moved back to a net long It's not crowded by any stretch, and one of the big beneficiaries of small caps right now is a combination of the OBBB and also the fact we have to think about AI beneficiaries ie low margin companies that actually can start to
get the benefits of AI productivity as well. So there is still a positive small cap story, but from the positioning dynamic perspective, we have to respect the fact it's changed.
Is it fair to say that trade though, is no longer dependent on lower interest rates? There's something did click in in the last several months that was away from the Federal.
Reserve story in terms of trade, the.
Fact that we had small caps rally as hard as they did even though basically the right kind of cycle is now stalled.
I would definitely say there's been a tariff a tariff temperament dynamic that's been at play in small caps as well. And of course we're going to get the IPO announcement from the Supreme Court any day now, and I think that decision will also plot the path for small caps in the mid term.
Two, it's that market story the Supreme Court decision, because Amris asked this question continuously and have a lot of pushback, I would to say basically goes something like this, yeah, mayor basically, what's going to happen is they'll find another way and it doesn't really change any think.
So that's really the question. The question is not about whether it's a market dynamic or not. The question is does the President want to use use this apos Scotus ruling as an off ramp in a year where he
really wants to win the midterms. And you can see a lot of the domestic policy announcements that have come through from him over the past where you can these frenetic headlines have been about affordability in helping the middle class, and so would actually a tariff roll back and we've already seen some of that, right, whether it's furniture and kitchen cabinetry and stuff that was supposed to kick in and didn't is all part of a let's called it a one year hiatus in order to try and improve
the affordability dynamic of Americans and then kick the tariff narrative back in.
That's not my view, just to be very sure. I think that the.
President play in the Supreme Court, right. I think the President likes tariffs. I think he likes winning. I think he likes using it as leverage in part of the foreign policy. However, there is a narrative out there that there is an off ramp that could present itself.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.