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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. 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 Under Savannahs this morning, the President's nuclear red line.
The only thing that matters when I'm talking about Iran. They can't have a new blue weapon. I don't think about americans financial situation, I don't think about anybody. I think about one thing. We cannot let Iran have a new blue weapon.
There's all.
So here's the lass this morning, President Trump issuing a warning to Iran, saying the quote clock is tick for Tehran to make a deal to build on this. Terry Haynes of Pangaea Policy, Terry, welcome back to the program.
Let's set the stage.
You're a Republican in a tight race facing down a midterm election. What are you thinking about the messaging coming from the president.
I think the I think the quote's unfortunate, of course, but the context can be built on if I'm if I'm that person. You know. The President's ultimate point here is that kind of tightly bound around the quote in question, is that you can't have you can't let around have a nuclear weapon. Republicans are forcewhare behind the president in that, and so I think you can make that case and and and push with voters number one, number two, there's only you know a handful of races a dozen or
that are that are genuinely competitive. So the vast majority of those Republicans may see this as an irritant, but not as some sort of an existential setback, and they're for their own political futures.
Terry, though, are potentially at risk of making the same mistakes that Biden administration made.
Oh sure, always, I think it's much less likely that they make that sort of they make those sorts of errors principally because they understand better than the Biden people did that they're going to that they're going to go need to make the economic case. Number one and it's linked to geopolitics. And number two that people by and
large aren't convinced. The Biden people kind of like to concuone themselves and talk about how, you know, as other administrations did too in the past, that if only you know, people understood a little bit better, and sure they will and all the rest, and kind of relying on faith. These folks aren't going to rely on faith. I think that's a bit of a difference.
Terry, how are they doing geopolitically? The Treasury secretaries at the G seven Finance ministers meeting, and he came out and he said that they call upon G seven and all their allies and the rest of the world to follow sanctioned regimes. At the same time, when the President left Beijing, he said he was going to consider lifting sanctions on Chinese firms that are buying a running crude.
Which is it?
You know, I'm a big believer in Emerson's consistency is the hobgoblin of little minds when it comes to politics, And in this case, I think it might be a little bit of both. Of Course, what the President's doing is carrot and stick, whereas what Besson is doing is a little bit more stick to try to get the allies to stick together.
How important is it that the US clarifies it stands on Taiwan after the President said that he might think about delaying some of the sales that the US has promised to the nation the region.
You know, I think I think Taiwan's right to be nervous. But I think Taiwan's right to be nervous at least since Biden pulled the United States out of Afghanistan, frankly, because that led to perceptions of a power vacuum in the Asia Pacific region that are still with US today. So I'm not blaming Biden, like I'm not what about here. I'm just saying this goes back years. This isn't a situation the president is creating. So I think Taiwan's entirely
right to be nervous. At the same time, I think the president of the President's a little bit less, a little bit more ambiguous, frankly, rather than less, because you've got a situation here where there's no there's no change to the bottom line. And number one number two that what the President's doing is saying what people already knew to be true, that he's considering a particular arm sales.
So we'll see where this goes. But I point out that there's a linkage here between what goes on in the straight of horn moves China's ability to tell its client state Iran, look, you better cool it and open the straight and you know exactly how things proceed, whether it be on Taiwan or trade and tech for that matter.
Do per sense who within the cabinet of President Trump is the guiding light right now in all of this or is it really President Trump? I mean, does anyone have an edge and what the overall goal is or the overall strategy.
Look, I looked the best at economically, I looked to Rubio as as far as the diplomacy goes. But you know, but this is very much, very much the president, you know, with those particular whispers on board and kind of helping.
To guide Terry.
What did we get out of the China summit? I spoke to Ambassador Career there. He said he gives China a passing grade when it comes to rare Earth's but still admitted to what I said we hear from companies, which is that China continues to drag its feet, What did the United States actually walk away with?
You know, I think what they want, but I think we don't know yet. And because and that's why I say that markets need to watch the Strait really because for for trade and tech as much as for oil. China has made much in the past three to four weeks about saying that they think the Strait should be open iron it's client state. You can't put too fine
a point on that. And as a result, what you end up with is a situation where either China could tell around that it needs to come to some sort of an understanding or not, and that's going to be a directional signal for the entire China United States competitive relationship, whether it be geopolitically or frankly in terms of whether the summit result is some sort of a continuation of a colder truce that's existed for more than a year, or whether we're going to get to something that's that's
a little more directionally positive.
Terry, you suggesting that might be an agreement here that's just not been talked about publicly yet.
Oh sure, yeah, yeah, I'm suggesting saying that absolutely out loud. You know, you get a lot of people on your air, other air, you know from past administrations, kind of you know, John, I'll speak English English for a minute, kind of boffins who you know work work in trade or somewhere saying, well, you know, it's not like the old days where there used to be agreements and whatever else before the the
leaders met. Well that's true, but uh, but what's happening here, I think is a world where the lack of agreements, the lack of progress over periods of years over trade deals, for example, led to the kind of difficulties geopolitically and geoeconomically that we see today. Leaders of all stripes want
to speed that up. And because they've speed that up, you know, it's kind of a situation where you know, their their behavior at the summits and agreements at the summits dictate future performance in the markets rather than the other way around.
Stay with us mult Bloomberg Surveillance. Coming up after this, Let's talk about Ryan Ashares rising after posting a record full year profit, the budget carrier warning of rising costs this year from guess what higher fuel prices joining us now legend of the industry, The run Boss, Michael Leary, Michael good morning and see come with you friends very well.
You're a part of the industry. How would you describe yourself? Fat old fart? I think, yeah, I think it's fasting dinosaur.
You've seen it, o, sat have you seen something like this before? The situation from five.
Years ago the Russians invaded Ukraine twenty years ago, the second goal Forard the first golf War nine to eleven.
This happens regularly within our industry.
That's why in Ryan here we typically hedge eighty percent of our fuel. We're eighty percent heged out to March twenty seven, sixty seven bucks a barrow. We're in great shape, apart from the find our share prices tanked in the last two weeks because they were.
Oh they're their line. Got the hell?
We're just reported record full your results, two hundred eight million passengers, two point two six billion euros profit after attacks, spitting off cash to shareholders, share buybacks and with a bit of look if this continues, although you know, we can all have a debate how long we think this will continue in the Middle East over the straight's foremost, some of the flaky competitors in Europe will get taken out in carrier baskets by about September October because they're
not edged on oil and they're borrowed up to the ryeballs.
In net debt.
Are you ready to buy?
We are certainly rated by cheap aircraft. If anyone got any cheap aircraft. I'm really excited. We are about to get the first ten of our Max ten aircraft fifth verse fifteen of our Max ten aircraft from Boeing in the spring of twenty twenty seven. Twenty percent more seats per plane, burns twenty percent less oil. Like, the technological efficiency of the new engines is remarkable, and we will.
Take we're ordered. We've ordered three hundred of those from Boeing.
We priced them during COVID, so we've basically stolen them, and they will transform even our operating economics in Europe for the next decade.
So are you interested, though, in buying a carrier in its entirety, aside from just their aircraft.
There is nothing in Europe you would want to buy.
It's all crap. You know, it will go bust, you know in the not too distant future. Europe is inexorably you know, moving the same direction US did twenty years ago three large connecting carriers BA loffans at Air France KLM. They are making out like bandits at the moment because all the long haul connecting traffic has switched off the golf carriers and is going on those legacy guys shorthold.
Ryanair will continue to dominate the short hold space in Europe because we have much lower fares and much lower costs. We're the only really low fare, low cost carry in Europe. There's a few other low fare not so low cost carriers in Europe, but they're all good to They're all going to go the same way as spiriting from Tire in the States.
That's what I wanted to ask.
It seems like the model in the US is really struggling.
We had Spirrigo bankrupt.
There's talk of mass consolidation among some of the other low cost carriers and this idea that every consumer is expecting higher quality and that that is what's generating a lot of the revenues. How does Ryanair succeed in that environment, in that demand backdrop.
I mean, the problem for the last twenty years in the States is there's really been no low cost carriers anymore. I mean, we copied out this formula originally from Southwest back in the late nineteen eighties when herb Keller her within each pomp, you know, Southwestern charging ten dollars fares. Now Southwest average fair last year one hundred and forty bucks.
It's not a low fair carrier anymore. If you had a real low fair carrier here in the States, as Ryan Air is in the US, our average fair last year was forty bucks, they would still be very strong demand because the main airlines here, I mean, they've had control of the amount of supplying the market for the last twenty years, and they've been pricing up. The cost of air travel in the States is incredibly high, particularly given that you don't pay for ATC.
Could you expand into the US, No, absolutely not.
We're too busy expanding in Europe and then those countries around Europe.
There is so much growth available to US in Europe. You look at it.
Last year we grew four percent with the biggest airline in Europe, we grew four percent to two hundred eight million pastors. This year I grow another four percent two hundred and sixteen million pastors. And in the next decade with these max ten aircraft. I'm going to go to
three hundred million passengers all in Europe. I mean, Europe is the best playground for low cost around that you could possibly imagine a couple of big, useless legacy airlines charging more, charging annual salaries for their long haul travel, but nobody able to do the low cost stuff. We do the low cost stuff. Well, we're cheap irish guys, you know, and so we do it well with the with a with an order for three hundred really fantastic aircraft.
Used to be sig Maine back in the night, which used to be sim Maine, it was Brudesald.
Remember that we were never brutal. The were cheap and less. We were cheap and mean.
Now we're just cheap and cheerful new aircraft on time flights huge com Last year, our customer were record customer service metrics. Customer service satisfaction were done for eighty six to eighty nine percent. I never thought I'd see the day when I got more than fifty percent customer satisfaction, but hey, who knew?
Can I ask you where are Europeans traveling to this summer for vacation?
Do they want to come to America? Anymore. No, No, I mean that's not truly.
Yes, they do, but the problem is that the cost of long hold travels got very expensive, so you you know, there isn't much competition across the Atlantic between the European legacies and the US majors. The Gulf carriers were the real disruptors for the last twenty years, and they have you know, their capacity has been halved in recent months, so a huge amount of Europeans who will holiday at home in Europe this year, in Portugal and Spain and
Italy and Greece. A lot of Americans are still coming to Europe for the quality, for the sunshine, the culture and the alcohol, and along with they continue to travel. But I think there's a real seed change this year of people who would historically have gone to the Middle East or using the Middle East carriers to connect to long haul probably going to stay at home in Europe this summer.
When we'll e're up run out of fuel jet fuel in won't.
There was a real concern. I think back in April, you know, there was real worries over supply jet supply. The jet supply has now we met with all of our fueld suppliers in Paris last week. There's no issues over jet fuel supply right now through to the end of September.
There's one issue in the UK.
Q eight, which is the subsidiary of the state of Qaight, have about thirty percent market share some of the airports in the UK even they now are resourcing that supply. Most of Europe's Jeta one supply comes from West Africa, the America is Norway, and the lifting of Russian sanctions has also easy to supply Jet one into Eastern European countries.
So you don't seem concerned with what's going on right now with the conflict in Iran.
I'm very concerned about the price of oil, but I don't believe the conflict in Iran will have any disruption on European jet supplies.
I do.
The question for US is how long will the straightsuform moves remain closed.
I mean, you know, we gave guidance this morning.
If it remains closed till March twenty twenty seven, our unit because of our on head twenty percent, our unit costs might rise, you know, mid single diges this year.
Nobody believes what are you gonna stand too? You can you just explain your current hedge and strategy where you've.
Had that fuel.
We have bought eighty percent of our jet fuel requirements John out to March twenty twenty seven at sixty seven dollars a barrow. So we're sitting you know, we're in great quite position, great position. But nobody really believes that the Straightsform moves are going to stay closed until March of next year. It's just we don't know when they're going to reopen. Iran is going to starve if they don't get it ready. The Straightsform moves reopened to the
next couple of months. The midterm election season kicks off in Memorial Day at the end of May. You know, Trump is going to lose the House and the Senate if he doesn't get this result and reopened. But the timing is none of us know when the timing will be. But you know, I hope it's sooner rather than later. But if it stays, if it becomes later, say it's stay out for something happens to None of us expect
the straight stay closed to September, October November. Then we are looking at our unit cost will be up about five percent. But you'll be looking at kind of airlines failing all over Europe on the way. Well, I can't really name them, but you know some of our low fare but not so low cost competitors, wiz.
I don't think easy yet will fail.
I mean, I don't make any money this year with him, could well be a candidate for failure. Air Baltic, which was recently built out by the Latvian government gave it a thirty million loan to get them from June through to August, but they have to repay the loan in August. I mean, good luck with the Latvians trying to get that repaid at the end of August.
So I think there will be asualties.
But again a lot depends on how I mean, you know more about this than how long the streets film remains remain closed. When can Trump declear a victory and you know, kick off the midterms, And I suspect it's probably going to be the end of.
May, maybe early June.
But but I mean, if I was any if if my prediction is really good, I wouldn't be working in the airline business. In a proper functioning business like Bloomberg, I'll get it right with star salary.
I'll get it right this time. Stay with us. More Bloomberg surveillance coming up after this. Can this fat cut rights not once, not twice, but maybe three times this year? Veronica Clark of City thinks so gradual wakening in demand will lead to a rising unemployment right in the summer months. For Anica joins us now for more Veronica, good morning, good morning. Each passing day. This sounds more and more contrarian, just laying out your argument.
For no, it definitely, you know, to get seventy five bays points about. To get any cuts at all, it does have to start with the labor market data, right and right now. Yeah, nothing really looks like it's breaking in the labor market. We even had a stronger jobs report last month. I would take the payroll numbers with a bit of caution. They are very volatile now, and I'm not really encouraged by what we see in the
unemployment rate. We've had this big slowing and labor supply, labor force participation rate has come down, and the unemployment rate is still stuck at four point three four point four percent. That means that demand got worse, and that's ahead of the summer months when you usually hire a lot of people, when you get students entering the labor force, new graduates. And it's been the summer when we've seen the unemployment rate rise the last couple of years. Is
the reason that is cut in September. For the last two years, it's when we see the summer data.
You've got unemployment coming up, then yeah, why have you got inflation?
It needs to look better?
Right?
So the inflation focused right now, it's still uncomfortable. Right, So even the May data I think will look uncomfortably strong. But I think if we see monthly inflation readings for June, July, August data that we'll have before that September meeting, if those monthly reports look better, annual inflation will still be high. But you do need inflation, at least on a monthly basis slowing for the Fed to be comfortable.
Cutting What would you have to say to change your view.
Stickier inflation for longer? Not seeing the seasonality in the labor market data. Really within the next couple weeks, that seasonality starts to first play out in initial jobless claims. Once you get around the start of the summer Memorial Day holiday mid May. Certainly by June you do see claims starting to trend higher. So that's the first thing I'm watching for. If that doesn't happen within the next month or two, then okay, maybe the labor market has durably gotten better.
Isn't there a bit of a stress on this entire equation because it might not be as hinged to the labor market as it has been in the past, That inflation could be stickier even without the participation of the labor economity, just based on all the spending coming from hyperscalers.
Yeah, I mean, I'm certainly worried about that AI related inflation. That actually does get a big part, a big weight in core pcees and with computer software really components. So yeah, we are getting inflation there. But you know, the demand driven, tight labor market kind of inflation the FED would be most reactive to. That's what we really don't see. And I do wonder if having the dual mandate kind of forces them into caring about that kind of inflation.
Even last week we.
Got an update for the Atlanta Fed wage tracker that's like the monthly proxy for an ECI Fed's preferred wage measure, it's very low. Again, it fell a lot, so you definitely don't see that labor market tightness kind of inflation.
Do you think that this Fed is going to have to tacitly accept three percent inflation in order to continue on the path that you see?
Yeah, I mean on an annual basis, core pc is going to look more like three for most of this year, right I think the most officials will be really cautious on that for now. But it was interesting to hear, you know, new incoming Chair Warsh talk about other measures of inflation. Right the trimmed mean PCE, even CPI is running softer than core PCE right now, maybe they can, you know, adjust a little bit in what they're they're caring about.
The President thinks, potentially you need to wait until there's the proper figures look at them after the war is over, almost signaling that he will give Kevin Morrismith Moore a breathing space. So when would these three cuts actually happen.
Yeah, well, it would happen later in the year after if we see if we see the weaker labor market data. But yeah, for right now, I don't expect that he can be particularly duvish going into that June meeting, especially if markets perceive that we're not taking inflation seriously, then it's you know, we get yeld higher.
John has brought up a lot that this is the man who said in his Senate hearing inflation is a choice. So how hawkish do you think verbally he's going to be?
Yeah, I don't know.
It's really tricky, and you know, he's definitely been more hawkish when it comes to things like the balance sheet and trying to offset that with sounding more.
Dubvish on policy rates.
But it is really hard to know what his views are going to be coming and he is more traditionally hawkish. You know, is there going to be you know, one to eighty? I don't.
I don't think so we'll have.
To see it.
Initially, inflation is a choice, sanded hawkish, and then in the actual hearing it's started to sound increasingly davish because you get to choose your index.
Yeah, exactly, Yeah, Yeah, we don't really know where this is going to go. Yeah, we have not heard the.
Op dicks aren't great, are they? They've missed their target for five years and they're talking about changing their preferred index.
I don't think they will.
Time is not good.
Yeah, I don't think other FED officials are going to be comfortable with that, But I mean it is an interesting signal that you know, what you were supposed to care about is the strongest of the core inflation measurer.
I was reading some research from BMP POWAPA, and they've got a different view on things for the power Ahead. Everyone's entitled to their own forecast, of course, they think on the hike, and the way you discuss the potential for one is to start reflecting on the insurance cuts you took a year ago and the year before and emphasize that they were just insurance cuts and talk about taking them back. Yeah, what would you think of that kind of move?
I mean, the market's already done that a little bit, right, And I think most FED officials will still see that rates are on the restrictive.
Side of a neutral range.
So if you do start to see any wobbles in the labor market, then suddenly you don't need roots even more restrictive, of course, right, And I would kind of agree with that restrictive assessment just because of what we see in all the wage growth, slowing home prices that are pretty weak.
Yeah.
How mess is the SEP going to be next month?
I yeah, pretty much. Maybe at some point we even get some changes to it, right. You know, worsh was talking about scaling back some communications potentially. Maybe that's an easy out right, you just say very little In June.
This is the Bloomberg Survendics podcast, bringing you the best in markets, economics, angient 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 out