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On demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. Tony Capolano, President and CEO of Maria International, things have been pretty uppy. Does it continue or does it sort of see an end date? Do people start pushing back against the cost?
I don't think so. I mean, what we've really seen the last couple of years is the resilience of travel, and we've seen it across segments and across borders. When we reported earnings at the end of the first quarter, we saw recovery across every segment. Of course, leisure continued to be strong. It was the leisure segment that brought us out of the pandemic. But group has been remarkably strong.
In fact, when we look at the remaining three quarters of the year, we're up twenty six percent year over year in group revenue and business transient Many had predicted sort of the demise of business travel, but you made the point. Increasingly folks are recognizing or reminding themselves of the power of getting in front of their clients, the
importance of immersing new employees in their company culture. And as a result, we're seeing steady quarter over quarter improvement in business transient demand as well.
Is it everywhere for business or places like say San Francisco not seeing any kind of revival because of some of the outflow there.
Well, certainly markets like San Francisco are seeing slower recovery, but even there, I was listening during the break to Scott Kirby's comments. This phenomenon of blended trip purpose I think serves markets like San Francisco really well, This idea that through the pandemic, more and more travelers learned they
can work from almost anywhere where. We really saw this in the datas we look at recovery by day of the week, and what was remarkable was the two days of the week that recovered most rapidly were Sunday and Thursday,
which pre pandemic were really shoulder days. And what that tells us is with increasing frequency is business and group travelers are tacking on a couple leisure days pre and or post trip, and that really has the potential to help markets even like San Francisco, which have some leisure appeal.
Peter, I see you nodding if you do that too, Yeah.
I think that makes perfect sense. I mean I try not to quote unquote take many days off because you can work from your hotel room for an hour or two. We've done some Bloomberg interviews from hotel rooms on the road, so you can do a lot.
I thinking.
You set up and you get these extended days, and especially with the air travel, as you point out earlier, sometimes is a bit painful. It's much easier if you're going to go somewhere for four nights instead of just two nights or these day trips. So we try and do it much of that. I think it makes perfect sense. And I was interesting with the Sundays and Thursdays.
Well, but how much are you able to increase pricing then, based on the cost all in of traveling, which has gotten.
Increazy, So I mean compression drives pricing. And so what we see is in leisure destinations and some of the urban destinations that have a strong leisure orientation like New York, we see a lot of compression, and as a result of that compression, we see strong pricing power. In a market like a Chicago or a San Francisco, where there's less compression, the pricing power is not as strong.
Are there markets that you're seeing expand much more dramatically? I know that we were talking about, for example, in Florida, how much hotel prices, And I know experience from experience that when I've tried to go visit family down there, it's a new experience when it comes to the cost of it. I'm wondering, though, is that continuing? Are you starting to see in leveling off there?
You're seeing a bit of leveling off, but to the benefit of some of the international destinations. So just this morning I was reading some statistics. If you look at outbound US to Europe airline bookings for the summer, they're
up nearly fifty fifty percent year over year. And what that suggests is a lot of US travelers who might have gone to destinations like South Florida or southern California last summer, with increasing frequency, they're going to France and Italy and Greece, and so that's maybe eliminating a little of that compression pressure in South Florida, which will moderate pricing a bit.
How much you're trying to cater to the high end, which has been perhaps recovering even more.
So, luxury has been exceedingly strong. But we have a portfolio of thirty one brands across multiple price tiers and price points. So in the luxury tier we continue to see pretty strong pricing power. But that's just one tier that we operate in. In fact, just last month we acquired a brand called City Express, which signaled our entry into mid scale for the first time, which is now the lowest price tier that we operate in.
Peter, I'm wondering from your perspective if you've been seeing a drop off with perspective to the housekeeping some of the other amenities around the experience of staying.
I have not.
Actually, I've really enjoyed it. I think we'll continue. I had a great trip down in Argentina. We did stay at one of your hotels on those other places.
And did pay him off before coming in.
What does strike mean we've been talking about, is are you seeing resurgents in Asia? Travel to or travel to Asia. That's something I've been hearing a little bit about.
Yeah, we are the and you almost have to look at it. China and the balance of Asia. Mainland China is fully recovered, but again driven largely by domestic Chinese travel. International airline seats into mainland China are only about forty percent recovered to where they were pre pandemic, But the balance of Asia Pacific, particularly markets like Japan Thailand, are booming right now. In fact, I was looking at some statistics.
Somebody asked me a question about what are the most popular destinations and the list that I looked at some of the destinations you would expect Italy, France, Greece, but Japan was in the top five.
Are there any markets you're getting out.
Of, Well, we suspended all our operations in Russia a couple of years ago, but other than extreme circumstances like that, no, we operate in one hundred and thirty eight countries today and in our five hundred thousand room pipeline there are another twenty new countries to build.
On Peter's question, there is this issue of doing business in China, and we talked to every executive about how complicated. That is, as an American company going into the biggest rival right now economically, how much can you operate freely there? How much conviction do you have in the fact that the Chinese Communist Party will allow you to do your business?
So our business model I think serves us well. There. We have eighty five hundred hotels globally, we only own twenty of those physical assets. So our business model is one of principally managed, enfranchising hotels. Of the roughly five hundred hotels we have in China today, almost the entirety of that portfolio is owned by Chinese companies, And so I think that serves us well, even against the backdrop of some of the complexities of doing business.
Before we let you go, how much longer can this trend of yolo and let's travel around the world really last?
You know, I don't see it ending anytime soon. I think there was pre pandemic, a shift away from consumption of hard goods towards investment and experiences, and if anything, the pandemic served as an accelerant and caused that trend to spread. A call across generations.
Tony Capouano of Marriott, thank you so much for being with us.
I really appreciate it.
Be back. Meg of America is Michael gapen weigh in on the Fed's path forward, writing quote, the Main Jobs report is a particularly difficult one for the FED to parse coming out of the May meeting. We argue that the FED was inclined to stay on hold in June, and the onus would be on the Hawks to justify a hike. We think the Main Jobs Report is just soft enough to justify a hold, but perhaps not just soft enough to justify staying on hold for a long
period of time. Michael Gapen, u as economist at Bank of America Securities, joins the table of economists here. So can you give us a sense of what the threshold is now for them to stay on hold?
Well, I think you need to see some material softening in the data. I think they've certainly communicated they'd prefer to skip, and yes, I think that there was enough mixed messages in the employment report where they could do
that if they want to. Personally, I think the Establishment report still gives the better signal, and there's probably some sampling error in that household survey, but there's resilience in the labor market as you mentioned, the resilience and the consumer as you mentioned, and some stickiness and inflation, and if the risk backdrop is diminishing and bank stresses more or less in stasis, then their communication should shift back
in the direction of pushing the policy rate higher. That's probably the debate that they will be having next week.
And I know that Laura is going to jump in here with a number of questions, But I'm curious how high they can go, whether the market is accurately reflecting that. Perhaps it's another quarter basis point hike, but it's not going to be that significant. It's not going to materially change the outlook in terms of the benchmark for the FED.
Well.
I do think back in March, before we had the banks stress pop up, I do think that they were going to guide markets to five four or five six on the terminal. That's probably the direction we're going back to. Could we get to six or above, you know, yeah, it's possible, but I think somewhere between here and say
five seventy five to six will be sufficiently restrictive. Certainly, we are seeing evidence that past hikes are working on at least parts of the economy, and so I'm not convinced that they need to kind of really ram things back up. But yes, we're essentially saying if some of the bank's dress and other issues have dissipated, then the Fed should fill that gap. Two or three months ago, they thought that gap would be somewhere around five and
a half, maybe a little above. I think that still holds.
I think something that has really been unique about this cycle, clearly as inflation and the disinflationary process is happening. But I like to say it's a lot easier to get from nine percent down to five percent than from five percent back to two percent. And I think one of the things that really has come out of the recent tsunami of Fed speak is markets pricing out the rate cuts.
And I know this is really looking around the corner right now, But when you think about the FED rate hike cycle kind of winding down clearly as it ends, I feel like market's rushed to price in the next leg down in the FED funds rate. To me, this is looking like it would be a very different process. It wouldn't be the elevator down that they usually take with rates. Do you have any thoughts about how that could even well.
I think that's right. So some the balance leaves between the how high and the how long. I think you know both of that is is in this discussion, And I think you're right that maybe markets didn't baseline expect cuts this year, but in distributions of outcomes you had to put a lot more weight on that hard landing, and if the external risk backdrop is improving, those cuts
come out as a result. So yeah, I think if you're not, you know, if they're looking to kind of fine tune where the policy stands is some of that is the how long, and I think markets have done it correctly in the sense of first you price out those cuts, will debate on how high things go, So the cycle could be a little different one where you're right that getting inflation down to the mid forest has
been relatively easy. They've gotten help from other spaces. How we get that down to two is still in front of us.
So do you think that good news is still good news? As Peter she was saying, No, I.
Think good news is back to being bad news because good news if you include the risk backdrop mean less risk, then you should in theory get more fed hikes so I think we're back to the good news is bad news world.
Laura, how much do you There's been a lot made about obviously, corporate margins have been relatively healthy throughout this period, and they're starting to narrow somewhat. There's been talk that that is now one of the factors that's adding to inflation, the fact that companies are being a little bit greedy about not wanting to clearly, you know, as would make sense for their own shareholder value, not wanting to give
up that margin. How much is that now a driver of inflation or is it still a reaction to the strong economy.
I think it's a little. I think it's fair to say it's both. And what I would say is what has surprised us most about the inflation forecast is how little goods prices have come down. I think we are all kind of on the shelter story, and that passed through seems to be happening as we would have expected. But to me, the big shock is you have these big durables items new cars, use cars, household of alliances,
and so forth. They've been basically flat. And I think that's what you're seeing is that you know, margins have been getting squeezed and then then they got widened out, and I think corporate corporations are deciding, well, what is the elasticity of a price cut at this point in time. So I think the strong economy has meant goods prices have not come down as much as we had expected. Conversely, to open up room for goods prices to come down and for inflation to get back to two, you do
have to moderate demand. And that's why I think good news is bad news.
I have a question for both of you guys, since you both have traders at your offices. The anecdotal information I get is that, yeah, FED Fund's futures have been very volatile, that have been up and down about cuts and things like that, but traders have not. The expectation on the desks is that the FED is going to stay high and maybe even raise rates again. So we're getting conflicting signals from the trade guests and from the FED fund's futures.
I think that's fair. I think, you know, there's some people who will play that game more than others, and some have different time horizons. I'd say the majority of investors that I meet with, so let's say two out of three are on board with the higher for longer
and likely no cuts this year out of the FED. However, there's a group of investors I meet with who are very concerned about bank stress and see that as being more material and people like me are too complacent about it, and they say, well, the lags are going to hit later this year and the game is up in effect, and we'll know it when when we see it. But I would say, yes, more, there are more than not saying higher for longer seems to be where we're going.
I would say the same thing. I think that on our desk there's, you know, a mix that reflects the future's curve, and there are there's a vocal group that is perhaps smaller in number, that really feels like the Fed's raising rates, they're going to break something, going to see yields come down very sharply should the economy slow.
And I think that's.
One of the reasons why we have this sort of fight in the sort of one year ahead FED rate expectations. But a lot of us are still in kind of I think a camp that they're not going to have the room for that.
In the past three weeks.
It seems like there has been a shifting tone where a soft landing has suddenly become more likely that it had been.
It's back.
How long is it going to stay back?
Mike?
Until we get guidance that the funds rates going closer to six.
You think'st break it? You think that that's well.
No, I mean I think the soft landing can't be ruled out. I don't think it's ever been able to be ruled out entirely. I just think is as you mentioned in the lead in history suggests it's more likely than not. When the FED moves this quickly into counter inflation, you do have to pay a price at some point.
So I think we're all in the You know, okay that that outcomes more likely than not, but it's a very different cycle, and I don't think we can entirely rule out that they kind of hit it just right. So it is back on the table at the moment because the risk backdrop has has improved. Now we'll see about the other direction.
I feel like it always looks like a soft landing until all of a sudden, you're face.
I mean, we're in a recession forecast, so I can't I'm not going to talk away from what the view is. Yeah, but I just just you know, Yeah, So I still think in the end it's more likely than not we'll have to, you know, pay some price to bring inflation down. And given what I said about goods prices being firm and the consumer being resilient, you have to lean against that.
Will Halloween have a recession is you know, when your neighbor loses its jobs. A depression is when you lose your right And I guess the soft landing is when bonuses are cut on Wall Street, Michael.
Cape It and Bank of America Securities, Thank you so much, Ellen Wall Senior fellow at the Atlantic Council and author of Saudi Inc.
After that one million.
Barrel cut that Saudi Arabia agreed to unilaterally go through with, even though the United Era Emirates most notably came out and didn't have to make a similar cut, Ellen, what do you make of this announcement and frankly, the sort of lackluster response in markets.
Yeah, I'm not surprised by the somewhat lackluster response, especially because a one million barrel of day cut across the board from OPEK plus was being tossed around over the weekend, and so the fact that that didn't come through and instead we've got this Saudi lollipop of a one million barrel of day cut unilaterally on their part for the month of July.
I think that the.
Market sees that as as less significant than a across the board OPEC plus cut extended maybe for six months.
I do think though, that the market is a bit downplaying the significance of the deal that renegotiated the baseline production levels, because starting in twenty twenty four, these are going to come into effect, and that's really going to bring more clarity to the market because one of the issues that we've seen with OPEC is that they push through a one million barrel a day cut, but it's not actually going to be one million barrels a day because a lot of the countries that are participating are
not actually producing up to.
Their max level.
Their capacity is down because their production quotas are back from twenty sixteen and now it's twenty twenty three and things are really different. So I think that once these new baselines come into effect, OPEX production rates will actually be more reflective of what's actually on the market, and the market will appreciate that clarity.
Do we have a sense ellen of just how much demand has actually fallen off versus the forward look of demand potentially falling off?
Is there if there's a recession.
In other words, our price is accurately reflecting the slowdown that some people are saying is transpiring in China.
In other places, prices are reflecting the fear of the slowdown much more than what any actual slowdown is, mostly because we're not really sure what that slowdown is going to be. We also don't know how China is going to react to this. Is China going to push through some kind of big manufacturing stimulus that will push up demand.
Plus there's always this kind of fake I don't want to say it's fake, but China tends to buy more crude oil when it's cheap, to put into storage, maybe for rainy days or whatnot, or just to resell, to process and resell around to Asia. And so there's a lot of cheap crud available on the market. Now. Russia
is a huge purveyor of it. But also there's you know, Iranian and Venezuela imprud that China can get, and so they may actually be buying more crude oil than they're using, and that's kind of papering over any kind of demand issues that we're seeing.
Yeah, one big wildcar I've been wondering about, and maybe you've got some good color on, is what's going on with the Strategic Petroleum Reserve. Where do we stand? What are you hearing about us trying to rebuild that, because to me, it's a bit concerning that it got so low and it's staying this low and we're not really taking advantage of lower oil prices.
Yeah, that's that's a big issue. I think part of it is that maintenance needs to be done in some of the storage facilities, and so the government is hesitant to start making purchases before it's completed those those maintenance things, which you know is an issue and.
I do think needs to be addressed.
But I don't think that. I do think that they can purchase more than they are, and the fact that they're not, particularly when prices are in a good spot, is concerning. I also think that when they do start to purchase finally, which I do believe they will, whether it's this particularly government or you know, another administration, we are going to see a big bump in demand, and that's going to push prices up because this is going
to be a lot of food purchases. And I don't think that there are prepared to do this, and I also think that Opek is kind of waiting for this to happen. They got very upset when the government, basically, when the Biden Ministry is basically said hey, we're going to start purchasing when it hits this level, and then they didn't. And Opek was like, well, we were expecting this demand bump. Now we're going to have to cut supply. And I think they were burned and a bit upset about that.
Interesting. Ellen Waald to the Atlantic Council.
Thank you.
At Mills, Washington policy atalyst at Raymond Jane's joining us.
Now.
That is a good question the momentum the Republicans may have from the debt sealing resolution as it were, even if the President, as he is right now, trying to take credit for coming up with some sort of bipartisan agreement.
I would actually argue what you saw out of this that's under reported, Lisa, is that what was the big part of this from a DC perspective is there were a number of different land mines that could have gone off between now and the election that got diffused. I think some of those are going to be beneficial to Republicans, but arguably more beneficial to President Biden.
The threat of a government shutdown has come down.
What they did was pull forward the discussion of exactly how much should defense get, how much should non defense get. They defuse the issue on IRS kind of budgets and audits that could have been a huge presidential issue next year.
They diffuse the issue of student loans. Now.
We could talk about the market impact of people starting to repay their student loans come September, but I would argue, kind of, yes, McCarthy comes out of this arguably stronger. But the Biden team was looking at the next couple of months, the next two years and saying, what are some of the things that could be really problematic for us, and could we get it as part of this deal as little as possible that we'd have to give to
fuse those future time bombs. And I think that's why they think this is truly a big win for them.
The problem for President Biden is that the Washington Eco Chamber right now and the political sort of talk shows are focusing more on his age than they are about coming to some sort of bipartisan agreement. And he's trying to say, look, I'm the one who can get these things across. Why can't you give me credit? And mail say, well, you chipped over a sandbag. How is he going to get out from under that?
I don't know, Lisa. I mean, his age is his age.
I think what he is trying to do and what the Biden team continues to kind of focus on is his accomplishments, and that what was the other big winner out of this debt sailing debate was the middle held.
What we have seen kind of through.
Legislative success under the Biden administration is that not necessarily the extremes win kind of the last couple of years, it was Joe Manchin moving the party more to the center to the extent he had possible. And then with this he's saying, look, the reason why you try to keep him as president, His argument would be is that you get the middle, which is where most of the
country is, to get those wins. And he put points to the bipartisan Infrastructure Bill, the Chips and Science Act in that kind of fight with US and China.
I do think that the next thing that they.
Want to do is something on energy permitting reform more than what they just did in a real focus on critical minerals as well as supply chains as the top part of their agenda, trying to see if they can can build on those bipartisan wins.
So Ed I thought that was really interesting analysis about avoiding the land minds and kind of diffusing some of those over the next two years. But one of the things that struck me is that throughout this whole debt sealing drama, Biden's on popularity in the polling data rose. So I come back to the issue all these things that he's accomplished legislatively, how syllable are those to the American public? How well is he going to be able to actually campaign on those?
Laurie, It's a good question.
I think that one of the things that we are looking at and polling data here at Raymond James is that in our current environment, any political figure out there as a ceiling not much more than fifty percent, So we don't look at it in the past, where we had presidents with sixty seventy percent approval ratings. That's kind of a bygone error where we saw the downdraft in his polling numbers largely came from some of his supporters.
Now that there is an accomplishment, a deal sign something averted, we would expect that probably to tick up where it goes from here. I can't predict the future in that regard, but the key for Republicans is getting some of the folks that supported Joe Biden in twenty twenty to come over to their camp. We will try to see kind of if anyone can do that. But ultimately, what Joe Biden always says is, don't compare me to the almighty,
compare me to the alternative. Ultimately, this is going to be about a choice, and so it's as much about Joe Biden as it is who Republicans choose and or if there's a third party candidate.
So the twenty twenty four election and is going.
To be a big wildcard for the market for the rest of this year and especially obviously next year.
Just real quick here ed over the weekend talking about who he's going to run against. Eight candidates, went to this Iowa State Fair, and we're trying to appeal to the Republican constituents eight potential Republican nominees President former President Trump not among them. What did you make of that he was not there in one of the sort of lead ups to the announcements to just keep on coming.
I think that you look at the polling data and form President Trump is in the lead. I think for the time being, he's happy to kind of let that be the case. What we are going to ultimately see is how many other people get into this race and does that diffuse the non Trump vote or is he able to consolidate and keep that power and work. Probably still several months out before we have any true inkling as to where this Republican race is going to go.
Ed Mills and Raymond James, thank you so much.
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