Daybreak Weekend: Delta Earnings, UK Tax Season, China Data

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1:18This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program, we look to how airlines could fare going forward. I'm Nathan Hager in Washington. I'm Caroline Hepker in London, where we're looking ahead to a raft of tax changes in the UK at the start of the new financial year. I'm Doug Krizner, looking ahead to the latest price reports for China and whether deflation is at a turning point. That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington, D.C., Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on BloombergRadio.com and the Bloomberg Business App.

2:10Good day to you. I'm Nathan Hager. We begin today's program in the air. Earnings season gets underway this week with Delta Airlines reporting its latest results on Wednesday. For more on this and what to expect for the airline industry as a whole, we're joined by George Ferguson, Senior Aerospace Defense and Airlines Analyst for Bloomberg Intelligence. George, it's great to speak with you ahead of the results from Delta. How much could we see the outlook for this airline affected by what we've seen over the last month of war with Iran? So thanks for having me on. I think that a lot of the outlook and a lot of investor perspectives on the airline will be a function of that war in Iran and where it's at when earnings are reported.

2:59How so? So, I mean, right now, I think we're looking at a scenario where the Straits of Hamus look effectively closed, right? I don't think they're physically closed, but they look effectively closed and the U.S. may walk away from the region without reopening it. Some of the rhetoric we're hearing out of the Trump administration now. And so that is obviously going to play into where fuel prices are going. So I think as investors go into these earnings, I think one cue is just not going to matter as much. We know fuel prices spike. It's typically a weak quarter. So you're not going to spend a lot of time parsing those numbers.

3:42My guess is that Delta will do a lot of work to try to keep those earnings kind of in a decent place by economizing on maintenance and things like that. But again, investors are going to be really focused on down the road. We're coming into summer travel season, 2Q and 3Q. And so if the price of fuel remains high and even potentially goes higher because the Straits or Hamus are closed and the U.S. is pulling out of the region. I think that, you know, that sets up a different demand dynamic for the summer. I think that Delta's got a fairly well-heeled flying clientele that can manage an increase in prices 20, 30 percent for tickets.

4:31But there will be some demand that peels away. And so then the dance becomes between sizing capacity correctly for what the new demand is in a higher ticket price environment. Or if the U.S. pulls away from the Straits and the Iranians say, look, there's nobody here to blame anymore. The U.S. is gone. We'll let tankers flow. The global oil prices return to sort of pre-war level or at least descend a bit, don't continue to climb. You'll have a much better outlook for summer flying season. And so I think everything rides on what the outcome of the Iran war or fight, whatever you want to call it, is in 2Q and 3Q.

5:25And I think that's how investors will look at earnings and look at guidance through that lens. Given that demand picture you just mentioned, the focus on the premium traveler, does that put Delta in a better position? compared to some of the other major carriers? So we think so, right? We think that United and Delta, and to a lesser extent American, have passengers, have clientele that are going to want to travel despite changes in prices, right? So, I mean, if fuel prices rise by 100%, which is kind of where we were here as we closed out 1Q, look, typically these carriers, 20 to 30 % of revenues to be consumed by fuel.

6:11So maybe the way to think about it is that means that ticket prices have to rise by what may be 20 or 30%. If you're a fairly wealthy client, you're not going to let 20 to 30 % increases in your ticket price, right? $500 to$600 maybe to go to the West Coast, maybe$1 ,000 to$1 ,200 to go to Europe. You're not going to let that get in the way of your travel plans. The people whose travel plans will get interrupted by that are more of the basic economy traveler, the travel that's probably flying Spirit, Frontier, JetBlue, these kinds of carriers. And I think that will exacerbate this fight for the back of the airplane because United and Delta are filling their airplanes with a bunch of premium travelers, But in the back of every United Airlines flight or Delta Airlines flight is a little bit of Spirit Airlines.

7:08It's a basic economy traveler. And the fight will go on to get them in the airplane, at least to cover marginal costs. Thank you for this, George. Again, great having you on with us. That's Bloomberg Intelligence Senior Aerospace Defense and Airlines Analyst, George Ferguson. Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg Markets Live strategist Tatiana Daria. I guess we could say this is the unofficial start of earnings season before the banks get things going right. We've got a few companies opening things up, including Constellation Brands on Wednesday.

7:44It's been a tough go for the booze business, hasn't it? Yes, exactly. Expectations aren't very high here for the company. But some analysts on Wall Street are starting to warm up to the stock on valuation concerns, saying that a lot of the bad news is already in the stock. So Bloomberg Intelligence forecasts that net revenue will fall about 15 percent, due mainly to their wine and spirits portfolio divestments. But they're also anticipating some sluggishness in the beer segment, which is obviously their main driver or crown jewel there. And especially among Hispanic consumers, BI notes. But some analysts are saying that most of that is already in the price.

8:27Perhaps, you know, the beer segment has room to surprise to the upside. We've seen JP Morgan lifting their price target. We've seen Evercore adding the stock to the tactical outperform list. And it also got an upgrade from Citi earlier this month, citing a valuation that's below historical levels. And if you look at the forward price to earnings ratio, it has indeed fallen drastically. It's hovering around the lowest since 2012 now, as shares have come down sharply over the past year. Yeah, valuation concern certainly speaks to that there. Before we hear from Constellation, we're going to get results as well from Levi Strauss on Tuesday.

9:12Of course, we got that big disappointment from Nike this past week. Do you put Levi in the same category as Nike in terms of what to expect there? I think one has to, right? Because they both speak to the consumer. They're both sort of discretionary brands that you turn to for sort of luxury and comfort, not necessarily because you really need to. and expectations are pretty, I would say, modestly positive. UBS, for example, expects a fourth quarter sales and EPS beat, though they say the company may remain cautious on a full year outlook amid the macro uncertainty, just like we've seen with Nike.

9:55They note that the U.S. direct-to-consumer sales likely rose about 2 % year over year and that web traffic likely increased even more in the U.S. according to their industry data that they track. Nonetheless, the company may choose to just be cautious and conservative and not raise their guidance despite the likely beat. And that's because of the reasons that we have seen with the Nike report with potential fresh setbacks in Europe and the Middle East regions that are obviously heavily exposed to the energy costs and just the disruptions coming from the Iran war. Now, were you expecting any further commentary from Levi around how they're dealing with trade uncertainty as well after that Supreme Court tariff decision?

10:40And, you know, some of the uncertainty around how the president might try to rebuild that tariff wall and how that could affect its business? Yes, certainly tariffs have sort of fallen off the radar. But when you look at company earnings, especially in the consumer space, it is still a big focus. So it will be really interesting to see what the company has to say on that matter. Yeah, and of course, earnings take off with Delta Airlines on Wednesday. What kind of a stock move could we see following those results, Tatiana? Well, what is interesting with Delta Air is that they kind of have been the exception among the airlines.

11:22It is the only airline stock bucking the weakness among major peers since the war started. If you look at an index of an industry index, that index has fallen into a bear market recently. But Delta shares have actually gained 3 % since the war started. And it may be because the company has already set a positive tone for its earnings report after issuing a more optimistic sales target at a recent conference, saying that bookings for leisure and corporate customers accelerated into March, actually. And they say they are very well positioned to navigate the current environment at a time when elevated fuel prices are roiling the industry.

12:06And it looks like investors are giving Delta the benefit of the doubt here. But obviously, things change very fast these days. So it will be interesting to see how their views have changed since they issued that update about two weeks ago from now. Yeah, absolutely. While we wait for updates around the war and how that could develop as well. I mean, what kind of changes could we see? What are you listening for, particularly from the call from Delta later on? I'll be listening on clues about the consumer, right? because obviously travel is a discretionary category. Most of us do it for fun, for vacation.

12:48So I'll be interested to see if they have seen a pullback from consumers specifically because if you look at alternative data on the Bloomberg as it relates to that, yes, it shows that airline spending is hanging in there, but hotel spending has sort of fallen off here in recent weeks. So I'd be sort of curious to see how much is that impacting airlines already. Here we go for earnings season for Q1. Thank you for this. Bloomberg Markets Live strategist Tatiana Daria. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to the new tax year in the UK starting April 6th. I'm Nathan Hager, and this is Bloomberg.

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15:02by UK Chancellor Rachel Reeves, but they land just as Britain's growth outlook is deteriorating. Let's go to London and get more from Bloomberg Daybreak Europe anchor Caroline Hepker. Nathan, the tax year in Britain begins on the 6th of April, and 2026 is going to bring in a lot of changes for workers, employers, landlords, business owners and investors. The Employment Rights Act starts to come into force. That's the biggest change in employment law in decades, designed to protect those in low-paying or insecure jobs. Also, there are a number of tax increases due to tax thresholds, to dividend and capital gains tax changes, all of this part of the Chancellor's so-called smorgasbord budget from last autumn.

15:48Plus, there's an increase in the state pension age and higher welfare payments for retirees, people on low income, those out of work or unable to work. But will it help Britain's economy and workers? Joining me now is John Stepek, editor of Bloomberg's award-winning Money Distilled newsletter. There are so many changes, John, that are coming in this new financial year in Britain that we're going to have to break them all down. So let's start first with the changes that are coming under the Employment Rights Act of 2025. this is the so-called day one employment rights legislation from the Labour government.

16:29What does it involve and why is it being brought in? Well this is being brought in just to enhance protections for workers. Now whether you think that is necessary or whether you think we've already got enough that's a different question, that'll depend on your politics. But from April the 6th we're getting day one rights to paternity leave So at the moment, you have to be with a company for 26 weeks, six months. That's being reduced to the first day. There's extended sick pay rights. So at the moment, you're not due statutory sick pay until the fourth day of your illness. This will kick in from the first day.

17:07Now, to be fair enough, a lot of employers don't actually rely on statutory sick pay. It is something you just get paid your wage. But that's something that if your employer does that. And there's some tweaks to collective redundancy rules. So if they don't do that properly, they've kind of doubled the amount of time you can claim for unfair dismissal. They've added sexual harassment to the whistleblowing guidelines. There's various bits and pieces. Some of the kind of punchier stuff has been delayed, I think, partly because obviously employers need a bit more time to adjust. So one of the major things was at the moment you can be employed for up to two years and not be able to claim unfair dismissal.

17:48So in effect, you can ease someone out the door if they're not working without having to go through that kind of massive process. That's going to get reduced to six months. And that was one of the more controversial changes because it will make life more complicated hiring wise. But yeah, so that's where we are at the moment. Yeah. So yeah, so that's what's kicking in from April the 6th. Yeah, so that's in terms of the Employment Rights Act, which trade unions like the TUC and others see as benefiting workers in terms of their health and their well-being. As for the other major tax changes, so we know that income taxes are going to effectively go up because of fiscal drag, right?

18:32So we have to think about that in terms of the tax changes as being a big one. Yeah, I think that's really important. And I'm glad you brought that up because nothing's changed technically, but that's the basic problem. So if you've had a pay rise that is, say, has gone up with inflation this year, then that means that your wages obviously have gone up. But the problem is that fiscal drag means the income tax, so the income tax thresholds have been frozen. So it means that for every extra pound that you get, you're being put into a different tax bracket effectively. So at the moment, you can earn up to£12 ,570, and that's your personal allowance.

19:11Above that, you pay 20 % tax. Above£50 ,270, you pay 40 % tax. And then above£125,£140, you pay 45 % tax. The point is that's been frozen for several years now. So more and more areas of getting dragged into higher rate tax bans. and the kind of proportion of people who would once have been considered not to be high wage earners, like, you know, nurses, people like that, are increasingly being dragged more and more of them into the 40 % band and even a bit higher up, you know, some people are getting pulled into the 45 % band. They wouldn't once have been considered, you know, super wealthy. And that's just, that's pure inflation.

19:52So it's a tax on inflation. your living standard has not improved because your wages are buying you the same amount of stuff but you're getting taxed more on it. So actually, yeah, if you've only had an inflation pay rise if you've even had an inflation pay rise this year you're actually worse off. And so fiscal drag is pretty brutal and it raises the government a good amount of money. So I can see why they're fond of it. Yeah, absolutely. So that's one big change. Then one that we've had more advertising There's not a lot of advertising about fiscal drag, but there is about this change, which is making tax digital, which requires self-employed workers and landlords who earn over a certain money through their business or through rental to keep more records.

20:39So there's going to be more frequent sort of interactions between you and the tax authorities. Yeah, so if you're earning over£50 ,000 as a sole trader or a landlord, then you're going to have to start filing digitally. And I mean, the big issue here is basically admin and a compliance burden. So you have to get used to the software. The software costs, I mean, I can't remember. The last thing I saw was about£400 to£500. A lot of people will probably want to ask an accountant to sort this out for them because it's a faff. And I guess the benefit is probably, arguably, mostly on the tax plan side.

21:18I mean, you could argue that it gives you probably slightly more visibility on what your tax bill is likely to be. But to be honest, if you keep half-decent accounts, you should probably be on top of that already. I would say it's another compliance burden on small business more than it is a beneficial change. Overall, and this is only a few of the changes, do we know how all of these changes are actually going to affect the economy? Well, the problem is you can look at these changes. You can probably make a case on the basis of fairness or a particular interest group as to why this is a good thing.

22:00We should be doing this. We should be giving people paternity leave from day one, all of that sort of stuff. The problem is, though, that you're starting to push even more compliance costs onto small businesses and large businesses. But large businesses are usually set up for this kind of thing already. They can swallow the costs. And this is coming at a time when the labour market in the UK is kind of turning down, cooling off. We've already seen a massive minimum wage. There's another one coming in at the same time. but we're seeing kind of like young people struggling to get jobs basically because they are too expensive to hire and I mean this is, don't get me wrong, it's not just about that we've got a hangover from Covid still so during Covid the labour market was massively disrupted because obviously the leisure industry was shut down and then it reopened and everyone had found other jobs elsewhere so they had to hire and pay more to hire people at that point And I think we're actually still going through that sort of like corrective phase now.

23:06But the problem is it's making it very hard for anyone either getting out of uni or who just wants a kind of part time job to find work. Because, again, it's become too expensive. And this sort of extra compliance burden and also the awareness that there's more to come is going to put employers off taking people on even more. So I do think it's not the ideal time to be doing this, even if you agreed with the underlying principle. And I think a lot of it's arguably driven by ideology more than practicality. I mean, obviously, Labour is funded by the trade unions to a great extent. And again, nothing necessarily wrong with that, but it means they're going to operate in line with what they want.

23:53and the problem is that it's all very well but it's great having worker protections if you've got a job but if it makes it harder for you to get a job it's not so great and it's a similar thing with the renters rights bill one of the problems with that is that if you're already a renter you're fine but it's going to make it harder to actually get a flat because landlords are going to be more reluctant and they're going to be much more careful about how they vet people Yeah, I haven't even got into the renters' rights. I know, I know. I mean, that's from May, so maybe we don't hear whatever that.

24:25It's from the 1st of May, not the 6th of April. But you are right to bring it up because the Renters' Reform Act is all about limiting competition, for example, bidding wars for flats or apartments or homes. It also limits the amount that you can increase the rent by if you are a landlord. So there are beneficial things for renters, which perhaps, again, would, if politically the Labour Party wants to discuss that, then surely that might be a positive. But as you say, if you can't get an apartment, then it's a problem. There are lots of other tax changes. Some have had lots of attention, like the change to inheritance tax on family businesses and farms, like the changes to dividend and capital gains taxes, which have had quite a bit of attention, I'd say, from investors, because, again, they're ratcheting up the tax take.

25:17The Chancellor, you know, wants to increase the revenue from that. What is it going to mean for people? Well, thanks. I mean, so the dividend tax is going up by two percentage points on the basic rate and the higher rate. Additional rates staying the same because if it went up any further, it would basically almost be in line with the income tax rate. And I mean, there's not, I mean, beyond using your tax shelters, there's basically nothing you can do about this except for swallow it. Inherence tax is a heck of a change. So the IHT changes are, basically if you own a farm or business property, then now rather than basically having uncapped relief on inheritance tax, you can pass on up to£2.5 million per individual.

26:07So that means£5 million in total. And to be fair, that went up because it was originally£1 million, but the government kind of backed down a bit on that and raised it. and that means you pass that over and then after that you get IHT. Effectively, the relief is halved, so it means you're paying IHT at 20 % rather than 40 % and that's on everything above the 2.5 or the 5 million. AIM stocks, it gets them too. They don't have the 2.5 million allowance, they just have the normal allowance but now they'll have, after two years, you used to be able to hold certain AIM stocks and pass them on free of inheritance tax.

26:43now they'll be taxed at 20 % rather than 40%. Yeah, but all of this raft of tax changes and employment rights changes coming on the 6th of April and we shall see what happens in terms of its impact on the economy even as we know that the economic backdrop of course for the UK and for many other countries because of the war in Iran does seem to be darkening a little bit. John, thank you so much for being with me talking over all of the details. Bloomberg's John Stepek, thanks for your time. And you can catch up, of course, with John's Money Distilled newsletter in the week. I'm Caroline Hepker here in London.

27:21You can catch us every weekday morning for Bloomberg Daybreak Europe. That's beginning at 6 a.m. in London, 1 a.m. on Wall Street. Nathan. Thanks, Caroline. And coming up on Bloomberg Daybreak Weekend, we'll look ahead to China's March CPI and PPI data releases. I'm Nathan Hager, and this is Bloomberg.

27:48I'm Francine Lacroix, an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacroix from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment, but I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week.