BI Weekend: Delta Earnings, Google-Apple Deal, Lululemon Outlook

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0:41That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Every week I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen.

1:20Bloomberg Audio Studios. Podcasts, radio, news. This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney. How do you think the Fed is looking at tariffs, the uncertainty of tariffs? Let's take a look at the sectors and how they perform. A lot of investors getting whipsawed every day by news events. Breaking market headlines. And corporate news from across the globe. Could we see a market disruption, a market event? Are people just too exuberant out there? You see some so-called low-quality stocks driving this short-term rally. Bloomberg Intelligence with Scarlett Fu and Paul Sweeney on Bloomberg Radio, YouTube, and Bloomberg Originals.

2:00I'm Scarlett Fu. And I'm Alexandra Seminova, filling in for Paul Sweeney. On today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide in-depth research and data on some of the 2 ,000 companies and 130 industries our analysts cover worldwide. Today, we'll look at why the athletic apparel company Lululemon sees signs of a rebound in the fourth quarter. Plus, a look at why the tech giant Meta is beginning to cut more jobs at its Reality Labs division. But first, we begin with the aerospace industry. This week, Delta Airlines reported fourth quarter earnings that missed Wall Street's expectations.

2:36The company also said it will be taking a more cautious view for 2026. For more, Alex and I were joined by George Ferguson, Bloomberg Intelligence Senior Aerospace Defense and Airlines Analyst. We first asked George for his take on Delta's recent earnings. Really what we saw here from Delta was a continuation of the premium and the loyalty revenue are rolling in strongly, rolling in, I think, sort of 5 % to 7%, if I recall correctly, above sort of GDP growth rates. But the back of the airplane, they call it the main cabin or basic economy, that revenue was down 7 % and a quarter where Delta was growing a couple percent.

3:18And so I think we still see this premium trend. And I think we're going to see a lot of growth in premium seats this year. We've got Southwest converting to some, you know, to more of a full service carrier premium. Delta plans to go premium. United plans to go premium. Alaska, JetBlue, everyone wants to go premium. So I think there's probably some concern in the marketplace that maybe premium gets crowded and pushes closer to that main cabin kind of fare rather than main cabin coming up. Delta said they're bracing for risk to their forecast, noting the geopolitical environment, whether it's international or domestic policy.

3:59George, is this unusual for them to issue this kind of warning? I mean, again, I think we're at the beginning of the year and management teams like to caveat things, right? And so I guess what I would say is we had plenty of geopolitical challenges in 2025. You know, we were watching transatlantic demand closely because you've got a war raging in Ukraine. It's been doing that for a bunch of years now. Didn't seem to slow down that demand. That demand seemed to do OK. Some days I wonder if maybe there's more risk domestically. One of the other things we're watching is the president wants to cap interest rates for the credit card companies at 10 percent.

4:39Loyalty through the Amex program brings a lot of money in for Delta, definitely a source of their competitive advantage. And I think if you're capping interest rates, I think some of those credit card programs have to change, and that would hurt some of those loyalty programs. So, I mean, there's risk all over the place all the time. But again, the geopolitical didn't seem to hurt demand as much as we would expect it in 2025. Right. It kind of always threatens to hurt demand. But in the end, people still prioritize traveling and paying for traveling. One of the comments from Delta was that the airline industry could see consolidation in 2026.

5:15Which players would that most likely involve? Yeah, so we're already starting to see some of that, right? We had an announcement the other day that Allegiant and Sun Country are going to put themselves together. They're two smaller, low-cost airlines, some of them pretty quickly growing. They're quickly growing. So they'll consolidate. You know, we've heard discussion about Frontier potentially buying Spirit Airlines. We still have to see, you know, the ultimate outcome for Spirit. They're in Chapter 11. We're trying to figure out what the restructuring looks like the second time they've been there.

5:49So you can see on the edges, especially where in that low cost marketplace, you can see consolidation beginning. It takes a long time. and that's the challenge. But you can see some of that consolidation already begin. We don't see the big players getting consolidated. You're not going to put together. I think you're not going to see sort of a United, a Delta, an American, a Southwest. We're not going to put any of those together. I think that's too much. But I think a lot of other stuff is potentially in play. George, we also got news that Delta is ordering 30 Boeing 787 Dreamliner jets aiming to boost the company.

6:32How much do you expect this purchase to impact its bottom line? Yeah, so they're not going to see these airplanes until 2030. So it's a bit of a ways away. They're replacing 767s, which are old airplanes. We have an average age of them about 27 years right now. You know, the 7.8 is going to be a lot more efficient. Delta gave some numbers like 15-ish plus percent more efficient. So I think that really helps the bottom line. Also very interesting to us is that Delta is traditionally more of an Airbus shop. They buy a lot of Airbus product. The recent widebodies they've bought are Airbus's A350 and Airbus's A330.

7:16Again, the Boeing widebodies, I just told you, 28-ish years old. Interesting to see them come in for the 787. That's really, I think, been a category leader in that small, narrow-body world. Boeing has over 1 ,000 orders for that airplane. We see rates continue to rise, which will improve profitability of Boeing as they put more through, putting that 7.8. I thought it was a bit of an endorsement for 7.8, even though Delta's not going to say that, probably. Our thanks to George Ferguson, our senior aerospace defense and airlines analyst. This week, we focused on a Bloomberg Big Take story titled The CEO Playbook to Navigating Trump.

7:54You can find it on Bloomberg.com and The Terminal. So the story looks at how public feuds and protectionist threats have turned CEOs' dealings with the White House into a high-stakes game of loyalty and leverage. And for the story, Bloomberg News recently spoke to experts and business leaders on how CEOs should navigate Trump's second term. For more on all of this, we were joined by one of the Big Take's authors, Matthew Boyle, Bloomberg senior management reporter. We first asked Matt to break down some of the challenges faced while interviewing CEOs for the story. I mean, the usual sort of voices of corporate America, the Chamber of Commerce, the business roundtable, were just like, you know, we're going to take a pass on this one.

8:34And just about every CEO under the sun, you know, just they just don't want to go there. It's like the third rail. So it was challenging to report, but we had a lot of great conversations, let's say, on background with those who are advising CEOs. And that led to our playbook here, the five rules for dealing with the Trump madness. Matt, we've seen a growing number of business leaders recently kind of push back more than usual on some of President Trump's policy proposals. We had Citi's CFO this morning pushing back on the credit card cap, ExxonMobil's CEO calling Venezuela uninvestable. Is this unusual and what might be the consequences for them?

9:09Yeah, it takes a certain CEO to push back. It takes a Jamie Dimon or the CEO of ExxonMobil who have the clout and the authority and the industry backing to say, no, you know, this is actually not perhaps a good idea. But most of the time, as we saw with tariffs, it was happening behind the scenes. You know, remember, this is going back a ways, but when Trump told the Walmart CEO, Doug McMillan, to eat the tariffs, Walmart said nothing. And that was probably pretty wise. There was no reason to get into a public spat on true social with Trump. So but now maybe it's because Trump is in a different position 12 months later or it's the issues involved.

9:46You know, banking CEOs are very happy to go out against interest rate caps. But we are seeing in certain cases some CEOs push back. Yes. And direct engagement does seem to pay off if you can find your way to the president's mobile phone, which apparently he hands out the number pretty willingly to certain top CEOs. You talk about NVIDIA's Jensen Huang having a direct line to the president. Also, Lipun Tam of Intel being able to do that as well. Exactly. I mean, Jensen, NVIDIA CEO went on Joe Rogan in December and said, you know, Trump is extraordinarily accessible. The United Airlines CEO said the same thing to us.

10:25I mean, you can call this man up. He does answer his cell phone, as we've seen sometimes at 430 in the morning. He will pick up his cell phone. But not everybody has Trump on speed dials. So a point of our story was that you have to find a way in, whether that's Susie Wiles, the chief of staff, whether it's Scott Besson, Treasury or Commerce, Howard Lutnick, or one of the sort of lower level aides also. I mean, we found that, you know, the director of the White House Office of Public Liaison is somebody you can go to also. So the point is to find a way in, no matter how you do it. Matt, what are some of the differences in how President Trump deals with business leaders in his second term from his first term?

11:03Well, the second term, he's a little bit more unshackled, let's say. In the first term, you had a few more traditional Republican voices. You had Rex Tillerson in there and other folks who were able to maybe play a little defense. They were able to slow walk some of Trump's more outrageous policy proposals. Now it's just all true believers. So he's sort of unfettered. He's unshackled. And there's really not many checks. So what this means for CEOs is, yeah, they really can't hide. They can't just say, well, we'll let our industry association take care of this or don't worry. I mean, look at just the past week, what's been going on.

11:41CEOs really need to be on watch. Unshackled is a fantastic word. Free range Trump, right? There we go. There we go. The other thing that you could do if you're trying to get his attention or curry favor is to give him a made-up award. Yes, he does respond to these types of trinkets and trophies. As we've seen with the Apple CEO, Tim Cook, was able to give him this sort of glass trophy with a 24-karat gold base or something with the Apple logo on it. And guess what? It was over tariffs, and Cook and Apple were looking for some relief on foreign microchip tariffs. So and, you know, that helped. It also helped, though, that Cook had really put in the work, though, talking to Trump for years now, going back to the first administration.

12:24So you can't just, you know, sort of throw a trophy at him. But it does take some groundwork as well. But look at the Swiss business executives also giving him a, you know, a gold Rolex. And, you know, so these things do tend to have an impact. As we say, everything is a transaction with this president. Matt, you mentioned it's been difficult getting people to speak to you for this story. Did any of the business leaders you spoke to give you reasoning for why they might be afraid to talk? Or did they kind of just brush you off? I mean, many brushed us off through their gatekeepers. The thing is, they just don't see much upside.

12:56They don't want to be the one CEO talking to any reporter on the record. But as we've seen now, maybe we might see some more come out of the woodwork now that Diamond and others are talking about the interest rates. The defense companies also might have something to say about Trump pressuring them to up their game. So we'll see. But it's that CEOs, again, they might be speaking out on certain issues. But when it comes to Trump, again, they just fail to see the upside. But at this point, as we say, or it was a Yale School of Management person wrote in Bloomberg opinion, the chaos is not just no longer in the background.

13:33The chaos is baked in. It's in the system. It's coming for them. So they might want to talk and say something. Yeah, it's front and center. And it feels in many ways like those who know how to navigate governments and emerging markets might be better positioned. Yeah, you have that experience, exactly, you know, of that sort of slightly more chaotic, slightly more freewheeling environments. And many of these big multinationals, of course, do operate in those areas. Our thanks to Matthew Boyle, Bloomberg senior management reporter. Coming up, a look at why the tech giant NVIDIA and the pharmaceutical company Eli Lilly are partnering up.

14:04You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries. You can access Bloomberg Intelligence via BI Go on the terminal. I'm Alexandra Semenova. And I'm Scarlett Fu. This is Bloomberg. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline.

14:41It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor.

15:29as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

16:11This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. I'm Scarlett Foo. And I'm Alexandra Seminova filling in for Paul Sweeney. We move to some news and big tech. This week, Alphabet's Google confirmed that it has entered a multi-year deal with Apple. This will allow Alphabet to power the iPhone maker's artificial intelligence technology, including the Siri voice assistant. We reported late last year that the two companies were finalizing such a deal, with Apple planning to pay about$1 billion a year. For more on this, we're joined by Anurag Rana, Bloomberg Intelligence Technology Analyst.

16:45We first asked Anurag about the specific advantages Google brings to Apple with its Gemini models. Now, when we go back in history, you know, Apple doesn't have that big of their own foundational model on which it's running or it's supposed to run some of these technologies. But Apple and Google go back a long way. They have a very, very good agreement on search, which pays Apple billions of dollars. So, you know, there was some legal issue around it. So we always knew that once that legal issue goes away, Apple may be working closely with Google to basically outsource a lot of their foundational models into the technology that they have.

17:25Now, it's possible that the next CD upgrade, which is most likely going to be the March-April timeframe, could be that one big moment that we are all looking for Apple to finally come out and say that, okay, you know, we are not laggard in AI, that they also have a product that's pretty good. Anurag, I saw a tweet actually from the official Google account announcing this deal. And Elon Musk replied, he said that this seems like an unreasonable concentration of power for Google. Obviously, he has a vested interest here, given his participation in XAI. But does he have a point? What are the regulatory risks around this deal?

18:04Yeah, I mean, he won't have a point if his model was being used at that point. So, I mean, everybody's trying to pitch Apple to use that model. But, you know, at the end of the day, Apple actually for the first time, if you go back a year and a half ago, they used OpenAI. I mean, you can still use OpenAI when you go to Siri and ask a question and it can take you out of there. But for Apple, it has to be integrated within the iOS, within the software. But they won't do it to an outside vendor where they don't control the data. So what Apple's going to do here, they're going to use the foundational models from Google, but they're going to run a lot of that either on their device or their own private cloud data centers, which means they will still protect the privacy of that question and not let it have access to other players as well.

18:51Yeah, the privacy angle is really big for Apple. It's kind of its mark of distinction here among the big tech players. Anurag, Apple has seen this exodus of talent, AI talent, going to other big tech companies in recent months. Does this multi-year deal with Alphabet, with Google, change any of that? Does that stanch the bleeding at all? Yeah, for me, it does only because I am now buying the model outright from somebody who's doing all the hard work. So I'm not in the business of model development. If I can use the best model that's out there into my product and I pay them some money and, you know, the rumored amount is about a billion dollars a year, which is, to be honest, nothing compared to how many billions these companies are spending to come up with their own large language model.

19:37And that's what actually Apple said in the search case and says, I'm not in the search business. If Google has the best search, I will outsource that technology into my products from them. Our thanks to Anurag Rana, BI's technology analyst. We move next to news from the athletic apparel company, Lululemon Athletica. This week, Lululemon said its fourth quarter sales would land at the higher end of its 2025 guidance. It's a sign that the YogaWare company is regaining some momentum following a series of disappointing results. For more, Alex and I were joined by Poonam Goyal, senior U.S. e-commerce and retail analyst.

20:10We first asked Poonam to break down how the company's turnaround is going. So the loyalty program is not something that Lululemon has had for a long, long time, but it does help just like with any other loyalty program. You know, it gives you perks. You have access to Lululemon merchandise. You have access to Lululemon events, etc. And it does bring the member who enjoys the Lululemon experience to keep coming back. It's an added reward for those who have been loyal to the company. But make no mistake, that is not what's going to drive the turnaround. Their turnaround needs a lot more than that.

20:49Yeah, and loyalty programs are something that most brands have, and Lululemon has some more structural issues. When it comes to Lululemon, separate from the loyalty program, Lululemon has pre-announced fourth quarter sales, and it comes in at the higher end of its guidance. This is kind of surprising because Lululemon has struggled to connect with shoppers the last couple of quarters. Yes, you can say that it's surprising, but at the end of the day, the sales are still down. The estimate was for sales to be down negative 1 % to 3%. So maybe you're close to minus 1%. That's still not where we expect Lululemon to be.

21:22This doesn't tell me that the turnaround has started and is underway and things will begin to improve quarter after quarter. I think it's good, but I need a lot more to be confident that the turnaround will begin to take place. What are some of the macroeconomic trends that are driving Lululemon's customer base? Is it inflation? Is it just an overall change in discretionary spending patterns? What is it? Yeah, so the macroeconomy has been, you know, good and bad. The luxury consumer has been doing well. Lululemon, you could argue, sits in the affluent space of activewear. But that said, it's not that the customer is pressured and that's why their sales have fallen.

22:05It is that they have lacked innovation and execution has been weak. So the key here is a company-specific issue that they need to resolve. And they are working towards it. We will be getting a new CEO hopefully at some point in 2026. And it'll really be then where we can see who comes in, what's the strategy, and how does Lululemon re-engage its core customer that probably still loves the brand but just hasn't found enough new to keep going back and back. Yeah, absolutely. I think about the competitors that Lululemon faces in this space. It ranges from Dory to all the other big names out there, including Nike, which offers perhaps similar athleisure wear but at a lower price point too.

22:50When it comes to this new CEO, Calvin McDonald, the current CEO, is set to step down. And I know Elliott has been a big player in pushing for Jay Nielsen, the former CFO at Ralph Lauren, to replace him. What's the latest on that? Do we presume that Jay Nielsen is going to be the next CEO? I mean, we don't know yet, right? So it's definitely one of the contenders and could be. And I think as long as they get a product led executive, which he is, Lululemon could be in good hands to continue this turnaround. Founder Chip Wilson is also kind of involved here. That's another name that we haven't heard from in a while.

23:26He founded the company. He no longer sits on the board, but he still owns about 9 % of the stock. How much do you pay attention to what he says? We definitely look at it. Look, what he says is important. He counted the company. The company was grounded on innovation, on products. And I think he makes fair points that the company needs to kind of really re-engage the customer and go back to its roots, which is, are you still ahead of the competition? Like, you know, you mentioned earlier competition has increased and it has, but competition was always there. But where is Lululemon ahead of it? Can you get similar at leisure pants or leggings at Viore or at Aloe or at Leta?

24:07How does Lululemon stand out today? And that's the big question that they need to answer. Our thanks to Poonam Goyal, senior U.S. e-commerce and retail analyst at Bloomberg Intelligence. We move next to the biotech space. And this week, tech giant NVIDIA announced plans to invest a billion dollars over five years in a new AI lab. And that's with the pharmaceutical company Eli Lilly. For more on this, we were joined by Sam Fezzelli, Bloomberg Intelligence Director of Research for Global Industries and Senior Pharmaceuticals Analyst. We started off by asking Sam to break down the latest news at Eli Lilly.

24:39Well, look, I think these are the trillion dollar club getting together. A billion dollars is probably a drop in the ocean for both of them. It's over five years. And what I think the aim of this at the end of the day is to try and automate and speed up as much of the partly the drudgery of doing lab work. Because lab work, just like as if you were a doctor in a clinical setting, you need to take a lot of notes, a lot of details. But at the same time, I think they're investing in what appears to be automating 24-7 experiments. It's things that human beings can't do. And I know, having been a scientist, that sometimes your life is on hold because you have to go back and deal with your experiments, your cells or whatever it is that you're running.

25:26And so a lot of these things, I think, could speed up and also make the life of the scientist a little bit easier. At the end of the day, though, I think the aim here is to try and get scientific discoveries translated to drugs quicker and get them to market quicker. Sam, what does this mean for Eli Lilly's rivals? Do you expect that we'll see some of its competitors also ramp up their AI endeavors, given its partnership with the company like NVIDIA? Pretty much all pharma companies. And I just want to point you to a recent survey that AI, Bloomberg Intelligence, has done that looked at 10 different industries, one of which being the pharmaceutical industry.