Delta Airlines More Upbeat for First Quarter Amid March Bookings

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1:46Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's switch to the airline industry. We heard from Delta Airlines today. They gave a better than expected forecast. And that's despite saying, hey, they took up 400 million dollars of increased fuel charge in the month of March, reflecting what's going on in the world. So let's check in with somebody who follows this stuff.

2:24Sid Philip, Bloomberg Chief Correspondent for Global Aviation, joins us here. What did we learn from from Delta today, Sid? Morning, Paul. So Delta Airlines is talking about how they've managed to raise their ticket prices and that sort of helped them offset the increase in jet fuel prices. I mean, we've seen jet fuel prices so almost double, more than double since the war in Iran began. And that's really the biggest chunk of costs for airlines. and what airlines are talking about is saying that they've managed to pass on those cost increases to the customers in the form of higher ticket prices and that's really helped them sort of continue to weather the crisis and be able to sort of manage to ramp up bookings.

3:06I mean Delta talked about how in the last, since the war began, they've had five of their ten biggest sale days and that sort of really shows that consumers are sort of locking in their travel at the moment.

3:19Scarlet Fu:That's great if you have the pricing power like a Delta Airlines. But what if you are a discount carrier that relies on low ticket prices to get your passengers to get consumers to sign up? I mean, it's a different story, isn't it? It is. And so Delta Airlines obviously has a predominance of premium heavy travelers. So they sort of talk about how they're targeting businesses and corporate travel, which is sort of continuing to see growth. They're also talking about how premium leisure travelers are continuing to buy tickets. But at the lower end of the spectrum, I mean, the Spirit Airlines and the others, they might see their consumers sort of balk at higher ticket prices and they may put off those trips.

3:58Although we are sort of seeing JetBlue, we heard from JetBlue earlier today, and they talked about how they are also seeing people continuing to book. So, it does look like consumers are trying to sort of get ahead of future price increases by locking in travel for the summer and the rest of the year early. So, how about the visibility? What are the airlines saying about the visibility of their bookings? I mean, that's also a metric that I know kind of gives you a sense of how confident they are in their business. So, at the moment, the airlines say the bookings look visibly healthy. At the other end of the spectrum, I mean, they're still talking about how they're not quite sure where jet-fueled prices will settle.

4:40And that's sort of really key in terms of bookings as well as their jet-fueled prices. So, those two things go hand-in-hand and determine how profitable the airlines will be. Because remember, if they're able to pass on higher ticket prices, but jet-fueled prices continue to grow higher than those ticket prices, that's when the airlines start feeling the pain because they're sort of not being able to keep up with their costs. On the other hand, if they can sort of take the higher prices and see costs come down, that'll sort of help them boost their profitability.

5:09Scarlet Fu:So one thing that you and your colleagues point out in your reporting is that U.S. carriers, unlike those in Europe, don't hedge fuel prices. Once upon a time, some of them did, but most of them don't anymore. Why the change? And do you think that because of what we're seeing in Iran, because of what we're seeing with the volatility, the uncertainty around oil prices, that airlines might start to hedge those fuel prices again? So the airlines have typically not hedged. I mean, famously during COVID, a lot of airlines got stuck with hedges that were sort of in the wrong way, in the wrong direction when jet fuel prices crashed, when demand plummeted.

5:46And so at the moment, we haven't yet heard from airlines talking about returning to the hedging policies. But Delta does point out that they own a refinery and that gives them somewhat of a natural hedge. And essentially, they expect that to help them weather the increase in jet fuel prices. Hey, Sid, what are the airlines saying about the state of TSA today? We've seen a lot of stories, a lot of video over the last week or so of really long lines at airports. Did they have an opinion on how this might play out? I mean, the airlines, including the industry groups, the Airlines for America has been talking about how there needs to be a deal that would basically allow TSA staff to get paid and basically start reducing those lines.

6:28Because essentially the problem is that while it's not a safety of flight issue like the previous shutdown, when the FAA had to sort of cancel flights into 40 airports because of concerns about safety, this time it is sort of affecting the comfort of passengers and causing those long lines we've seen in various airports across the country. And essentially, the airlines have been saying that this will get worse as we get into the peak summer travel season. And so they're hoping for early resolution and a return to somewhat normal as they go into the busy travel peaks.

7:00Scarlet Fu:Yeah. Speaking of the busy travel season of the summer, also at this conference, a lot of industry executives were making the point that if the Strait of Hormuz were not secured by Memorial Day, That would be a key time frame in which consumers might start to see ticket prices really go up even more than perhaps they already have. Exactly. That would sort of take the long, that would basically mean that higher fuel prices are here to stay for the slightly longer term. Or we're not really sure when those fuel prices start coming down. And that's when consumers will say, hey, do I really need to take three trips?

7:32Maybe I can just do what I do or I can sort of not fly at all this summer.

7:37Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

8:05For example, if anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today, with the goal of being 70 % more productive. Yeah. So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

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10:44Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Some other company news here today, our friends at Kraft Heinz, they were going to split up, right? Yeah. But now I think. They called it off. Yeah, they called it off. They have a new CEO and I think he feels like can invest in some of these brands and drive growth that way, which is a different strategy than what we've seen from some other consumer products companies.

11:17Because let's face it, they're under pressure here. I think a lot of people like me have traded down, are trading down some of the store brand. The private label brands. Private label brands. That's putting pressure on some of those brands that they've spent generations trying to create these brand values through advertising and other ways. Christina Peterson joins us, food industry reporter for Bloomberg News. Christina, talk to us about what's going on at Kraft Heinz. What's the latest news there?

11:42Scarlet Fu:Yeah, as you guys mentioned, they halted their plans to split. Their new CEO, Steve Kaling, is trying a new tactic by investing$600 million in their research and development, their marketing, lowering some of their prices. And as part of that effort to restore growth in the company, they are unveiling some new, healthier products in some of the brands that have really struggled but are showing some signs of growth. so we are going to be able to purchase a higher protein version of Kraft mac and cheese later this month and then in April they are unveiling a Capri Sun lower sugar hydration beverage and a snack size version of Lunchables so these are some of the brands that Kraft Heinz has been weighed down by but when they're investing some money they've seen a little bit of growth coming into those brands.

12:39Scarlet Fu:Okay. Adding protein makes sense given the shift among consumers towards more protein packed foods, but isn't the bigger shift about people wanting to avoid food that is seen as perhaps not as healthy as fresh food. I mean, we're still talking about packaged goods, right? Yeah. I mean, I think that is the sort of inherent risk here. I asked the CEO about this and he said, he thinks people are leaving the center aisles of the store where you buy packaged food because they want better for you options and that as a packaged food company what they can do is try and do better for you through a shorter ingredient list what food companies call clean labels by adding more of these kind of trendy macronutrients leaning into protein leaning into fiber but you're right no one's going to confuse this for kale so they're betting that there are times when convenience and taste will win over consumers That's the only thing that drives me.

13:35I don't know what they're talking about here, but I understand.

13:38Scarlet Fu:You're all kale all the time. Oh, yeah, exactly. Christina, what's the, specifically for Kraft Heinz, I mean, other companies in the packaged goods industries have pursued separation plans. Is there a sense within the industry whether that's a good strategy, not a good strategy? Maybe Kraft Heinz thinks they can be a little bit smarter about it? I think that there was a general agreement that splitting Kraft Heinz into two separate companies at that moment in time did not actually make a lot of sense because both halves were seen as somewhat weak. if you had one company that was doing really well and one half of the company that was struggling, then you could siphon that off and protect the stronger half.

14:21Scarlet Fu:But in this instance, I think people thought it did make sense to pump the brakes on that and see if you could restore growth in at least part of the company before splitting them apart. So even if Oscar Mayer Meats or Maxwell House Coffee can't be restored, maybe some of the other parts of the business can be. And then when you, if they were to pursue a sale down the road or a split down the road, that would make more sense. So just trying to like bring the company back to life before you auction it off. Well, you, you mentioned a couple of brands there are mac and cheese being something that Kraft Heinz is willing to invest in.

14:58Scarlet Fu:Uh, the Lunchables brand is also something that they're kind of beefing up and Capri Sun as well, which I think we all remember from packing our kids lunchboxes and having them ourselves, but also the other brands within its portfolio, including Maxwell House Coffee and Oscar Mayer Deli Meats. Like those are things that has the company largely given up on it. If they're not going to refresh those, does that mean that they are for sale for sure? They have said that they will invest in order to protect their market share, but they are not, as far as we know now, sinking a lot of resources in to get new consumers there to grow their market share.

15:38Scarlet Fu:The CEO has said that he would not rule anything out in terms of a sale or a divestment. And they are reviewing the portfolio kind of broadly speaking to see what works and what isn't working. He said they're not actively engaged and looking for buyers for those brands, but that they would not rule anything out. What's the market's feedback on this new CEO or is it too soon to really hear anything? Well, you know, it's a tricky time. Shares of Kraft Heinz have been down since the split was paused, but it's also been a tough time for the food industry just in general. Consumers are strapped. The conflict in the Middle East has sent oil prices rising.

16:17Scarlet Fu:There are concerns that that will stress already strapped consumers out further. They're, in general, the large food companies have been selling less food. So there is just concern broadly in the market. So I think people are willing to give Steve Kaling a shot. And in general, you know, he is thought highly of. He presided over the split of Kellogg. So I think there was initially an expectation that he would do the same with Kraft Heinz. I think people are interested to see if his gamble works. but there is some skepticism that these are the brands that will be able to be perceived as better for you, that seems a little bit of a lift.

17:03Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Hello, hello. I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind it. if anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive.

17:55Yeah, wow. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

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19:24For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs. In Season 3 of The Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support. Listen to the new season of The Visibility Gap, a podcast presented by Cigna Healthcare.

19:56Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. A little M &A trade on the tape here today, Scarlett. MasterCard will acquire the stablecoin infrastructure startup BVNK for as much as$1.8 billion. I have no idea what that is. So I'm going to go to somebody who does, Catherine Chiglinski, U.S. finance team leader for Bloomberg News, joining us live here in our Bloomberg Interactive Broker Studio. Catherine, what is MasterCard buying?

20:31What is BVNK?

20:32Scarlet Fu:Well, it really does a lot of the stablecoin infrastructure. So I think that's been a huge bet for them, right? Like MasterCard and its rival Visa have long dominated the payment infrastructure world. And this deal with BVNK and MasterCard, I think really just allows MasterCard to actually boost its sort of digital payments operation without actually having to build some of the technology itself, which I think is a real boon for it. There's also, you know, kind of this strategy that MasterCard has taken over the last few weeks, few months, because earlier this month, they launched a what they call a global partnership network with a whole bunch of digital asset crypto related firms for more collaboration.

21:16Scarlet Fu:It sounds like, you know, they're moving in that direction, but I don't know what it really means in terms of what changes for consumers. Yeah, well, I don't think a ton will change for consumers because I think MasterCard is still very much wedded to the idea that regular payments are its bread and butter. I do think, though, that they want to be a player in all these different markets. And especially as we see the adoptions of digital currencies increase, I think they want to have at least the back end so that they can handle a lot of that. So I think those partnerships and this BVNK deal really are helping them sort of toggle both ends so that they can get bigger with the growing market and have that technology ready so that as it continues to grow and they can really seize on it.

21:56You know, when I first started learning about fintech, one analyst said, just buy Visa and MasterCard. I mean, no matter what the technology is, it's going to flow on their platforms to some degree. How is that playing out? How was our MasterCard and Visa and maybe even Amex? Do they feel like they're participating in this transition to financial technology and digital? In many ways, yes.