Delta Gives Upbeat Outlook as CEO Hails ‘Stable’ Environment

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2:15airlines stocks up 13.8 here today delta airlines reinstated profit outlook for the year and they say that the uh travel in the u.s is climbing back corporate travel is strengthening so looks pretty good and consumers have become a little numb to the ongoing trade disputes that's according to the ceo is being numb good though exactly maybe relative to you're flying exactly Maybe. George Ferguson, he does this stuff for a living. He follows all the airlines and all the aerospace companies for Bloomberg Intelligence, joins us now. George, what did you take away from kind of Delta? What's changed since they pulled guidance and now they're reinstating their guidance?

2:55Well, I think what's changed since they pulled guidance is that guidance got lower. But they didn't mention that, right? So they reinstated guidance, but at a lower EPS than they had initiated at the end of the year. I think the market still looks a little bit soft to us. For sure, fuel prices are giving airlines a bit of a bolster on the bottom line. But I think what we heard today on the demand side was more of the continuing story, and that is that premium is holding up really well, and Delta is going to do very well there because of their loyalty programs and such. Basic economy isn't. And if you look at Delta's price paid per mile flown for customer, it was down in every single market that they served, or maybe flattish in Latin America, but all the rest of the market's down during the quarter.

3:49So to us, it looks like a market that still needs to have capacity come out. And some of it will in the second half. The CEO pointed to progress in trade talks between the U.S. and other countries and the potential for some geopolitical conflicts to abate. I mean, the flying public really, I don't know, are they really thinking about this when they book a flight on Delta or any other airline? Yeah, I mean, so when I think of that, I think that's, you know, going to largely benefit his international business. I don't know, you know, I was, Paul likes to pick him because I get to Paris for Paris Air Show, you know, every other summer.

4:26And when I was in Paris, it was teaming with Americans. So it didn't seem like even with protests going on around, it didn't seem like demand was off for international travel, at least anecdotally in some of the places I've been to. So I don't know. I mean, I think it takes a little bit of demand off, maybe a very little bit. But right now, I think the international traveler seems to be rolling right over top of that and going anyways. George, how does an airline take capacity out of the system. Is that just going from like 10 flights between Newark and Miami a day to, I don't know, seven or eight?

5:03I mean, I think ultimately you got to park airplanes. I mean, you know, it's a capital intensive business. You don't want to buy those airplanes and not utilize them. You take your old stuff, you park it, you maybe retire it, sell it off. But what, I mean, what we're seeing as 3Q develops, and so we'll watch this closely to see what it does to demand is we're seeing that the low-cost carriers Spirit, Frontier look like they're taking large portions out of their plan for 3Q. Now, it may not hold. They may add some of those routes back, some of those seats back, but we're seeing numbers down 20 % in some of their capacity.

5:46On the full service side, United and Delta still adding. United adding the most, I think, I want to say 5-ish, 6-ish percent when I looked earlier today. Delta adding 2-3-ish percent, an economy that's not growing that fast. American look kind of flat, meaning the economy's growing at rates, you know, sub 2%. So it feels like the big full service is going to push through here and try to push through and continue to subsidize the front of the cabin. Sorry, subsidize the back of the cabin, that basic economy with the front of the cabin strength. I feel like at some point they'll break that front of the cabin.

6:23I think that's sort of how the industry always works, but we'll see. In none of these reports do I see anything mentioned about jet fuel prices. Should we be concerned about that? Well, I mean, right now it's a tailwind, and if that reverses, it could be a problem, right? But, I mean, jet fuel prices are down because of slower global growth, right? I mean, I think the geopolitical backdrop doesn't help it, but it doesn't seem to have pushed prices up firmer. I think I saw today Saudis are talking potentially about reducing some of the capacity ads that are coming on. I don't know if that sounds strong enough yet, but if jet fuel turns, that would work against them.

7:04Because, again, we've got an airline business. If you look at Delta, they added 3-ish percent capacity or around there for this quarter, and revenues were flat. right so they're adding capacity and revenues are flat i generally don't like that kind of backdrop uh business travel delta actually kind of called that out as perhaps corporate travel is quote-unquote strengthening um are you seeing that across the industry and where i guess where's corporate travel versus pre-pandemic yes so they're not telling us anymore right and usually you tell us when you're really excited about where it is um look i think the summer flying seasons are all about leisure.

7:44What I heard was that they were having weaker pricing power in sort of the off-peak demand times. And my read-through on that is that summer leisure traveler, well, they know they got you, right? All my friends call me. They go, hey, George, I hear airfares are down, but I'm trying to travel over July 4th week on vacation with the family, and I'm paying a crazy price. And I'm like, yeah, because you're going when everyone else in the world wants to go somewhere, right? So when I read off-peak, I also think that's probably a little bit of business travel. And so I don't know that it's going swimmingly and they're not giving us numbers.

8:23What I heard was kind of stabilized, but I didn't hear, to me, I didn't hear something that sounded like it was getting much better. And again, summer's about leisure. I live in the flight path of, I guess it's Kennedy. Everything, yeah. Well, everything, yeah. Sometimes I look up and I'm like, oh, wow, a jet. It's amazing to me, George, that I guess the engine technology has advanced so much that I barely hear them. Should I get excited about the advancements in jet engine technology? 30 seconds. Yeah. Look, first, I'm jealous because you're in the flight path of everything. You come over any time.

9:00I'll sit there with a lawn chair and we'll watch them. Jeff, jet engine technology is outstanding. It's probably even getting quieter and more fuel efficient it'll cost more to it'll cost more to maintain over the long run but going the right direction years ago george turned me on to this app flight radar 24 oh it's great yeah so you can track every plane and now and you there's also a button where you can push where you can get the cockpit view yes like pretend you're flying it's great so now i'm completely addicted to that uh george ferguson senior aerospace defense and airlines analyst of bloomberg intelligence uh giving us the latest here on delta and again delta stock up about 13 here today on news that they are putting out guidance, which they had pulled their guidance.

9:41So, Streep taking that as a positive sign that the company has some confidence in their business allocations. 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. Speaking of technology, we like talking to Mandeep Singh. He's a senior tech analyst at Bloomberg Intelligence. All right. You've schooled us on AI over the last several years. I think I now understand what it is. I understand that it's big. It's a big business.

10:18But$4 trillion market cap for NVIDIA? Are you kidding me? What's going on? I mean, tell me that's overvalued. Well, when you see a company that's growing 50 % and is able to generate almost$100 billion in free cash flow, then it's not. And that's where, you know, you have to look at it from the lens of what is sustainable versus what is happening right now. Now, typically, chip companies, we know they have that cyclical element where, you know, after a period of rapid growth, there is a digestion period. I don't think this time is any different, But what we are witnessing now is a super cycle in terms of the build out of AI infrastructure.

11:06So you are not going to see a very quick slowdown simply because right now we are in AI land grab mode. Everyone is, I mean, we talked about picks and shovels for the longest time, you know, in the past 12 months. That trade is still ongoing simply because the demand for GPU compute really continues to rise because you have this explosion in coding agents now. I mean, think of what has coding agents done in the past six months. That is the use case that every hyperscaler is using now. Every enterprise is looking to deploy. In fact, Microsoft said 35 % of their new code is written by a coding agent.

11:51That's all AI GPU based. And that's why there is so much excitement. And if I'm in a company with earnings coming up, I don't have to wait very long to show the results of my big investments in AI, do I? It's already there, right? Well, I think for hyperscalers, especially Microsoft. Well, the end users, I mean the regular Joes out there. Yeah, I think, again, depends on which sector you are in and how far along you are in terms of deploying those. I mean, what these companies have shown is not only are they investing in AI data center build out, they're actually deploying it in-house. And Microsoft is the prime example of that, where they've done a couple of restructurings.

12:33They've said 35 percent of their code is written by AI. So it's hard to argue against the proof points that they're giving us. and look at OpenAI's growth. They've almost doubled their revenue in the first six months of the year. Anthropic has forexed its revenue from one to four billion in the first six months of the year. That kind of growth, it's hard to argue against. And you're right. I mean, some of it will be visible in the companies that are using it as end customers. But really, there is so much runway because these use cases are all new. And everyone is looking at the productivity aspect And that's what everyone is excited about.

13:13All right. Let's switch gears to something near and dear to my heart, which is paying huge compensation packages for people. It used to be like in my Wall Street. This is like sports teams. He did it for bankers and traders. Now in your world, the geek engineers are getting pay packages of a couple hundred million dollars. I'm seeing Meta Platforms has made high compensation offers to new members of its super intelligence team, including more than a$200 million package for a former Apple executive. What's going on here? Well, I mean, with this AI wave specifically, when you think about the transformer model and the subsequent development, a lot of it has been pioneered by, I would say, you know, 100 to 200 AI researchers that were at the forefront.

13:58Wow. So if you are one of those and everyone knows you are either working at OpenAI or Enthropic or Google DeepMind, that's where, you know, Meta was like, we are lacking behind in our large language model efforts. We have really got all the compute and the data. What is it that we can do to fill up that gap in terms of why our model is not being as heavily used as an OpenAI model? So they have brought in all the researchers. I doubt they will be able to fix all the problems with their model by bringing in all the researchers over the next six months. But what it could do is slow down OpenAI because OpenAI was shipping product, you know, pretty much every month.

14:43Now, suddenly if you lose two or three of your key people, then maybe GPT-5 doesn't get shipped in the second half. So I think what Meta has done is really made every attempt to slow others down. And then in the process, they'll have more time to catch up. And I think that seems to be the strategy. It's a Shohei Otani type contract out there. Mandeep Singh, thank you so much. Because these guys can't even hit. I hope Mandeep doesn't leave. Yeah, exactly. We're going to see him leave. Don't go. Exactly. $200 million. Yeah, that's a nice thing. You can wave it on the way out the door. Mandeep Singh, Senior Tech Analyst for the moment at Bloomberg Intelligence here in our Bloomberg Interactive Brokers Studio.

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17:39You'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. All right, John Tucker, Paul Sweeney. We're live here in our Bloomberg Interactive Brokers studio. We're streaming live on YouTube as well, so check us out there. Amazon Prime Day, which I know you're all over, John, is actually Prime Days plural. I think there's four of them. So you spread it out and things are... I don't know, but just get you to buy stuff in July.

18:12I guess you wouldn't ordinarily be thinking about buying stuff. But let's see how it's going out there in the world of retail and e-tail. Poonam Goyal, senior U.S. e-commerce and retail analyst, joins us here. She's at Bloomberg Intelligence. She's down there in Princeton. Poonam, what are we learning about Amazon and Amazon Prime days and maybe how the consumer's doing these days? Sure. So, you know, the days, it's four days this year versus two days last year. So longer. which means that people have more time to shop. So early reads from different third-party vendors suggest that sales were down in its first day.

18:48And I'm not surprised by that because there's no urgency, right? You have till Friday midnight to shop. So I think people are taking their time. Overall, we do expect that Prime Day versus last year will be up by the end of it. Consumers are looking for deals. Prices are going to go up with the tariff situation. and the best time until Black Friday to get deals is this week. Okay. You always leave it to me to answer the stupid questions. Well, what are the big sellers on Amazon? So what they're pushing is exactly what they've pushed before. You have electronics, you have home products, you have the vacuum cleaners, you have the devices that they have, whether it's the Alexa.

19:30It's really a little bit of everything is on sale. the average discount that I've seen, you know, there are clearly some things that are 50, 60 % off, but I'd say the average discount is probably in the 20 to 35 % range from just the products that I've seen as I've been tracking it. But that's the stuff they're pushing. What is the stuff people are actually buying? I think they're buying what they're pushing because people want to buy what's on sale, right? So if it's not on sale, why do I need to buy it today? I can wait till I need it. All right. So next Wednesday, we are picking up our new puppy.

20:03And so we've spent the last couple of days taking advantage of Amazon Prime, buying a lot of dog stuff. Is the dog stuff manufactured overseas where you're now paying like tariffs? I don't know. I'm just assuming, yes. And that's kind of where I wanted to go, Poonam. If we haven't seen the tariff impact yet, or maybe we have, I don't know. When do you and the retail companies you talk to, when do you think the tariff price increases, if any, come through to the consumer. They may not. When do your companies think we'll see it? So I can tell you that I think they're there, but they're selectively there.

20:39Companies have already started to raise prices. Nike, for example, has raised the price of its sneakers that are over$140 by$5. And that's at the 10 % pause tariff rate. What I'd say, it depends where these rates settle. Right now, we're hearing Vietnam, 20%. And that's 10%. versus 20%. So now Nike, will it have to increase its rates further? I think so. They will absolutely have to do that. They said the 10 % is costing them an additional billion dollars in costs this year in their fiscal 2026. If it goes to 20%, Vietnam is a big sourcing country for footwear especially. They're definitely going to have to take prices up unless they're going to let the margin take a hit.

21:21Do these companies like Puma, do they have to reinvent themselves in light of all this? So, to a certain extent, they have to think about their cost structure a little more. But what I would say is Puma is a little more diversified, right? It's a European name. So, the exposure to the U.S. is less than what it is for a Nike. So, they do benefit from that. Even Adidas, for example, their exposure to the U.S. is less than Nike. So, they can take what they make in the higher tariffed countries and use that for everywhere else but the U.S. So, they do have some strategies that they can deploy and are already deploying.

21:57but strategies will have to change, right? Will materials get compromised if the consumer is not willing to pay for the added cost? These retailers cannot absorb a 20 % tariff. They just cannot, their margins are in the single digits. So it's just not something they can afford. So what, yeah, that's interesting. So Bloomberg News, is that what the story is saying that talking about the running category and that's critical for a lot of these sneaker makers and how competitive it is. How do you think about that part of the retail space? So running is a very important category for all the athleisure brands.

22:33I would say probably since the pandemic, it's grown and important. So there have been more people that choose to run. Now, is it going to be easy for any of them to win the running race? No, because really the clear standouts in running today are the Anz, the Asics, the Brooks and the Nikes. Those are the names that you kind of think of when you think about running. And while Puma has its own shoe and so does Adidas, it's going to be hard to penetrate in that market because the others aren't slowing down. Everyone is laser focused on this category. And we'll just have to see who bites at what because it is a very, very competitive category in the athleisure space.

23:12And I'll quote Calvin Coolidge here. I choose not to run. That's exactly right. I don't know. I can use it though. I'll walk on the boardwalk. There we go. All right. I'll stick with that. All right. Poonam Goyal, thank you so much. We appreciate that. Poonam Goyal, she covers all the retail stuff for Bloomberg Intelligence. 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. Paul Sweeney live here on our Bloomberg Interactive Broker Studio streaming live on YouTube.

23:50Well, a lot of investors trying to get a sense of how the consumer is faring during this time of uncertainty brought about in part by all this discussion of tariffs and what it might mean for the economy. One of the areas they look at is the retailers. What are the retailers seeing? Well, today on Bloomberg Television, Ralph Lauren CEO Patrice Louvet said that demand for its signature clothing, such as cable knit sweaters, remains strong, even as the fashion industry is buffeted by tariffs and an economic slowdown. Let's break that down a little bit. Mary Ross Gilbert joins us. She's a senior equity analyst covering the retail space for Bloomberg Intelligence.

24:23She joins us from L.A. via Zoom. So, Mary, we heard from the Ralph Lauren CEO says he still sees demand kind of pretty solid. What do you make of his comments and what are you seeing across your retail coverage? Yeah, so, Paul, we're seeing strength clearly with Ralph Lauren. When we look at the data for the June quarter, which they're going to report in early August, their sales are trending up about 20%. What? And that's just for the U.S. market. And the U.S. is about 42 % to 43 % of their sales. And when you look at the consensus, they're at 6%. So they're really hitting it out of the ballpark.

25:04And it's not just in the U.S., it's actually around the globe. So when you think about China, China is supposed to be having a slowdown, but not for Ralph Lauren. their sales in the last quarter, which was the March quarter, it was up 20%. So they're really seeing some strength. And when you look at some of the other brands out there, I think you'll see some variability. You'll see some retailers kind of struggling. So on the value side, we saw American Eagle shows some struggles there. But part of it had to do with some fashion misses. So it was really associated with execution. And then the other companies that are executing, we're seeing good sales trends.

25:44And so we're seeing off price is still showing resilience. So we think the consumer really is showing resilience. Where does Ralph Lauren make its stuff? That is a good question, John. So about 20 percent comes from Vietnam. China is probably around seven or eight percent is what we estimate. So they've been diversifying. And, of course, we just got the news about a week or so ago that Vietnam tariffs are going up to 20 percent. Possibly by August 1st, they haven't set an exact date yet, and that's up from 10 percent. So when you think about non-China tariffs for apparel retailers, that's about 10 percent.