Delta Predicts $2 Billion Fuel Hit With CEO Cautious on Outlook

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2:02Scarlet 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. Getting back to the stock market, earnings coming in here. We had Delta put up some decent numbers here, better than decent numbers. and the stock's trading up about 7.5 % here today. So we want to break it down, what it means for Delta, what it means for the airlines, how are they dealing with higher fuel costs and what it might look like as we get ready for the summer travel season.

2:37George Ferguson helps us out here. He's a senior aerospace defense and airlines analyst, amateur sailor as well for Bloomberg Intelligence, joining us in Princeton. George, what'd you learn today from Delta? Well, I guess what we learned first is that, As we expected, capacity probably has to come out of this market. I think if fuel prices stay where they are, the airlines all have to drive fares higher. And at higher fares, you're going to have to start to cut capacity. Delta was adding some of the least capacity in 2Q. We were looking at Serium databases to get sort of total number of seats they were adding to their network.

3:17They're adding a little bit less than 2%. So they're talking about going to zero growth in 2Q and not be able to recoup all of what they need in fares to get profitability back to what it was last year. The challenge here will be American growing at 3%, according to Sirian, and United growing at 8-ish, 9-ish percent, high single digits. So it's interesting to see what their competitors say about knocking capacity out of the marketplace to try to get pricing power here.

3:47Scarlet Fu:What does that effort usually look like, George, when they reduce capacity? I assume it's not from the most profitable routes, but maybe some routes that are less frequently used, or is it regional routes? Or does every airline approach this differently? I think you've got it right. Delta already talked about that in the call as well. They'll start to knock out the least profitable routes. We would imagine that means routes where you're competing against one of your rivals in the marketplace. And so the consumer gets less choice and then ends up having to pay a bit more. you know i think look i think some of their international routes are performing uh pretty well they talked about strength uh into uh into europe still so maybe not much out of there they talked about weakness in mexico especially with some of the unrest we've seen around mexico so we'll probably see cuts in there my guess is they'll look at the domestic market pretty closely and look where they're flying against competitors and decide what they want to pull and what they want to keep.

4:52George, to the extent that the airlines are trying to pass along some of their higher fuel costs to customers, what's the price elasticity of a U.S. flyer these days? That's pretty challenging, right? I think that the price elasticity is going to be less for Delta, American, and United with a premium flyer. And if you look at Delta's results, they were, the basic cabin was getting the least amount of capacity gains and fares were starting to turn positive in that basic cabin. But their premium cabins or premium seating is where they're showing some of the bigger gains. So I think their elasticity on those premium seats is a lot lower than the elasticity on that basic seat.

5:41So what does that mean? That means as we get into earning season and we get into these carriers that are carrying a lot more economy passengers, I'm more concerned about their earnings in this quarter and going forward. But there's clearly some elasticity on the premium seats as well.

6:02Scarlet Fu:George, we heard from Delta that they've quantified the cost of higher fuel through June at more than$2 billion. And last month, they saw a$400 million spike in fuel costs in just the first two weeks of March. Nevertheless, Delta is sticking with its full year forecast. If oil stays at these levels and does not return to its pre-war levels of$70 a barrel, do you expect an updated outlook from Delta?

6:29That's a good question, right? They pulled the full year now. I think if the volatility stays where it is right now, Delta is going to be reticent to give you sort of full year guidance. Even the guidance for 2Q, it's got some pretty decent wide variations on it. So you can see that I think they're reticent to give you even a lot on the quarter. I mean, fuel prices here, we just doubled fuel prices in what, a month, a month and a half in that environment. And that's one of the most important expenses for an airline. Last year, it would have been, you know, in a similar quarter, been something like 15 % of Delta revenue.

7:15Now it's going to be 30 % consumed by fuel. When fuel is bouncing around at these levels of volatility, I think they're going to be really hard pressed to want to give you full year guidance or sort of increase, you know, the tightness of their guidance.

7:31Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. You need to make a huge presentation in an hour. Adobe Acrobat uses AI to take all your documents and generate a presentation with a single click. Build slides quickly and streamline the process. Need a last-minute pitch deck? Do that with Acrobat. Need to level up your presentation design? Do that with Acrobat. You have 30-plus documents that need to be simplified into a proposal. Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto.

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10:32Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, Mary Ross Gilbert is our senior equity analyst covering retail, and we want to get to some earnings. It's not often that you have a retail company come out with earnings at this point in the earnings season, but every once in a while it does happen. Yeah, the retailers are usually a month late. They're usually a month late. And then they're off schedule with what the rest of the companies are doing right now. Let's talk about Levi's right now, because Levi's has boosted its outlook. Its direct-to-consumer strategy appears to be paying off.

11:05Scarlet Fu:Mary, tell us a little bit more about what we've learned about Levi's when it comes to its outlook. Yeah, so when it comes to its outlook and when you think about the beat in the quarter and what the company said on their earnings call is that the beat was really driven by the wholesale side of the business. clearly direct-to-consumer-led growth, you know, was up double digits, up about 10%. But when you look at the wholesale business, that was very strong in the quarter. And because of that, that's where they got sort of the beat there. But I think that the company has always done a very good job managing investor expectations.

11:44We completely expected a beaten raise. And the great news about Levi's, I think, is because last year they exited the denizen business. So this was sort of it's kind of like a private brand that they had with Target. They also exited Docker. So they really got out of businesses that were really dragging down the top line. And so now what you have left is really Levi's and Beyond Yoga. and it's a great global brand, resonates well. They have 46 million loyalty customers. They picked up over 2 million just in the first quarter alone. So you're seeing real strength here. Their campaigns are incredible.

12:29I'm sure you saw the Behind Every original, which debuted at the Super Bowl. So it's fabulous, features Doichi, among other stars in that campaign. And it's going to be a multi-year drop. That's kind of like what they did with the Beyonce campaign, where you have these series of campaigns. And they're really, they're so fun. All right. The TV show Love Story, John F. Kennedy Jr. and Carolyn Bessett. How does that relate to Levi's? Yeah. So because the character in that film was wearing 517 Levi's. And, and also, you know, this is sort of another brand, but Calvin Klein. And so because of that, it's kind of really ignited sales there too.

13:16So anytime you can, you can get these benefits, you know, organically for, for example, Harry Styles, we wore it, um, you know, at an award show along with all the dancers to war 501. So he wore 501s and they all wore 501s. So, I mean, it's at the heart of culture. If you look around, I was at the golf club Friday night and I saw this very stylish young lady wearing Levi's jeans with heels and, you know, a beautiful blouse. And it's like, wow.

13:47Scarlet Fu:So, yeah, it's kind of everywhere. As Alexis was reminding us, the 90s are back and it's a Levi's 517, the men's bootcut jeans that Carolyn Bessette Kennedy or the character portraying Carolyn Bessette Kennedy was wearing. We should mention as well that the CEO of Levi's will be on Bloomberg Business Week this afternoon. Michelle Gass will be speaking with Tim Stenevich and Carol Masser. So be sure to tune in for that. Yeah. Mary, these kinds of pop culture sparked, you know, trends for certain genes. How long do they last for? Is this something just for this quarter or can it go on for a while?

14:21Oh, no, this can go on for a while. And actually, Levi's is known for their campaigns over many decades. You can go back several decades and find some absolutely amazing campaigns that the brand has done. So they've always been focused on being right at the center of culture. That's sort of the language or the ethos that they always talk about. And they've always been successful doing that. So, yes, this is going to continue to go on, you know, forever, really. And all the other brands are getting involved. Stay with us. More from Bloomberg Intelligence coming up after this.

15:24Scarlet Fu:Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto, without all the bugs or the confetti. Retirement accounts, yep. High yield cash, yes again.

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17:07Scarlet Fu:See how your business can get stronger and go farther with Chase for Business. Learn more at chase.com slash business. Chase for Business. Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JPMorgan Chase Bank N.A. Member FDIC. Copyright 2026. JPMorgan Chase and Company. 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. 2026 is expected to be a year where there's going to be some huge IPOs coming out of AI in particular, but also arguably the biggest of all time is going to be Elon Musk and SpaceX.

18:00That's coming, folks. Max Chaffigan, he follows all things Elon. He's a Bloomberg Businessweek senior reporter. He's out in San Francisco here today. Max, what's the latest on potential IPO of SpaceX? Right. So this was a confidential IPO filing last week from SpaceX, Elon Musk's rocket company, which is now also Elon Musk's AI company, because in February he merged SpaceX with XAI, which owns Twitter, but also makes the chatbot a chatbot that is competitive with Anthropic and OpenAI. And what is happening right now is bankers from SpaceX are shopping this thing, trying to take the temperature.

18:45And the idea is to get this out very quickly. You know, they're talking about as early as June and at valuations that are very high. You know, we've seen a bunch of different reports. But earlier this week, Bloomberg said that in some cases talking about valuations over$2 trillion. You know, putting that in perspective, it would make SpaceX, you know, one of the most valuable companies in the world. We are going to see some other big IPOs, and I don't think we know for sure which one will be the biggest. Anthropic, a lot of good news coming out of that company lately. They are trying to go public and open AI as well.

19:21So it's kind of a race between these three companies to get out first and go biggest. What do we know, Max, about the financials of SpaceX? side? Well, we know a little bit because although SpaceX is a private company, it's been private for a very long time. They've done tender offers. The stock has or the equity has traded on secondary markets. This is the company that has done pretty well. Reports suggesting that and Bloomberg Intelligence estimates suggesting revenues just under$20 billion, mostly coming from Starlink. That is the satellite internet business that SpaceX operates. You also have significant revenue coming from government contracts.

20:08SpaceX provides launches for the US government. Now, at$2 trillion, though, it's a very small company to be worth$2 trillion. So most of the valuation is going to come essentially from the future, which is how Elon Musk always likes it. The latest story from Musk is data centers in space. exactly uh how about control here uh elon musk uh is he gonna how will he keep control of this company is there maybe a super voting stock being discussed i believe they're talking about super voting although i'm not 100 sure on that one and and the truth is it doesn't really matter elon musk doesn't have super voting uh with tesla but he does control it because of the kind of unique relationship Elon Musk has with his investors.

20:56My assumption is he will get control. He's been fighting for control with Tesla, whether it's through super voting shares or some other mechanism. But yes, the expectation is he is going to run the company as the sole CEO, sole decider, just as it is in Tesla. Is there, you know, I guess among Tesla investors, There's also the hope or potential that SpaceX, once it is public, will just roll up and buy Tesla and put all of Elon's toys in one place. What are you hearing about that? Yeah, I think that is widely regarded, not just among kind of Tesla investors, not just among Elon Musk's fans, but also people who are looking at the SpaceX IPO as a strong possibility.

21:42partly because Musk has kind of hinted at that. This data center in space plan involves a massive chip fab, the so-called TerraFab, which yesterday Elon Musk announced a partnership with Intel, big American chip maker. That is a SpaceX-Tesla joint venture. You also have this situation where the shareholder bases are going to be pretty similar. You know, SpaceX's IPO, they're talking about as much as 30%, maybe even more retail shareholders. That's a lot of retail shareholders. That's the kind of Elon Musk fan community. Those are, of course, the same people that hold Tesla shares. So I think one risk here is a question of, do they have enough money?

22:31Are there enough of those people to bid up both stocks? Or are you going to see people selling Tesla shares maybe to buy SpaceX shares, something like that. And so you could imagine arguments for, hey, it'd be simpler, this same CEO, we're kind of pushing in the same direction, which is AI, why not just put them together? This will get very messy if Elon Musk actually tries to pull this off. Because even though Tesla is controlled by Elon Musk, there's still a lot of shareholders, you know, this would be this would be controversial, be a mega inside transaction, There would be questions about valuation.

23:05So I think a lot of things would have to fall into place for that to actually happen.

23:09Scarlet Fu:This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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