Delta Sees Robust Demand Going Into 2026 Amid Premium Focus

0:28The news doesn't stop on the weekends. We put the past week's events into context, examining what happened in the markets and the world. Then on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg this weekend, Saturdays and Sundays starting at 7 a.m. Eastern on February 28th. Make us part of your weekend routine on Bloomberg Television, Radio, and wherever you get your podcasts.

1:10Bloomberg 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. Delta Airlines came out with some better expected results for the quarter, saying that helped by leisure travelers and a rebound in corporate travel. How about that? Sid Phillip joins us. He's deputy team leader for global aviation. He joins us live here in our Bloomberg Interactive Broker Studio. Are we kind of back to pre-pandemic levels in terms of air travel?

1:50Paul, so there is a dichotomy in the aviation industry at the moment where we're seeing airlines profitability, especially at the top end of the market in the premium and corporate sector, they're doing really well. So Delta Airlines, United Airlines doing really well. At the other end of the market, there's the likes of Spirit Airlines that's in its second bankruptcy. You've got the other sort of low-cost carriers that are struggling to fill up seats. And that's partly on account of the fact that low-cost carriers, their customer base is still hurting from the sort of tariffs and the economic uncertainty.

2:23Whereas for the top end of the market, they seem to be traveling as normal, actually. Yeah, it's the manifestation of the K-shaped economy, right? Where the higher income consumer is doing much better than the lower end consumer. The CEO of Delta, Ed Bastian, said in the earnings report that our customer is financially in a good spot. Sid, who exactly is Delta's customer? Because it's not the same, as you said, as, for instance, Spirit or Southwest or even, you can argue, United. Sure. I mean, Delta Airlines, I mean, they frequently talk about how their customer is in the sort of average of over 100 ,000 earnings, $100 ,000 a year in terms of earnings, and they sort of are looking for experiences.

3:03They're looking to sort of travel premium. They're not looking to sort of go coach and sort of nickel and dime their way through the aviation experience. And they're sort of more willing to splurge on experiences. And that's sort of the post-pandemic revenge traveler who is now continuing to sort of spend money on travel. And they seem to be suggesting that airlines are willing, people are willing to keep going and keep traveling and keep spending money on experiences and holidays. Well, if United beats their numbers this quarter, it's because what I spent to get over Italy spared no expense to get over there.

3:39I needed the rest. Talk to us about just visibility. These airlines, do they have some pretty decent visibility on their bookings? So they do. They've been talking about how their visibility into the holiday quarter, into the fourth quarter of the year is looking good at the moment. They're seeing demand being strong as they get into the close of the year. And that's at least Delta Airlines is talking about how they expect corporate travel to continue to be solid and robust. in 2026, they're saying that companies that they surveyed are seeing continued appetite for corporate travel. So it remains to be seen what actually materializes.

4:18I mean, airlines had massive forecasts for record growth this year, and then sort of liberation, they came around and that sort of torpedoed that and they've now sort of come back to those levels. But it remains to be seen what surprises come out next year. I'm so glad you bring that up because earlier this year, Delta warned of an abrupt slowdown, or I don't know that it actually saw one. It just said it kind of, it was seeing it on the horizon. Has that been completely erased and turned around now? For the moment, it does look like it is smoother skies for them. But at the same time, we don't really know what's going to happen in the current economic environment or what demand looks like as we go into 2026.

5:01and that's something that we need to watch as the airlines report their fourth quarter results and talk about their future forecasts. What are the big airlines, the big ones you mentioned, United Deltas, what are they doing with capacity? Are they adding capacity, trimming it back? I mean, I don't know what they're doing with routes. I don't know if they have enough planes, all that kind of stuff. So Delta's been adding capacity. They've been retiring older planes and taking on new planes. And so they seem to be adding a little bit of capacity. and we're also seeing like so united talk about how they are upgrading their fleet they're replacing their older aircraft with 787s and maxes and so we are seeing the u.s carriers upgrade their fleets and that's sort of adding more capacity especially as they up gauge aircraft so they sort of replace smaller narrow bodies with the larger a321 or the max 9 and that sort adds more seats and more capacity but then at the same time they're also premiumizing the cabins so So they're adding more business class cabins and more premium economy than they ever did before.

6:04Premiumizing. That is a new word. I had not heard of it, but it makes a lot of sense. The premium economy coming back from Italy was actually like the old first class in terms of room. I was shocked at how much room there was in this. How far back can you recline? Just the normal one. Okay. But it was just way more legroom. And it wasn't that much money. It was a couple hundred bucks to upgrade from it. So that was pretty interesting. No, and that's a big part of Delta's push, right? pushing these premium products in the cabin. What about on the ground? What is Delta doing on the ground to really harness its customers' desire for a premium experience?

6:38So they're sort of partnering with, they have that partnership with Uber. They have their, they've sort of added more of those Delta One lounges and they're sort of doing those credit card partnerships. And those are all sort of ways to keep customers sticky and keep them engaged. Because I mean, the moment you're sort of signed into the ecosystem, you're more likely to book with them and sort of not really use price comparison websites, you're more likely to sort of keep going. Customer for life kind of thing. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, I'm Stephen Carroll.

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8:12You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am 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. You know, I'm a Coke guy, but you can throw a Pepsi in front of me. I'm fine. I'm just as happy. I can do this. But Ken Shea, he follows this stuff for a living. Ken Shea is a senior consumer products analyst for Bloomberg Intelligence. Pepsi reported some numbers a little bit better than expected here. Ken, tell us what you heard from our good friends at Pepsi.

8:44Yeah, hi, Paul. Well, PepsiCo reported a number today, numbers today that were pretty much in line, maybe a little bit above expectations. But I think they also masked persistent weak market conditions in the U.S. across its broad food, snack, and beverage businesses. The company pretty much, you know, hit their numbers, as I said, but it didn't do much to relieve the pressure it's getting from an activist who's asking the company to do more. Basically, flat performance is just not good enough for something that's perceived or a company that's perceived as a growth company. I guess the good news is their language during the call, though, did provide investors a bit of optimism.

9:30It sounds like the company is getting it. They said they're going to ramp up innovation. They're going to be more aggressive with cost cutting. They're listening to the activist points. And they said, by and large, they agree with many of them. So those are all good things to hear from an investor point of view. It's just a matter of executing and actually following through with them, I think, is where the jury is out. So I guess, Ken, the question is, is this enough for Elliott, the activist investor, which took about a$4 billion stake in PepsiCo and called for a strategic review, a streamlining of the snack portfolio in particular?

10:07Well, I think the CEO of PepsiCo mentioned that they are on the same page on a lot of fronts. But what they didn't say is one of the big things that Elliott is calling for is basically, you know, the beverage business to refranchise itself, sort of what Coca-Cola does to let the bottlers be independent rather than own those very capital intensive businesses. They didn't go there. I'm sure that's going to be a big sticky point. What they are in agreement, though, is that innovation is needed to be even more on trend. You know, I covered PepsiCo. I've covered PepsiCo for a long time. they are probably in the forefront of the most innovative companies across the beverage world that I cover.

10:45And yet they're even ramping it up even more aggressively across food, aggressively across beverage to be as on trend as possible. And on that note, you know, Bloomberg Intelligence came out with its annual consumer beverage survey just on Monday. And some of the big findings that we're seeing is that advanced hydration, wellness and value are more important than ever in the world of beverages. And it was interesting to hear PepsiCo pretty much address all three of those areas with their new product innovation. So that's encouraging. At the end of the day, Ken, is a company like Pepsi, is that nothing more than really a GDP kind of growth story?

11:26There's not much more you can do to goose it above that? Or can they do better maybe? That may be true in the US, Paul. I mean, it's such a large business. It's in most channels. It's, you know, it's been around a long time, obviously. But I think most people looking at this company would say, look, you have great opportunities outside the US. There's much less price competition, you know, outside the US, people are embracing, you know, these consumer goods and these brands outside the US. So that's one of the things Elliot is actually saying, provide, you know, feed the capital needed outside the US to grow these business in these big growing markets, you know, like China and India and so on, Latin America.

12:08These are really big growing markets. And to the extent that they could play more in those markets, I think would be good for the enterprise in the whole. But for those markets, would they need to take a similar approach as what they do in the U.S., be more innovative, keep up with this shifting consumer taste towards healthier offerings, higher protein, portion controlled, less sugary drinks? Or can they go with their old playbook? I think it's a combination of doing what they're doing. In some of these markets, they have to adhere to local tastes. My guess is that a lot of these consumers are seeking the same kind of things.

12:46The U.S., though, is, or I should say, wellness value. But the portfolios are not quite as broad outside the U.S. So I think it's tailoring towards the local areas and bringing some of their learnings from the U.S. to these markets over time. Ken, talk to us about the about a 4 percent dividend yield on Pepsi. That seems pretty solid. What's their policy on dividends these days? Oh, they're committed. I mean, they know that a big shareholder base, you know, is income investors. So they are they're committed. And every quarter like this one, they said, look, we're committed to have a multi-pronged capital allocation policy.

13:29We're going to invest in the business, innovation, like I said. But they're also going to buy stock back on a selective basis. They're going to commit to their growing dividend. And their balance sheet would support them doing that. I mean, the balance sheet is in good shape. It's in good investment grade. And so I see this company continuing to have a balanced allocation going forward. Stay with us. More from Bloomberg Intelligence coming up after this.

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15:20You'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. We were talking about the auto business and Ferrari. Boy, Ferrari's sinking. This brings to mind, I don't know how these companies are going to go for the next five years, 10 years, in terms of that evolution, because it's kind of fits and starts. They can't figure out next year. At some point, the market rewards them for it. At some point, the market penalizes them for it.

15:51Craig Trudell, it's his job to make sense out of all this. He's a global autos editor for Bloomberg News. So, Craig, when you see news from Ferrari about its cautious forecast, maybe just kind of cautious commentary on EVs, what does that tell you here from Ferrari? Yeah, I mean, I think the market was taking in stride, you know, the caution on EVs. I think even, you know, sort of among the investor base and certainly the analysts, too, there's some real concerns about, you know, just how sort of incongruous EVs are with with Ferrari and some questions about whether, you know, whether they should even bother going in that direction.

16:31And, you know, I think I think the shares were down a little bit, you know, earlier this morning when they were talking about that. I think where we saw the stock really just take it on the chin was when they came out with their their outlook, you know, for through 2030. And I, you know, I think that the profit, you know, growth was was underwhelming. I should, you know, sort of say it also is the case that they are still, you know, calling for growth. I think some analysts were maybe hoping for also some increase in volumes, but that's not really what Ferrari is about. They are sort of like clockwork, making a pretty set number of vehicles every year and charging an awful lot of money for them.

17:16And that's really been something that's paid off. And I think, you know, just the other thing to sort of keep in mind here, when you look at what these shares have done, you know, since they listed, you know, the shares in Milan have been trading since early 2016. The New York ones a little bit earlier than that. But this is a stock that has absolutely been on a tear all those years since. And so, you know, yes, a 16 percent decline in one day, you know, sort of makes your eyes pop. But this is a company that is still valued very richly, and that makes a little bit more sense in hindsight. And Ferrari also, of course, coming out with its first EV, too.

17:56And that might be accounting for some of the caution in terms of what it sees going forward. In the story, you and your colleagues, Craig, talk about how not just Ferrari, but Porsche and Mercedes-Benz have also struggled with the electric transition. Why are wealthy buyers somewhat resistant to switching over to plug-in EVs? What's behind that? Yeah, it's a really good question. I think, you know, there was just this sort of working assumption that, you know, the only thing that you were going to have to overcome was cost. And so, you know, there was this, I think, sort of conventional wisdom.

18:33Well, oh, we'll just have, you know, the folks who are sort of most able to afford this incremental additional cost, they'll foot the bill and will be sort of off and running as an industry and gradually sort of work our way down price-wise. I think if you're a luxury car buyer and you're having to pay a significant premium over, you know, looking at models that are the same, one combustion and one electric, the electric one's a lot more, you know, it is still a decision and sort of a rational decision to sort of second guess whether or not you want to go electric. And I think that's what you're seeing is that, you know, BMW and Mercedes, until and unless they sort of, you know, price their models closer to one another, you're going to have, you know, some pushback on the part of the consumer to make that transition, even as we make progress in things like charging infrastructure and some of these hurdles that you have to overcome that are unique to EVs.

19:33My biggest question for, you know, the supercars going electric is, I think a big part of the reason people buy the Ferraris, the Lamborghinis, is for the cool sound when they're coming down the street. What's Ferrari doing with that part of it? Yeah, it's interesting. And we saw it sort of, you know, we had indications that Ferrari was working on something in this regard to try and sort of preserve the noise that you can make driving a Ferrari, that that they patented, you know, systems to kind of create essentially artificial noise or at least to play up the noise that is made by, you know, electric motors in electric vehicles.

20:15You know, I think that being said, will we see Ferraris externally make, you know, nearly as much noise as a Ferrari supercar? I suspect that the answer to that is probably no. But I've been very entertained that Dodge came out with an electric vehicle last year. And I saw a report recently that an owner in Canada was ticketed for a noise violation with his electric Dodge vehicle. So maybe it's for the best, actually, that this will become a thing of the past. Stay with us. More from Bloomberg Intelligence coming up after this. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast.

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21:34On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. 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 talk a little bit about the media business there.

22:10It's undergoing a certain degree of consolidation here as it tries to deal with the rising tide of YouTube, among other streaming type services and digital services that have really displaced many of the traditional media businesses. And one of those is Paramount Global. That was bought by Skydance and Larry Ellison's family. Now looking to take a look at Warner Brothers Discovery, another publicly traded company. Maybe those two might get together. Let's check in with Geetha Ranganathan. And she's the media analyst over at Bloomberg Intelligence. Geetha, talk to us about the likelihood of Paramount merging with or acquiring Warner Brothers Discovery and how that might look.

22:55Yeah, thank you so much, Paul. So it's been a while, actually. So there's been these on again, off again reports. The first time the news broke was almost a month ago. It was on September 11th that there was this Wall Street Journal article which suggested that Paramount was kind of exploring this bid. There hasn't actually been any formal bid from Paramount. However, you know, the shares of both those companies have kind of really gone up very nicely on the news, kind of just telling us how important it is for both of them to to have this consolidation. If you look at Paramount, obviously, they just went through that merger.

23:30there is really very little details when it comes to what is, you know, kind of the strategy for this business. They definitely need something big. Having a studio like Warner, having a service like HBO Max, it really kind of puts them on that global media map. So I think they definitely need it in order to kind of make this big splash in the media ecosystem. But, you know, as days pass along and we don't get a bit, it just seems like the probability of this happening gets smaller and smaller. Yeah, it's curious because we've been waiting for so long and the industry has been ripe for consolidation.

24:05And David Zalzov, who, of course, runs Warner Brothers Discovery, has been talking about how consolidation is something that he anticipates and he wants to see happen. Is there a role here for regulators? Is this something that they would weigh in on? Is Brendan Carr going to play any kind of role here? So Paramount, yes, there is potentially a role for any and all types of regulatory scrutiny. In the Paramount Warner Brothers deal or a potential deal, the FCC's involvement likely wouldn't be as heavy just because there is no merger of two broadcast assets. So Warner Brothers only has streaming studio and cable networks, no broadcast networks like Paramount, which owns the CBS broadcast network.

24:50So they should get like a fairly, you know, quick green signal from the FCC. Well, all mergers are ultimately, you know, kind of a subject to regulatory scrutiny. But let's remember, Paramount has just gone through this whole process with the regulators kind of getting that skydance. So they kind of know how to navigate their whole way around, you know, the regulatory ecosystem, if you will. So I don't think it should be much of a problem at all, Scarlett. Now, the New York Post, I saw some reporting. And by the way, the New York Post, they do a great job covering the media sector, particularly on the M &A front.

25:18Always have, always have. uh they're suggesting maybe uh paramount skydance might be talking with some private equity players about participating in any potential deal and i think they mentioned apollo as one that they were talking with what does that mean to you what that means to us is that you know obviously funding is is a problem here i mean this is a big deal paul uh you know there was an initial uh a price range that was suggested by cnbc of about 22 to 24 a share uh i think david zaslav is looking for something much, much higher than that. You know, the New York Post themselves had reported that he was probably looking for something in the range of$40 a share.