Spirit Airlines on its Deathbed? & July Inflation Remains Sticky

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0:28Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, inflation was more mild than underseason potatoes, teeing up a Fed rate cut next month. Then Elon Musk claims that Apple and OpenAI are in cahoots, suppressing his AI chatbot in the App Store. It's Wednesday, August 13th. Let's ride.

0:51You've heard on this podcast that Las Vegas is in a major tourism slump this summer, but it might be able to turn things around with some help from tigers and lions and bears. Oh, my. Sphere, the futuristic sphere shaped venue just off the strip, announced this week that it had sold 127 ,000 tickets to its showing of The Wizard of Oz, which debuts on August 28th. The Sphere and a team of engineers used A.I. to widen the 1939 film's frames to fit the ginormous screen with the goal of making you feel like you were in the studio when the movie was being made. James Dolan, CEO of Sphere and owner of the Knicks, says he thinks The Wizard of Oz will boost the share of people traveling to Las Vegas just for the Sphere to 10 % from 7 % currently.

1:34As long as people don't balk at the price, which starts at over$100 for a single showing, he might be right. He might be right, but I have also seen a lot of backlash from film buffs online because obviously when you change the scope of a shot, you're changing the feel of a movie. So Slate wrote an article that was titled, The Much-Hyped New Wizard of Oz is an Atrocity. Other reporters who got a sneak peek called it gross and disrespectful and an affront to art and nature. Personally, I think it's going to be cool. It has 4D elements, so you'll see fire. You'll get tornado-like gusts of wind. Flying monkeys will actually come out filled with heliums, piloted by drones, and kind of swoop down over the audience.

2:13So again, not something the film elites are going to like, but maybe the masses, including myself, will. Now a word from our sponsor, LinkedIn Ads. Okay, Toby, I need to tell you a very funny ad I saw that was totally useless to me. Oh, goodness. What now? It was an ad for a different news podcast, as if I'm not keeping tabs on the competition already. I know. What a waste. I bet they didn't use LinkedIn Ads. LinkedIn Ads can help you stop wasting resources like money, time, and effort. Like 71 % of B2B ads, they can find the right audience for your brand. They've got over 130 million decision makers and more than 10 million C-suite execs, aka the people you need for your business on their platform, target by job title, industry, company, and more.

2:59So try out LinkedIn ads. LinkedIn will even give you a$100 credit on your next campaign, so you can try it yourself. Just go to linkedin.com slash mbd. That's linkedin.com slash mbd. Terms and conditions apply only on LinkedIn ads. September is right around the corner, and there is a lot to look forward to. The humidity is going to be down. Football and PSLs are back. And in all probability, the Federal Reserve will lower interest rates. A rate cut was effectively locked in yesterday after July's inflation report arrived mostly in line with expectations. The Consumer Price Index showed that U.S.

3:33prices rose 2.7 % annually, the same inflation rate as in June, and a hair below expectations of a 2.8 % increase. Core CPI, the closely watched measure that strips out food and energy, rose 3.1 % year over year. That's a tad above projections of 3%, but nothing alarming. Economists have warned that President Trump's tariffs would force businesses to pass on their added costs to consumers, driving inflation higher. But so far this summer, we've seen a mild, if any, impact on prices for goods vulnerable to tariffs. Furniture and bedding rose 0.9%, but apparel was up just 0.1 % on the month. the smallest increase since May.

4:13Tires were up 1%, but appliances prices fell 0.9%, and new vehicle prices were flat. So if you were looking for a meaningful uptick in prices due to tariffs, you're reading the wrong inflation report. Yesterday's presented no clear evidence of tariff-fueled inflation. And that's great news for the Fed, which has kept interest rates steady this summer over concerns that tariffs plus a rate cut would equal another inflation surge with price increases subdued for now at least. Investors are penciling a more than 90 % chance the Fed cuts when the leaves start changing in September. Yeah, this was an interesting inflation report because we didn't see a ton of goods inflations, but we did see some rather hot services inflation.

4:53That is a little bit of a surprise because you would expect when tariffs enter the global economy that would increase the price of goods. But is this good that we're seeing services run a little hotter. Who really knows? Because the Fed actually does place more emphasis on services. Remember that so-called core inflation metric that they do love looking at that strips out food and energy. That places a larger value on services. So to see that running a little bit hotter, that's just another thorn in their side. Again, September's rate cut meeting looks to be all but wrapped up. It looks like, I just called it a rate cut meeting, even though it is not that.

5:28But it just complicates the timeline going forward, like what happens later on in the year if this services inflation remains sticky. Yeah, so services, excluding energy, jumped 0.4%, which is the most since the start of the year. Shelter was the main contributor to that, rising 0.2 % in July. That's essentially housing. Some other big jumps included airline fares were up 4%, their biggest monthly increase in over three years. So hope you got your fall vacation plans already booked. And also better hope you don't have a cavity because dental services rose the most ever, a 2.6 % increase. Hope you've been brushing, Toby.

6:05I do have a cavity. That's what's so frustrating about this. Some goods that did run hot that you would expect tariffs to affect are those household furnishings and supplies. Those rose almost a percent. Footwear prices were also up. And then motor vehicle parts were up almost 1 % as well driven by that cost of tires that you mentioned. But the auto market in general is just in a little bit of an interesting place. Industry forecasters say that they've inflicted almost$12 billion of losses on global automakers. Right now, you're seeing them forecast their profits are going to fall by roughly a quarter during this calendar year.

6:41And yet you look at this report, and new vehicle prices were flat. So they really haven't passed on any of those costs yet. We haven't seen that sticker shot yet. But one way we have been seeing this manifest is that inflation data on used cars ran hot in July. Prices for used cars and trucks rose 4.8 percent from a year ago. So a lot of people are maybe still balking at the higher prices of vehicles right now. Automakers are seeing that say we definitely can't raise prices right now or else we're totally going to lose them. And so people are buying used car and driving up those prices. The car market is a good microcosm or example of what's going on inside company strategy sessions right now.

7:21They are getting added costs from tariffs,$12 billion for global automakers, but they just are not passing on those costs to consumers because they are in competition with each other. And if Ford raises prices, then GMs are going to look a lot more attractive and so on and so on. Overall, markets absolutely loved this inflation report and the prospect of the Fed cutting rates next month. The S &P 500 jumped 1.1 % to hit a new record. NASDAQ was up 1.4%. And small caps, the Russell 2000, which is extra sensitive to interest rate cuts, was up 2.5%. So there is an indication where you can see investors are extremely bullish on the Fed cutting rates because the labor market is slowing down.

8:01And Jerome Powell was very concerned about inflation. This, besides that services hot reading, puts some of those concerns to rest. But as we mentioned, this is a long way from over. Maybe companies are not passing on those added tariff costs now, but economists virtually all agree that at least some point this year, we will start to see those goods inflation start taking higher. You won't believe it, but Elon Musk is beefing with OpenAI again. And this time, Apple has been dragged into the fray. In a series of posts on Monday night, Elon railed that his AI company, XAI, was getting unfairly treated by Apple in its app store.

8:39Musk said that Apple was playing politics by not putting his company's Grok chatbot on the App Store's list of recommended apps and planned to take immediate legal action against the alleged manipulation. Apple is behaving in a manner that makes it impossible for any AI company besides OpenAI to reach number one in the App Store, which is an unequivocal antitrust violation, Musk wrote. Of course, many were quick to point out that China's DeepSeek AI app did manage to make it to the top of the App Store back in January this year, thereby disproving Musk's claim that it's impossible. But Musk is never one to let facts get in the way of a good feud and has continued to pour on posts lashing out at Sam Altman and OpenAI, which he has previously targeted with a lawsuit over its change into a for-profit business.

9:24Musk has also bristled at the deep integration chat GBT has with Apple products thanks to an agreement struck between the two companies last year, which at the time prompted him to threaten to ban Apple devices at his companies going forward. So yeah, the Elon OpenAI Sam Altman anger thruple now has an unwilling fourth member in Apple. Sam Altman also doesn't back down from a fight. He clapped back to Elon Musk on X saying, this is a remarkable claim and the claim being that Apple manipulates its app store to throttle Grok and XAI, given what I have heard alleged that Elon does to manipulate X to benefit himself and his own companies.

10:02And there he is referencing reports that show that Elon Musk changed the algorithm at X to boost his own particular posts to the detriment of the rest of all the users. So you might have logged into X a few years ago and remember that all you saw was Elon Musk's post. And that's what Sam Altman is alleging there. As Altman and Musk were going at it in this X thread, someone thankfully just goes, Musk or Grok, who is correct? And then Grok replied. Grok is the is XAI's chatbot created by Elon Musk. Grok said, based on verified evidence, Sam Altman is right. Musk's Apple antitrust claim is undermined by apps like DeepSeek and Perplexity, reaching number one in 2025.

10:43Conversely, Musk has a history of directing X algorithm changes to boost his posts and favors interests per 2023 reports and ongoing probes. Hypocrisy noted. And then Elon Musk asked chat GPT say, hey, who's more trustworthy between Sam Altman and Elon Musk? And it said Elon Musk. So everyone was asking each other's chatbot to disprove what the each side was saying. And everyone was just screenshotting it all and going like, this is tremendous content, even though you have billionaires quarreling. If we go back to the actual butt of the argument here, which is why is XAI's apps not appearing in the now trending section or whatnot.

11:24Elon Musk a little bit has a point because when you go on to Apple's App Store, there's the free app charts. That is algorithmically set. Apple has no control over that. That just happens based off of the downloads over the past week. But it does have editorial control. And so when you open it and you see OpenAI recommended in every editorial section, you don't see Grok recommended anywhere. where that's where he's saying, look, they're conspiring against me here. Again, you are seeing other apps appear there. So it's not, there's only so much space. So it could just be that it's not one of the five apps that are featured for that day.

11:57But that is what he's talking about. Not necessarily what's happening with the actual apps for itself, but what's happening with the editorial control Apple has over it. And it seems like petty beef, but honestly, there's so much at stake because XAI and OpenAI are extreme rivals right now. They just released their newest models, OpenAI, just released GPT-5, and XAI just released Grok 4, and they are battling for AI supremacy. Elon Musk versus Sam Altman, yes, they don't like each other personally, but also they have massive companies that are battling for domination of what could be the next industrial revolution.

12:33So, I mean, the drama is high. Drama is high. If you had a nickel for every time a headline came out about how Spirit Air's business was in trouble, you'd have enough nickels to buy Spirit Air. The embattled air carrier warned it may not survive the year unless it can get its hands on more cash, an announcement that comes just five months after it emerged from bankruptcy. If it can't find a way to raise money, it may have to default on loans and start selling off assets like planes and airport gates. Spirit's troubles are not new. Its core customer base of price-conscious leisure travelers has been staying home amidst increasing economic pressure, and it doesn't have the more lucrative international customers other airlines benefit from to make up the difference.

13:14It filed for Chapter 11 back in November, becoming the first major U.S. carrier to do so dating back to 2011. That followed a failed takeover by JetBlue, blocked for antitrust reasons, and a failed merger with Frontier Airlines, blocked because the green and yellow playing color schemes would have totally clashed. And so here we are again, Neil, barring a significant improvement in Spirit's finances or a major cash infusion, it may run afoul of the minimum liquidity requirements laid out in its post-bankruptcy credit agreements. So yeah, we might finally lose that spirit in the sky. The airline industry has completely moved beyond Spirit's business model.

13:50It may have worked for a decade or so, but now the way you make money as an airline is through premium travelers and honestly, credit card companies. In 2024, the largest airlines in the United States made a combined$14 billion operating profit, but virtually all of that came from credit card issuers paying airlines for points. This is the Deltas, United, Americans, Southwest of the world. Spirit does not have any of these premium travelers or these lucrative credit card deals. So it does rely on shuttling people from Fort Lauderdale to LaGuardia. And people are just not doing that this summer with any sort of frequency.

14:27And therefore, Spirit basically just has the transportation part of the airline business, which all of those other companies lose money on. So that's where spirit has left itself and may not survive the year. And then I want to highlight one other business that is just keeping its head above water, and that is the iconic American company Eastman Kodak. It warned in an SEC filing that there is substantial doubt about the company's ability to continue as a going concern. So unlike your ex, publicly traded companies are required to issue a warning when the end may be near and their financials are deteriorating.

15:02That warning came as Kodak reported a$26 million loss in its recent quarter, down from a$26 million profit during the same time last year. But for Kodak, the writing has been on the wall for years now. You know the brand for its famous film and camera products, but it filed for bankruptcy in 2012 as digital photography made its business increasingly obsolete. Since then, it has bounced between new business ideas and meme stock status. In 2018, it made a foray into cryptocurrency. Then during COVID, it secured a government loan to produce generic pharmaceutical ingredients, setting off a massive share spike.

15:38It's existed as this weird sort of camera slash pharma hybrid company for the last few years. But now the 133-year-old business is teetering on the brink. Yeah. In the 1970s, Kodak basically had a monopoly on camera sales in the United States. It was responsible for 90 % of film and 85 % of camera sales in the United States, according to The Economist, but it got walloped by Japanese competition, and then the digital camera revolution wiped it out, and then it started focusing on printing and generic pharmaceutical manufacturing and even packaging. So it tried to pivot every which way, but it looks like the end of the road is near.

16:16You know what is a funny idiosyncratic fact from corporate history is that Kodak actually invented the first digital camera in 1975. So it created the means of its own demise, which just has some poetic symmetry right there. All right, up next, we're going to talk about Cracker Barrel. You know what's even harder than waking up at four in the morning? Trying to start up a new business. Don't I know it. I've been cooking on this pickleball shoe idea for two years now. It ain't for the faint of heart. That's why finding the right tools to help you build and simplify every process along the way can be a huge game changer.

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18:06EBCLIS can be used with or without topical corticosteroids. Don't use if you're allergic to EBCLIS. Allergic reactions can occur that can be severe. Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with Epglis. Before starting Epglis, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about Epglis and visit epglis.lily.com or call 1-800-LILY-RX or 1-800-545-5979. The hottest topic on social media right behind Taylor Swift's new album is Cracker Barrel. Videos about the iconic chain have been popping off as people engage in feverish debate about the makeover it's giving its stores.

18:44Last August, Cracker Barrel announced a three-year transformation that includes renovating its stores to appeal to more customers, aka ones that are younger and wealthier. So far, 40 of Cracker Barrel's 660 locations have gotten the update, and it seems just about everyone has an opinion on the changes. An Instagram video from August 5th, 2024, over a year ago, in which a store manager walks through the redesign, is still receiving negative comments as of this week. Other videos from customers showing the new locations have similarly gone viral. So what is Cracker Barrel doing to its stores? It's basically trying to make them feel a little less like Paul Bunyan's hunting lodge if he was also a hoarder.

19:24While the walls of existing stores are stuffed with antiques and old family portraits, the remodeled locations have lighter paint, simpler decor, and a more open floor plan. Critics complain that the new Cracker Barrels resemble a soulless fried chicken and biscuit factory devoid of their traditional rustic atmosphere. More positive reviewers say they think it's a nice balance of modernity and country charm. Toby, which side are you on? I'm on the side of this stinks because I grew up going to Cracker Barrel and I loved playing I Spy, looking at all the antiques on the walls. And I think that's the issue is people have emotional connection to this restaurant.

19:58It's meant to evoke, you know, your grandmother's kitchen. It's meant to evoke this Southern hospitality. So when you strip that all away and you boost the lighting up and you make the walls a little bit more bare, people do respond emotionally to that. And interestingly enough, a lot of people are saying, where can I get the antiques that are being taken down from the walls? And a lot of it is being reused at other locations, but some of it's being sold off to a third party. So if you can dive deeper into that, you may get your hand on the plow that was on the wall in Cracker Barrels. I will say though, some employees are liking it because some people that the Wall Street Journal talked to said, hey, it's a lot easier to read menus and the lighting.

20:38They've kind of made everything a brighter. The open floor plan is easier to navigate. So their true test comes on if sales are rising at the locations that they've renovated. And they do say that sales are increasing, at least at the four first test locations that they are doing. So Cracker Barrel is quite happy with this. And yes, sales are the only things that matter. The CEO is saying like this feedback is a good sign. It means customers, quote, have an emotional connection with the brand. People's immediate reaction to things is like, oh, this isn't the way it was, but they tend to come around.

21:10And so Cracker Barrel execs and all of its PR team in the face of this backlash or this debate has come out and said, there's a vocal minority here who hate the redesign. And we understand that this is very emotional thing for whatever reason, it is just a restaurant. But at the same time, we are going to continue to plow ahead with this because it's better for our employees. We're increasingly reaching the customers that we want to reach. And the 65 and older crowd, we love you, but the world is moving on. One final kind of idiosyncrasy of Cracker Barrel's business is that they have the restaurant, but they also have these little retail stores attached to it.

21:47Anyone who's been into one of those, you can find all sorts of Chotskys and whatnot. But that makes them more exposed to tariffs than other restaurants. Remember, restaurants are mostly sourcing their food from inside the United States, so tariffs aren't as big of a concern for them. But Cracker Barrel has these retail stores where they're sourcing candles, mugs, other stuff from China. That contributes 20 % of Cracker Barrel's revenue. So it is somehow find itself amidst this trade war, even though that it is a restaurant chain. So just another headache that they are having to deal with along with all this pushback to its redesign efforts.

22:21All right, let's sprint to the finish with some final headlines. In a surprising move, the AI search startup Perplexity yesterday made an unsolicited offer to buy Google's Chrome browser. It's about as far-fetched as me trying to dunk a basketball. Perplexity is offering$34.5 billion for Chrome, but its own valuation sits at$18 billion. Perplexity said it has a bunch of investors waiting in the wings, including major VCs, who would help it afford the purchase. Seems like a play to kickstart discussions should Google be forced to divest from Chrome. Remember, last year, Google was found to have a monopoly in search, and the judge is about to decide specific remedies that would increase competition.

23:01One of those remedies is requiring Google to hive off Chrome, though analysts generally doubt it will come to that. Toby, what is perplexity thinking? First of all, you could dunk a basketball if you put your mind to it. But second of all, a lot of people are interpreting this as more of a marketing play for perplexity because, again, shoot your shot. But if your entire valuation is almost barely half of what you're trying to offer to buy this thing, it's probably not a serious offer. I love you all, but you are not serious people. So it does say that they have the financing lined up, even though some reporters have talked to backers for big venture capital funds and said, we haven't really talked to them about this.

23:40So I do think they're just trying to put their name in the ring. They have a AI powered browser themselves trying to raise the profile of that. So this ironically could actually work the opposite direction because perplexity has been floated as an acquisition target for Google and for Apple. So maybe by throwing their hat in the ring to say, we're going to buy Chrome, they actually might raise their profile enough to get bought by a big tech firm themselves. So it could just completely 180 the other way. So I do think it's more marketing than any actual offer because of just the size of the price.

24:13They also did this before when they also offered to buy TikTok from ByteDance, even though they don't have the money, and TikTok's probably worth way more than Chrome. So Perplexity knows how to get in the headlines. Up next, Goldman Sachs CEO David Solomon's DJ career has gotten unexpectedly caught in the crossfire of President Trump's trade war. First off, yes, David Solomon famously moonlights as a DJ, something that Trump reminded him of in a Truth Social post yesterday, saying that Solomon should either replace Goldman's economist or, quote, just focus on being a DJ. That barb comes days after the bank's chief economist warned that the American consumer would be on the hook to pay for more and more of the new tariffs, something Trump rejects.