Oil Prices Have Fallen. So Why Haven’t Airfares?

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0:33AI companies are competing for clients the old-fashioned way, with discounts. And oil prices have fallen. So why are airfares still flying high? Well, airlines have realized that they have some pricing power right now, and they're not wanting to give it up easily. Plus, the Trump administration revokes a key financial benefit for Iran. It's Tuesday, July 7th. I'm Alex Osala for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:10Starting today with a big U.S. political story. Bernie Sanders is the latest progressive to call for Graham Plattner to drop out of the main Senate race. Democrats are rescinding their endorsements and cutting off funding a day after a woman alleged that Plattner sexually assaulted her. Plattner has denied the allegation. Maine is key for Democrats' hopes of taking back the majority in the Senate. If Plattner drops out, Democrats would have until July 27th to pick someone else. Potential candidates include people who fell short in the governor's primary race earlier this year, like Maine's Secretary of State Shanna Bellows, the state's former Senate President Troy Jackson, and its former state health director Nirav Shah.

1:49The discussions around a replacement are exposing the ideological rifts in the Democratic Party. Some progressives want a candidate with similar policy positions to Plattner's, someone like Jackson. The party's centrist wing says that Shah is better equipped for the general election. At the White House, President Trump's latest construction project is underway, a new granite helipad on the South Lawn. Pentagon contractor Lockheed Martin is putting about$5 million towards the project. Lockheed's Sikorsky unit makes the Marine One helicopters that fly presidents around. There have been concerns that new models of the helicopter were too powerful to safely land on the lawn surface.

2:26A Lockheed spokeswoman said that the company donated the funds to the National Park Service and that the donation is part of a history of supporting projects in Washington and across the country. Today, the Trump administration revoked a license allowing Iran to sell oil on the open market, the main economic benefit for Tehran in the interim peace deal. It's a reprimand coming hours after the Islamic Revolutionary Guard Corps fired missiles and drones at ships near the Strait of Hormuz, and is a clear sign that Washington isn't happy with how the peace talks are going. Separately, President Trump landed in Ankara, Turkey today for a summit of NATO leaders.

3:01Speaking alongside Turkish President Recep Tayyip Erdogan, Trump said that he would consider selling the F-35 jet fighter to Turkey. That sets up a potential clash with Congress, which in 2020 passed a law barring the U.S. from selling F-35s to Turkey as long as Turkey relies on Russian air defense technology. Erdogan in 2017 approved Turkey's import of a Russian air defense system. The decision triggered American sanctions on Turkey. Today, Trump said he wanted to undo that.

3:29Berber Jin:We're going to be taking the sanctions off. It's time to do that. Okay? We don't want to sanction friends. It's very simple. And in France, far-right leader Marine Le Pen says she plans to run in next year's presidential elections. She made the announcement after a court reduced her sentence, clearing her path to run again. She had been convicted for misusing European Parliament funds. Now she's expected to enter the race as a frontrunner.

4:00Top artificial intelligence companies like OpenAI and Anthropic aren't just in a race to have the best models. They're desperate for enterprise customers that will provide lasting revenue. To get them in the door, these high-tech companies are using an old-school tactic, the reliable old discount. I'm joined now by Berber Jin, who covers startups for the journal. Berber, what companies are offering these discounts, and what kinds of discounts are they exactly?

4:25Berber Jin:These discounts are mainly being offered by OpenAI and Anthropic, and they are essentially competing against one another to get customers to purchase mostly their coding tools, which have really taken off across Silicon Valley. And what we're kind of seeing is sort of a price war that maybe looks similar to like a mattress sale or some of the one-time discounts that you'll see during holiday sales. It's kind of funny because it's such an advanced technology, but they're using very basic sales tactics to try and get customers, mainly startups, hooked onto their technology. I mean, it's got to be costing these AI companies a ton to offer these discounts.

5:09What are they trying to get out of it exactly?

5:13Berber Jin:Software developers are very fickle customers. They'll switch from using Cloud Code to Codex, which is OpenAI's tool, in an instant as soon as they feel like it's better suited for the tasks they want to complete. The product is just so similar between the two. They have to resort to a price war to win over business. So what do these discounts mean for the customers of OpenAI and Anthropic? This is great for the customers. And I almost think about a few years ago when instant delivery was really big and everyday consumers would be getting huge discounts to use like Uber Eats versus DoorDash. It's a similar dynamic here where a lot of these customers are young startups and they're getting subsidies to use these AI tools that sometimes go above$3 million.

6:04Berber Jin:Both of those companies are raising extremely large piles of cash. So it's hard to see this price where how it comes to an end. Both of these companies are trying to IPO. And this is hurting their margins. It's hurting their path to profitability. So it will be really interesting to see also how investors feel about businesses that are losing so much cash. That was WSJ reporter Berber Jinn. Thanks, Berber. Thanks, Alex. Coming up, Pfizer's former headquarters in midtown Manhattan is at risk of collapse. That's after the break.

7:06Berber Jin:We'll see you next time. Varies 18+.

7:15In markets today, Samsung gave what was, by all accounts, a rosy update. But investors expected more, and that's weight on tech stocks around the world. The Nasdaq closed down 1.2%, and the Dow and S &P also dropped. And oil prices jumped in late trading. The Treasury Department's revoking its oil sales waiver for Iran. We just told you about that. And it signals a new test for the peace talks. Benchmark U.S. crude futures climbed by as much as 5 percent to their highest level this month, going above$72 a barrel. In midtown Manhattan, the former Pfizer headquarters was at risk of collapse today.

7:50Its columns buckled and floors sagged. The 37-story building is being converted into 1 ,600 luxury apartments. And while construction crews had to evacuate, no injuries were reported. It's a very serious situation. the box beams, the steel beams, have started to bend and deflect from the weight. We evacuated the building and started evacuations of surrounding buildings, and the building has continued to move since we've been on the scene. That was New York's Fire Department Chief John Esposito. The Department of Buildings filed a construction safety complaint against the developers today. It cited a lack of approvals for foundation work.

8:28One of the companies redeveloping the building, Metroloft, says it's working with city officials to understand the scope of the situation.

8:40In the weeks after the start of the Iran war, jet fuel prices doubled, and carriers raised their fares just to keep up. Now the cost of jet fuel has finally started to come down. It's fallen 40 percent from its peak in April. But ticket prices, those aren't falling. Alison Sider, who covers air travel for the journal, joins me now to talk about why. Allison, fuel costs appear to be the reason for these fare hikes. So why aren't we seeing the fares fall now that fuel is cheaper?

9:08Berber Jin:Well, airlines have realized that they have some pricing power right now, and they're not wanting to give it up easily. People are still traveling, and they've shown a willingness to pay these higher fares. There's less capacity, less supply in the market. Airlines have cut back on routes and flying. and Spirit Airlines, which once was sort of the discount price setter that kind of forced other airlines to match its bargain fares, is gone. So that's sort of one big check on fares that has been eliminated. So airlines are going to be reporting their second quarter earnings over the next few weeks.

9:41Delta is the first one up on Friday. Between the higher fuel costs, which are going to be weighing on the bottom line, and higher fares, where are analysts expecting airlines' profits to land.

9:53Berber Jin:Fuel prices were high for a lot of the second quarter. And even though fares were up, they weren't fully covering the higher fuel costs with higher fares. You know, they were capturing 40, 50 percent of those higher fuel costs. Even though revenue seems to have been pretty strong, you know, fuel will take a chunk out of airline earnings. But what everyone wants to know about is, you know, how strong is demand going forward? What are the bookings like for the next couple of quarters? Like, you know, we're in summer right now. That is a time where people take a lot of trips. So I think there's questions about is the demand we're seeing just that people really committed to that summer vacation and they don't want to give it up?

10:27Berber Jin:Or what will happen after Labor Day? So funny you should mention, I just booked a flight for October to Atlanta, and it actually cost me about the same amount as it did when I booked another flight there back in March. So like about$300 per passenger, which Google tells me is pretty high. Should I expect to be paying these higher fares just forever. Historically, airlines have never been able to hold on to these higher fares. You know, always someone kind of comes in trying to undercut their competition and it ends up sort of a race to the bottom. But the airlines are optimistic that this time is different and that's good news for them and their bottom lines and maybe not such good news for their customers.

11:08That was WSJ reporter Alison Sider. Thanks, Alison.

11:11Berber Jin:Thanks for having me.

11:23And finally, Italian automaker Fiat today started selling a two-seat electric vehicle in the U.S. It costs just$14 ,000. The car is called the Topolino. That means little mouse in Italian and also, fun fact, is the name of Mickey Mouse in Italian. And the car is little. It's even, I'd say, cute. It weighs around 1 ,000 pounds and is 8 feet long. You can also get a version with outdoors, if that's your vibe. But that low price comes at a cost. Speeds top out at 25 miles an hour. That means no driving on highways. And there's no AC. So who is this for? Fiat has a target customer in mind, people who buy golf carts.

12:03The company says it sees a market for the little vehicles not on the links, but in places like resorts and beach towns, where people can take them for a spin around the neighborhood. And that's what's news for this Tuesday afternoon. Today's show is produced by Danny Lewis and Anthony Bansi with supervising producer Tali Arbel. I'm Alex Oseleff for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

12:53Berber Jin:We'll be right back. at simplisafe.com slash spotify or with promo code spotify. Outdoor deterrence requires a SimpliSafe Active Guard outdoor protection plan starting at$49.99 a month. Visit simplisafe.com slash licenses for alarm license information. Tennessee 2012.