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Why did Tesla's earnings surprise Wall Street? · The Financial Exchange Show

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Veterans Development Corporation. This is the Financial Exchange with Chuck
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Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you today.
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Speaker 3: We are broadcasting live from the DoubleTree Hotel and Suites
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in Hyannas. Appreciate everyone who has joined us here today.
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We got a great crowd that is continuing to roll in,
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so hopefully we'll put on a I don't know, halfway
1:32
decent show for you today, but we'll kick things helps there. Chuck, listen,
1:37
you always underpromise over delivered. That's the way you do it.
1:40
And speaking of which, it's a great segue to what
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we saw from Tesla yesterday. They reported earnings after the bell,
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and what we saw was a quarter that was good.
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It wasn't great, it wasn't outstanding, but it was good.
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And when you've had a couple bad quarters in a row,
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sometimes a good one is all you need in order
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to get back on your feet. As far as where
2:00
the stock moves, so net income for the company up
2:04
two point two I'm sorry, came in at two point
2:06
two billion four the quarter. That's a seventeen percent bump
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from the prior year. The biggest thing driving that profit
2:14
increase wasn't a huge increase in the sale of their
2:17
cars or in their margins, but rather, Hey, they have
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a bunch of clean energy credits that they get for
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making electric vehicles and they sell those off to other
2:26
automakers that need to meet different emission standards and things
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like that.
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Speaker 2: Yeah, can we talk about that? Where does that? Is
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that a Obama era law on the task credits or
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was that existing beforehand? I mean, couldn't tell you. Effectively,
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it is pure play profit for Tesla, who only sells
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electric vehicles, and they sell these to general motors to
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do all the other car makers out there who are
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not meeting those standards and need to buy these credits
2:51
on the free market, and they don't have to produce anything,
2:55
they don't have to do anything to sell them. It
2:57
is a massive profit driver for those businesses.
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Speaker 3: So you saw this profit increase and global deliveries when
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you look at the actual vehicle numbers up about six
3:08
percent year over year.
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Speaker 2: When this comes on the back.
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Speaker 3: Of two different quarters where or two quarters in a
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row where Tesla was seeing year over year declines in sales.
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So I think that when we look at this and
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try to make sense out of you know, where Tesla's
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core business, that auto business is. I think the takeaway
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that I have at this point is, look, it's clearly
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a business that is not growing rapidly at this point
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as far as the number of vehicles they're selling, but
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it's unclear if there's any real direction up or down
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on a year over year basis. I think it's just
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kind of chopping based on where sales might fall quarter
3:47
to quarter, and so there's at least some stability there
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is what I take from this quarter. It's not just
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you know, a straight rollover where things are starting to
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spiral downward for them.
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Speaker 2: Yeah, it didn't knock the cover off the ball, but
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look off at margin, as you mentioned, up a good
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three percentage points from this time last year. Those energy
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tax credit or sorry, those green tax credits were a
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piece of it. They also saw a boost from their
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energy business, which I want to talk about a little bit.
4:13
But clearly Elon Musk still wants us all to think
4:16
about this company as not a car company. Yeah. Again,
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I think they're looking more and more like one, but
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he clearly wants everyone to focus on things like the
4:25
robotaxi business, like the energy business, like you know, all
4:28
these artificial intelligence and robots. You know, he wants us
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to focus on all these different pieces. And I don't
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know that there's anything about this quarter that would indicate
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that we should.
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Speaker 3: No, and some of the quotes that this is where look,
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you have a company that has, you know, again, a
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good quarter where it's like, hey, maybe the last couple
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of quarters look like an aberration. And then you get
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onto the conference call and you hear Elon say, well,
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all of the cars that we've shipped to this point
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are ready to go autonomous, and we're building thirty five
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thousand autonomous va a day. And it's like, guys, can't
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we just say that you had a good quarter without
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saying that all of the cars that you're selling are autonomous.
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Speaker 2: Can't we just do that? No? I actually don't know
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that he can, because if I think if he does,
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I don't think the stock's up sixteen seventeen percent today
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like it is. The stock's up. Pull it open again here,
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but at last looks sixteen and a half percent on
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the day. Oh yeah, it's cranking only bringing the stock
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to flat for the year. He was down about sixteen
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percent going into this earnings report. For the year and
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now is flat for the year. But no, I don't
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know that he can, or as a shareholder, you would
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want him to stop talking in this way, because if
5:40
Tesla is just a car company that delivers nice vehicles
5:46
at a pretty decent profit margin, then there's almost no
5:50
way that they're worth seven hundred and eighty two billion dollars.
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Speaker 3: It's just as someone. Look, we own a My wife
5:58
has a Tesla Model three. I drive it occasionally. I
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actually drove it down here today just because I have
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my other car is a super that I have a
6:05
lease on it. I don't want to go over my mileage,
6:07
and I had, you know, I had some reasons for
6:09
driving it today, and so I said, look, she had
6:13
one of those three month free trials of the full
6:16
self driving and on the way down, I said, look,
6:18
perfect opportunity, What a great opportunity to test it.
6:21
Speaker 2: I've got drive through Boston over the bridge. You're gonna
6:23
I got all.
6:24
Speaker 3: Kinds of stuff that I'm going to see, like how
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how is it going to do? And to be honest,
6:28
for like ninety eight to ninety nine percent of it,
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it was absolutely fine driving itself. Driving itself.
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Speaker 2: You're sleeping most of the ride.
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Speaker 3: From what I understand, I was, I had the seat
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laying back, I was looking up at the sky through
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the moon.
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Speaker 1: It was.
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Speaker 2: It was wonderful. Here's the thing.
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Speaker 3: There were two instances where something very bad could have
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happened and I had to take over. The first instance
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was I'm on the highway. I'm on ninety three South.
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I'm in the second lane from the left, and I
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have the cruise control set it like, you know, seventy
7:00
two seventy three, because hey, I'm in a hurry to
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get things done, you know, like I gotta get moving.
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Cars in front of me are going sixty five. The
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car decides, okay, I'm going to move to the left
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in order to pass. It decides to do this right
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as another car is coming up, you know, ready to
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pass me. And I had to be like, no, you
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have to stay in the lane that you're in, because
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it didn't pick that car up. The second one was
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as I'm on ninety three South. As you tend to
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see on ninety three South at any time of day,
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there is a point at which the traffic stops completely, yes.
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Speaker 2: And I'm kind of sitting there.
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Speaker 3: I'm like, okay, it's it's gonna stop, it's gonna stop,
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and then it does, and then it it Mike, the
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car starts again and not realizing that, hey, the traffic
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in front of you is stopping again, and it basically
7:49
slammed on the brake so hard that if I didn't, like,
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and this is with you know, plenty of space in
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front of me between me and the car in front,
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it slammed on the brakes hard enough that if I
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didn't take over and start moving again, the car behind
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me would have slammed into me.
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Speaker 2: So I think your point would be that Elon musk
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statements about shipping a bunch of cars that are fully
8:08
autonomous might be a bit disingenuous.
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Speaker 3: My point is like, yes, and look, it did some
8:12
cool stuff, like hey, it's kind of cool when your
8:14
car takes you off the highway and then into a
8:18
parking lot. Like yeah, like there's some impressive stuff. I'm
8:20
not saying it's awful, but I'm saying if I had
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one drive of an hour and twenty minutes where I
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had to interrupt it twice, you can't ship a vehicle
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with no steering wheel next year.
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Speaker 2: Yeah, Like that's it's.
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Speaker 3: Like I'm trying to balance the fact that, hey, I
8:39
think they do some really amazing stuff and this is
8:42
a good quarter with we have to move past, you know,
8:46
the hype stuff, because I don't think that's where the
8:49
meat is, and it's possible to still run a really,
8:52
really good car company that is just where it is
8:56
right now and doesn't have to make a fully autonomus
9:00
vehicle next year.
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Speaker 2: Other announcements during the call and during the quarter, they
9:05
have now abandoned officially their plans for a twenty five
9:08
thousand dollars car. I don't know why it took them
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this long to announce. They announced this thing in twenty eighteen,
9:13
Like nobody's selling a twenty five thousand dollars car. And
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even if you just said twenty five thousand dollars and
9:18
twenty eighteen dollars, that that brings you to like a
9:20
thirty three thousand dollars car in today's dollars. So there
9:24
was no chance that this thing was ever going to
9:25
get made. It's officially being killed by Elon Musk. I
9:29
do wonder about that. They can't get there. It's not
9:32
gonna happen.
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Speaker 3: If you look at the base price on a Toyota Corolla.
9:35
Get a nice car, but it's a Toyota Corolla twenty
9:39
two thousand dollars, right, You're gonna make an EV for
9:42
three thousand dollars more than that.
9:44
Speaker 2: Yeah, So it made perfectly the kill it. My only
9:46
point would be, you should have killed this two years
9:48
ago instead of, you know, dragging everybody along on it.
9:51
It was twenty eighteen. They probably did.
9:53
Speaker 3: They probably just didn't want to like tell anyone until
9:55
they were closer or thought they were closer on like
9:58
the the autonomy stuff. So that's again, I think that
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when you look at this quarter, it pushes back on
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the story from the last couple quarters, which was, hey,
10:08
your sales are down year over year. Is this going
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to be a trend that spirals into a bigger problem
10:15
At least for one quarter when you had positive sales
10:18
growth of six percent, you say, no, like that. The
10:21
company's showing some stability, and that's a good thing. The
10:24
profits are in a good spot. They're operating margins which
10:28
had been compressing for the last five or six quarters.
10:31
Now they expanded from seven point six percent a year
10:34
earlier to ten point eight. So you look at this
10:37
quarter overall and you're like, yes, this is what.
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Speaker 2: You need to do.
10:42
Speaker 3: And I think if you can just see a few
10:43
more of these, it's something where you say, Okay, there's
10:47
something that you can continue to build on, even in
10:49
the face of additional competition that we were worried, you know,
10:52
might have been starting to eat into the business here.
10:55
And so we'll see where this goes from here. But overall,
10:59
good quarter. The reason the stocks up sixteen percent is, hey,
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when you have a couple bad quarters in a row,
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all it takes is a good one in order to
11:05
get things moving. And look, Elon also did say, hey,
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I think my sales, our sales are going to be
11:10
up twenty to thirty percent next year. We'll have to
11:14
see that because there's there isn't enough evidence to kind
11:17
of get to that right now based on how sales
11:19
have been trending for the last.
11:21
Speaker 2: Year or so. Yeah, I think the downside with his
11:23
statements that he frequently makes is that it's tough to
11:25
believe him when you tell him what it tells you
11:27
that it's twenty to thirty percent sales growth next year.
11:31
But I will reiterate that he can't abandon these outsized
11:36
promises because If Tesla is merely a good luxury car
11:41
maker with a ten percent profit margin, then there's no
11:45
way they're worth eight hundred billion dollars, seven hundred billion
11:48
dollars how much, how much ever, they're worth right now.
11:51
They're not worth more than you know, all the other
11:53
automakers combined. And I know that's not the case today
11:56
like it was in twenty twenty one, but that that's
12:00
why he has to make these statements, these probably unreasonable
12:03
promises about the future. To take a quick break here.
12:06
Speaker 3: When we come back, we've got the latest on the
12:09
Boeing strike. The machinists voted on the latest proposal from
12:14
the company.
12:15
Speaker 2: We'll tell you the results right after this Business.
12:19
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13:24
Speaker 3: Boeing earlier this week made a revised offer to their
13:29
machinist union that is currently on strike. The union, prior
13:33
to taking it to their membership, said, hey, this is
13:36
an offer from Boeing, do with it what you will,
13:39
not exactly a ringing endorsement of it. And the result
13:43
here is that the Machinist union voted sixty four percent
13:46
against this latest contract. That is better than the ninety
13:50
five percent against that the first contract offer ended up resulting.
13:56
Speaker 2: In.
13:56
Speaker 3: So ultimately, this is something where they appear to be
14:00
moving closer but aren't across the finish line. Yet a reminder,
14:04
this deal had a thirty five percent wage increase over
14:08
four years, a seven thousand dollars signing bonus, and a
14:11
number of other inclusions such as you know, expanded healthcare
14:15
benefits and for one K benefits as well, and that
14:19
still was not enough to get this over the hump here.
14:22
So ultimately, it looks like you're probably looking at somewhere
14:25
in the ballpark of I would say like a forty
14:27
to forty four percent wage increase is probably where you're
14:31
gonna have to be in order to get this done.
14:33
And look, the piece that makes this tough then for
14:37
Boeing is when you when you go and develop the
14:40
seven thirty seven Max, which you know started in probably
14:44
twenty ten, twenty eleven before it was you know, released
14:47
in twenty sixteen. And again that's a that's a quick
14:50
timeline because you're coming from an existing airplane, not a
14:53
clean sheet design. You build out and you say, Okay,
14:56
we're gonna make this plane for the next thirty years,
14:59
and here's what we expect our cost to be over
15:01
that time. Nowhere in there do you build in a
15:05
forty percent increase in your labor costs over a four
15:09
year period, and so I think that when you look
15:14
at this ultimately, it means hey, Boeing is going to
15:17
have to charge more for those airplanes in order to
15:20
be you know, profitable the way they and their shareholders
15:24
want them to be. That means that Southwest and United
15:27
and whoever else buys these jets from Boeing is going
15:31
to say, Okay, we're paying more for these jets. We
15:34
have to raise airfares in order to deal with this.
15:37
On top of by the way, I think about every
15:39
airline and the union negotiations that they just went through
15:43
in terms of you know, there, what do we have
15:46
like a number of different pilots unions that saw like
15:48
fifty percent raises over three four year contracts. So this
15:52
is all pointing towards something that is going to filter
15:56
into the air travel system over the next decade or so,
15:59
and probably probably you know, have some costs that end
16:01
up pushing forward on that side in order for these
16:04
companies to be as profitable as they want to be.
16:06
Speaker 2: I know, there's probably a lot of folks scratching their heads, like,
16:08
you know, thirty five percent pay bumps, seven thousand dollars
16:11
ratification bonus four oh one K contributions. You know, from
16:14
the union's perspective on all this, it was only a
16:17
decade ago, ten years ago that under threat of moving
16:20
production to South Carolina and basically killing a bunch of jobs,
16:24
the union said, fine, we'll get rid of our pension.
16:26
That was in twenty fourteen. So there are many of
16:29
those union members still at Boeing who had pensions. They
16:32
were frozen for all new employees, or eliminated for all
16:35
new employees, frozen for the existing ones. And you can
16:39
imagine as as that union member who was really pushed
16:44
into a corner a decade ago by saying, hey, if
16:47
if you don't move on this, we're going to just
16:49
make the next what was it, the seven eighty seven
16:51
X seven seven seven X, which by the way, they've
16:54
never built a single one of what was going to
16:57
be done in South Carolina. They said, okay, fine, we'll
16:59
give in and get of these pensions. And now, look,
17:03
you say what you want about the state of Boeing.
17:05
Uh they lost six billion dollars in the most recent quarter. Uh,
17:08
say what you want about that million. But yeah, usually
17:11
you want to go to the other direction, make money
17:14
from the Union's perspective. Here, nobody's gonna let you shift
17:18
production of an airplane after all of these cross uh,
17:21
you know quality control issues to South Carolina, and you
17:25
have all the leverage in the world. So, you know,
17:28
the same way that Boeing stuck it to you a
17:30
decade ago, the roles reversed a little bit. Here. They
17:33
have no leverage to you know, threaten to move these jobs.
17:36
I don't think I could be wrong about that, but
17:38
I don't think there's much in the way of leverage there.
17:41
I don't think there's a realistic threat that they can
17:43
move any jobs South Carolina. So oh come. I would
17:48
think that the amount of time required for their regulators
17:54
to approve such a move, such a production change, after
17:57
you know the amount of scrutiny they've received over the
17:59
last few years, it may still be possible, but probably
18:04
not what Boeing wants to do right now.
18:06
Speaker 3: No, but airplane manufacturers operate on really long timelines. It's
18:11
something where they wouldn't be saying, hey, we're gonna move
18:13
this production next year, but maybe ten years from now. Sure,
18:16
And that still makes a huge difference in the overall
18:19
framework of how the company can operate there piece in
18:22
the Wall Street Journal that interviewed a couple Boeing employees about, Hey,
18:25
how'd you vote on the deal and why do you
18:27
vote that way? Quote here, Boeing employee Van Johnson voted
18:30
against the deal, though he said it was a market
18:32
improvement from the first offer. Quote, it's a real offer
18:35
from the company, the first reel offer from the company.
18:38
He said that the wage increase sounds good, but if
18:42
you factoring buying power, it still seems like we haven't
18:45
gotten a real raise. So it's something where part of
18:50
this also stems from the fact that, look, Boeing's, you know,
18:53
the factories that are striking right now, they're right around Seattle, Washington.
18:57
It's not a low cost of living area. And so
19:01
the average Bowing machinist makes seventy five thousand dollars under
19:04
that contract. But you're talking about one of the three
19:06
most expensive areas to live in, probably have foremost expensive
19:10
areas to live in in the country. And so yeah,
19:13
you can understand why they're pushing for more, especially because,
19:16
as as you noted, Mike, Hey, the last couple of
19:19
negotiations haven't really gone their way, and so if they
19:22
do have some leverage now they they're rightly saying yeah,
19:25
like this is our chance to actually get something because
19:29
we've kind of been, you know, the loser of the
19:31
last couple of negotiations. I think quick break here when
19:35
we come back. We've got Wall Street Watch right after this.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
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19:53
Speaker 2: Time now for.
19:55
Speaker 1: Wall Street Watch a complete look at what's moving market
19:58
so far today, right here on the Financial Exchange Radio Network.
20:02
Speaker 4: Well after yesterday's sell off with a Dow notch its
20:05
biggest single day loss since early December, markets today are
20:08
in mixed territory. Right now, the Dow is off by
20:12
only seventy six points, SMP five hundred is up just
20:15
over a quarter percent, or sixteen points, and the Nasdaq
20:18
is up by two thirds of a percent, or one
20:20
hundred and thirteen points. Russell two thousand is also up
20:23
by over a quarter of a percent. Ten year treasurreel
20:27
down by two basis points at four point two to
20:29
two percent, and crude oil edging higher, trading at seventy
20:33
dollars and eighty three cents a barrel. Tesla impressed with
20:36
their third quarter results, sending that stock up by sixteen percent.
20:40
With the electric car maker posted a better than expected
20:43
profit for the previous quarter. CEO Eon Musk said he
20:47
also expects to see vehicle growth of twenty to thirty
20:51
percent next year. Meanwhile, Bowing down by one and a
20:54
half percent after its machinist union rejected a new labor deal,
21:00
extending this six week strike Elsewhere, According to Bloomberg News,
21:04
Seed Drill is in merger discussions with rival Transocean. While
21:08
a deal has not been finalized, the companies could choose
21:11
to stay independent. Seed Drill shares are up by six percent.
21:15
Ups posted gains in quarterly revenue earnings for the first
21:18
time in over years, sending that stock up by four percent.
21:22
IBM miss street forecast on third quarter revenue, but did
21:27
beat on earnings expectations. That stock down by five percent.
21:31
Toymaker Mattel revealed mixed third quarter results, beating on earnings
21:34
but missing on revenue. The company did say its profit
21:37
margins were holding up due to cost cuts. That stock
21:41
up by four percent and t Mobile up by four
21:43
percent as well. After the company beat earnings and revenue
21:46
expectations and also hiked its full year guidance. On Tucker Silvan,
21:51
that's Wall Street.
21:52
Speaker 2: Watch, Micha.
21:53
Speaker 3: Let's talk a little bit about Southwest Airlines. They have
21:56
been kind of under siege by activist investment firm Elliott
22:01
Investment Management, who's been pushing for changes in the company,
22:04
largely because the company, quite honestly, has been lagging in
22:07
terms of profits and growth compared to their peers who
22:11
offer more premium products and you know, international flights and
22:15
the stuff that people have been buying the last couple
22:17
of years. So they came out, they reported earnings yesterday
22:21
after the bell, and their profits were more than double
22:24
their estimates actually, and starting to maybe show some signs
22:28
that hey, after you know, kind of battling with this
22:31
activist investor for the last six to nine months, they're
22:34
starting to see some progress in turning the ship and
22:37
getting the kind of results that they need in order
22:39
to maintain the control.
22:41
Speaker 2: Over the board that they want to. What would you
22:43
make of the fact that the stock's selling off four
22:45
and a half percent this morning. I don't know, it's
22:48
not good enough. I guess yeah. I mean again, it
22:51
all comes down to expectations, and this is why playing
22:54
silly games like guessing which direction the stock is going
22:57
to go on a day to day basis is all
22:58
but useless. But I mean to speak to the severity
23:02
of Southwest's issues over the last few years. Their stock
23:05
has been basically cut in half over the last five years. Now,
23:08
granted COVID was in between that it went down, it recovered,
23:11
but a fifty percent hit, a forty eight point three
23:14
percent hit over the last five years to this stock
23:17
price on. Yes, some an airline that, for one reason
23:21
or another has just not remained competitive in the same
23:24
way that others have. And I think it's really a
23:27
combination of things. Certainly the boarding method and the lack
23:31
of ability to book actual seats on the plane probably
23:35
is an issue that they're trying to deal with. I
23:38
do think I don't know about how you shop for
23:40
flights chock, but like the process and I do it.
23:43
But I'm sure I'm not exactly in good company of
23:47
looking for my flights and then separately opening up a
23:49
whole new browser to go to southwest dedicated website because
23:52
that's the only place you can actually search for their flights.
23:55
I know it has saved them money over time. But
23:56
that's just not how people shop for airplane tickets these days.
24:00
So you go to Google flights, you go to Expedia,
24:02
you go to one of these places. You see what
24:03
the best options are, and then an afterthought, you might think,
24:07
oh boy, I forgot that Southwest doesn't market on these sites.
24:10
I gotta go take a look there, because the only
24:12
thing that people tend to care about when booking a
24:14
flight tends to be priced.
24:16
Speaker 3: Yeah, And if you go and take a look just
24:20
at you know, again, I'm looking over the last three
24:22
years so airlines and how they've performed. Best performing airlines
24:26
stock over the last three years is United. Most that's
24:28
been in the last week. Actually, just remember they reported
24:30
earnings last week and a large day on the top end.
24:34
So United over the last three years, stock prices up
24:37
fifty eight and a half percent. You're like, okay, Like
24:39
that's fun. Delta up thirty six percent over that time.
24:42
And I think Delta is the one that most people
24:44
look at and say, hey, they generally have the most
24:46
stable long term track record in a very you know,
24:49
unstable industry. You get past that, and every other major
24:53
carrier is down over the last three years. And again
24:58
I say major carrier because look, there's really only you know,
25:01
one other that's you know, the same kind of scale,
25:04
and that's American, which is down their stocks down thirty
25:07
two percent over the last three years, Southwest down thirty
25:10
eight And then you get into the companies that, hey,
25:12
there's questions, you know, existential ones about hey, will you
25:15
continue to exist? Spare It down eighty eight percent, Jet
25:18
Blue down fifty one percent. Again, this this is why
25:22
whenever anyone asks me, look, if you could light ten
25:26
billion dollars on fire in any industry, which one would
25:29
it be.
25:30
Speaker 2: It's so easy to do it in airlines. It's just
25:33
it's so easy. It is.
25:34
Speaker 3: It is the least hospitable industry to try to deal with.
25:37
You've got insane fixed costs that you have to deal with.
25:41
You've got union negotiations that are constantly, you know, eating
25:44
into profits whenever they do come up. You are so
25:47
dependent on the business cycle, and even in good business cycles.
25:50
I mean, Mike, if you take a look right now
25:53
at what we're seeing in terms of TSA throughput and
25:57
the numbers that are going through TSAI checkpoints on a
26:01
daily basis, I mean, you still at least one or
26:03
two days a week flording with three million passengers a
26:07
day going through.
26:08
Speaker 2: Which is well above pre COVID levels.
26:09
Speaker 3: So yeah, I mean, but you talk about where you
26:11
were in like twenty nineteen, twenty eighteen, and you were
26:13
peaking at like two point four two point five million,
26:16
you're running ten to fifteen percent above that, and half
26:20
these companies are like losing, Well, we're not really.
26:23
Speaker 2: Sure how we're going to be able to survive. Yeah,
26:25
as part of that Southwest sid last month, they're going
26:27
to end nearly a third of their flights through Atlanta.
26:30
That's starting in April of next year. As many as
26:32
two hundred flight attenant jobs one hundred and forty pilot
26:34
positions will be quote affected by that change. That sounds
26:38
like laid off, but you know, maybe it's just fewer,
26:41
fewer routes and fewer hours. Is the lesson here that
26:45
all airlines just need to look exactly alike. Like what
26:48
I hate about all this? You know, all the changes
26:50
that Southwest is going to undergo over the next few
26:52
years probably means that your booking seats the same way
26:56
you do with other airlines, that you're getting charged baggage
26:58
fees the way you are with other airlines. I don't
27:01
know with certainty that it's going that way, but it's certain,
27:03
you know, commentary from management seems to be indicating that
27:06
that's the direction it's going. And is that the only
27:08
way to make money in this industry now?
27:10
Speaker 1: No?
27:10
Speaker 2: Well now, yes, but I think it's it's it's always cyclical. Ye. Yeah.
27:15
Speaker 3: If you look back fifteen twenty years, the entrance that
27:17
we had into airlines in the two thousands, they were
27:20
all on the budget side of things. Jet Blue comes
27:23
in spirit, comes in like. These were airlines that were
27:26
not targeting premium products. Sure, and they did very well
27:29
for a time because.
27:30
Speaker 2: I didn't even have first class cabins.
27:31
Speaker 3: No, they offered something that was just fundamentally different from
27:35
what was there at the time. And so I think
27:37
you go through these cycles where yeah, everyone's gonna look
27:40
at the Delta model now and say that's what we
27:42
want to be gearing towards, because hey, if we're flying
27:46
from Boston to lax Okay, sure we can get five
27:50
hundred dollars per economy seat, but we can get twenty
27:52
five hundred dollars for each premium seat. And that only
27:56
takes up fifty percent more space, So on you know,
27:58
a per unit basis, we're making way more being.
28:01
Speaker 2: Able to sell some of those seats.
28:04
Speaker 3: There might be a different time where look if the
28:06
economy isn't as good. I mean, look again, look at
28:08
why those budget carriers got popular in the mid to late.
28:11
Speaker 2: Two thousands because the economy suck. The economy was garbage.
28:14
I mean a job, no one had any money.
28:16
Speaker 3: It was like, yeah, I'll do sixty dollars on spirit
28:18
if you take me to the wing, that's fine.
28:20
Speaker 2: I don't care. Just get me there. It's no big deal.
28:23
Speaker 3: So I think that this is kind of the environment
28:27
that we're in now, which is, hey, wealthy consumers still
28:31
have money to spend, and if they do, that's where
28:34
you make your money in basically any business right now.
28:37
I mean you talk about the low end of the
28:39
wage scale and the pressure that they're feeling because of
28:42
the accumulative inflation from the last three four years. The
28:45
high end is where you're able to make money right now.
28:48
And I think it's no different in airlines than anywhere else.
28:51
Speaker 2: You mentioned Spirit a couple of times there and separate
28:54
story here, but as you mentioned kind of circling the
28:57
toilet potentially looking at bankruptcy. Here that becomes such a
29:01
quickly self fulfilling prophecy. When you talk about something like
29:03
an airline like I would there is no doubt my
29:07
I don't know what it would take me to book
29:09
a ticket on a Spirit Airlines flight right now. I've
29:13
flown them plenty of times. I've looked at them and
29:15
be like, hey, this is the value carrier. You know,
29:18
they've got three kids. I'm gonna fly Spirit and be honest,
29:20
They're not as bad as everyone makes them out. To
29:22
be sure, they are not so long as you don't
29:29
have a big the big problem you have with the
29:31
Spirit is if your flight gets canceled, it's like, okay, great,
29:34
we'll get you there in three and a half weeks.
29:36
The next time we're gonna fly to that place. If
29:38
they get there on time, then it's fine. It's just
29:41
you know, with Delta, if your flight gets canceled, you're fine.
29:43
You get there, you know, an hour and a half later.
29:45
On Spirit, it's just not possible. But my the problem
29:49
with Spirit, like I was actually looking at them for
29:51
you know, school vacation week, and they're the cheapest option
29:54
out there by like thirty percent. But will they be
29:57
But nobody's gonna book that. See, here's the thing. Will
30:00
they fly the route? I don't know. Here's the thing.
30:02
Speaker 3: Airlines typically don't just close, No, they usually go through
30:06
a reorganization. Again, those have been with the larger ones,
30:10
or at least you know, I guess they weren't even
30:12
larger back then, because like you go talk about all
30:14
of the airline bankruptcies in the early two thousands, which
30:17
was the last major wave of them. And remember even
30:19
though you had Delta United, I mean all the majors,
30:21
Delta United and American all declared bankruptcy in like a
30:24
three year period. But that was also a time where hey,
30:27
you still had Northwest, you still had US Air. It
30:29
was before that wave of consolidation in two thousand and
30:32
eight through twenty twelve that really got us to three
30:35
major carriers plus Southwest. And so yeah, it's it could
30:41
be messier this time. Maybe you don't just go through
30:43
a reorg. Maybe you go through you know, liquidation, in
30:46
which case, hey you might not have a seat on
30:49
the plane, but maybe you own the plane if you're
30:52
a creditor.
30:54
Speaker 2: Yeah, so you could seund yourself sound pretty low on
30:56
that credit well, on that credit scale would be my.
30:58
Speaker 3: Guess's take a break here. When we come back, we're
31:01
going to talk about gate lice. Yeah, that's right, gate
31:04
lice and what they are.
31:06
Speaker 1: When we return, find daily interviews and full shows of
31:10
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31:13
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31:40
Speaker 2: Mike, you ever have gate lice? No? I got an
31:42
email from my kids teacher the other day, but I
31:44
don't think that was gate lice. I don't think that
31:46
was just lifelic.
31:47
Speaker 3: So this is actually the first term, first time I've
31:50
heard this term.
31:51
Speaker 2: I actually love this term. It refers to save derogatory.
31:54
Speaker 3: If you've ever been at an airport and you're you're
31:57
waiting for your plane and they say, okay, you know,
32:00
boarding group A or boarding group one, you know, you
32:02
may now board, and someone with you know, boarding group
32:05
forty six shows up and is like, yeah, I'm in
32:07
this this this group, this is Uh, those are gate lice.
32:12
Speaker 2: Those are the people that they just they.
32:13
Speaker 3: Mill around and they just try to, you know, get
32:16
on the plane before because obviously, look, here's the thing.
32:19
If you get on the plane before everyone else, you
32:21
get to your destination first, clearly, I mean, that's how
32:23
it works, is like you get there before people.
32:26
Speaker 2: So I think the real reason they well, the reason
32:30
people are annoying. But the part of the reason they
32:31
do it is because those overhead luggage containers fill up
32:34
so fast that you end up having a gate check
32:36
your bag and then go down to the luggage carousel
32:38
if if you don't get on the plane early enough.
32:40
So I think there is an actual legitimate reason that
32:43
people are doing this more these days.
32:45
Speaker 3: But I agree that it's not a legitimate reason that
32:48
you have to go to the baggage claim.
32:50
Speaker 2: I trust me, I hear you. Nothing bothers me more
32:53
than I love that we have this term now gate lice.
32:56
But yeah, American is testing out a new method of
33:00
dealing with their gate lice. I'm in favor of it.
33:04
I wish it involved a little bit more public shaming
33:06
than it does, but it's pretty good steps. So what
33:10
they're going to be doing now is when you are
33:13
boarding the plane, you will they'll call your boarding group
33:18
and if you scan your boarding pass and it's in
33:20
the wrong group today, like the gate agent has to
33:23
notice it and actually like pay attention, and it's not
33:26
terribly obvious. Going forward, there's gonna be a loud beeping
33:29
sound and they'll just tell you a move to the side,
33:31
unless you know, maybe they'll let you through if you're
33:34
particularly good looking or traveling with your kids, would be
33:37
my guess. But nonetheless, like I said, I think this
33:41
will help maybe to cut down on the problem, although
33:45
I don't think it's going to do anything to prevent
33:48
the do we have a separate term for all the
33:50
people that do wait for their group but just stand
33:52
right in front of you and don't let you through
33:54
and you know, clog up the area. Yeah, there's the gateshep,
33:57
the gates sheep. Okay, Yeah, So I don't think it's
33:59
gonn necessarily solve that problem, but I like this step.
34:04
I think it's a step in the right direction for America.
34:06
A little more humiliation would be good. As you mentioned, Yeah,
34:09
I think like instead of an audible beep, just a
34:11
loud you are in the wrong group. Step aside would
34:16
be nice.
34:16
Speaker 3: I'd like that, or just like, hey, like a little
34:20
area that you like get put into when you literally
34:22
have to bore the plane last then mmm yeah, like, oh,
34:25
you wanted to get on before everyone else. You're getting
34:27
on dead last year.
34:29
Speaker 2: Now you're ten. Yeah, you're you're You're in the last one.
34:31
I think that's how it should work.
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35:35
Speaker 3: Mike, I want to talk about the MBTA a little bit.
35:38
Actually sorry, I'm kind of going off I'm going off
35:42
track here a little bit. But we've been really critical
35:46
of the MBTA over our entire lifetimes, and it's been
35:51
for good reason. It's been kind of a mess for
35:54
quite honestly, it's really only been a mess for the
35:56
last twenty five years and actually got squared away pretty
35:58
decently in the eighties before the nineties just kind of
36:01
let it rot and it just has kind of gone
36:03
from there. But in particular the last couple of years
36:06
with you know, all of the slow zones and you know,
36:09
trains coming off the track and trains on fire, and
36:12
people jumping into the water and stuff like that.
36:14
Speaker 2: It's it's been bad. My wife was commuting back on
36:17
the on the commuter rail part of the MBTA, And yeah,
36:20
her funny experience was the conductor getting on the line
36:23
and saying, we're not being told why but we get
36:26
to go ten miles an hour for the next ten miles.
36:29
Speaker 3: So you will be very late. Sorry, but I have
36:33
to give them a little bit of credit here, So
36:35
about it. Yes, about a year and a half ago,
36:37
Philip Eng who previously headed up the lost Long Island Railroad,
36:43
and he came in and was appointed in April of
36:46
twenty twenty three to head the MBTA first person. He
36:49
is the first person to head the agency in twenty
36:51
years with prior experience heading a transit agency. So like
36:55
that tells you something about where we've been. At the
36:58
time that he came on board the MBTA system, that
37:01
the subways in Boston had two hundred and twenty eight
37:04
different slow zones.
37:06
Speaker 2: Okay, two hundred.
37:07
Speaker 3: And twenty eight, and they said, hey, we're gonna roll
37:09
out this period of like rolling blackouts onlines until they
37:12
closed the Orange line for what is that month. Yes,
37:16
it was just ridiculous in the last year. So on
37:19
October twenty second of last year, there were those two
37:22
hundred and twenty eight slow zones. Today they are only
37:24
eighteen left.
37:25
Speaker 2: Wow.
37:26
Speaker 3: And I give them credit because previously, like they've announced, oh,
37:29
like we're gonna try to tackle these, and it made
37:31
no difference. And granted this is just kind of basic
37:33
blocking and tackling, but it's the basic blocking and tackling
37:36
they have not been able to do over the past decade,
37:39
in particular.
37:40
Speaker 2: With the existing transit system. You want basic blocking attacks.
37:43
I don't need innovation out of the NBTA.
37:45
Speaker 3: You just couldn't trust that it was gonna get done.
37:46
Remember they had all this stuff about, like the falsified
37:48
maintenance records and things like that. So there's been some
37:51
basic competence that's been restored. The key for NG is
37:54
now going to be Look, he's sixty three years old.
37:57
He's not going to be around forever. How do you
37:59
build the culture in the next five to seven years
38:01
so that when he leaves you have, you know, continued
38:04
pushes to improve the system and build it out the
38:08
way that needs to be built.
38:09
Speaker 2: But I just thought, look, we rip on the MBTA
38:11
so much.
38:12
Speaker 3: Yeah, we wait to gi him some custets to note
38:13
when they're actually doing some good things.
38:15
Speaker 2: Just take a quick break here. We got hour two
38:17
coming up in just a little bit.