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Biz Travel Downtrend Benefits Our Model: Booking CEO Fogel · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news. Find the Bloomberg Markets
• 0:13
  Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot com, Kayak price Line, Open Table,
• 0:22
  Speaker 1: Rental Cars dot Com. They all have something in common,
• 0:25
  Speaker 1: there are the properties of booking holdings. It's a very
• 0:28
  Speaker 1: tough time for the likes of these websites. But let's
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  Speaker 1: bring on Glenn Fogel, who is president and CEO of
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  Speaker 1: Booking Holdings, because they're not going away without fight. Let's
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  Speaker 1: put it that way. Glenn, thank you so much for
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  Speaker 1: joining talk to us about the state of this kind
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  Speaker 1: of industry right now. I'm still getting, you know, very
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  Speaker 1: optimistic emails daily from the likes of Open Table, price
• 0:49
  Speaker 1: Line and so on. But things have changed, and I'm
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  Speaker 1: curious as to how your various properties are adapting to
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  Speaker 1: the change. Well, thank you for having me. And look,
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  Speaker 1: this is a difficult time for the travel industry, and
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  Speaker 1: it's been a difficult time since the beginning of the
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  Speaker 1: year when we first saw things happening in China, and
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  Speaker 1: it's of course gotten worse throughout the world. But now
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  Speaker 1: people are feeling a little more positive about the future.
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  Speaker 1: Certainly we're reading the news about the potential vaccine coming
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  Speaker 1: down the pike. And once people feel safe, they start
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  Speaker 1: to travel. And we know that by just saying how
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  Speaker 1: much our numbers have improved since uh the April Low's
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  Speaker 1: where people once they felt that it was safer in
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  Speaker 1: certain parts of the world, they started traveling right away.
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  Speaker 1: So there is absolutely hope in the future. All right,
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  Speaker 1: let's talk about current trends there. Um, if you don't mind,
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  Speaker 1: I know that in this in your June quarter room,
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  Speaker 1: Knight's book tumbled from the same period of year ago.
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  Speaker 1: Revenue fell by about four percent. What have you seen
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  Speaker 1: What have you seen over the last several weeks and months. Well,
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  Speaker 1: you know, we talked about it earning this call that
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  Speaker 1: we we've been having, um, you know, significant improvement. We
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  Speaker 1: were pleased with what was going on. But there's no
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  Speaker 1: doubt there have been some parts of the world where
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  Speaker 1: there have been flare ups and things have gotten things plateau.
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  Speaker 1: There's a great correlation between when a government puts down
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  Speaker 1: some sort of restriction or people start seeing the infection
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  Speaker 1: rates going up, that those people in the area start saying, hey,
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  Speaker 1: I'm not sure I want to travel right now. And
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  Speaker 1: we see that throughout the world, and I can pretty
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  Speaker 1: much predict if there's a problem in an area without
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  Speaker 1: knowing the data on the infections, by just looking at
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  Speaker 1: our data on the people who are willing to block.
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  Speaker 1: Then I want to point out that you've foregotten your
• 2:32
  Speaker 1: salary as part of the current cost controls. What else
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  Speaker 1: are you doing to lower staff costs. You've said you're
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  Speaker 1: trying to do it as painlessly as possible. Well, look,
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  Speaker 1: we went through so many different things to cut costs,
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  Speaker 1: and everything from stopping marketing for the most part, to
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  Speaker 1: no travel of any kind, cutting out all sorts of events,
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  Speaker 1: and including cutting my salary and other senior executives in
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  Speaker 1: all those things, because that's the first thing to do.
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  Speaker 1: But then what happened as we looked at our numbers
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  Speaker 1: and we look at what our buyos are always say,
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  Speaker 1: you know, we're going to have to do the unfortunate thing,
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  Speaker 1: and that has cut people. And we've been through that
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  Speaker 1: process for the last few months, well last week, we
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  Speaker 1: had to tell our people at booking dot Com that
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  Speaker 1: we're going to have to do some cuts there too,
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  Speaker 1: And it's it's it's so hard on the people who've
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  Speaker 1: done nothing wrong. It's not as what they're doing a
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  Speaker 1: bad job, but this virus has just been horrific for
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  Speaker 1: our industry. Glenn, give us your thoughts. I know it
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  Speaker 1: it might be a little bit earlier, but certainly, you
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  Speaker 1: know you have I'm guessing in some perspective here, what
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  Speaker 1: is your sense as to consumer behavior as it relates
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  Speaker 1: to traveling. Do you get a sense on the other
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  Speaker 1: side of this that consumer behavior will kind of go
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  Speaker 1: back to normal. People will go on cruise ships, the hotels,
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  Speaker 1: mass gatherings, that type of thing. Are you concerned that
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  Speaker 1: maybe there may be a fundamental change to how, uh
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  Speaker 1: you know, people travel? Well, I think in the big
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  Speaker 1: picture and travel will go right back to where it
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  Speaker 1: was over all. And I say that with great confidence
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  Speaker 1: because there have been tragic things in our world for
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  Speaker 1: a hundred years and people then went back to traveling,
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  Speaker 1: and World War Two was a devastating thing for this world.
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  Speaker 1: Yet just a few years after the end of World
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  Speaker 1: War Two, people were traveling to Europe. I am not
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  Speaker 1: concerned about people not willing to travel orgather. That is
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  Speaker 1: how human beings are. We're social. But there are some
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  Speaker 1: things that are going to change, I think a little bit.
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  Speaker 1: And we see that already. Whereas in the past, UM,
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  Speaker 1: not that many people said they wanted to stay in
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  Speaker 1: a home what we call alternative accommodation instead of a hotel.
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  Speaker 1: But right now what we have seen we talked about
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  Speaker 1: in our four in our second quarter, we saw forty
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  Speaker 1: of our bookings we're going for this alternative accommodation, basically
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  Speaker 1: going to a home, which is much higher than have
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  Speaker 1: been previously because people want to stay away from a
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  Speaker 1: big lobby with a lot of people. Now here's the thing.
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  Speaker 1: When people feel safer, they still will. They'll say, hey,
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  Speaker 1: I'll go back to a hotel. Sure, but having tried
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  Speaker 1: a hotel, they may say, hey, maybe we had more
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  Speaker 1: fun in the hotel, maybe it's better. So I see
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  Speaker 1: a shift of their potential. And the other really big
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  Speaker 1: thing is business travel. Uh. People have learned that, hey,
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  Speaker 1: we can do our business real well by video communications,
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  Speaker 1: so we don't need to take that business trip on
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  Speaker 1: the jet. And that will impact the airlines. UM revenue
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  Speaker 1: significantly because I get a lot of the profits are
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  Speaker 1: coming from the front of that plane with people paying
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  Speaker 1: those high first class or business class pairs, and the hotels,
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  Speaker 1: some of the big international chains that really get a
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  Speaker 1: lot of revenue from the business guy or a woman
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  Speaker 1: who is traveling and they're paying the bigger rates, and
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  Speaker 1: that's gonna hurt now for us because we do a
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  Speaker 1: lot more leisure than business. And actually, unfortunately, I say
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  Speaker 1: unfortunate says you don't want to win this way, but
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  Speaker 1: this is going to help us a little bit because
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  Speaker 1: it's going to be more supply. And when there's more
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  Speaker 1: supply than this demand, a distributor like us of benefits
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  Speaker 1: from that. Glenn, you know, you have to have done
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  Speaker 1: the math on this. You have to have consultants doing
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  Speaker 1: you know, various different calculations. How does it change operating
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  Speaker 1: margins if you now have to be way more lenient
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  Speaker 1: on terms for customers, so they will very likely for
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  Speaker 1: the longest time want to book much much much less
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  Speaker 1: in advanced so at shorter notice. They also want to
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  Speaker 1: have the ability to cancel, you know, way closer to
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  Speaker 1: their booking period than they ever would have been allowed
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  Speaker 1: to in the past. How does that change your business? Well,
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  Speaker 1: and it helps us because our Booking dot Com company
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  Speaker 1: has always had a great percentage of its hotel reservation
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  Speaker 1: rates to be fully canceable, so that has always been
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  Speaker 1: a big selling point for us. So this just helps
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  Speaker 1: us that much more. Of course, other people will of
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  Speaker 1: course try to adopt that too now because it is
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  Speaker 1: a competitive selling rate. People like to have a totally flexible,
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  Speaker 1: freely canceable rate, which is what booking dot Com offers,
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  Speaker 1: and we are seeing most of our bookings are going
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  Speaker 1: on that on that rate. It's people are saying, you know,
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  Speaker 1: I'm willing to take that flexible rate because I can
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  Speaker 1: cancel it if I need to. Glenn, give us just
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  Speaker 1: an update on kind of your relationship with Google right now.
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  Speaker 1: I know the search engine has been a big part
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  Speaker 1: of the travel business as well in terms of driving traffic. Yeah,
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  Speaker 1: Google is a big player in the industry, without doubt,
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  Speaker 1: and it's certainly we were very well together over a
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  Speaker 1: very very long time. But are our Our overall theme
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  Speaker 1: is that we want to have a direct relationship with
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  Speaker 1: our customers. We want our customers to come to us directly,
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  Speaker 1: not through any intermediary whether it be a player like
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  Speaker 1: a Google or any other type of meta or any
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  Speaker 1: type of thing. We want people just when they think
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  Speaker 1: about travel, they type in Booking dot Com or even
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  Speaker 1: more so, they go to our Booking dot Com app
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  Speaker 1: on the mobile device. That's really the secret to a
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  Speaker 1: long term success is that relationships that's so tight, right,
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  Speaker 1: people know they're getting better value. They come to us directly.
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  Speaker 1: And Glenn, thanks so much for joining us here. We
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  Speaker 1: really appreciate your thoughts in your time. Glenn Fogel, President,
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  Speaker 1: chief executive officer of Booking Holdings. It was a lot
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  Speaker 1: of excitement at the weekend. We had a p g
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  Speaker 1: A championship. It was the first major tournament since the
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  Speaker 1: pandemic stolled the sports world. Well. The winner was twenty
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  Speaker 1: three year old Colin Morrikawa, and he'll probably be remembered
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  Speaker 1: for that eagle on the sixteenth on Sunday that carried
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  Speaker 1: him really to the championship. I spoke with Colin yesterday
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  Speaker 1: and asked him how he just turned pro last year
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  Speaker 1: and yet people are already talking about his future. I
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  Speaker 1: asked him if he sees a record number of majors
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  Speaker 1: in that future, you know, I hope. So, Um, you know,
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  Speaker 1: there's no ceiling for me. I just want to keep winning.
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  Speaker 1: And after winning this past week, you know, there's obviously
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  Speaker 1: gonna be a lot of more work that's going to
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  Speaker 1: be need to put in to win and to get
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  Speaker 1: to those uh you know, major number of wins. Um.
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  Speaker 1: But you know, for me, I just got a vengjoy.
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  Speaker 1: I have to enjoy this one. I have to keep
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  Speaker 1: moving forward. Learned from it, um, but it you know,
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  Speaker 1: it gave me a taste of what it's like to
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  Speaker 1: be a major champion. And I love it. You know,
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  Speaker 1: I love being in this spot. Uh you know, I
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  Speaker 1: want to be in it again. Um. So I really
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  Speaker 1: look forward to seeing what the majors are like because
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  Speaker 1: this is what all the best players look forward to. Yes,
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  Speaker 1: every other event matters to me. I still want to win.
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  Speaker 1: I want to go out every single week and play well. Um,
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  Speaker 1: but I have that extra, you know, sense of what
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  Speaker 1: it feels like to win a major. Now, speaking of which,
• 9:18
  Speaker 1: you were facetiming right afterwards, as you were waiting for
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  Speaker 1: the other players to come in. Was it your parents?
• 9:23
  Speaker 1: What do they say? There's a lot of talking and laughing. Yeah,
• 9:26
  Speaker 1: it was them. Uh, they're just screaming. There was no talking.
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  Speaker 1: There's a lot of screaming. My mom had no clue
• 9:32
  Speaker 1: how to kind of angle the camera. They're covering the camera.
• 9:36
  Speaker 1: My brother's seventeen, So both my parents and my mom
• 9:39
  Speaker 1: and dad and my brother were just so excited. Um.
• 9:42
  Speaker 1: You know, a small little story. They had a balloon
• 9:44
  Speaker 1: flying to the yard. Uh. It was a number one
• 9:46
  Speaker 1: balloon and that's all. They had no clue where it
• 9:49
  Speaker 1: came from. But it was sitting there since Friday. They
• 9:51
  Speaker 1: never touched it. Um, And I think that bloom just
• 9:54
  Speaker 1: means a little something special. Uh, after this entire week
• 9:57
  Speaker 1: finished off. Oh my gosh, I hope they went out
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  Speaker 1: and called it bef or Blue Way. That's a great story.
• 10:03
  Speaker 1: You're a golden Bear. You were at Ucal for the
• 10:06
  Speaker 1: last four years Bachelors of Business Administration. Interestingly, so what
• 10:11
  Speaker 1: would your top business ideas for the game of golf
• 10:13
  Speaker 1: pay particularly right now? Oh my god, Um, there there
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  Speaker 1: are so many. I mean, you look at the state
• 10:19
  Speaker 1: of where we're at, obviously with all the quarantine and
• 10:21
  Speaker 1: COVID and um, you know, I think golf being back,
• 10:24
  Speaker 1: we're very fortunate to do what we love every single day,
• 10:27
  Speaker 1: come out and play against the best players in the world. Um.
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  Speaker 1: It sucks that we have no fans, but if you
• 10:32
  Speaker 1: look at the sport of golf, I think we're doing amazing.
• 10:35
  Speaker 1: You know, you look at everyone, people that have never
• 10:37
  Speaker 1: played golf, people that have played golf but stopped playing golf. Everyone,
• 10:42
  Speaker 1: no matter what their age, I think is getting into
• 10:44
  Speaker 1: it because it is something that you can do very
• 10:45
  Speaker 1: safely as long as you know, you stay away from
• 10:48
  Speaker 1: large crowds. And it's been really cool to see a
• 10:51
  Speaker 1: lot of my friends pick up the game over the
• 10:52
  Speaker 1: past couple of months, especially with me coming back and
• 10:55
  Speaker 1: playing in playing pretty well. Um So I think there's
• 10:59
  Speaker 1: you know, a lot of business opportunities come that, you know,
• 11:02
  Speaker 1: that stretch of golf. Um of just you know, any
• 11:05
  Speaker 1: type of golf, you know, whether it's recreational, country club tournaments, uh,
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  Speaker 1: you know, whatever it is. I think someone and everyone
• 11:14
  Speaker 1: is trying to do something golf related in their house
• 11:16
  Speaker 1: because I know I got to a point where, you know,
• 11:20
  Speaker 1: I was almost tired of just sitting on the couch
• 11:22
  Speaker 1: and watching TV during these past few months. Well, it's interesting.
• 11:25
  Speaker 1: We just did the story here at Boomberg based on
• 11:28
  Speaker 1: data visual data that shows that one of the top
• 11:31
  Speaker 1: visited you know venues right now are golf courses around
• 11:35
  Speaker 1: the country obviously for those with the means, and of
• 11:38
  Speaker 1: course TPC Harding and the PGA Championship was the top
• 11:42
  Speaker 1: ranked watched show on Sunday or a few hours of
• 11:46
  Speaker 1: play on Sunday. So there's that to bring to your sponsors.
• 11:48
  Speaker 1: What are you going to be telling them when they
• 11:50
  Speaker 1: when they try and do a deal with you, If
• 11:52
  Speaker 1: they say that you know, it's a it's going to
• 11:55
  Speaker 1: be a less watch sports from now on. How are
• 11:58
  Speaker 1: you going to play your sponsors? Um, well, it's great
• 12:02
  Speaker 1: to know that this was you know, one of the
• 12:03
  Speaker 1: most watched things for a while now. Um, it's it's
• 12:07
  Speaker 1: cool to be in that position and obviously get the
• 12:09
  Speaker 1: TV time. But you know, my sponsors Omega, Zurich, Um,
• 12:13
  Speaker 1: Taylor Man, Adidas, their their body. Um. You know, they've
• 12:18
  Speaker 1: all been part of that group that has helped grow
• 12:21
  Speaker 1: and build me to where I'm at now. I wouldn't
• 12:23
  Speaker 1: be here without them, you know. I think everyone, my family,
• 12:27
  Speaker 1: my coaches, my caddie, my agents, everyone, you know, even
• 12:32
  Speaker 1: my girlfriend, like everyone that I've kind of built this
• 12:34
  Speaker 1: small group around me. UM has only helped me get
• 12:37
  Speaker 1: to where I am because without them, I wouldn't have
• 12:39
  Speaker 1: these extra little steps and making things a little easier
• 12:42
  Speaker 1: every single week. Um, just to help me out. And
• 12:45
  Speaker 1: I don't think they get enough credit. I wish they can.
• 12:48
  Speaker 1: I could give them more credit. UM. You know, I
• 12:51
  Speaker 1: wish my name had every everyone else's name next to it,
• 12:54
  Speaker 1: um at the end of the day. But unfortunately it
• 12:57
  Speaker 1: is just my name. UM. But you know I'm very
• 12:59
  Speaker 1: thankful for that. UM. Yeah. Yeah. Speaking of your name,
• 13:05
  Speaker 1: I think it was Jimance that said that you would
• 13:07
  Speaker 1: be one of the few golfers known for your first
• 13:09
  Speaker 1: name in the future, which is a big, big forecast
• 13:11
  Speaker 1: to try and live up to. But the only other
• 13:13
  Speaker 1: Colin I know from golf is called Montgomery and he
• 13:16
  Speaker 1: only has one L. Do you think your parents gave
• 13:17
  Speaker 1: you the second el on purpose? I have no clue,
• 13:20
  Speaker 1: but I love the two ils. I think two else
• 13:21
  Speaker 1: looks a lot more, even it looks a little better. Um. Yeah,
• 13:26
  Speaker 1: you know it just to have Jim Nancy that is
• 13:28
  Speaker 1: mind blowing. Um, it's pretty special. Who knows you know
• 13:31
  Speaker 1: what that will turn out to be, but you know
• 13:34
  Speaker 1: it'll be nice. Hopefully people know how to pronounce my name.
• 13:37
  Speaker 1: The starter yesterday mispronounced my last name, um, and I
• 13:41
  Speaker 1: gave me a little laugh to start off the round.
• 13:43
  Speaker 1: For sure, that's for sure. You're a trail laser in many,
• 13:45
  Speaker 1: many different ways. Colin, what's your next goal? You're already
• 13:48
  Speaker 1: number two for the FedEx standings this year. You know,
• 13:53
  Speaker 1: my next goal is to win Northern Trust. You know,
• 13:55
  Speaker 1: that's that's next up on the list at TPC Boston.
• 13:58
  Speaker 1: UM the playoffs is a three week stretched obviously finishing
• 14:01
  Speaker 1: at East Lake and yeah, you know, if we talked
• 14:04
  Speaker 1: about the next month, that's the goal is to win
• 14:06
  Speaker 1: the FedEx Cup playoffs, to be the last man standing
• 14:09
  Speaker 1: and win that event. But you know, I still have
• 14:11
  Speaker 1: two more events before that, and if I start getting
• 14:13
  Speaker 1: ahead of myself, things can go sideways. So you know,
• 14:16
  Speaker 1: I'm gonna sit back and enjoy this week for sure
• 14:18
  Speaker 1: and really cherish what has happened, but I really look
• 14:21
  Speaker 1: forward to what's next. That was PGA Champion Colin more
• 14:25
  Speaker 1: Cow's sit down chatting with our very own uh Vanny Quinn.
• 14:29
  Speaker 1: So funny. Seems like a you know, pretty bright, you know,
• 14:31
  Speaker 1: well spoken young man with a you know, a pretty
• 14:34
  Speaker 1: appreciative outlook about the game of golf and what it's
• 14:37
  Speaker 1: done to him and what he hopes to do going forward. Well,
• 14:40
  Speaker 1: a couple of million dollars in a day will do
• 14:41
  Speaker 1: that for you. Maybe, call that's for sure. But a
• 14:43
  Speaker 1: twenty three year old, a new name on the block,
• 14:46
  Speaker 1: just her and pro and it really is probably excellent
• 14:49
  Speaker 1: for the sport because as much as we all love
• 14:51
  Speaker 1: to watch the books Is of the World and the
• 14:53
  Speaker 1: Dustin Johnson's and so on, it is nice to have
• 14:55
  Speaker 1: a young face come in and particularly you know, Japanese American,
• 14:59
  Speaker 1: which you don't see too often. So he's trailblazing in
• 15:02
  Speaker 1: many senses of the word. In fact, I think it
• 15:04
  Speaker 1: was said that he would be known by his first name,
• 15:06
  Speaker 1: as so few in golf. Are you think of Tiger,
• 15:08
  Speaker 1: you think of Rory? He might be the first column
• 15:11
  Speaker 1: because Colin Montgomery sure didn't do it. Yeah, exactly, it's
• 15:14
  Speaker 1: in the Colin Montgomery posted a nice tweet after Colin
• 15:17
  Speaker 1: more co one saying, finally a Colin wins a major title.
• 15:20
  Speaker 1: So I thought that was pretty funny book, you know,
• 15:22
  Speaker 1: having a little fun is his own expensive boy. It's
• 15:24
  Speaker 1: an important time for golf with all the major's coming up,
• 15:27
  Speaker 1: the FedEx Cup, uh, you know, everything kind of happening
• 15:29
  Speaker 1: in a really condensed period of time. So uh, you know,
• 15:32
  Speaker 1: golf is gonna have the spotlight here for the next
• 15:36
  Speaker 1: several months. Is a lot of activities really piling up here,
• 15:39
  Speaker 1: and so any one of the only sports actually on
• 15:41
  Speaker 1: the goal right now. I mean, obviously the NBA next
• 15:43
  Speaker 1: week we're going to see the playoffs, so that would
• 15:45
  Speaker 1: be exciting, but golf is something that you can definitely
• 15:48
  Speaker 1: do on the weekend and perhaps even outside socially distanced well.
• 15:53
  Speaker 1: So we are five or six months into this pandemic
• 15:56
  Speaker 1: and lot various stages of lockdown and the economic impact
• 15:59
  Speaker 1: that the SCUT increasingly is moving towards that of a vaccine.
• 16:04
  Speaker 1: When will a vaccine be available? How effective will it be?
• 16:08
  Speaker 1: Peter Koy, economics editor for Bloomberg Business Week, joins us
• 16:11
  Speaker 1: here with a his story on entitled where we are
• 16:15
  Speaker 1: on the path to a vaccine and what comes next?
• 16:18
  Speaker 1: That's in this week's edition of Bloomberg Business Week. Peter,
• 16:20
  Speaker 1: thanks so much for joining us here. Let's just start
• 16:23
  Speaker 1: right at the top. What is your kind of number
• 16:25
  Speaker 1: one takeaway from your story about the where we are
• 16:29
  Speaker 1: on this situation. I think where we are is somewhere
• 16:35
  Speaker 1: between total optimism and kind of the pessimism you're getting
• 16:41
  Speaker 1: a lot from a lot of people. The point is
• 16:44
  Speaker 1: that we we we are going to have vaccines plural.
• 16:50
  Speaker 1: The only question is gonna be how well they work. Um.
• 16:53
  Speaker 1: It's not looking like we're gonna have a knockout vaccines
• 16:56
  Speaker 1: where you just stopped a virus dead with one shot. Uh.
• 17:01
  Speaker 1: It's possible that it will be something of a more
• 17:03
  Speaker 1: akin to a flu vaccine, where it doesn't completely stop
• 17:08
  Speaker 1: the vaccine the virus, and maybe it eases the symptoms. Uh,
• 17:13
  Speaker 1: and some people stops at and others, And it might
• 17:16
  Speaker 1: you might have to have booster shots every year. Um.
• 17:23
  Speaker 1: And the virus might not work as well on old
• 17:26
  Speaker 1: people whose immune systems just aren't as strong and so
• 17:30
  Speaker 1: that they don't get fortified as much by a via vaccine. Um.
• 17:35
  Speaker 1: That's the again, that's the likelihood. Nobody knows for sure. Um.
• 17:40
  Speaker 1: There's a lot of cool, cool science going on, and
• 17:43
  Speaker 1: I think my articles mainly just trying to walk people
• 17:47
  Speaker 1: through the awesomeness of the human immune system and the
• 17:51
  Speaker 1: awesomeness of all the scientists who are doing what they
• 17:53
  Speaker 1: can to bolster it. Yeah, we had a story yesterday,
• 17:56
  Speaker 1: Peter about market you know, taking a different approach, looking
• 17:59
  Speaker 1: at the longer term. Well, several other companies are trying
• 18:02
  Speaker 1: to get something out there as fast as possible, and
• 18:05
  Speaker 1: they received wisdom is that it normally takes four years
• 18:09
  Speaker 1: to develop anything like this. What do you make of
• 18:11
  Speaker 1: the news today that Russia says it has a vaccine, Well,
• 18:16
  Speaker 1: they just barely begin Phase three trials on this, so
• 18:20
  Speaker 1: they really can't say with any certainty if it is
• 18:23
  Speaker 1: safe and effective. Even though that's what Vladimir Putin argued today,
• 18:28
  Speaker 1: I would say it's it's premature to be you know,
• 18:33
  Speaker 1: so called registering a vaccine. It's this early stage. And
• 18:37
  Speaker 1: I hope that Donald Trump is not going to take
• 18:39
  Speaker 1: the cue from Putin and try to do a similar
• 18:42
  Speaker 1: thing in the United States because it just it's not
• 18:44
  Speaker 1: fair to the scientists or working on the vaccine are
• 18:48
  Speaker 1: certainly not fair to the general public to expose them
• 18:51
  Speaker 1: to vaccine whose safety and efficacy is not completely determined. So, Peter,
• 18:57
  Speaker 1: I know, you know, for a lot of these big
• 18:58
  Speaker 1: farmer companies vaccines has not been a real business line
• 19:02
  Speaker 1: for them over the years. So I'm wondering here, A
• 19:05
  Speaker 1: lot of resources from a lot of big pharma, a
• 19:07
  Speaker 1: lot of biotech leaders are focused on this. Is there
• 19:11
  Speaker 1: coordination between these companies or is are they each in
• 19:14
  Speaker 1: their own lane pursuing their own tests and their own product.
• 19:19
  Speaker 1: It's more the latter. I mean, I think on a
• 19:21
  Speaker 1: fundamental science point of view, there is still sharing, which
• 19:25
  Speaker 1: is a positive, but the nationalism that you're seeing from
• 19:29
  Speaker 1: the governments is sort of driving people apart. And as
• 19:34
  Speaker 1: you said, each in its own lane. Uh. The ideal
• 19:37
  Speaker 1: would be some sort of a patent pooling approach where
• 19:41
  Speaker 1: we just all agree, Okay, if it's a patent that's
• 19:44
  Speaker 1: necessary for the development of COVID nineteen vaccine, it'll just
• 19:47
  Speaker 1: be placed into a pool where everybody can share it,
• 19:51
  Speaker 1: the royalties are split on some equitable basis, and that
• 19:56
  Speaker 1: would move the science forward much faster. But um it,
• 20:00
  Speaker 1: the United States, among other countries, has not gone along
• 20:03
  Speaker 1: with proposals for patent cooling. Yeah, I mean, good luck
• 20:08
  Speaker 1: with that. As much as it seems to be the
• 20:10
  Speaker 1: obvious thing for all rational thinking people to do. Then
• 20:13
  Speaker 1: you know, I'm not sure if Russia would go along
• 20:17
  Speaker 1: with it, if China would go along with it, if
• 20:18
  Speaker 1: the US would go along with us. Peter, where should
• 20:21
  Speaker 1: we be looking for the first batch of potential vaccines? Well, so,
• 20:27
  Speaker 1: as my article lays out, and there's an accompanying graphic
• 20:31
  Speaker 1: which I worked on with Sean hasta Um, you sort
• 20:35
  Speaker 1: of have three broad categories of vaccines. What is the
• 20:38
  Speaker 1: whole pathogen approach, which is a traditional uh, you know,
• 20:42
  Speaker 1: like a polio vaccine, where it's either a killed or
• 20:45
  Speaker 1: weakened virus, the actual virus that gets injected into your
• 20:49
  Speaker 1: body and stimulates the immune system. And then that the
• 20:52
  Speaker 1: other kinds most of what's being worked on is new
• 20:55
  Speaker 1: stuff that really is not as well tested. One is
• 20:58
  Speaker 1: where you actually give the body sort of a piece
• 21:01
  Speaker 1: of the virus, some kind of sub unit, maybe a
• 21:04
  Speaker 1: protein or something, and have the see how the body
• 21:08
  Speaker 1: reacts to that. And then the third is really cool.
• 21:11
  Speaker 1: You actually give the body some of the nucleic acid
• 21:14
  Speaker 1: from the virus, and the body itself manufactures portions of
• 21:19
  Speaker 1: the virus, not the whole virus, but portions that stimulating
• 21:24
  Speaker 1: the immune system. So in infect you turn your own
• 21:27
  Speaker 1: body into a vaccine production factory. I mean, it's just
• 21:33
  Speaker 1: amazing what scientists are up to today, and and I
• 21:36
  Speaker 1: really obviously you got to wish them well because you
• 21:42
  Speaker 1: want to be a participant at some point. Right. One
• 21:45
  Speaker 1: of the things that's also kind of a roadblock out
• 21:47
  Speaker 1: there that we've talked about before is production and distribution.
• 21:50
  Speaker 1: Let's say that one or more vaccines come onto the
• 21:53
  Speaker 1: market sometime late this year or early mid next year,
• 21:56
  Speaker 1: is the industry set up to produce industry well. One
• 22:01
  Speaker 1: of the things about that latter class I just mentioned,
• 22:03
  Speaker 1: the nucleic acid vaccines is that the production aspect is
• 22:08
  Speaker 1: pretty easy. Um. And that's one of the big pluses
• 22:12
  Speaker 1: and that column because again the body itself has producing
• 22:16
  Speaker 1: the vaccines for you. The other two kinds do require
• 22:21
  Speaker 1: more manufacturing. UM. I have something in my article saying,
• 22:26
  Speaker 1: you know, given the fact that the incredible damage that
• 22:30
  Speaker 1: the vaccine is doing to the world economy, you could
• 22:33
  Speaker 1: spend three billion dollars to accelerate the introduction of a
• 22:38
  Speaker 1: vaccine by a single month, and it would be worthwhile
• 22:41
  Speaker 1: from the point of view society as a whole. So
• 22:44
  Speaker 1: it makes sense to over build capacity for factories. For example,
• 22:49
  Speaker 1: um build factories for vaccines that may not get approved,
• 22:52
  Speaker 1: just to cover your bets. And a little bit of
• 22:55
  Speaker 1: that's going on thanks to the Gates Foundation in some
• 23:00
  Speaker 1: national efforts, but not enough. And we could afford even
• 23:03
  Speaker 1: more spending on vaccines and vaccine production than we're doing
• 23:06
  Speaker 1: right now. Said we, I mean the world, Peter. We
• 23:10
  Speaker 1: do have to leave it there, but I would like
• 23:12
  Speaker 1: to recommend that everybody read this article. It's in the
• 23:15
  Speaker 1: current and new edition of Business Week, Bloomberg Business Week,
• 23:19
  Speaker 1: and of course it's Peter Koy, so it's always very thoughtful.
• 23:23
  Speaker 1: It's always very easy to understand, Paul, for those of
• 23:27
  Speaker 1: us who may not be completely fluent in vaccine language
• 23:30
  Speaker 1: or other types of language. Well, as investors start to
• 23:35
  Speaker 1: lay some bets that there may be some light at
• 23:37
  Speaker 1: the end of the tunnel of this pandemic, and given
• 23:40
  Speaker 1: the stimulus that we've seen coming out of Congress, the
• 23:42
  Speaker 1: FED easing of rates and injecting liquiding in the marketplace,
• 23:46
  Speaker 1: one of the areas that may benefit going forward is
• 23:48
  Speaker 1: the high yield bond market. And there's no one better
• 23:51
  Speaker 1: to chat about that market than Andrew Felt Is, Co
• 23:53
  Speaker 1: director of Global high Yield at a Mundi Pioneer located
• 23:57
  Speaker 1: at Durham Bulls Athletic Park and during North Carolina. Andrew,
• 24:01
  Speaker 1: thanks so much. You have one of my favorite offices
• 24:03
  Speaker 1: to visit there. I can catch a game sometimes with
• 24:06
  Speaker 1: the Durham Bulls. Talk to us about the high yield
• 24:09
  Speaker 1: market here. How much risk are you guys thinking about
• 24:13
  Speaker 1: here as we try to process kind of what the
• 24:15
  Speaker 1: FED has been doing and what Congress is trying to
• 24:17
  Speaker 1: do in terms of stimulus. Well, we've had an enormous
• 24:20
  Speaker 1: rally in the market at then to March, we were
• 24:22
  Speaker 1: basically at a cyclical wides, but we've come into where
• 24:26
  Speaker 1: evaluations are about average at this point. Now that the backdrop,
• 24:30
  Speaker 1: as you point out, is that the FED is continuing
• 24:33
  Speaker 1: to push money into the system. Uh. Central banks around
• 24:36
  Speaker 1: the world are pushing that money into the system. Government
• 24:39
  Speaker 1: bonds really don't offer much yield, so we see continued demand.
• 24:44
  Speaker 1: Technicals are very strong, UH, but the easy money has
• 24:47
  Speaker 1: probably been made. UH. So spreads are about average relative
• 24:51
  Speaker 1: to long term UH. We accept to see default rise
• 24:54
  Speaker 1: very quickly, but this is an environment where you have
• 24:57
  Speaker 1: to be focused much more on the individual trees, not
• 24:59
  Speaker 1: the forced Make sure you have good security selection to
• 25:02
  Speaker 1: make sure you avoid those coming to faults. Yeah, I
• 25:05
  Speaker 1: mean to a certain extent, yes, But also I'm sure
• 25:08
  Speaker 1: for some credit managers, you know, they haven't gotten involved
• 25:12
  Speaker 1: yet and there will be a time down the road
• 25:13
  Speaker 1: where they're hoping that you know, all of the other
• 25:16
  Speaker 1: shoes will drop, right Andy, Yeah, Well, the that's a
• 25:20
  Speaker 1: lot of that's already in the price, and so I
• 25:22
  Speaker 1: think you're gonna have default spike up this year. We're
• 25:25
  Speaker 1: expectancye to faults around ten percent. But the market's really
• 25:29
  Speaker 1: looking ahead and the question has got to be, you know,
• 25:32
  Speaker 1: not what happens in two thousand and twenty, what happens
• 25:34
  Speaker 1: in two thousand one. And so if we do hit
• 25:38
  Speaker 1: bumps along the way, So if the recovery and the
• 25:41
  Speaker 1: COVID crisis is less than we expect in two thousand one,
• 25:45
  Speaker 1: or we see a pullback as far as FED actions
• 25:47
  Speaker 1: or other central banks uh weakness as far as central
• 25:51
  Speaker 1: government spending in fiscal stimulus, that could put pressure in
• 25:54
  Speaker 1: the market. And can I just push you on that,
• 25:57
  Speaker 1: You say, a lot of it's baked into the price.
• 25:58
  Speaker 1: But credit is rallying and there's huge demand, and bankruptcies
• 26:02
  Speaker 1: are piling up should it not not be selling off.
• 26:06
  Speaker 1: So it's really about what your average expectation is. So
• 26:09
  Speaker 1: right now spreads in how you market just a little
• 26:12
  Speaker 1: bit north of five percent over treasury, so it is
• 26:14
  Speaker 1: a relative that compared to treasuries, but five percent really
• 26:18
  Speaker 1: builds in about a five percent default rate on average. Now,
• 26:22
  Speaker 1: very rarely are you at a five percent default right
• 26:25
  Speaker 1: You're either at ten and that's the environment we're in
• 26:28
  Speaker 1: right now, at a very high level, or you're at
• 26:31
  Speaker 1: very low levels two to three percent. So if you
• 26:34
  Speaker 1: think ultimately we will cover three or four years out,
• 26:37
  Speaker 1: the average default rate is really going to be driven
• 26:39
  Speaker 1: by what happens in two thousand twenty one until lesser
• 26:42
  Speaker 1: extent two thousand twenty two. So we're looking beyond the
• 26:45
  Speaker 1: next six months and really trying to figure out what
• 26:47
  Speaker 1: happens in two thousand one. Alright, So, any given those
• 26:52
  Speaker 1: high end default rates that you just mentioned, what are
• 26:55
  Speaker 1: some of the sectors that you guys at a munty
• 26:58
  Speaker 1: pioneer taking a look at these, So you know, first
• 27:02
  Speaker 1: thing I note is that the very safe parts of
• 27:03
  Speaker 1: the high market are really tightly priced. We saw a
• 27:08
  Speaker 1: double B very high quality deal price fifty basis points
• 27:12
  Speaker 1: back of investment grades. So you really a lot of
• 27:15
  Speaker 1: people have discovered this trade. And the sectors that have
• 27:17
  Speaker 1: been thinning from the pandemic, so cable companies, provider broadband services,
• 27:23
  Speaker 1: you know, people who provide services for people to work
• 27:26
  Speaker 1: from home. All that's really priced and and and that
• 27:28
  Speaker 1: is relatively tight. There's not a lot of margin for error,
• 27:32
  Speaker 1: so you have to go down in credit quality. And
• 27:34
  Speaker 1: we see single bees as an opportunity to sort through
• 27:37
  Speaker 1: and find opportunities, but also in sell the sectors that
• 27:40
  Speaker 1: have been thrown out now retail and energy companies that
• 27:44
  Speaker 1: we think have secular challenges. Uh, and the pandemic is
• 27:47
  Speaker 1: just accelerating that a certain amount. But there are some
• 27:50
  Speaker 1: babies with the bath water. And we always look at
• 27:53
  Speaker 1: the pipeline sector with an energy it's within the energy sector,
• 27:57
  Speaker 1: but they're not driven by the price of oil or
• 27:59
  Speaker 1: the price of gas. They just need to transport it.
• 28:02
  Speaker 1: It's a very highly regulated business, so it's very predictable
• 28:05
  Speaker 1: as far as what those cash flows are, but investors
• 28:07
  Speaker 1: aren't giving them credit for that. When we think about
• 28:11
  Speaker 1: the sectors that are impacted by the pandemic. So I
• 28:13
  Speaker 1: think anything with travel, anything where people have to to
• 28:16
  Speaker 1: get together, like casinos are gaining, that's an area that
• 28:20
  Speaker 1: you have to to go name by name. So back
• 28:24
  Speaker 1: in March and April, casinos are very dislocated. Now that's
• 28:28
  Speaker 1: less of an opportunity. Airline so continue to be very dislocated,
• 28:33
  Speaker 1: and particularly higher quality airlines. We see opportunity within that space.
• 28:37
  Speaker 1: But you really have to dig through the financials understanding
• 28:40
  Speaker 1: how much liquidity these companies have, no pun intended, how
• 28:43
  Speaker 1: much runway they have before we see recovery briefly and
• 28:47
  Speaker 1: because we're pretty out of time, but do you see
• 28:49
  Speaker 1: any risks building because of this? Like you say, HI
• 28:52
  Speaker 1: yield is very tightly priced, is it properly priced? It isn't,
• 28:56
  Speaker 1: you know, exposing the market to risks. So we're fist
• 29:00
  Speaker 1: in line with the large arm averages. That's why I
• 29:02
  Speaker 1: focused so much on security selection. I think the biggest
• 29:06
  Speaker 1: event we have to worry about is the election because
• 29:09
  Speaker 1: that could put pressure on both fiscal and mint ary
• 29:12
  Speaker 1: stimulus and what the market expects from that. And if
• 29:15
  Speaker 1: the market gets a little scared, you know, we're not
• 29:17
  Speaker 1: giving this away anymore, and so that creates some downside risk.
• 29:20
  Speaker 1: So It's not a one way bet like it was
• 29:22
  Speaker 1: back at the beginning of April. You really have to
• 29:24
  Speaker 1: consider the political environment but also what you're buying. Andy,
• 29:30
  Speaker 1: thank you. Wish we had a double or triple the time,
• 29:32
  Speaker 1: but of course that's always the way. Andrew Feltis is
• 29:34
  Speaker 1: co director of Global High Yield at A Monday Pioneer
• 29:37
  Speaker 1: A Monday Pioneer with billion dollars in assets under management.
• 29:43
  Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe
• 29:46
  Speaker 1: and listen to interviews at Apple Podcasts or whatever a
• 29:49
  Speaker 1: podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter
• 29:53
  Speaker 1: at Bonny Quinn. And I'm Paul Sweeney. I'm on Twitter
• 29:55
  Speaker 1: at pt Sweeney. Before the podcast, you can always catch
• 29:58
  Speaker 1: us worldwide at Bloomberg Radio. H m hmmmm.