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The Supply Chain, China, And JetBlue (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: All right, we've got Welcome to the Bloomberg Markets podcast.
• 0:03
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• 0:21
  Speaker 1: Those are numbers I don't think I've ever seen, so
• 0:24
  Speaker 1: I need to talk to professional about this. R J Gallows,
• 0:27
  Speaker 1: Senior portfolio manager Federated Hermes Joins US. R J talked
• 0:30
  Speaker 1: to us about this year today performance we've seen in
• 0:33
  Speaker 1: the US corporate bond market really really noteworthy declines. Well,
• 0:39
  Speaker 1: good morning. Noteworthy might be an understatement. Yeah, I think
• 0:43
  Speaker 1: you me, most of your listeners have not seen this
• 0:47
  Speaker 1: kind of performance in fixed income. You know, nine four
• 0:50
  Speaker 1: used to be an infamous year for bond returns. This
• 0:53
  Speaker 1: dwarfs that, um it. It spans across really all the
• 0:58
  Speaker 1: major sectors of fixed income. Uh, you were mentioning, I
• 1:01
  Speaker 1: believe the Bloomberg Investment Grade Corporate Index down thirteen point four.
• 1:06
  Speaker 1: You know, overall the agg of which that's a component,
• 1:08
  Speaker 1: it's down nine seven. Treasuries are down just about nine.
• 1:13
  Speaker 1: Munies are also down comparable amount. Ten percent means a
• 1:18
  Speaker 1: terrible month of May. By the way, I think that
• 1:22
  Speaker 1: the key concern now from an asset manager standpoint is
• 1:27
  Speaker 1: trying to call when do we hit some stability on
• 1:29
  Speaker 1: rates number one UH and number two dealing with what
• 1:34
  Speaker 1: has been and outside redemptions as investors are sort of
• 1:37
  Speaker 1: fleeing the losses they've already taken. And I highlight that
• 1:42
  Speaker 1: just because they've already taken these losses, we are probably
• 1:44
  Speaker 1: closer to the end of the sell off them. We
• 1:46
  Speaker 1: are at the beginning for sure. When you consider that
• 1:48
  Speaker 1: the treasury yields have risen, you know, all across the
• 1:51
  Speaker 1: curve hundred fifty almost hundred eighty basis points UM. We
• 1:56
  Speaker 1: still are short. We think there's another like to go
• 1:58
  Speaker 1: up and yield, but the worst blosses that we've sustained
• 2:01
  Speaker 1: are already probably behind us UM, and we're getting a
• 2:04
  Speaker 1: little bit more optimistic as we start to look forward
• 2:07
  Speaker 1: at this point. First of all, shout out to the
• 2:10
  Speaker 1: i n GO function on the Bloomberg Journal. I end
• 2:14
  Speaker 1: go is so helpful when talking fixed income. It just
• 2:17
  Speaker 1: shows you all the indexes um that you can get.
• 2:20
  Speaker 1: Thank you another well, R. J. Just rattled them all
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  Speaker 1: off as well. Um Uh. There was a great story
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  Speaker 1: r J by Liz Cappel McCormick and Alice Gledhill. Bonds
• 2:31
  Speaker 1: suddenly looked like a smart hedge again. Um is the headline,
• 2:36
  Speaker 1: and you're saying you expect another leg up in yields.
• 2:39
  Speaker 1: But in a way, I find this so exciting because
• 2:44
  Speaker 1: you know, for so long in my adult life, UM,
• 2:48
  Speaker 1: I couldn't get that much yield from bonds, and now
• 2:52
  Speaker 1: I'm starting to see levels that I would be comfortable with.
• 2:55
  Speaker 1: You know, I'm perfectly happy buying UH bond with a
• 3:00
  Speaker 1: five coupon. I mean, that sounds great to me right now.
• 3:05
  Speaker 1: It's a great point. For much of the last ten years,
• 3:09
  Speaker 1: which in a sense we're book ended by the global
• 3:11
  Speaker 1: financial crisis and the pandemic, we had extraordinary economic shocks
• 3:16
  Speaker 1: that were met with extraordinary monetary policy measures that drove
• 3:21
  Speaker 1: yields down and caused price for short and intermedium periods
• 3:26
  Speaker 1: of time to be your source of return. Uh. The
• 3:30
  Speaker 1: direct implication of that is that yields got very low uh,
• 3:36
  Speaker 1: and and they muted the perspective long term return and
• 3:40
  Speaker 1: fixed income. As a result of the measures that were
• 3:42
  Speaker 1: put in place by the central bank facing the economic
• 3:45
  Speaker 1: crisis that I just mentioned. At this point, you know,
• 3:49
  Speaker 1: fortunately the economy is growing. There are many challenges globally,
• 3:54
  Speaker 1: and uh, the inflation story is a very very troubling
• 3:57
  Speaker 1: one to fixed income returns. But now the bonds have
• 4:00
  Speaker 1: repriced higher and yield to incorporate the very hawk ash
• 4:03
  Speaker 1: central bank. Uh, we were getting closer to a period
• 4:07
  Speaker 1: where there might be some symmetry and returns again. You
• 4:10
  Speaker 1: get some income that historically has always boosted your fixed
• 4:14
  Speaker 1: income total return income as a component of your return
• 4:16
  Speaker 1: after all, um, and going forward, I think that the
• 4:21
  Speaker 1: fact that we've seen bonds start to behave somewhat more
• 4:24
  Speaker 1: normally where on a risk off day stocks are down, uh,
• 4:29
  Speaker 1: bonds can actually be up again. For a while, They're
• 4:32
  Speaker 1: everything was falling, which was a very adversarial investment climate
• 4:35
  Speaker 1: for traditional diversification, you know, diversified bonds of the stocks.
• 4:39
  Speaker 1: It wasn't working. You know, sixty portfolios weren't working. Um.
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  Speaker 1: So now that you've reset yields sharply higher, you're getting
• 4:45
  Speaker 1: that income cushion, You're getting better perspective prospective returns. Excuse me,
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  Speaker 1: I would argue we still think that the tenure Treasury
• 4:53
  Speaker 1: is going to end a good bit above three UH
• 4:56
  Speaker 1: in this calendar year. UM. You know, right now you've
• 5:00
  Speaker 1: had a bit of a retracement lower. By the way,
• 5:01
  Speaker 1: what does that mean, r J, What does that mean
• 5:04
  Speaker 1: for what's the spread usually like to UM investment grade corporate? Well,
• 5:11
  Speaker 1: I g um. You know, we've actually recently gone more
• 5:15
  Speaker 1: cautious on I g um investment grade even though the
• 5:19
  Speaker 1: economy is pretty good. You know, the sad fact of
• 5:22
  Speaker 1: the matter is, but the inflation being so hot and
• 5:25
  Speaker 1: the FED having to be so hawkish, the prospects of
• 5:27
  Speaker 1: recession UM in you know, next year or UH certainly
• 5:33
  Speaker 1: have grown. UH. I think that what the volatility or
• 5:36
  Speaker 1: the underperformance is probably a better way of saying it,
• 5:38
  Speaker 1: that we've seen now in investment grade corporates are starting
• 5:42
  Speaker 1: to price in that that sort of shift in the
• 5:44
  Speaker 1: fundamental macro outlook. For a while there, we were recovering
• 5:47
  Speaker 1: from the depths of the pandemic economic shock. The FED
• 5:51
  Speaker 1: was pouring on its demand for bonds. You know, investment
• 5:54
  Speaker 1: grade corporates had a really nice total rate of return UH,
• 5:57
  Speaker 1: And now we're living to the flip side of that point.
• 5:59
  Speaker 1: If you look at the last five years the OS
• 6:02
  Speaker 1: on the Bloomberg Corporate Index, and when we were talking
• 6:05
  Speaker 1: about down thirteen percent year today, you know, the five
• 6:08
  Speaker 1: year averages around one fifteen UH. Currently as a Friday's close,
• 6:12
  Speaker 1: it's now at a one UH and the spread has
• 6:15
  Speaker 1: been widening quite a bit really for much of the year. UM.
• 6:19
  Speaker 1: We still think that that could get a little higher
• 6:22
  Speaker 1: as we price in the risk of procession UH and
• 6:25
  Speaker 1: as rates continue to drive somewhat higher and cause flows out.
• 6:29
  Speaker 1: All right, r J, thank you so much. We appreciate r. J. Gallas,
• 6:32
  Speaker 1: Senior portfolio Manager, Federated at Hermes. What we've all become
• 6:40
  Speaker 1: a fairly smart at during this pandemic is this whole
• 6:43
  Speaker 1: concept of the global supply chain and logistics and all
• 6:48
  Speaker 1: that stuff, because boy, every company out there blames the
• 6:51
  Speaker 1: supply chain one way or another during this pandemic for UH.
• 6:55
  Speaker 1: You know, some challenges out there, and there's no better
• 6:57
  Speaker 1: place to get the latest UH than with Gene Shiroka,
• 7:01
  Speaker 1: Executive director of the Port of Los Angeles wife, because
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  Speaker 1: the Port of Los Angeles is the busiest container port
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  Speaker 1: in North America. Gene, thanks so much for joining us
• 7:10
  Speaker 1: once again. We'd love to get an update, and let's
• 7:12
  Speaker 1: just start with your port. Give us a sense of
• 7:14
  Speaker 1: how many ships are waiting to get into your port
• 7:17
  Speaker 1: now versus maybe six months ago. UM, maybe some other
• 7:21
  Speaker 1: metrics that you look at in terms of getting stuff
• 7:23
  Speaker 1: out of your port and into the economy. Gives us
• 7:26
  Speaker 1: just an update. Good morning, man and pauled a couple
• 7:30
  Speaker 1: of things. First number one, first quarter busiest on record
• 7:35
  Speaker 1: at the Port of Los Angeles. Month of April, second
• 7:37
  Speaker 1: busiest April in our hundred and fifteen year history. The
• 7:41
  Speaker 1: number of ships is about thirty right now waiting outside
• 7:46
  Speaker 1: the one and fifty mile marker on their way into
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  Speaker 1: the ports of Long Beach in Los Angeles. That's down
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  Speaker 1: from a hundred and nine vessels on the ninth of January.
• 7:55
  Speaker 1: We continue to work that backlog and have record throughput
• 7:58
  Speaker 1: at the port. The most interesting number to me is
• 8:01
  Speaker 1: two hundred thousand, and that's the number of containers on
• 8:04
  Speaker 1: a rolling thirty day average we're pushing out of the
• 8:07
  Speaker 1: port to the interior of the country. That's at about
• 8:10
  Speaker 1: recorded highs right now. We've got to keep pushing that
• 8:13
  Speaker 1: efficiency and getting the cargo into the domestic economy. So
• 8:17
  Speaker 1: you're doing more than ever and demand is still probably
• 8:21
  Speaker 1: stronger than supply, and you know logistics terms, And I
• 8:25
  Speaker 1: wonder about the morale of the industry, Gene, because you know,
• 8:30
  Speaker 1: as Paul pointed out, we all now know more about
• 8:33
  Speaker 1: the supply chain, more about logistics, and more about just
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  Speaker 1: how important it is for the American economy and for
• 8:41
  Speaker 1: the global economy. Do you think that, you know, people
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  Speaker 1: working in this industry feel a lot more respect, you know,
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  Speaker 1: a lot more pride to what they're doing. Well. I
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  Speaker 1: think across the board there's been a spotlight shined on
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  Speaker 1: this industry and it can never be too bright for us.
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  Speaker 1: You've got dock workers who have been averaging six days
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  Speaker 1: a week on the job since the pandemic began, chassis providers,
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  Speaker 1: liner shipping companies, marine terminal operators working around the clock
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  Speaker 1: as well, with this deluge of cargo coming in and
• 9:14
  Speaker 1: no shortage of areas that need to be fixed, improved
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  Speaker 1: or smoothed out to help this portion of the supply chain. Remember,
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  Speaker 1: the American economy is seventy you and me buying goods,
• 9:27
  Speaker 1: and we haven't shown any reason to stop just yet.
• 9:31
  Speaker 1: Jane talked to us about what you're seeing in China.
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  Speaker 1: You know, there's reports of various levels of shutting down, reopening,
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  Speaker 1: and how does that manifest itself into kind of what
• 9:41
  Speaker 1: you're seeing in terms of exports. Well, a lot has
• 9:44
  Speaker 1: been written on this, but so far we've seen the
• 9:47
  Speaker 1: number of ships leaving Asia and Central China at about
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  Speaker 1: the levels that we had anticipated. No real slow down
• 9:55
  Speaker 1: because of the lockdowns in Shanghai. And I'll give you
• 9:57
  Speaker 1: a couple of reasons. One, I had work there in
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  Speaker 1: the early part of the two thousands for a number
• 10:03
  Speaker 1: of years. Keep up my contacts on the ground and
• 10:05
  Speaker 1: those relationships. I'm talking to these folks every night. We're
• 10:08
  Speaker 1: seeing very good productivity out of the Young Shaan Deep
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  Speaker 1: Seaport in Shanghai. And for those manufacturers who are based
• 10:16
  Speaker 1: west of town, the Hong Chow area, Hung Joe, Su Joe,
• 10:21
  Speaker 1: even into Junk sup province locations like Nanjing. They're almost
• 10:24
  Speaker 1: equidistant between the port of Shanghai and the port of Ningbo.
• 10:28
  Speaker 1: Ningbo over these last eight weeks, that's how long the
• 10:31
  Speaker 1: lockdown has been in effect. Is up about picking up
• 10:35
  Speaker 1: the slack where transport companies can't navigate in their normal lanes.
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  Speaker 1: So we're seeing about the amount of cargo that we
• 10:44
  Speaker 1: did before the lockdowns went into effect. No precipitates, no
• 10:48
  Speaker 1: precipitous drop off at some had a pint early on.
• 10:53
  Speaker 1: What about the US restraints that UM we've been seeing
• 10:56
  Speaker 1: over the past year, for example, labor constraints, how how
• 10:59
  Speaker 1: have those UH faired UM going into the second quarter.
• 11:03
  Speaker 1: Three segments of labor, as we've talked about guys. One,
• 11:07
  Speaker 1: the dock workers, they're out there six days a week,
• 11:09
  Speaker 1: full employment of the fifteen thousand women and men that
• 11:12
  Speaker 1: have been on the job for the past two years,
• 11:15
  Speaker 1: with this heightened volume coming through. Second, of the truck drivers.
• 11:19
  Speaker 1: And as we've said, I don't know that we've got
• 11:22
  Speaker 1: a shortage of drivers because the state of California has
• 11:25
  Speaker 1: issued more than six and forty thousand commercial drivers licenses,
• 11:29
  Speaker 1: and of the nine thousand port dra age drivers that
• 11:33
  Speaker 1: called the port at least once a week, we could
• 11:36
  Speaker 1: probably use a few more, but they've gone into other sectors,
• 11:39
  Speaker 1: whether it's parcel delivery, working in other segments of the
• 11:42
  Speaker 1: transportation network. What we have right now, though, guys, and
• 11:47
  Speaker 1: the thing that I look at, most fifty three percent
• 11:50
  Speaker 1: of our truck gates go unused every day. We've got
• 11:53
  Speaker 1: latent capacity to haul more containers out. We've got to
• 11:57
  Speaker 1: take advantage of that. The third segment is the warehouse
• 12:00
  Speaker 1: US workers. With two billion square feet of warehousing under
• 12:02
  Speaker 1: roof from the Pacific Ocean to the desert region of
• 12:05
  Speaker 1: southern California, there's still about ten thousand job openings for
• 12:09
  Speaker 1: the folks that handle all this product, and with less
• 12:13
  Speaker 1: than one percent vacancy rate, that warehousing complex needs considered attention. Hey, Jean,
• 12:19
  Speaker 1: A lot of folks, just you know, economists in general
• 12:22
  Speaker 1: have been saying, what this supply chain issue that we've
• 12:25
  Speaker 1: all been experiencing over the past couple year is, what
• 12:27
  Speaker 1: it may suggest is we need to maybe rethink this
• 12:30
  Speaker 1: global just in time inventory strategy. Any customers that you
• 12:34
  Speaker 1: talked to, uh, say that they're reevaluating that or maybe
• 12:39
  Speaker 1: trying to tweak it going forward. Yes, and a number
• 12:42
  Speaker 1: of conversations taking place. A lot of folks what we've
• 12:45
  Speaker 1: witnessed over the past couple of years have been ordering
• 12:47
  Speaker 1: just in case, not just in time. They didn't want
• 12:50
  Speaker 1: to be known as the paper goods company of two.
• 12:54
  Speaker 1: So we see a lot of product flowing through quarter two,
• 12:57
  Speaker 1: as I've shared with your audience before, or was designated
• 13:01
  Speaker 1: to be the inventory replenishment time period. This is normally
• 13:05
  Speaker 1: our slack season, so folks wanted to build up those
• 13:08
  Speaker 1: safety stocks. The inventory sales ratio nationwide had been as
• 13:13
  Speaker 1: low as two thousand eleven. A lot of focus on that,
• 13:17
  Speaker 1: and then thirdly, trying to segment these products from the
• 13:21
  Speaker 1: parts and components which make up twenty percent of our
• 13:24
  Speaker 1: imports that need to get the factory floors, goods that
• 13:27
  Speaker 1: need to get out in the market versus those that
• 13:29
  Speaker 1: can continue this inventory replenishment are the segments that we've
• 13:33
  Speaker 1: got to monitor very closely now and push them into
• 13:36
  Speaker 1: the market place on the time basis that are needed. Gene,
• 13:40
  Speaker 1: always great to get your insight. Thanks so much for
• 13:43
  Speaker 1: joining us today. Jean Siroka there is the executive director
• 13:47
  Speaker 1: at the Port of Los Angeles, North America's busiest container report. Boy,
• 13:55
  Speaker 1: we know from past experience that lockdowns are not good
• 13:58
  Speaker 1: for economic activity, and just take a look at some
• 14:00
  Speaker 1: of the recent data out of China. Industrial output unexpectedly
• 14:03
  Speaker 1: felt two point nine percent in April from a year ago,
• 14:06
  Speaker 1: while retail sales contracted eleven point one percent. In the period.
• 14:10
  Speaker 1: That's weaker than it projected six point six percent and drop.
• 14:13
  Speaker 1: Let's get to the bottom of this and see what
• 14:15
  Speaker 1: is really going on underneath the numbers in China. Chia
• 14:18
  Speaker 1: Kazi joins US managing director China Basebook International ches tough
• 14:23
  Speaker 1: numbers coming out of China. UM, give us your lay
• 14:27
  Speaker 1: of the land about the Chinese economy. Yeah, thanks for
• 14:31
  Speaker 1: having me on look over night. Numbers were incredibly disappointing,
• 14:34
  Speaker 1: But if you're watching China closely the way we are,
• 14:37
  Speaker 1: this should have come as no surprise whatsoever. When we
• 14:40
  Speaker 1: put out our note in April based on our brand
• 14:43
  Speaker 1: new numbers, the sentence up top red these are the
• 14:46
  Speaker 1: worst economic data out of China that we've seen since
• 14:50
  Speaker 1: the initial COVID downturn. At that point, every major sector
• 14:54
  Speaker 1: was hurting, Every major economic indicator was turning down UM,
• 14:58
  Speaker 1: and it was becoming very clear that the pain that
• 15:00
  Speaker 1: began in March at the beginning of the lockdowns had
• 15:03
  Speaker 1: made its way into April. Has lockdowns got more severe.
• 15:06
  Speaker 1: Businesses were starting to pause activity, and consumers were being
• 15:10
  Speaker 1: forced to stay home. Why is she UM sticking to this? Um?
• 15:17
  Speaker 1: You know, even amidst pushbacks I mean, it's clear what
• 15:22
  Speaker 1: this does to the economy, and I'm not sure how
• 15:25
  Speaker 1: it works out for the health of the nation after Yeah,
• 15:29
  Speaker 1: that's right. Look, I mean, right now, the problem that
• 15:31
  Speaker 1: the that that she and others are facing is that
• 15:33
  Speaker 1: they don't have access to vaccines that with high efficacy rates.
• 15:37
  Speaker 1: They have a real problem getting their adult senior citizens,
• 15:40
  Speaker 1: serious citizens vaccinated. Their health infrastructure cannot simply handle if
• 15:45
  Speaker 1: they were to see the type of outbreaks and and
• 15:48
  Speaker 1: and and cases the way that we saw them here
• 15:50
  Speaker 1: in the United States, specifically how we suffered here in
• 15:52
  Speaker 1: New York a couple of years ago. So, uh, if
• 15:54
  Speaker 1: that were to happen, I think you would see just
• 15:56
  Speaker 1: a breakdown of the health care system there, and he
• 15:58
  Speaker 1: would also see the white uh you know, divide between
• 16:01
  Speaker 1: the half and the have not take place. It would
• 16:04
  Speaker 1: be pretty brutal. I think avoiding that as priority number one,
• 16:07
  Speaker 1: if it means taking a hit to the economy right now,
• 16:10
  Speaker 1: then that's clearly a cost of the party is willing
• 16:12
  Speaker 1: to suffer, despite the fact that they keeps saying that
• 16:15
  Speaker 1: maintaining solid economic momentum is a priority of theirs this year,
• 16:19
  Speaker 1: She's give us a just an update on kind of
• 16:21
  Speaker 1: where the discussions are or are not between maybe some
• 16:24
  Speaker 1: of the Western pharmaceutical companies and the Chinese government about
• 16:28
  Speaker 1: maybe getting some higher, uh some better vaccines into the country.
• 16:33
  Speaker 1: But we've heard some stuff about you know, Fizer Pills,
• 16:35
  Speaker 1: et cetera getting approval. There's a domestic MR and a
• 16:39
  Speaker 1: vaccine that has now gotten approval. But even if this
• 16:41
  Speaker 1: stuff were to happen today, uh, this the rollout would
• 16:45
  Speaker 1: not take place uh for for months and months to come.
• 16:49
  Speaker 1: You know, we can safely say that as far as
• 16:51
  Speaker 1: zero COVID is concerned, which by the way, it's a
• 16:54
  Speaker 1: lot more flexible today than it used to be back
• 16:56
  Speaker 1: a couple of years ago. But even in its current form,
• 16:59
  Speaker 1: it's going anywhere before the Party Congress. It is an
• 17:03
  Speaker 1: all important time. That is where all eyes are when
• 17:05
  Speaker 1: when President she gets his third term, um and so.
• 17:08
  Speaker 1: And just continue to assume as if you're an investor
• 17:11
  Speaker 1: that these types of lockdowns uh and and especially the
• 17:14
  Speaker 1: reversion back to lockdown, even if there is some opening up,
• 17:18
  Speaker 1: is going to be part for the course of the
• 17:19
  Speaker 1: rest of this year, probably getting into early next year.
• 17:22
  Speaker 1: What do you think we should the market should be
• 17:25
  Speaker 1: thinking about when this Party Congress convenes later in the year,
• 17:28
  Speaker 1: what what do you expect to come out of this
• 17:31
  Speaker 1: the look I mean politically speaking, I don't buy some
• 17:34
  Speaker 1: of the noise sets out there about opposition to the
• 17:38
  Speaker 1: too too she and and so forth. I think that
• 17:40
  Speaker 1: it seems quite likely that that their term is very
• 17:42
  Speaker 1: much guaranteed. The real question is what happens in the
• 17:45
  Speaker 1: applemath of that, what moves are done around the Party
• 17:48
  Speaker 1: Congress is stabilized. Big stimulus is not happening in China.
• 17:52
  Speaker 1: We know this. It's clear and Shana age data, it's
• 17:55
  Speaker 1: clear and official numbers. What amounts of fiscal stimulus perhaps
• 17:58
  Speaker 1: takes place in the second half of the year to
• 18:00
  Speaker 1: help energize the economy. Does the you know, do they
• 18:02
  Speaker 1: move a little to do the ease up on the
• 18:04
  Speaker 1: property market? Is a property market? Get it some additional
• 18:07
  Speaker 1: breathing room, Um, that's possible. What's the nature of the
• 18:10
  Speaker 1: tech wrapdowns? Are they done for good? Highly doubted? What
• 18:13
  Speaker 1: form do they take next? So I think continuity of
• 18:16
  Speaker 1: policy is going to be there. We just have to
• 18:18
  Speaker 1: watch it very very closely on the ground. How is
• 18:21
  Speaker 1: it being implemented rather than just coming up with theories,
• 18:24
  Speaker 1: as sometimes China watchers often do. Alright, great great stuff
• 18:27
  Speaker 1: was really taught me to get you on the phone.
• 18:30
  Speaker 1: Cha Kazi, managing director, trying to bage book Internet for
• 18:33
  Speaker 1: getting the latest from continuing challenging economic ayor coming out
• 18:37
  Speaker 1: of trying to amid the lockdown. Fascinating news going on.
• 18:44
  Speaker 1: One of the coolest stories is the Jet Blue hostile
• 18:49
  Speaker 1: takeover for Spirit. And it's not just uh, the US
• 18:53
  Speaker 1: airlines that I find interesting because we had an interview
• 18:56
  Speaker 1: with Michael O'Leary Ryan their earlier UM and he was
• 18:59
  Speaker 1: also saying, like, you know what, there's going to be
• 19:02
  Speaker 1: a recession. People are going to go towards the lowest
• 19:05
  Speaker 1: costs and that's us. UM. That's that's at least his
• 19:07
  Speaker 1: bet there. And I'm not sure exactly what's going on
• 19:09
  Speaker 1: with yet Blue and Spirit, but Bloomberg News reporter Mary
• 19:13
  Speaker 1: Schlangenstein is going to tell us exactly what's going on.
• 19:17
  Speaker 1: Mary joined Bloomberg News in right and and she and Mary,
• 19:22
  Speaker 1: since you're in Dallas, I'm gonna guess your name isn't
• 19:25
  Speaker 1: pronounced Schlangenstein. But since I just came back from Berlin
• 19:29
  Speaker 1: for me, that's what it is right right, Yeah, that's
• 19:32
  Speaker 1: that's not how we pronounced it here in the US,
• 19:34
  Speaker 1: but you're right on the German pronouncing. How So how
• 19:37
  Speaker 1: what do we say? What do you say when you're
• 19:39
  Speaker 1: introducing yourself? I wasn't that far off. Um. In any case,
• 19:46
  Speaker 1: that's not what we brought you on to talk about. Mary.
• 19:48
  Speaker 1: What's the deal with this Jet Blue offer? I mean,
• 19:51
  Speaker 1: is this kind of um, you know, we better get
• 19:54
  Speaker 1: this asset before somebody else does kind of deal. Well,
• 19:57
  Speaker 1: I think that's part of it, because you know, for many,
• 20:00
  Speaker 1: many years, Jet Blue has tried to grow and they've
• 20:02
  Speaker 1: always said they want to grow organically, but they lost
• 20:06
  Speaker 1: out several years back when they tried to buy Virgin
• 20:08
  Speaker 1: America that ended up being acquired by Alaska. So now
• 20:12
  Speaker 1: when Frontier came out and made an offer for Spirit,
• 20:15
  Speaker 1: jet Blue looks at that and says, you know, this
• 20:17
  Speaker 1: may be one of our last chances to really have
• 20:20
  Speaker 1: a turbo charge to our growth, so we're gonna go
• 20:23
  Speaker 1: for it. Um. They were spurned by the Spirit Airlines
• 20:26
  Speaker 1: board and so now they're making this hostile bid, uh
• 20:29
  Speaker 1: to get Spirit to take a closer look at all
• 20:31
  Speaker 1: the details of their offer. So do we have any sense, Mary,
• 20:35
  Speaker 1: is there any regulatory challenges to either of these acquires,
• 20:39
  Speaker 1: jet Blue or Frontier. Does anybody have an upper hand
• 20:41
  Speaker 1: supper regulatory perspective? Well, right now, the Jet Blue, I
• 20:46
  Speaker 1: mean the Spirit Frontier merger proposals getting some review from
• 20:50
  Speaker 1: regulators because they've already asked for more information. Um, so
• 20:54
  Speaker 1: they are. That's already happening. But Jet Blue would have
• 20:57
  Speaker 1: to go under the same scrutiny. If it reaches an
• 21:00
  Speaker 1: agreement to merge with Spirit or to take over Spirit,
• 21:04
  Speaker 1: then that would go have to go through a regulatory review,
• 21:07
  Speaker 1: and there has come some concern that's one of the
• 21:09
  Speaker 1: big issues that Spirit raised and rejecting rejecting jet Blue
• 21:12
  Speaker 1: would say, look, we don't think that this deal has
• 21:15
  Speaker 1: a good chance of being consummated, and because we don't
• 21:18
  Speaker 1: think that, we're not even going to look at your offer,
• 21:21
  Speaker 1: you know, we're not going to evaluate the financial side
• 21:23
  Speaker 1: of it or anything like that because we don't think
• 21:24
  Speaker 1: it can be done. And of course Jet Blue is
• 21:27
  Speaker 1: arguing against that. Mary, I have indeed just moved back
• 21:31
  Speaker 1: from six years living in Germany, and one of the
• 21:33
  Speaker 1: coolest things about living in Europe is you can travel everywhere,
• 21:38
  Speaker 1: and you do because it's just so cheap. I mean,
• 21:41
  Speaker 1: you go from one end to the continent to the
• 21:43
  Speaker 1: other and you can do it for less than a
• 21:45
  Speaker 1: hundred bucks round trip um pretty much guaranteed all the time,
• 21:49
  Speaker 1: not just like once in a while when there's a sale.
• 21:52
  Speaker 1: Is there any chance of that kind of super low
• 21:54
  Speaker 1: cost model coming to the US? What? What's what's the
• 21:58
  Speaker 1: differentiator of you? If you did see Frontier and Spirit combined,
• 22:03
  Speaker 1: they are the two largest ultra discounters already. Those are
• 22:07
  Speaker 1: the people that charge you a very low fair price,
• 22:10
  Speaker 1: but then they charge you for everything else, Like if
• 22:12
  Speaker 1: you want to print your boarding path, if you want
• 22:14
  Speaker 1: to get a bottle of water on board, they charge
• 22:16
  Speaker 1: you for every We call that nickel and diming. Yeah,
• 22:19
  Speaker 1: that's a lot of people do call it Nicolin diming um.
• 22:22
  Speaker 1: And so this would make them a very large airline, um,
• 22:26
  Speaker 1: you know. And and there's the expectation that there would
• 22:29
  Speaker 1: be lots of growth beyond that, simply because the resurgence
• 22:32
  Speaker 1: and travel post pandemic has primarily been domestic leisure and
• 22:36
  Speaker 1: and people really don't see that slowing down anytime soon.
• 22:40
  Speaker 1: So you know, they would have the ability to grow
• 22:43
  Speaker 1: likely quite a bit in the future, and they would
• 22:45
  Speaker 1: be the largest carrier in that space. But do we
• 22:48
  Speaker 1: I mean, there's no Jet, there's no easy Jet over here,
• 22:52
  Speaker 1: there's no Ryanair, there's no whizz Air. Is that just um,
• 22:58
  Speaker 1: you know, lobbying by Delta and United, UM and the
• 23:03
  Speaker 1: US Congress keeping that kind of competition out of this market. Well,
• 23:07
  Speaker 1: you've got you've got Spirit, You've got Frontier, you've got Allegiance,
• 23:11
  Speaker 1: you have the New Breeze, you have the New Develope.
• 23:13
  Speaker 1: Those are all in that category of the discounters where
• 23:18
  Speaker 1: they're they're trying to win your business by really cutting
• 23:21
  Speaker 1: their fairs. The issue is none of those guys have
• 23:23
  Speaker 1: international operations, so they have very small near international like
• 23:28
  Speaker 1: to the Caribbean or down into Mexico. So they aren't
• 23:32
  Speaker 1: ever going to have the scale of a United or
• 23:34
  Speaker 1: an American Airlines or Delta Airlines or even the Southwest
• 23:37
  Speaker 1: Airlines which has some international operations as well. UM. So
• 23:41
  Speaker 1: I don't think you're gonna see, you know, any of
• 23:44
  Speaker 1: those big carriers face a big threat in terms of
• 23:46
  Speaker 1: network dominance. But there are we are seeing more and
• 23:50
  Speaker 1: more people you know, into the industry with this lower
• 23:53
  Speaker 1: cost model, uh marriage about thirty seconds. How do you
• 23:57
  Speaker 1: think Frontier response to this jet Blue in hostile Um, Well,
• 24:01
  Speaker 1: we will see a response from Frontier. I don't think
• 24:03
  Speaker 1: we'll see a response from Spirit. Um. I think what
• 24:06
  Speaker 1: you are likely to see a spirit will come out
• 24:09
  Speaker 1: and say we're standing by our agreement with Jet Blue.
• 24:12
  Speaker 1: I mean, I'm sorry, we're standing by with Frontier. But
• 24:15
  Speaker 1: they may say will reconsider jet Blue, or they may
• 24:21
  Speaker 1: either offer or their decision and not do anything. All right, good,
• 24:25
  Speaker 1: good stuff, Thanks for taking time, Mary, really appreciate that.
• 24:27
  Speaker 1: Mary Schlangenstein Airlines reporter for Bloomberg News and assistant Scout
• 24:32
  Speaker 1: master for the Boy Scouts of America, which is huge
• 24:34
  Speaker 1: for me because I was the Scout master for some
• 24:37
  Speaker 1: of New really many years back in the day. Cool. Yeah,
• 24:41
  Speaker 1: that's good stuff. Now. I always I always admire people.
• 24:45
  Speaker 1: I think I put them on a pedestal if they
• 24:47
  Speaker 1: made to the Eagle Scouts. Oh yeah, I feel like
• 24:49
  Speaker 1: that's a huge achievement. We have a certain someone here
• 24:51
  Speaker 1: at Bloomberg that was Eagle Scout. Yeah, Michael R. Bloomberg.
• 24:56
  Speaker 1: Really that shouldn't come as any He's an achiever, of course,
• 25:00
  Speaker 1: of course, Michael Bloomberg, the owner of this Bloomberg radio
• 25:03
  Speaker 1: and TV situation here and chairman founder Bloomberg LP. Thanks
• 25:08
  Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
• 25:11
  Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
• 25:15
  Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
• 25:19
  Speaker 1: Matt Miller three. On False Sweeney, I'm on Twitter at
• 25:22
  Speaker 1: pt Sweeney before the podcast. You can always catch us
• 25:25
  Speaker 1: worldwide at Bloomberg Radio