Latest / Bloomberg Intelligence / Delta Sees Robust Demand Going Into 2026 Amid Premium Focus

Transcript

Delta Sees Robust Demand Going Into 2026 Amid Premium Focus · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
• 0:10
  Speaker 1: Bloomberg Intelligence Podcast. Catch us Live weekdays at ten am
• 0:14
  Speaker 1: Eastern on Apple Coarclay and Android Auto with the Bloomberg
• 0:17
  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
• 0:21
  Speaker 1: or watch us live on YouTube.
• 0:24
  Speaker 2: Delta Airlines came out some better expected results for the quarter,
• 0:27
  Speaker 2: saying that helped by leisure travelers and a rebounding corporate travel.
• 0:30
  Speaker 2: How about that, said Philip joins us. He's deputy team
• 0:33
  Speaker 2: leader for Global Aviation. Join us live here in our
• 0:35
  Speaker 2: Bloomberg Interactive Brokers studio. Are we kind of back to
• 0:39
  Speaker 2: pre pandemic levels in terms of air travel?
• 0:43
  Speaker 3: Also, there is a Dichoto me in the aviation industry
• 0:46
  Speaker 3: at the moment where we're seeing airlines profitability, especially at
• 0:50
  Speaker 3: the top end of the market in the premium and
• 0:52
  Speaker 3: corporate sector. So they're doing really well. So Delta air Lines,
• 0:56
  Speaker 3: United Airlines doing really well. At the other end of
• 0:58
  Speaker 3: the market, does the the likes of Spirit Airlines that's
• 1:01
  Speaker 3: in its second bankruptcy. You've got the other sort of
• 1:04
  Speaker 3: low cost carriers that are struggling to fill up seats,
• 1:06
  Speaker 3: and that's partly on account of the fact that low
• 1:10
  Speaker 3: cost carriers their customer base is still hurting from the
• 1:13
  Speaker 3: sort of tariffs and the economic uncertainty, whereas for the
• 1:17
  Speaker 3: top end of the market, they seem to be traveling
• 1:19
  Speaker 3: and as normal.
• 1:20
  Speaker 4: Actually, yeah, it's the manifestation of the key shaped economy
• 1:23
  Speaker 4: right where the higher income consumer is doing much better
• 1:25
  Speaker 4: than the lower end consumer.
• 1:27
  Speaker 5: The CEO of Delta at Bastion said.
• 1:30
  Speaker 4: In the earnings report that our customer is financially in
• 1:33
  Speaker 4: a good spot. Said, who exactly is Delta's customer because
• 1:36
  Speaker 4: it's not the same as you said as for instance,
• 1:40
  Speaker 4: Spirit or Southwest or even you can argue United, sure.
• 1:44
  Speaker 3: I mean Delta air Lines. I mean they frequently talk
• 1:46
  Speaker 3: about how their customer is in the sort of average
• 1:49
  Speaker 3: of over one hundred thousand earnings in one hundred thousand
• 1:52
  Speaker 3: dollars a year in terms of earnings, and they sort
• 1:54
  Speaker 3: of are looking for experiences. They're looking to sort of
• 1:57
  Speaker 3: travel premium. They're not looking to sort of go coach
• 2:00
  Speaker 3: and sort of nickel and dime their way through the
• 2:03
  Speaker 3: aviation experience. And they're sort of more willing to splurge
• 2:06
  Speaker 3: on experiences. And that's sort of the post pandemic revenge
• 2:10
  Speaker 3: traveler who is now continuing to sort of spend money
• 2:14
  Speaker 3: on travel, and they seem to be suggesting that airlines
• 2:17
  Speaker 3: are willing. People are willing to keep going and keep
• 2:19
  Speaker 3: traveling and keep spending money on experiences and holidays.
• 2:24
  Speaker 2: If United beach their numbers this quarter, it's because what
• 2:27
  Speaker 2: I spent ticket or really spared no expense to get
• 2:31
  Speaker 2: over there, I needed the rest. Talk to us about
• 2:34
  Speaker 2: just visibility. These airlines they put they have some pretty
• 2:37
  Speaker 2: decent visibility on on their bookings.
• 2:39
  Speaker 5: So they do.
• 2:40
  Speaker 3: They've been talking about how the visibility into the into
• 2:43
  Speaker 3: the holiday quarta, into the fourth quarter of the year
• 2:46
  Speaker 3: is looking good at the moment they see they're seeing
• 2:49
  Speaker 3: demand being strong as they get into the close of
• 2:52
  Speaker 3: the year, and that's at least. Delta Airlines is talking
• 2:55
  Speaker 3: about how they expect corporate travel to continue to be
• 2:59
  Speaker 3: so a solid and robust in twenty twenty six. Are
• 3:02
  Speaker 3: saying that companies that they surveyed are seeing continued appetite
• 3:06
  Speaker 3: for corporate travels. So it remains to be seeing what
• 3:09
  Speaker 3: actually materializes. I mean, airlines had massive forecasts for record
• 3:14
  Speaker 3: growth this year and then sort of liberation they came
• 3:17
  Speaker 3: around and that sort of torpedo that and they've now
• 3:20
  Speaker 3: sort of come back to those levels, but will remains
• 3:23
  Speaker 3: as be seeing what surprises come out next year.
• 3:25
  Speaker 4: I'm so glad you bring that up because earlier this
• 3:28
  Speaker 4: year Delta warned of an abrupt slowdown or I don't
• 3:32
  Speaker 4: know that it actually saw when it just said it
• 3:34
  Speaker 4: kind of was seeing it on the horizon. Has that
• 3:36
  Speaker 4: been completely a race and turned around?
• 3:39
  Speaker 3: Now for the moment, it does look like it is smooth,
• 3:42
  Speaker 3: smooth skies for them. But at the same time, we
• 3:45
  Speaker 3: don't really know what's going to happen in the current
• 3:48
  Speaker 3: economic environment or what demand looks like as we go
• 3:52
  Speaker 3: into twenty twenty six, and that's something that we need
• 3:55
  Speaker 3: to watch as the airline sort of report their fourth
• 3:58
  Speaker 3: quarter results and sort of about their future vocalsts.
• 4:02
  Speaker 2: What are the big airlines, the big ones you mentioned
• 4:05
  Speaker 2: United Deltas. What are they doing with capacity? Are they
• 4:07
  Speaker 2: adding capacity trimming it back? I mean, I don't know
• 4:10
  Speaker 2: if they're doing with routes. I don't know if they
• 4:11
  Speaker 2: have enough planes, all that kind of stuff.
• 4:13
  Speaker 3: So they have been so Delta has been adding capacity,
• 4:15
  Speaker 3: They've been retiring older planes and taking on new planes,
• 4:20
  Speaker 3: and so they seem to be adding a little bit
• 4:22
  Speaker 3: of capacity.
• 4:23
  Speaker 5: And we're also.
• 4:24
  Speaker 3: Seeing, like so United talk about how they are upgrading
• 4:27
  Speaker 3: their fleet. They're replacing their old aircraft with seven eighty
• 4:30
  Speaker 3: seven's and Maxes, and so we are seeing the US
• 4:34
  Speaker 3: carriers upgrade their fleets, and that's sort of adding more capacity,
• 4:37
  Speaker 3: especially as they upgate aircraft, so they sort of replace
• 4:41
  Speaker 3: smaller narrow bodies with the larger eight three twenty one
• 4:44
  Speaker 3: or the Max nine, and that sort of adds more
• 4:46
  Speaker 3: seats and more capacity. But then at the same time,
• 4:49
  Speaker 3: they're also premiumizing the cabins, so they're adding more business
• 4:52
  Speaker 3: class cabins and more premium economy than they ever did before.
• 4:56
  Speaker 5: Premiumizing. That is a new word. I had not heard
• 4:59
  Speaker 5: of it.
• 4:59
  Speaker 2: But economy coming back from Italy was actually like the
• 5:03
  Speaker 2: old first class in terms of really I was shocked
• 5:06
  Speaker 2: at how much room there was this.
• 5:07
  Speaker 5: How how far back can you recline?
• 5:10
  Speaker 6: Just the normal one?
• 5:11
  Speaker 2: Okay, but it was just way more like mouse And
• 5:13
  Speaker 2: it wasn't that much money. It was a couple hundred
• 5:15
  Speaker 2: bucks to uperate, So that was pretty interesting.
• 5:18
  Speaker 4: No, and that's that's a big part of Delta's push right,
• 5:20
  Speaker 4: pushing these premium products in the cabin.
• 5:23
  Speaker 5: What about on the ground.
• 5:24
  Speaker 4: What is Delta doing on the ground to really harness
• 5:27
  Speaker 4: its customers desire for a premium experience.
• 5:30
  Speaker 3: So they bartnering with they have that partnership with Uber
• 5:34
  Speaker 3: the they've sort of added more of those Delta one lounges,
• 5:38
  Speaker 3: and they're sort of doing those credit card partnerships, and
• 5:40
  Speaker 3: those are all sort of ways to keep customers sticky
• 5:43
  Speaker 3: and keep them engaged because, I mean, the moment you're
• 5:46
  Speaker 3: sort of signed into the ecosystem, you're more likely to
• 5:49
  Speaker 3: book with them and sort of not really use price
• 5:52
  Speaker 3: comparison websites. You're more likely to sort of keep.
• 5:55
  Speaker 5: Going customer for life kind of thing.
• 5:58
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 6:05
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 6:09
  Speaker 1: weekdays at ten am Eastern on Apple, Coarclay, and Android
• 6:12
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 6:15
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 6:19
  Speaker 2: You know, I'm a coke guy. Be with PEPSI in
• 6:21
  Speaker 2: front of me. Fine, I'm just as happy I can
• 6:24
  Speaker 2: realize it. But Ken Chase. He follows this stuff for living.
• 6:26
  Speaker 2: Ken Chase, the senior consumer products analysts of Bloomberg Intelligence. Pepsi,
• 6:30
  Speaker 2: reported some numbers a little bit better than expected. Here, Ken,
• 6:33
  Speaker 2: tell us what you heard from our good friends at PEPSI.
• 6:36
  Speaker 6: Yeah, Hi, Paul, Well, PepsiCo report a number today, numbers
• 6:40
  Speaker 6: today that we're pretty much in line, maybe a little
• 6:44
  Speaker 6: bit above expectations. But I think they also masked persistent
• 6:48
  Speaker 6: weak market conditions of the US across its broad food, snack,
• 6:55
  Speaker 6: and beverage businesses. The company pretty much, you know, hit
• 7:00
  Speaker 6: their numbers, as I said, but it didn't do much
• 7:03
  Speaker 6: to relieve the pressure it's getting from activists, an activist
• 7:07
  Speaker 6: who's asking the company to do more. Basically, flat performance
• 7:11
  Speaker 6: is just not good enough for something that's perceived or
• 7:13
  Speaker 6: a company that's perceived as a growth company. I guess
• 7:17
  Speaker 6: the good news is their language during the call, though,
• 7:20
  Speaker 6: did provide investors a bit of optimism. It sounds like
• 7:23
  Speaker 6: the company is getting it. They said they're going to
• 7:26
  Speaker 6: ramp up innovation, they're going to be more aggressive with
• 7:29
  Speaker 6: cost cutting. They're listening to the activist points and they
• 7:32
  Speaker 6: said buy a Laerds. They agree with many of them.
• 7:35
  Speaker 6: So those are all, you know, good things to hear.
• 7:37
  Speaker 6: You know, from an investor point of view, it's just
• 7:39
  Speaker 6: a matter of executing and actually following through with them,
• 7:42
  Speaker 6: I think is where the jury is out.
• 7:45
  Speaker 4: So I guess ken the question is is this enough
• 7:48
  Speaker 4: for Elliott the activist semester which took about a four
• 7:51
  Speaker 4: billion dollar steak in PepsiCo and called for a strategic
• 7:54
  Speaker 4: review a streamlining of a snack portfolio in particular, Well.
• 7:59
  Speaker 6: I think think the CEO of PepsiCo mentioned that they
• 8:04
  Speaker 6: are on the same page on a lot of fronts,
• 8:06
  Speaker 6: but what they didn't say is one of the big
• 8:09
  Speaker 6: things that Elliott is calling for is basically, you know,
• 8:11
  Speaker 6: the beverage business to refranchise itself, sort of what Coca
• 8:14
  Speaker 6: Cola does, to let the bottlers be independent rather than
• 8:18
  Speaker 6: own those very capital intentsive businesses. They didn't go there.
• 8:21
  Speaker 6: I'm sure that's going to be a big sticky point.
• 8:24
  Speaker 6: What they are in agreement, though, is that innovation is
• 8:27
  Speaker 6: needed to be even more on Trent. You know, I
• 8:29
  Speaker 6: covered PepsiCo. I've covered PepsiCo for a long time. They
• 8:32
  Speaker 6: are probably on the forefront of the most innovative companies
• 8:36
  Speaker 6: across the beverage world that I cover, and yet they're
• 8:38
  Speaker 6: even ramping it up even more aggressively across food, aggressively
• 8:43
  Speaker 6: across beverage to be as on trend as possible. And
• 8:46
  Speaker 6: on that note, you know, Bloomberg Intelligence came out with
• 8:49
  Speaker 6: its annual consumer Beverage survey just on Monday, and some
• 8:52
  Speaker 6: of the big findings that we're seeing is that advanced,
• 8:56
  Speaker 6: high duration, wellness, and value are more more important than
• 9:00
  Speaker 6: ever in the world of beverages. And it was interesting
• 9:03
  Speaker 6: to hear PepsiCo pretty much address all three of those
• 9:06
  Speaker 6: areas with their new product innovation. So that's encouraging.
• 9:10
  Speaker 2: At the end of the day, can as a company
• 9:13
  Speaker 2: like Pepsi, is that nothing more than really a GDP
• 9:17
  Speaker 2: kind of growth story. There's not much more you can
• 9:19
  Speaker 2: do to goose it above that? Or is that or
• 9:22
  Speaker 2: can they do better? Maybe that may be true in
• 9:25
  Speaker 2: the US pool. I mean, it's such a large business,
• 9:28
  Speaker 2: it's in most channels, it's you know, it's been around
• 9:30
  Speaker 2: a long time obviously, but I think most people looking
• 9:34
  Speaker 2: at this company would say, look, you have great opportunities
• 9:36
  Speaker 2: outside the US. There's much less price competition. You know,
• 9:40
  Speaker 2: outside the US, people are embracing you know, these consumer
• 9:44
  Speaker 2: goods and these brands outside the US. So that's one
• 9:47
  Speaker 2: of the things Elliet is actually saying, provide you know,
• 9:50
  Speaker 2: feed the capital needed outside the US to grow these
• 9:53
  Speaker 2: business in these big growing markets, you know, like China
• 9:57
  Speaker 2: and India and so on, Latin America. These are really
• 10:01
  Speaker 2: big growing markets. And to the extent that they could
• 10:04
  Speaker 2: play more in those markets I think would be good
• 10:06
  Speaker 2: for the enterprise in the whole.
• 10:09
  Speaker 4: But for those markets, would they need to take a
• 10:11
  Speaker 4: similar approach as what they do in the US. Be
• 10:13
  Speaker 4: more innovative, keep up with this shifting consumer taste towards
• 10:17
  Speaker 4: healthier offerings, higher protein, portion controlled, less sugary drinks, or
• 10:22
  Speaker 4: can they go with their old playbook.
• 10:25
  Speaker 6: I think it's a combination of doing what they're doing.
• 10:29
  Speaker 6: You know, in some of these markets they have to
• 10:32
  Speaker 6: adhere to local tastes. My guess is that a lot
• 10:36
  Speaker 6: of these consumers are seeking the same kind of things
• 10:38
  Speaker 6: the US though is or I should say, you know,
• 10:42
  Speaker 6: wellness value, but the portfolios are not quite as broad
• 10:46
  Speaker 6: outside the US. So I think it's tailoranto's the local
• 10:52
  Speaker 6: areas and bringing some of their learnings from the US
• 10:56
  Speaker 6: to these markets over time.
• 10:58
  Speaker 2: Ken talk to us about the They got about a
• 11:01
  Speaker 2: four percent dividend yield on PEPSI. That seems pretty solid.
• 11:04
  Speaker 2: What's their policy on dividends these days?
• 11:07
  Speaker 6: Oh, they're committed. I mean they know that a big
• 11:10
  Speaker 6: shareholder base, you know, is income investors. So they are
• 11:13
  Speaker 6: there committed. In every quarter like this one, they said, Look,
• 11:17
  Speaker 6: we're committed to have a multi prong capital allocation policy.
• 11:21
  Speaker 6: We're going to you know, invest in the business, you know, innovation,
• 11:24
  Speaker 6: like I said, but they're also going to buy stockback
• 11:28
  Speaker 6: on a you know, selected basis. They're going to commit
• 11:31
  Speaker 6: to their growing dividend, and their balance sheet would support
• 11:36
  Speaker 6: them doing that. I mean, the balance sheet is in
• 11:38
  Speaker 6: good shapes and good investment grade, and so I see
• 11:42
  Speaker 6: this company continue to have a balanced allocation going forward.
• 11:46
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 11:53
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 11:57
  Speaker 1: weekdays at ten am Eastern on Apple, cock Play and
• 12:00
  Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand
• 12:03
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 12:07
  Speaker 2: We were talking about the auto business in Ferrari or Ferrari,
• 12:12
  Speaker 2: thinking this brings to mind, I don't know how these
• 12:14
  Speaker 2: companies are going to go for the next five years,
• 12:16
  Speaker 2: ten years in terms of that evolution, because it's kind
• 12:19
  Speaker 2: of fits and starts.
• 12:20
  Speaker 5: They can't figure out next year, and some point.
• 12:21
  Speaker 2: The market rewards them for it. At some point the
• 12:23
  Speaker 2: market penalizes before Craig Trudell it's his job to make
• 12:26
  Speaker 2: a sense out of all this. He's a Global autos
• 12:28
  Speaker 2: editor for Bloomberg News. So, Craig, can you see news
• 12:31
  Speaker 2: from Ferrari about its cautious forecast maybe just kind of
• 12:36
  Speaker 2: cautious commera territory on EV's. What does it tell you
• 12:39
  Speaker 2: here from Ferrari?
• 12:41
  Speaker 7: Yeah, I mean, I think the market was taking in stride,
• 12:45
  Speaker 7: you know, the the caution on EV's. I think even
• 12:48
  Speaker 7: you know, sort of among the investor base and certainly
• 12:51
  Speaker 7: the analysts too, there's some real concerns about, you know,
• 12:54
  Speaker 7: just how sort of incongruous Evs are with Ferrari, and
• 12:59
  Speaker 7: some questions about whether you know, whether they should even
• 13:01
  Speaker 7: bother uh going in that in that direction. Uh, you know,
• 13:05
  Speaker 7: I think I think the shares were down a little bit,
• 13:08
  Speaker 7: what you know, earlier this morning when they were talking
• 13:11
  Speaker 7: about that. I think where we saw the stock really
• 13:13
  Speaker 7: just take it on the chin, was when they came
• 13:15
  Speaker 7: out with their their outlook you know, for through twenty
• 13:18
  Speaker 7: thirty and I you know, I think that the profit
• 13:22
  Speaker 7: uh you know, growth was was underwhelming. I should you know,
• 13:25
  Speaker 7: sort of say it. It also is the case that
• 13:27
  Speaker 7: they are still you know, calling for growth. I think
• 13:30
  Speaker 7: some analysts were maybe hoping for for uh you know,
• 13:34
  Speaker 7: also some some increase in volumes, but it's not really
• 13:37
  Speaker 7: you know what what Ferrari is about. They you know,
• 13:41
  Speaker 7: are sort of like clockwork, you know, making a pretty
• 13:44
  Speaker 7: set number of vehicles every year and uh, charging an
• 13:47
  Speaker 7: awful lot of money for them, and and uh that's
• 13:50
  Speaker 7: that's really been you know, something that's that's paid off.
• 13:54
  Speaker 7: And I think, you know, just the other thing to
• 13:56
  Speaker 7: sort of keep in mind here when you look at
• 13:58
  Speaker 7: what these shares have done, you know since they listed.
• 14:02
  Speaker 7: You know, the shares in Milan have been trading since
• 14:04
  Speaker 7: early twenty sixteen, the New York ones a little bit
• 14:07
  Speaker 7: earlier than that. But this is a stock that has
• 14:11
  Speaker 7: absolutely been on a tear all those years since. And
• 14:13
  Speaker 7: so you know, I yes, a sixteen percent to decline
• 14:17
  Speaker 7: and one day, you know, sort of makes your eyes pop.
• 14:19
  Speaker 7: But this is a company that is still valued very richly,
• 14:23
  Speaker 7: and that makes a little bit more sense in hindsight.
• 14:26
  Speaker 4: And Frari also of course coming out with its first
• 14:28
  Speaker 4: EV too, and that might be accounting for some of
• 14:31
  Speaker 4: the caution in terms.
• 14:32
  Speaker 5: Of what it sees going forward.
• 14:35
  Speaker 4: In the story, you and your colleagues Craig talk about
• 14:38
  Speaker 4: how not just Ferrari, but Portia and Mercedes Benz have
• 14:41
  Speaker 4: also struggled with the electric transition. Why are wealthy buyers
• 14:45
  Speaker 4: somewhat resistant to switching over to plug in EV's what's
• 14:49
  Speaker 4: behind that?
• 14:50
  Speaker 7: Yeah, it's a really good question. I think you know,
• 14:53
  Speaker 7: there was just this sort of working assumption that you know,
• 14:55
  Speaker 7: the only thing that you were going to have to
• 14:58
  Speaker 7: overcome was caught, and so you know, there was this,
• 15:03
  Speaker 7: i think, sort of conventional wisdom. Well, oh, we'll just
• 15:07
  Speaker 7: have you know, the folks who are most able to
• 15:09
  Speaker 7: afford this incremental additional costs, they'll they'll fit the bill,
• 15:14
  Speaker 7: and we'll be sort of off and running as an
• 15:17
  Speaker 7: industry and gradually sort of work our way down price wise.
• 15:20
  Speaker 7: I think if if you're a luxury car buyer and
• 15:24
  Speaker 7: you're having to pay a significant premium over you know,
• 15:29
  Speaker 7: looking at at models that are that are the same
• 15:32
  Speaker 7: one combustion and one electric, the electric ones a lot more.
• 15:35
  Speaker 7: You know, it is still a decision and sort of
• 15:38
  Speaker 7: a rational decision to a sort of second guess whether
• 15:41
  Speaker 7: or not you want to go electric. And I think
• 15:43
  Speaker 7: that's what what you're seeing is is that you know,
• 15:46
  Speaker 7: BMW and Mercedes until and unless they sort of you know,
• 15:50
  Speaker 7: price their models closer to one another, you're you're going
• 15:53
  Speaker 7: to have, you know, some pushback on the part of
• 15:56
  Speaker 7: the consumer to make that transition, even as as we
• 16:00
  Speaker 7: make progress and things like charging infrastructure and some of
• 16:03
  Speaker 7: these hurdles that you have to overcome that or unique
• 16:05
  Speaker 7: to EBS.
• 16:06
  Speaker 2: My biggest question for you know, the supercars going electric
• 16:09
  Speaker 2: is I think a big part of the reason people
• 16:12
  Speaker 2: buy the Ferraris the Lamborghinis is for the cool sound
• 16:16
  Speaker 2: when they're coming down the street. What's Ferrari doing with
• 16:21
  Speaker 2: with that part of it?
• 16:23
  Speaker 7: Yeah, it's it's interesting and we saw sort of, you know,
• 16:27
  Speaker 7: and we had the indications that Ferrari was working on
• 16:30
  Speaker 7: something in this regard to to try and sort of
• 16:32
  Speaker 7: preserve the noise that you can make driving a Ferrari
• 16:36
  Speaker 7: that they patented, you know, systems to kind of create
• 16:40
  Speaker 7: essentially artificial noise, or at least to play up the
• 16:43
  Speaker 7: noise that is made by you know, electric motors in
• 16:46
  Speaker 7: electric vehicles. You know, I think that being said, well,
• 16:50
  Speaker 7: we see Ferraris externally make you know, nearly as much
• 16:54
  Speaker 7: noise as a Ferrari supercar. I suspect that the answer
• 16:59
  Speaker 7: to that is probably no. But I've been I've been
• 17:01
  Speaker 7: very entertained that, you know, Dodge came out with an
• 17:04
  Speaker 7: electric vehicle last year, and I saw a report recently
• 17:08
  Speaker 7: that you know, an owner in Canada was ticketed for
• 17:11
  Speaker 7: a noise violation with his electric Dodge vehicle. So, you know,
• 17:16
  Speaker 7: maybe maybe it's for the best actually that this will
• 17:18
  Speaker 7: become a thing of the path.
• 17:20
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 17:27
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 17:31
  Speaker 1: weekdays at ten am Eastern on Apple Coarcklay, and Android
• 17:34
  Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
• 17:37
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 17:41
  Speaker 2: Let's talk a little bit about the media business there.
• 17:44
  Speaker 2: It's undergoing a certain degree of consolidation here as it
• 17:48
  Speaker 2: tries to deal with the rising tide of YouTube among
• 17:52
  Speaker 2: other streaming type services and digital services that have really
• 17:55
  Speaker 2: displaced many of the traditional media businesses. And one of
• 17:58
  Speaker 2: those is Paramount Global that was so bought by sky Dance.
• 18:03
  Speaker 2: Larry Ellison's family now looking to take a look at
• 18:07
  Speaker 2: Warner Brothers Discovery, another publicly traded company. Maybe those two
• 18:10
  Speaker 2: might get together. Check in with Githa rang Aanath and
• 18:13
  Speaker 2: she's the media analyso over Bloomberg Intelligence. Githa talk to
• 18:16
  Speaker 2: us about the likelihood of Paramount merging with or acquiring
• 18:23
  Speaker 2: Warner Brothers Discovery and how that might look.
• 18:28
  Speaker 8: Yeah, thank you so much, Paul. So it's been a
• 18:30
  Speaker 8: while actually, so there's been these on again, off again reports.
• 18:35
  Speaker 8: The first time the news broke was almost a month ago.
• 18:37
  Speaker 8: It was on September eleventh that there was this swall
• 18:39
  Speaker 8: Street Journal article which suggested that Paramount was kind of
• 18:42
  Speaker 8: exploring this bid. There hasn't actually been any formal bid
• 18:48
  Speaker 8: from Paramount, however, you know, the shares of both those
• 18:51
  Speaker 8: companies have kind of really gone up very nicely on
• 18:54
  Speaker 8: the news, kind of just telling us how important it
• 18:57
  Speaker 8: is for both of them to have this consolate. If
• 19:00
  Speaker 8: you look at Paramount. Obviously they just went through that merger.
• 19:03
  Speaker 8: There is really very little details when it comes to
• 19:06
  Speaker 8: what is, you know, kind of the strategy for this business.
• 19:08
  Speaker 8: They definitely need something big. Having a studio like Warner
• 19:12
  Speaker 8: having a service like HBO Max, it really kind of
• 19:16
  Speaker 8: puts them on that global media map, so they I
• 19:18
  Speaker 8: think they definitely need it in order to kind of
• 19:21
  Speaker 8: make this big splash in the media ecosystem. But there,
• 19:24
  Speaker 8: you know, as days pass along and we don't get
• 19:26
  Speaker 8: a bit, it just seems like the probability of this
• 19:29
  Speaker 8: happening gets smaller and smaller.
• 19:32
  Speaker 4: Yeah, it's curious because we've been waiting for so long
• 19:35
  Speaker 4: and the industry has been ripe for consolidation, and David Zazov,
• 19:40
  Speaker 4: who of course runs Warner Brothers Discovery, has been talking
• 19:43
  Speaker 4: about how consolidation is something that he anticipates and he
• 19:46
  Speaker 4: wants to see happen. Is there role here for regulators?
• 19:50
  Speaker 4: Is this something that they would weigh in on. Is
• 19:52
  Speaker 4: Brendan Carr going to play any kind of role here.
• 19:56
  Speaker 8: So a Paramount, Yes, there is potentially a role for
• 20:00
  Speaker 8: for any and all types of regulatory scrutiny in the Paramount.
• 20:03
  Speaker 8: A Warner Brothers deal or a potential deal, the FCC's
• 20:08
  Speaker 8: involvement likely wouldn't be as heavy just because there is
• 20:12
  Speaker 8: no merger of two broadcast assets, so Warner Brothers only
• 20:15
  Speaker 8: has streaming studio and cable networks, no broadcast networks like
• 20:20
  Speaker 8: a Paramount which owns the CBS broadcast network. So they
• 20:23
  Speaker 8: should get like a fairly you know, quick green signal
• 20:26
  Speaker 8: from the FCC. Well, all mergers are ultimately, you know,
• 20:29
  Speaker 8: kind of a subject regulatory scrutiny. But let's remember Paramount
• 20:33
  Speaker 8: has just gone through this whole process with the regulators,
• 20:36
  Speaker 8: kind of getting that skydance, so they kind of know
• 20:38
  Speaker 8: how to navigate their whole way around, you know, the
• 20:40
  Speaker 8: regulatory ecosystem, if you will. So I don't think it
• 20:42
  Speaker 8: should be much of a problem at all, Scarlett.
• 20:44
  Speaker 2: Now the New York Post, I saw some reporting, and
• 20:47
  Speaker 2: by the way, then your post.
• 20:48
  Speaker 5: They do a great job covering.
• 20:49
  Speaker 2: The media sector, particularly on the M and A front,
• 20:51
  Speaker 2: always have, always have. They're suggesting maybe paramount S Guidance
• 20:55
  Speaker 2: might be talking with some private equity players about participating
• 21:00
  Speaker 2: any potential deal, and I think they mentioned Apollo as
• 21:02
  Speaker 2: one that they were talking with. What does that mean
• 21:05
  Speaker 2: to you.
• 21:06
  Speaker 8: What that means to us is that, you know, obviously
• 21:09
  Speaker 8: funding is a problem here. I mean, this is a
• 21:12
  Speaker 8: big deal, Paul. You know, there was an initial a
• 21:15
  Speaker 8: price range that was suggested by CNBC of about twenty
• 21:18
  Speaker 8: two to twenty four dollars a share. I think David
• 21:21
  Speaker 8: Zaslav is looking for something much much higher than that.
• 21:24
  Speaker 8: You know, the New York Post themselves had reported that
• 21:26
  Speaker 8: he was probably looking for something in the range of
• 21:28
  Speaker 8: forty dollars a share. Not sure whether he's going to
• 21:31
  Speaker 8: be yeah, not sure whether he's going to get that,
• 21:34
  Speaker 8: but regardless, I mean, this is a huge deal. I mean,
• 21:36
  Speaker 8: even at that twenty two to twenty four dollars, we're
• 21:38
  Speaker 8: looking at about a sixty billion dollar deal. So funding
• 21:42
  Speaker 8: is definitely going to be, you know, an issue. And
• 21:45
  Speaker 8: that's kind of what it suggests the news article from
• 21:48
  Speaker 8: yesterday suggests to us, Because if Paramount is kind of
• 21:50
  Speaker 8: scouting for all of these different partners, they've talked to Apollo,
• 21:53
  Speaker 8: as you just suggested, they're talking to Legendary. You know,
• 21:57
  Speaker 8: funding doesn't seem to be as easy as you know,
• 22:00
  Speaker 8: maybe we initially thought.
• 22:02
  Speaker 5: And also Warner Brothers is carrying a lot of debt.
• 22:04
  Speaker 4: I know Zaslov has made a priority of reducing leverage
• 22:08
  Speaker 4: and he you know, has executed on a lot of that,
• 22:11
  Speaker 4: but there is still quite a bit of debt involved here.
• 22:14
  Speaker 5: How willing is Skydance to take that on.
• 22:18
  Speaker 8: They are willing to take that on because Scarlett, you know,
• 22:21
  Speaker 8: Warner Brothers is actually in the midst of their own restructuring.
• 22:25
  Speaker 8: So what they had planned, even before all of this
• 22:26
  Speaker 8: Paramount news broke, they had planned to actually split their company.
• 22:30
  Speaker 8: So they have a TV network's business and they have
• 22:31
  Speaker 8: their streaming and studio business, so kind of the no
• 22:34
  Speaker 8: growth assets and the high growth assets, they're kind of
• 22:37
  Speaker 8: splitting those two out, and majority of the debt. They
• 22:40
  Speaker 8: started with about fifty five billion dollars in debt, they've
• 22:42
  Speaker 8: kind of whittled that down to about thirty thirty two billion,
• 22:45
  Speaker 8: but majority of that thirty two billion dollars debt was
• 22:47
  Speaker 8: actually supposed to travel with the TV network's business, with
• 22:50
  Speaker 8: Paramount kind of coming in and making a bid for
• 22:53
  Speaker 8: the entire company. Even before that split actually took place,
• 22:56
  Speaker 8: just kind of signaled that they wanted to get, you know,
• 22:59
  Speaker 8: the entire business, and they were willing to take all
• 23:01
  Speaker 8: of the debt, not wait for the split and wait
• 23:04
  Speaker 8: for you know, kind of the debt to go away
• 23:05
  Speaker 8: and then just go scoop in on the on the
• 23:07
  Speaker 8: streaming assets. So they definitely know about the situation and
• 23:11
  Speaker 8: seemed like they were willing to take it.
• 23:13
  Speaker 2: Another company that's talked that I announced they're splitting their
• 23:16
  Speaker 2: networks away with Comcasts. Where are we on that?
• 23:20
  Speaker 8: So that seems to be coming pretty close now in
• 23:24
  Speaker 8: contrast to the whole Warner Brothers Discovery split. The nice
• 23:27
  Speaker 8: thing about the Comcast cable network split, which is by
• 23:30
  Speaker 8: the way going to be called worsened, is that it
• 23:33
  Speaker 8: doesn't have a lot of debt, so it has it's
• 23:36
  Speaker 8: really a well capitalized company. Uh they're throwing about they're
• 23:40
  Speaker 8: throwing they're throwing off about three billion dollars in ebit DA,
• 23:43
  Speaker 8: but debt is only going to be close to about
• 23:45
  Speaker 8: two and a half to three billion dollars. So really
• 23:47
  Speaker 8: well capitalized. The problem is with the cable network business,
• 23:50
  Speaker 8: as you well know, Paul, that just the options are
• 23:52
  Speaker 8: not looking that great U you know, affiliate revenue as
• 23:55
  Speaker 8: we know, and is it decline with cord cutting again,
• 23:58
  Speaker 8: advertising is going to be you know that most these
• 24:00
  Speaker 8: ad dollars are going away from linear TV to digital outlets,
• 24:03
  Speaker 8: so again the outlook is just very bleak, but you
• 24:07
  Speaker 8: know that company should come on the market sometime pretty soon.
• 24:12
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify,
• 24:17
  Speaker 1: and anywhere else you get your podcasts. Listen live each
• 24:20
  Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
• 24:24
  Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
• 24:28
  Speaker 1: You can also watch us live every weekday on YouTube
• 24:32
  Speaker 1: and always on the Bloomberg terminal