Episode summary
Delta Predicts $2 Billion Fuel Hit With CEO Cautious on Outlook | Bloomberg Intelligence
Bloomberg Intelligence
· · Hosts: Paul Sweeney, Scarlet Fu · Guests: George Ferguson, Mary Ross Gilbert, Max Chafkin
Summary
Delta’s results pointed to a tougher summer for airlines as higher fuel costs threaten margins and force carriers to choose between passing through fares and cutting capacity. The analyst said Delta is likely to trim the least profitable routes, especially in markets where it competes directly, and warned that pricing power may improve only if rivals also pull seats out of the market. He said Delta’s premium cabins have lower price sensitivity than basic economy, but carriers with more economy exposure could see more earnings pressure.
Levi Strauss delivered a beat-and-raise quarter, helped by strong wholesale demand and double-digit direct-to-consumer growth. The analyst said the company has improved its mix after exiting lower-quality businesses like Dockers and is now leaning on a globally resonant Levi’s brand, a large loyalty base, and pop-culture campaigns that keep the brand visible. She argued the recent brand momentum can last beyond a single quarter because Levi’s has repeatedly used cultural relevance as a growth engine.
SpaceX is moving toward a confidential IPO that could come as early as June, with bankers testing demand around a valuation that could exceed $2 trillion. The reporter said the company’s revenue is approaching $20 billion, largely from Starlink and government launches, and that Elon Musk’s AI ambitions are increasingly tied to the deal. He also said control issues, retail ownership, and a possible future tie-up with Tesla could make the public-market story unusually complicated.
Key takeaways
- Delta is facing more than $2 billion in higher fuel costs through June, and the analyst expects airlines to reduce capacity if fares cannot fully offset the hit.
- The analyst said Delta’s premium cabins have lower price elasticity than basic economy, leaving economy-heavy carriers more exposed this earnings season.
- Levi Strauss’s beat was driven mainly by wholesale strength, while direct-to-consumer sales were up about 10% and loyalty membership topped 46 million.
- The analyst said Levi’s has improved its business mix by exiting Dockers and other weaker lines, helping the brand’s growth look more durable.
- SpaceX is being shopped for a possible IPO as early as June, with reported valuations over $2 trillion and revenue approaching $20 billion.
- The reporter said Elon Musk’s AI strategy and Starlink’s growth are central to how investors may value SpaceX, not just the rocket business.
Notable quotes
“if fuel prices stay where they are, the airlines all have to drive up fares higher. And at higher fares, they're going to have to start to cut capacity”
“They'll start to knock out the least profitable routes, right? And we would imagine that means routes where you're competing against, you know, one of your rivals in the marketplace”
“their premium cabins are where or premium seating is where they're showing some of the bigger gains. So, I think their elasticity on those premium seats is a lot lower”
“the beat was really driven by the the wholesale side of the business. Clearly, direct-to-consumer led growth, you know, was up double digits, up about 10%”
How the episode opens
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Getting back to the stock market, earnings coming in here. We had Delta put up some decent numbers here, better than decent numbers. And the stock's trading up about 7 and 1/2% here today.
So, we want to break it down what it means for Delta, what it means for the airlines, how are they dealing with higher fuel costs, and how it might look like as we get ready for the summer travel season. George Ferguson helps us out here. He's a senior aerospace defense and airlines analyst, amateur sailor as well for Bloomberg Intelligence.
Joining us from Princeton. George, what did you learn today from Delta? Well, I guess what we learned first is that as we expected, capacity probably has to come out of this market.
I think if fuel prices stay where they are, the airlines all have to drive up fares higher. And at higher fares, they're going to have to start to cut capacity. Delta was adding some of the least capacity in 2Q.
We were looking at Cirium databases to get sort of total number of seats they were adding to their their network. They're adding a little bit less than 2%. So, they're they're talking about going to zero growth in 2Q and not be able to recoup all of what they need in fares to get profitability back to what it was last year.
The challenge here will be American growing at 3% according to Cirium and United growing at 8-ish, 9-ish percent, high single digits.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- airline fuel costs
- delta earnings outlook
- retail demand and guidance
- levis earnings
- spacex ipo valuation
Companies and tickers mentioned
- DAL
- LEVI
- Delta Air Lines
- Levi Strauss & Co.
- SpaceX
- Starlink
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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