Delta Airlines More Upbeat for First Quarter Amid March Bookings

Summary

Bloomberg Intelligence Podcast – March 17, 2026

Episode: Delta Airlines More Upbeat for First Quarter Amid March Bookings

Hosts: Paul Sweeney & Scarlet Fu
Date: March 17, 2026

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Episode Overview

This episode dives into key investment news and company developments, with a sharp focus on Delta Airlines' first-quarter outlook amid rising jet fuel costs and March booking trends. The hosts are joined by Bloomberg Intelligence experts to unpack industry implications in airlines, explore strategic moves at Kraft Heinz, and analyze MasterCard’s push into fintech and the changing office market. The episode is rich with insightful commentary, industry context, and candid expert takes.

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Major Segments & Timestamps

• Delta Airlines’ Outlook Amid Fuel and Pricing Challenges — 02:31–08:01
• Kraft Heinz: Rethinking Separation and Revitalizing Brands — 10:43–16:46
• MasterCard’s $1.8B Acquisition of BVNK & Digital Payments Strategy — 19:33–23:36
• State of the Office Real Estate Market Post-Pandemic — 26:12–31:14

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Segment 1: Delta Airlines’ Outlook Amid Fuel and Pricing Challenges

[02:31–08:01]

Key Discussion Points

• Strong March Bookings Despite Higher Costs:
  Delta provided an upbeat forecast for Q1, even after absorbing a $400 million hit from jet fuel cost increases in March alone.

  • “Delta Airlines is talking about how they've managed to raise their ticket prices and that’s helped them offset the increase in jet fuel prices.” — Sid Philip [02:56]
  • Jet fuel prices have “more than doubled since the war in Iran began,” now the biggest cost chunk for airlines.

• Pricing Power & Consumer Response:
  Delta’s edge comes from its premium-heavy customer base (corporate and premium leisure travelers) who tolerate higher prices.

  • “Premium leisure travelers are continuing to buy tickets, but at the lower end... Spirit Airlines and the others, they might see their consumers balk at higher ticket prices and put off those trips.” — Sid Philip [03:57]
  • Interestingly, discount carriers like JetBlue report that consumers are booking early to lock in cheaper prices, anticipating future increases.

• Visibility and Risks:
  Airlines report “bookings look visibly healthy,” but are wary of further jet fuel price surges, which could erode margins if not offset by higher ticket prices.

  • “If they're able to pass on higher ticket prices, but jet fuel prices continue to grow higher than those ticket prices, that's when the airlines start feeling the pain.” — Sid Philip [04:53]

• No Return to Fuel Hedging... Yet:
  Unlike some European carriers, most US airlines have abandoned fuel hedging post-COVID due to past losses, but Delta’s refinery ownership gives it a “natural hedge.”

  • “At the moment, we haven't yet heard from airlines talking about returning to the hedging policies.” — Sid Philip [05:57]

• Operational Bottlenecks – TSA Woes:
  Airlines, through Airlines for America, urge resolution for TSA staffing and pay issues as long airport lines worsen, with peak summer travel looming.

  • “While it’s not a safety of flight issue... it is affecting the comfort of passengers and causing those long lines.” — Sid Philip [06:40]

• Oil Market Uncertainty’s Impact:
  Geopolitical risk—specifically security in the Strait of Hormuz by Memorial Day—could push fuel and thus ticket prices sharply higher, potentially suppressing demand this summer.

Notable Quotes

• “Delta talked about how ... they've had five of their ten biggest sale days [since the war began]. Consumers are sort of locking in that travel at the moment.” — Sid Philip [02:56]
• “If the Strait of Hormuz were not secured by Memorial Day ... that would be a key time frame in which consumers might start to see ticket prices really go up even more.” — Paul’s Colleague [07:23]

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Segment 2: Kraft Heinz – Rethinking Separation and Revitalizing Brands

[10:43–16:46]

Key Discussion Points

• Calling Off the Split:
  Kraft Heinz, under new CEO Steve Kaling, has paused plans to break up the company—opting instead to invest in R&D, marketing, and price reductions to revive growth.

  • “They halted their plans to split. Their new CEO... is trying a new tactic by investing $600 million in research and development, marketing, lowering prices.” — Christina Peterson [11:26]

• Betting on ‘Better-for-You’ Packaged Goods:
  Efforts include launching higher-protein Mac & Cheese, a low-sugar Capri Sun drink, and a snack-size Lunchables—targeting trends for more healthful, convenient options.

  • “Adding protein makes sense given the shift among consumers towards more protein packed foods.” — Paul’s Colleague [12:22]
  • “He thinks people are leaving the center aisles... but, as a packaged food company, what they can do is try and do better for you through a shorter ingredient list, cleaner labels ... leaning into protein, leaning into fiber.” — Christina Peterson [12:39]

• Industry Context to ‘Pause on Spinoffs’:
  The planned split made little sense when both halves were weak, says Peterson; restoring growth first is key before considering divestitures.

  • “People thought it did make sense to pump the brakes on that and see if you could restore growth in at least part of the company... before splitting them apart.” — Christina Peterson [13:43]

• Portfolio Reassessment:
  Non-core brands (e.g. Maxwell House, Oscar Mayer) may still be on the block for sale or divestment, but are not actively being shopped.

• Market Skepticism:
  Shares are down since the split was paused; broader industry headwinds (weak demand, oil-driven inflation) persist, but CEO Kaling is given the benefit of the doubt for now.

Notable Quotes

• “No one’s going to confuse this [packaged food] for kale.” — Christina Peterson [12:39]
• “[Kaling] presided over the split of Kellogg, so there was initially an expectation that he would do the same with Kraft Heinz.” — Christina Peterson [15:45]

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Segment 3: MasterCard’s $1.8B Acquisition of BVNK & Digital Payments Push

[19:33–23:36]

Key Discussion Points

• MasterCard’s Major M&A Move:
  MasterCard acquires stablecoin infrastructure startup BVNK for up to $1.8B, aiming to strengthen its digital payments backbone without building new tech in-house.

  • “It really does a lot of the stablecoin infrastructure … allows MasterCard to actually boost its digital payments operation without having to build the technology itself.” — Catherine Chiglinski [19:54]

• Broader Fintech Strategy:
  The deal fits MasterCard’s use of both M&A and partnerships to ensure it remains embedded in the payments ecosystem as digital currencies rise.

  • “They want to have at least the back end so that they can handle a lot of [digital currency growth].” — Catherine Chiglinski [20:44]

• Consumer Impact:
  End-users likely won’t see immediate change, but MasterCard and Visa are determined to be central to any future financial/crypto rails.

  • “Even if most markets are still relying on regular payment systems, they want to be intertwined with this digital asset push.” — Catherine Chiglinski [21:40]

• Decision Factors in M&A vs. Partnerships:
  Given high asset prices, MasterCard carefully weighs when to acquire (for core infrastructure/IP) versus expand via wider partnership networks.

• Stock Performance:
  Over five years, MasterCard and Visa’s compounded annual growth (~7%) lags the S&P 500 (~13%), but they remain in lockstep, maintaining their oligopoly status.

Notable Quotes

• “MasterCard is still very much wedded to the idea that regular payments are its bread and butter.” — Catherine Chiglinski [20:44]
• “There’s still room for them to grow, but will they find a way to have their fingers in all these different markets? I 100% believe so.” — Catherine Chiglinski [21:40]

---

Segment 4: State of the Office Real Estate Market Post-Pandemic

[26:12–31:14]

Key Discussion Points

• Global Survey – Trend Uniformity:
  Research across the US, Europe, and Asia-Pacific shows a consistent push for back-to-office attendance—with high-quality, amenity-rich, well-located buildings in demand everywhere.

  • “Companies want people back in the office ... the way to get them back is to offer high quality new space and highly amenitized space adjacent to transportation.” — Jeff Langbaum [26:41]

• AI Driving Office Demand, Not Reducing It:
  Contrary to warnings, AI is prompting new tech company leases in top cities; anticipated job losses are not among high-rise workers, but back offices.

  • “Employees sitting in office buildings view AI as an expansion opportunity and less so a threat to office demand.” — Jeff Langbaum [26:41]

• Quality Shortage Spurs New Construction:
  A-grade office inventory in the US remains “pretty low,” fueling new construction despite recent vacancy woes. Demand is for modern, green, high-spec spaces.

  • “There is such a need for more of it, that even though there are a lot of mostly empty older office buildings, there is now new building starting to come out of the ground.” — Jeff Langbaum [28:54]

• Fate of B/C Grade Stock:
  The hope is for residential conversion, though it’s slow and costly, or full-scale tear-downs to make way for new builds.

• Retrofitting Challenges:
  Upgrading older buildings to A-grade is often more expensive and structurally difficult than new construction; land value may outweigh retrofit potential.

Notable Quotes

• “There is now new building, new construction coming out of the ground... because there's just not the space that people want to lease. There is no availability.” — Jeff Langbaum [28:54]
• “If you've got a building that's largely vacant and you can get it cheap enough, you're probably buying it for effectively the land cost anyway. So knocking it down really ends up being ... cheaper and easier in some ways than retrofitting it.” — Jeff Langbaum [30:34]

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Memorable Moments & Additional Quotes

• On Packaged Foods vs. Fresh:
  “No one’s going to confuse this for kale. … Convenience and taste will win over consumers.” — Christina Peterson [12:39]

• Analyzing Fintech’s Winners:
  “Buy Visa and MasterCard. No matter what the technology is, it’s going to flow on their platforms to some degree.” — Paul [21:17]

• On Office Market Shifts:
  “As they [older buildings] convert [to residential], that reduces inventory of office, which is helpful and also helps ease the housing affordability and lack of availability crisis in some of these cities.” — Jeff Langbaum [29:44]

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Episode Highlights – At a Glance

• Delta Airlines is withstanding record fuel cost swings thanks to strong pricing power and resilient premium travelers, but summer demand hinges on geopolitical oil risk.
• Kraft Heinz is pausing a messy breakup, instead doubling down on R&D, new health-oriented products, and brand revitalization, but markets remain skeptical.
• MasterCard is bolstering its digital payments ecosystem with a $1.8B acquisition in crypto back-end infrastructure to ensure it remains vital, regardless of payment technology disruption.
• Office Real Estate is polarizing, with demand for “A” assets spurring new builds and conversions, while lower grade stock’s future lies in long-term repurposing.

---

For listeners seeking actionable insights or quick context on market-moving headlines, this episode showcases Bloomberg’s sharp analysis and unvarnished perspectives from trusted insiders.

Transcript

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[Paul]

Let's switch the airline industry. We heard from Delta Airlines today. They gave a better than expected forecast and that's despite saying, hey, they took a $400 million of increased fuel charge in the month of March, reflecting what's going on in the world. So let's check in with somebody who follows this stuff. Sid Philip, Bloomberg, chief correspondent for Global Aviation, joins us here. What did we learn from from Delta today? Sid Morning, Paul.

[Sid Philip]

So Delta Airlines is talking about how many they've managed to raise their ticket prices and that sort of helped them offset the increase in jet fuel prices. I mean, we've seen jet fuel prices so almost double, more than double since the war in Iran began. And that's really the biggest chunk of costs for airlines. And what airlines are talking about is saying that they've managed to pass on those cost increases to the customers in the form of higher ticket prices. And that's really helped them sort of continue to weather the crisis and be able to sort of manage to ramp up, ramp up bookings. I mean, Delta talked about how in the last, in the last, since the war began, they've had five of their ten biggest sale days. And that sort of really shows that consumers are sort of locking in that travel at the moment.

[Paul's Colleague]

That's great if you have the pricing power like a Delta Airlines. But what if you are a discount carrier that relies on low ticket prices to get your passengers to get consumers to sign up? I mean, it's a different story, isn't, is?

[Sid Philip]

And so Delta Airlines obviously has a predominance of premium heavy travelers. So they sort of talk about how they're targeting businesses and corporate travel, which is sort of continuing to see growth. They're also talking about how premium leisure travelers are continuing to buy tickets, but at the lower end of the spectrum. I mean, the Spirit Airlines and the others, they might see their consumers sort of balk at higher ticket prices and they may put off those trips. Although we are sort of seeing JetBlue. We heard from JetBlue earlier today and they talked about how they are also seeing people continuing to book. So it does look like consumers are trying to sort of get ahead of future price increases by locking in travel for the summer and the rest of the year early.

[Paul]

So what's about the visibility? What are the airlines saying about the visibility of their bookings? I mean, that, that, that's also a metric that I know kind of gives you a sense of how confident they are in their business.

[Sid Philip]

So at the moment, the airlines say the bookings look visibly healthy. At the other, at the other end of the spectrum, I mean, they're still talking about how they're not quite sure where jet fuel prices will settle. And that's sort of really key in terms of bookings as well as their jet fuel prices. So that's sort of those two things go hand in hand and determine how profitable the airlines will be. Because remember, if they're able to pass on higher ticket prices, but jet fuel prices continue to grow higher than those ticket prices. That's when the airlines start feeling the pain because they're sort of not being able to keep up with their costs. On the other hand, if they can sort of take the higher prices and see costs come down, that will sort of help them boost their profitability.

[Paul's Colleague]

So one thing that you and your colleagues point out in your reporting is that US Carriers, unlike those in Europe, don't hedge fuel prices. Once upon a time, some of them did, but most of them don't anymore. Why the change? And do you think that because of what we're seeing in Iran, because of what we're seeing with the volatility, the uncertainty around oil prices, that airlines might start to hedge those fuel prices again?

[Sid Philip]

So the airlines have typically not hedge. I mean, famously during COVID a lot of airlines got stuck with hedges that were sort of in the wrong way, in the wrong direction when jet fuel prices crashed, when demand plummeted. And so at the moment, at the moment, we haven't yet heard from airlines talking about returning to the hedging policies. But Delta does point out that they own a refinery and that gives them somewhat of a natural hedge. And essentially they expect that to help them weather the increase in jet fuel prices.

[Paul]

What are the airlines saying about the state of TSA today? A lot of we've seen a lot of stories, a lot of videos, week or so of really long lines at airports. Do they have an opinion on how this might play out?

[Sid Philip]

I mean, the airlines, including the industry groups, Airlines for America has been talking about how there needs to be a deal that would basically allow DSA staff to get paid and basically start reducing those lines. Because essentially the problem is that while it's not a safety of flight issue like the previous shutdown when the FAA had to sort of cancel flights into 40 airports because of concerns about safety, this time it is sort of affecting the comfort of passengers and causing those long lines we've seen in various airports across the country. And essentially the airlines have been saying that this will get worse as we get into the peak summer travel season. And so they're hoping for early resolution and a return to somewhat normal as they go into the busy travel peaks.

[Paul's Colleague]

Yeah. Speaking of the busy travel season of the summer, also at this conference, a lot of industry executives were making the point that if the Strait of Hormuz were not secured by Memorial Day, the that would be a key time frame in which consumers might start to see ticket prices really go up even more than perhaps they already have exactly that.

[Sid Philip]

That would sort of take the long. That would basically mean that higher fuel prices are here to stay for the slightly longer term or we're not really sure when those fuel prices start coming down and that's when consumers will say, hey, do I really need to take three trips? Maybe I can just do with do. Or I can sort of not fly at all this summer.

[Paul's Colleague]

Stay with us. More from Bloomberg Intelligence coming up after this.

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Wow.

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[Paul]

Some other company news here today. Our friends at Kraft Heinz, they were going to split up, right? Yeah, but now I think it off. Yeah, they called it off this. They have a new CEO and I think he feels like can invest in some of these brands and drive growth that way, which is a different strategy than what we've seen from some other consumer products companies because let's face it, they're under pressure here. I think a lot of people like me are, have traded down, are trading down some of the store brand, the private label brand, private label brands. That's putting pressure on some of those brands that they've spent generations trying to create these brand values through advertising in other ways. Christina Peterson joins us, food industry reporter for Bloomberg News. Christina, talk to us about what's going on at Kraft Heinz. What's the latest news there?

[Christina Peterson]

Yeah, as you guys mentioned, they halted their plans to split. Their new CEO Steve Kaling is trying to new tactic by investing $600 million in their research and development, their marketing, lowering some of their prices. And as part of that effort to restore growth in the company, they are unveiling some new healthier products. And some of the brands that have really struggled but are showing some signs of growth. So we are going to be able to purchase a higher protein version of Kraft Mac and Cheese later this month. And then in April they are unveiling a Capri sun lower sugar hydration beverage and a snack size version of Lunchables. So these are some of the brands that Kraft Heinz has been weighed down by. But when they are investing some money, they've seen a little bit of growth coming into those brands.

[Paul's Colleague]

Okay, adding protein makes sense given the shift among consumers towards more protein packed foods. But isn't the, the bigger shift about people wanting to avoid food that is seen as perhaps not as healthy as fresh food? I mean we're still talking about packaged goods, right?

[Christina Peterson]

Yeah, I mean I think that is the sort of inherent risk here. I asked the CEO about this and he said he thinks people are leaving the center aisles of the store where you buy packaged food because they want better for you options. And that as a packaged food company, what they can do is try and do better for you through a shorter ingredient list, what food companies call clean labels by adding more of these kind of trendy macronutrients, leaning into protein, leaning into fiber. But you're right, no one's going to confuse this for kale. So they're betting that there are times when Convenience and taste will win over consumers.

[Paul]

That's the only thing that drives me. I don't know what they're talking about

[Christina Peterson]

here, but I understand you're all kale all the time.

[Paul]

Oh, yeah, exactly. Christina, what's the specifically for Kraft Heinz? I mean, other companies in the packaged goods industries have pursued separation plans. Is there a sense within the industry whether that's a good strategy? Not a good strategy. Maybe Kraft Heinz thinks they can be a little bit smarter about it.

[Christina Peterson]

I think that there was a general agreement that splitting Kraft Heinz into two separate companies at that moment in time did not actually make a lot of sense because both halves were seen as somewhat weak. If you had one company that was doing really well and one half of the company that was struggling, then you could siphon that off and protect the stronger half. But in this instance, I think people thought it did make sense to pump the brakes on that and see if you could restore growth in at least part of the company before splitting them apart. So even if, you know, Oscar Mayer Meats or Maxwell House Coffee can't be restored, maybe some of the other parts of the business can be. And then if they were to pursue a sale down the road or a split down the road, that would make more sense. So just trying to, like, bring the company back to life before you auction it off.

[Jeff Langbaum]

Hmm.

[Paul's Colleague]

Well, you mentioned a couple of brands there. Mac and Cheese being something that Kraft Heinz is willing to invest in. The Lunchables brand is also something that they're kind of beefing up. And Capri sun as well, which I think we all remember from packing our kids lunchboxes and having them ourselves. But also the other brands within its portfolio, including Maxwell Hulse Coffee and Oscar Meyer Deli Meats, like those are things that has the company largely given up on it. If they're not going to refresh those, does that mean that they are for sale?

[Christina Peterson]

For sure, they have said that they will invest in order to protect their market share, but they are not, as far as we know, now sinking a lot of resources in to get new consumers there to grow their market share. The CEO has said that he would not rule anything out in terms of a sale or divestment, and they are reviewing the portfolio kind of broadly being to see what works. And what isn't working is that they're not actively engaged in looking for buyers for those brands, but that they would not rule anything out.

[Paul]

What's the market's feedback on this new CEO or has been too soon to really hear anything?

[Christina Peterson]

Well, you know it's a tricky time. Shares of Kraft Heinz have have been down since the split was paused. But it's also been a tough time for the food industry. Just in general, consumers are strapped. The conflict in the Middle east has sent oil prices rising. There are concerns that stress already strapped consumers out. Further, in general, the large food companies have been selling less food, so there is just concern broadly in the market. So I think people are willing to give Steve Kalain a shot. And in general he is thought highly of. He presided over the split of Kellogg, so I think there was initially an expectation that he would do the same with Kraft Heinz. I think people are interested to see if his gamble works, but there is some skepticism that these are the brands that will be able to be perceived as better for you. That seems a little bit of a lift.

[Paul's Colleague]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Malcolm Gladwell]

Hello. Hello, I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business?

[Arvind Krishna]

My one advice to them? Pick areas you can scale. Don't pick the shiny little toys on the side. For example, if anybody has more than 10% of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30% more productive today with the goal of being 70% more productive.

[Paul]

Yeah.

[Arvind Krishna]

So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things.

[Malcolm Gladwell]

To listen to the full conversation, visit IBM.com smarttalks.

[Cigna Healthcare Narrator]

For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs. In season three of the Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support. Listen to the new season of the Visibility Gap, a podcast presented by Cigna Healthcare.

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[Bloomberg Intelligence Host]

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Paul]

A little m and a trade on the tape here today, Scarlett mastercard will acquire the stablecoin infrastructure startup BVNK for as much as $1.8 billion. Have no idea what that is. So I'm going to go to somebody who does. Catherine Chiglinski, US Finance Team Leader for Bloomberg News, joining us live in our Bloomberg Interactive Broker studio. Catherine, what is MasterCard buying? What is BVNK?

[Catherine Chiglinski]

Well, it really does a lot of the stablecoin infrastructure, so I think that's been a huge bet for them. Right. Like MasterCard and its rival Visa have long dominated the payment infrastructure world and in this deal with BVNK and MasterCard I think really allows MasterCard to actually boost its sort of digital payments operation without actually having to build the truck the some of the technology itself which I think is a real boon for it.

[Paul's Colleague]

There's also, you know, kind of this strategy that mastercard has taken over the last few weeks, few months because earlier this month they launched a what they call a global partnership network with a whole bunch of digital asset crypto related firms for more collaboration at sounds like you know they're moving in that direction. But I don't know what it really means in terms of what changes for consumers.

[Catherine Chiglinski]

Yeah, well I don't think a ton will change for consumers because like I think MasterCard is still very much wedded to the idea that pay like regular payments are its bread and butter. I do think though that they want to be a player in all these different markets and especially as we see the adoptions of digital currencies increase, you know, I think they want to have at least the back end so that they can handle a lot of that. So I think those partnerships and this BVK deal really are helping them sort of toggle both ends so that they can get bigger with the growing market and have that technology ready so that as it continues to grow and they can really seize on it.

[Paul]

You know, when I first started learning about fintech, one analyst said just buy Visa and MasterCard. I mean no matter what the technology is, it's going to flow on their platforms to some degree. How is that playing out? How is, how are MasterCard and Visa and maybe even Amazon, do they feel like they're participating in this transition to financial technology and digital?

[Catherine Chiglinski]

In many ways, yes. Like I do think that they have been, you know, seeking different ways to get there to establish footholds in these markets. In other ways you are still seeing deals like you're still seeing them buy bvnk. Like I think there is still room for them to grow, but in the end, yes. Will they find a way to sort of have their. How have their fingers in all these different markets? I 100% believe so, just because yeah, it really is this benefit of even if, you know, most of our markets are still relying on sort of regular payment systems, they want to be, you know, intertwined with sort of this digital asset push.

[Paul's Colleague]

Has MasterCard clarified what its M and A strategy is? I mean there's partnerships that it's formed with this network, this global partnership network that it announced and then there's actual M and A. At what point point do they buy something wholesale versus just form a partnership?

[Catherine Chiglinski]

Yeah, well, I think there's a careful divide, obviously. I think it has a lot has to do with price these days for these assets, especially when you think about how hyped up sort of the digital asset space is. So I assume, you know, like many companies are going to be pretty careful about exactly which ones they buy and which ones they partner with. You know, I think some of their partnerships have also been really to expand it widely and I think but with like bvnk, I think they're getting, you know, specific data infrastructure that's going to help sort of beef up their back end.

[Paul]

Boy, this stock prices perform just about in lockstep. Visa and mastercard over the trailing five years on a compounded annual basis, their stocks up about 7% per year, both of them, but that's lagging the S and P but up about 13%. So a little bit of an issue there, but performing kind of in lockstep with each other. Catherine, thank you so much. Appreciate that. Catherine Chiglinski, U.S. finance Team Leader, Bloomberg News Talk to us about MasterCard buying in a little bit more into that fintech space here. Stay with us. More from Bloomberg Intelligence coming up after this.

[Malcolm Gladwell]

Hello. Hello, I'm Malcolm Gladwell, host of the podcast smart talks with IBM. I recently sat down with IBM's chairman and CEO Arvind Krishna and I asked him, how can companies use AI to its fullest potential to create smarter business?

[Arvind Krishna]

My one advice to them Pick areas you can scale. Don't pick the shiny little toys on the side. For example, if anybody has more than 10% of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30% more productive today with the goal of being 70% more productive.

[Paul]

Yeah.

[Jeff Langbaum]

Wow.

[Arvind Krishna]

So we are not asking our clients to be the first experiment on it. We say you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things.

[Malcolm Gladwell]

To listen to the full conversation, visit IBM.com smarttalks.

[Cigna Healthcare Narrator]

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[Bloomberg Intelligence Host]

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and 8 Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Paul]

We've been following this office market really since the pandemic. As you talk about an industry that was really hit hard by the pandemic and is still recovering as we think about getting back to the offices and different companies have different policies, but from a real estate investor perspective, what's the story these days? Let's check in with Jeff Langbaum, senior U.S. rEIT analyst for Bloomberg Intelligence. Jeff, I know you guys and your team did some research on kind of the current state of the office market in the U.S. what did you guys find?

[Jeff Langbaum]

Yeah, not just the U.S. we actually did a survey of cities in the U.S. in Europe and Asia, Australia, and the story was largely the same in all of these major cities, which is companies want people back in the office. And the, the way to get them back is to offer high quality new space and highly amenitized space and adjacent to transportation. And if you do that, then the people will come. And then the other takeaway, which is interesting I think, is that as of right now, at least so far, employees sitting in office buildings view AI as an expansion opportunity and less so a threat to office demand.

[Paul's Colleague]

Okay, that, that seems kind of counterintuitive. Explain why that is. Why is it an expansion opportunity?

[Jeff Langbaum]

Well, it's a couple of different reasons. The first, I guess the most obvious as it, as it relates to leasing is all these growing and forming AI companies need some place to have their headquarters. So there is a lot of tech leasing happening in some of these big cities that is directly related to this AI wave. So that's one thing. But as it relates to the survey itself, you know, a lot of the, a lot of the jobs that may be deemed irrelevant from AI or maybe back office, they don't. They don't, they're not the jobs that are sitting in the high rise towers in New York and London and Hong Kong. And maybe if companies can find incremental business opportunities, you know, by making themselves more efficient, there's actually a need to expand their space in those types of buildings to, to take advantage of that opportunity, even if it does mean some job redundancy elsewhere.

[Paul]

Jeff, I think I know an A quality office building when I see one simply because I work in an A plus quality building here. Bloomberg@731 lex, what percentage of the inventory, office inventory in the U.S. would you say is a quality?

[Jeff Langbaum]

It's pretty low. And what's interesting is there is such a need for more of it that even though there are a lot of empty or mostly empty older office buildings, there is now new building, new construction starting to come out of the ground and being earmarked for new construction coming out of the ground because there's no big blocks of available high end new space. And you know, we've got a couple of new buildings that are getting ready to start in New York. And you know, you look back at two years or so ago and that would have been crazy. Nobody would have thought that was, that was possible. But that's where we are because there's just not the space that people want to lease. There is no availability.

[Paul]

All right, so let's say like 80% is B and C. What happens, all that stuff in every city?

[Jeff Langbaum]

Well, the hope is that a lot of it turns to residential and there is some of that and there's increasingly more of that, but that's going to be a slow burn and it's going to take time for those buildings to convert. But as they do, that reduces inventory of office, which is helpful and also helps ease the housing affordability and lack of availability crisis in some of these cities. So that's one thing that will take, you know, years. The other thing is, you know, knock one down and build a new office building. You know, we're going to see some of that over the next couple of years as well.

[Paul's Colleague]

Wouldn't it be easier to turn those B or C grade office buildings into A grade office buildings? I mean, assuming you have the location you kind of got, you know, tear out the interior and rebuild it.

[Adobe Acrobat Advertiser]

Yeah.

[Jeff Langbaum]

So obviously the location is, is, is paramount. But you know, depending on what age building you're talking about, the ability to retrofit to what is really required now for a high end, high tech, environmentally friendly, you know, all of those things, I mean, it's an expensive proposition and in some cases just structurally challenging to do. And in fact, you know, if you're, if you've got a building that's largely vacant and you can get it cheap enough, you probably are buying it for effectively the land cost anyway. And so knocking it down, you know, really ends up being probably cheaper and easier in some ways than entirely retrofitting it.

[Bloomberg Intelligence Host]

This is the Bloomberg Intelligence Podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 10am to noon eastern on bloomberg.com the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live every Every weekday on YouTube and always on the Bloomberg terminal.

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[Malcolm Gladwell (reacting)]

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