Bloomberg Surveillance TV: July 13th, 2026

Summary

Bloomberg Surveillance TV: July 13, 2026 – Detailed Summary

Episode Overview

This episode of Bloomberg Surveillance TV (July 13, 2026), hosted by Jonathan Ferro along with Lisa Abramowicz and Annmarie Hordern, dives deep into the key themes shaping current global markets: inflation, central bank policy, earnings season, and the resilience of the US consumer, particularly in travel and airlines. The team features high-profile guests such as Jeff (market strategist) and Steve from Federated Hermes, with a one-on-one interview with Delta’s CEO Ed Bastian. The discussion covers immediate market catalysts, macroeconomic forces, sector-specific insights (notably airlines and chip stocks), and personal reflections on risk and investing.

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Key Discussion Points and Insights

Macro Backdrop: Inflation, Central Banks & Market Expectations

Disinflation vs. Growth and Policy Risk

• Host: Jonathan Ferro
  Summary: The show opens with discussion of current market sentiment: "Stocks lower and oil higher," driven by hopes for ongoing disinflation but also caution over global policy and earnings risks.
• Jeff on Fed and Inflation (02:31–03:37):
  • Inflation and inflation expectations must remain in check for markets to stay stable:

    “Everything will be fine as long as there's no major shift higher in inflation and inflation expectations. For now, that remains our base case..." — Jeff [02:31]

  • On Fed rate hike prospects:

    “The door wasn't really open...” — Jeff, when asked if a July rate hike is off the table if CPI is 'in line' [03:07]

  • US stands apart due to capex-driven demand (hyperscale investments), while the rest of the world—Europe in particular—lags.

Policy Guidance and Market Interpretation

• Curve and Rate Spread (03:37–04:30):
  • Current two-year yield is about 50bps above the Fed policy rate, and Jeff sees this spread narrowing as CPI data and Fed Chair Walsh’s guidance clarify the policy path.
  • Jeff emphasizes the higher bar for rate hikes vs. 2022, highlighting different macro setups and urging central banks for transparent scenario analysis rather than focusing on individual members’ statements.
• Fed Speak and Consensus-building (04:46–05:30):
  • Upcoming remarks from Fed officials (Waller, Cook, Jefferson) are noted, but Jeff argues consensus and scenario-driven guidance matter more than individual voices.

The Global Context: The Strait of Hormuz, Tokyo, and Oil

• Risk Pricing (05:30–06:17):
  • The persistent risk in the Strait of Hormuz is being priced in incrementally—about 20% of risk is attributed to these geopolitical tensions, while 80% is attributed to robust US capex trade.
  • Jeff suggests equity volatility will rise if consumer demand fails to compensate for withdrawal in other areas.
• Global Fixed Income Market Leadership (06:17–07:31):
  • Ongoing debate about whether US (Washington) or Tokyo leads global rates.
  • Japanese institutional flows, especially changes in home bias among large pension funds (GPIF), could disrupt global currency and bond dynamics if asset allocation shifts in earnest.
• Japanese Yen, Price Signals, and Behavior Change (07:31–08:44):
  • Jeff uses Tokyo Disneyland price hikes as a real-world indicator of inflation pressures and yen weakness:

    “Tokyo Disneyland is raising prices...When you start to feel it in inflation that people look at every day...then behavior will start to change on parts of government.” — Jeff [07:31]

  • Japan's real yield is not yet enough to halt overseas investment, but the tradeoff is becoming more acute, compelling Japan and neighbors to reconsider capital allocation.

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Markets & Earnings: The Wall of Worry and What Could Go Right

Earnings Season: Robust but Unusual

• Guest: Stephen (Steve) from Federated Hermes
• Bull Market Resilience (10:49–12:09):
  • Earnings growth is unexpectedly strong:

    “Earnings are exploding to the upside…we’re looking at 450...plus 20, 22% year over year earnings growth and those numbers are probably too low.” — Steve [10:49]

  • Unusually, earnings estimates have been raised into earnings season, which Steve calls “very unusual. In fact, some people might say unprecedented.” [12:09]
• Margin Expansion and Technology (12:28–13:37):
  • The persistent expansion of US corporate margins is attributed to structural shifts towards higher-margin tech-driven businesses, including widespread adoption of AI:

    “The margins do keep going up because the mix of the US economy is shifting increasingly towards higher margin businesses. And…using things like now AI…but before that the Internet of things and the cloud. It’s a transformative technological change...” — Steve [12:28]

The Wall of Worry & Market Risks

• What Could Go Wrong? (13:40–14:56):
  • Geopolitical risks (e.g., Strait of Hormuz) are receding, suggesting markets have found workarounds for oil disruption. Steve is skeptical that it’s a lasting risk:

    “If it can't happen, it won't happen. People are figuring out how to get the oil out…a year from now no one's going to really care about the Strait of Hormuz.” — Steve [13:44]

  • The concept of “purgatory”: persistent, manageable tension without escalation to all-out crisis.

Chips and Cyclicality: Revaluation Potential

• The Chip Cycle (15:02–17:52):
  • Chips have shifted from cyclical boom-bust to ‘compounder’ status. Now that the industry is consolidated (down to three major players with disciplined capex), long-term contracts and pricing power are transforming their investment profile:

    “They're changing from being cyclical growth companies to growth compounders…so somewhere out there is a revaluation in these stocks.” — Steve [16:11, 16:30]

  • Long-term, Steve expects chip makers to trade at higher multiples:

    “Over the next five years, [chip stocks should] trade up closer to a market multiple at least to 15 times.” — Steve [16:37]

Retirement Wisdom

• Steve’s Advice (19:00–19:16):
  • On investment and life:

    “Humility at the highs, confidence at the lows, integrity always. Those three lessons in equities or in any other form of advancement in life make a lot of sense.” — Steve [19:00]

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Airline Sector: Delta’s CEO Ed Bastian on Consumers, Pricing, and Strategy

US Consumer and Airline Resilience

• Momentum in Higher-End Consumers (20:22–20:54):
  • Delta’s Ed Bastian describes the health of the higher-end consumer:

    “The consumer is doing well, certainly the higher edge consumers doing very, very well. That’s our consumer base… they’re investing in things they care about for themselves, their families, their friends in the future and that’s travel.” — Ed Bastian [20:22]

Oil Prices and Margins

• Oil and Profitability (21:07–22:15):
  • Despite higher fuel costs, Delta remains profitable, especially among high-end travelers, with healthy international demand and multiple revenue streams.

    “I think oil is going to stay sticky for longer…those brands that have bring value to consumers…our international travel season is looking very, very healthy.” — Ed Bastian [21:07]

• Room for Airfare Increases (22:33–22:49):
  • Airfares remain below inflation since covid, giving room for further price increases, especially among premium products:

    “Airfares are about 10 to 15% below where inflation has been. So I think there is still significant room.” — Ed Bastian [22:33]

  • Demand destruction is not yet a concern due to robust consumer demand and value proposition.

Product Strategy and Competitive Dynamics

• Delta’s Premium Strategy (24:16–25:30):
  • Delta’s product innovation is focused on customizable offerings in the premium cabin—catering to seat comfort over bundled services.

    “What consumers care more about than anything is the seat…We can become a much better merchandiser because we're a consumer brand...we're a loved consumer brand and we can pull this stuff off.” — Ed Bastian [24:16]

  • Competitors are entering the premium space, but Delta believes its operational and brand ‘moats’ offer durable advantage.

Capacity Discipline and Labor

• Capacity Management (27:02–27:39):
  • Delta is committed to only putting capacity in the market that’s profitable, aiming to avoid the historic up-and-down airline cycle.

    “We’re very disciplined and if you look at our history, you’ll see Delta will lead the way.” — Ed Bastian [27:02]

• Pilot Staffing (27:39–28:06):
  • Delta is at a good staffing level, ongoing hiring, and making progress on operational recovery post-contract changes.

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Notable Quotes & Memorable Moments

| Timestamp | Quote | Speaker | |-----------|-------|---------| | 03:07 | “The door wasn't really open [for a rate hike] ... unless there's a serious change in the inflation outlook.” | Jeff | | 07:31 | “Tokyo Disneyland is raising prices...When you start to feel it in inflation that people look at every day...then behavior will start to change on parts of government.” | Jeff | | 10:49 | “Earnings are exploding to the upside…we’re looking at 450...plus 20, 22% year over year earnings growth and those numbers are probably too low.” | Stephen (Steve) | | 12:28 | “The margins do keep going up because the mix of the US economy is shifting increasingly towards higher margin businesses... It’s a transformative technological change...” | Stephen (Steve) | | 13:44 | “If it can't happen, it won't happen. People are figuring out how to get the oil out…a year from now no one's going to really care about the Strait of Hormuz.” | Stephen (Steve) | | 16:30 | “They're changing from being cyclical growth companies to growth compounders…” | Stephen (Steve) | | 19:00 | “Humility at the highs, confidence at the lows, integrity always.” | Stephen (Steve) | | 20:22 | “The consumer is doing well, certainly the higher edge consumers doing very, very well. That’s our consumer base…they’re investing in things they care about...and that’s travel.” | Ed Bastian | | 22:33 | “Airfares are about 10 to 15% below where inflation has been. So I think there is still significant room.” | Ed Bastian | | 24:16 | “What consumers care more about than anything is the seat…We can become a much better merchandiser because we're a consumer brand.” | Ed Bastian | | 27:02 | “We’re very disciplined and if you look at our history, you’ll see Delta will lead the way.” | Ed Bastian |

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Important Segment Timestamps

• 02:05 – Market outlook and discussion with Jeff on inflation, US/EU contrasts, and the Fed.
• 03:53 – Fed policy, market rates, and global comparison.
• 06:17 – Global fixed income: US vs. Tokyo/Japan.
• 10:12 – Federated Hermes’ Stephen reflects on long-term bullish earnings scenario.
• 13:23 – AI adoption’s impact, spread beyond immediate tech sector.
• 14:22 – Strait of Hormuz risk and global oil supply resilience.
• 15:02 – Chip sector: from cyclical to growth compounder, structural changes.
• 19:00 – Steve’s career & investing lessons: “Humility at the highs...”
• 19:58 – Exclusive with Ed Bastian, Delta CEO: Consumer trends, fuel costs, pricing, and capacity discipline.

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Episode Takeaways

• Markets are at a pivotal crossroads, but with a disinflationary base case: no clear impetus for central banks to hike rates unless inflation surprises to the upside.
• US capex and technology continue to power earnings, margins, and keep the market buoyant, but risks from global policy, geopolitics, and shifting investment flows remain.
• Resilient, high-end US consumers are supporting strong sectors like travel, while airlines—especially Delta—see further scope to raise premium prices without hurting demand.
• Industries like chips are undergoing structural change: consolidation and new contractual models are transforming them from highly cyclical to more stable “compounders.”
• Veteran voices stress the importance of humility, discipline, and scenario-planning for both investors and corporates.

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This summary captures the core of the episode’s market insights, strategic advice, and sector analysis, with direct attribution to speakers and actionable takeaways for finance, business, and investment audiences.

Transcript

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[Jonathan Ferro]

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro along with Lisa Abramowicz and Annmarie Horden. Join us each day for insight from the best in markets, economics and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from 6 to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.

We begin this hour with stocks lower and oil higher. Jeff, you have been why write in the following Disinflation hopes are still carrying sentiment, growth, earnings and policy risks are harder to ignore. Jeff joins us now for more. Jeff, welcome buddy. Let's frame the next 24 hours together in Newtown. Your priority. We've got earnings, we've got cpi, we've got chair Kevin Walsh. We've got developments in South Korea and issues through the strain of Hormuz. Where she focused this morning was so

[Jeff]

all of the above and how that Impacts Fed expectations, how that impacts policy expectations full stop. Everything will be fine as long as there's no major shift higher in inflation and inflation expectations. For now, that remains our base case and we don't think anything changes that. We need healthy disinflation at this point. But I agree what you were saying earlier, what's going on in the strait right now, it's a new equilibrium. We have to get used to it not just in the short term but over the long term.

[Jonathan Ferro]

Well Jeff, let's turn to 830 eastern time tomorrow morning. CPI drops if we we get an in line CPI, do you think that closes the door to a July rate hike?

[Jeff]

I would say the door wasn't really open, maybe a jar in the first place, but clearly yes. And to be frank, I don't think any central bank right now, given the state of demand globally should be thinking about rate hikes unless there's a serious change in the inflation outlook right now, be it the strait or otherwise. The US the Fed is a bit different, you know where there's more of a demand impulse in the US and you're driven by the capex for the hyperscalers and the like, driven by the view that you don't see a in Europe. But right now, to be frank, I really don't see a case for hikes anywhere.

[Jonathan Ferro]

We see in the market the front end of the curve, just the market starting to speak to that story Jeff, the two year trading this morning around for 2164. So where are we? Something like 50 basis points above where the policy rate is at the Federal Reserve. Jeff, how do you see that spread closing?

[Jeff]

So the spread will close with the CPI prints and with Fed Chair Wash is upcoming guidance and I think he will need to raise a very high bar for rate hikes. So it may not be the entire view on the FOMC right now and there are some questions about how much he will be actively disclosed. The bottom line is again given the state of demand, we keep on drawing comparisons with 2022. This is very different compared to where we are in 2022. So the bar is far higher And I think he and his peers around the world, especially Madam Lagarde I might add, need to make that clear. If that is set then I think all of the hikes that were priced in around February and March and onwards that should really come down.

[Lisa Abramowicz]

Jeff, if you think, if you take this view that he's going to potentially be a little bit different than some of the other members and some of his colleagues on the Fed, who else are you looking at in terms of speaking this week? We have a ton of Fed speak, including Waller and Cook and Jefferson.

[Jeff]

So yeah, that's a really good question. You know, all of them will have their own views on this. But I think there are two things that matter. A do the individual views of the central bankers matter and to how do we find a consensus? You know, there's an article today no noting just the bank of England which is in a good place that you've got diverging views across the board in the UK and that's that some starting to cause communications issues and market guidance. But at the same time the bank of England taking a leap from what Fed Chair Bernanke advice is looking at scenarios. So the Fed perhaps should be looking at scenarios. Maybe that's what the task force will try to elaborate upon as well. So which FOMC member will adapt to which scenario? Where do we set the bar? Let's not look at individual names but where the data conforms to the scenarios. Then we go from there.

[Lisa Abramowicz]

Well, traders are almost fully pricing in a hike in September. Do you think they're just getting used to this new normal, what's going on in the Strait of Hormuz?

[Jeff]

So I think two aspects though. I think less about the new normal in the Straits to decompose and just ballpark numbers out there. Probably 20% of most from the Strait of Hormuz and the remaining 80% from the CapEx trade in the US from the trade because that's still what again is separating the US from the rest of the world. There is genuine growth. But why I mentioned that 80% number. If 80% of US growth is being generated from the view and the relevant investments, then that's what the pricing is. But then we get into an equity story. So if inflation comes off, but because demand is coming off from the side, but without anything on the consumer side, the household side to compensate, then I think that's where we get a few more wobbles. But let's cross that bridge when we get there.

[Jonathan Ferro]

Jeff, There is an inevitable home bias to this conversation sitting here in New York focused on US events. CPI tomorrow morning Chair Wash as well for the global fixed income market. Which market is in the driving seat right now? Is it Washington or the latest in Tokyo, Japan?

[Jeff]

So we're trying to get a straight answer out of Tokyo, I guess. And I think what happens in Tokyo will matter for the US treasury market as well, given not just the Japanese holdings but also broader North Asia holdings. But let's make it clear what GPIF does. You know, what any one fund in Japan or elsewhere in Asia does is not enough. You need a comprehensive change in behavior. Total Japanese assets are 10 times the level of GPIF. If we get a 10 percentage point or more move in asset location there, then that we can start to discuss whether it's a game changer or not. Especially if those in Korea, Taiwan and China follow onwards as well. For now we're just talking about one fund, but I think that discussion is a healthy one. That's what's needed to change behavior to get dollar down against the rest of Asia because that's desperately needed right now.

[Jonathan Ferro]

Jeff, that discussion is live. So let's have it now. What do you think would change behavior? Regulation or price? And is price right now sufficient to get that money to come home?

[Jeff]

Right, it's price. And let me tell you my favorite headline this morning. Tokyo Disneyland is raising prices, right? Those are the things that people on the ground will feel and they'll ask why are they raising prices? Is it because the yen is too weak or is it other aspects? Labor market too tight a combination. But when you start to feel it in inflation that people look at every day, maybe Tokyo Disney Sea prices will go up as well. That one's even more popular. Then I think there will be pressure on the government to act. We need to get inflation over and beyond a certain level that's tolerable. And then you realize if the weekend is a part of that story, then behavior will start to change on parts of government and associated entities.

[Jonathan Ferro]

Jeff, is the income and yield level available in Japan right now enough sufficient to offset some of those concerns?

[Jeff]

So you know, right now probably not. I think international investors are looking at 3, 4%. But again, let's go back to real yields, right? So if inflation hovers around 2% or so and then longer dated bonds, you know, go three, four or five, you know those kind of levels, you get real yields that are coming comfortable 2%. Then I think more money stays at home. Then you get international funds going in as well. But as always, given Japan's debt stock, can the government, can the government's debt to GDP ratio and funding financing live with 2% real yields? That's a different situation. But there are trade offs and I think right now the trade off with dollar is become a bit too hard to ignore.

[Jonathan Ferro]

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[Jonathan Ferro]

STEPHEN off Federated Hermes writing Given high expectations, the setup isn't perfect for this season to ignite another big move higher in the next six weeks. But for longer term investors, this season should reinforce the bull case. Stephen joins us now for more. Steve, Good morning, sir.

[Stephen (Steve) from Federated Hermes]

Good morning.

[Jonathan Ferro]

I can't believe that's the last time I get to say that on tv. STEPHEN off retiring, retiring in the next couple of months. Steve, can I just say how much I've learned from you over the last decade? Plus, I came from London in early 16, scarred by back to back crises, obsessed with what can go wrong. And you taught me pretty quickly to start thinking more about what could go right and that risk can cut both ways. You've wrote the bull market the whole way up and every time you've been on, I've sat here opposite you and said, Steve, what can go wrong? What can go wrong? And over time I've started to ask more. What can go right? What can go right this morning?

[Stephen (Steve) from Federated Hermes]

Well, in the near, in the long term, a lot of things are going right. I mean earnings are exploding to the upside. Jonathan I mean this bull market started with earnings down below $200 and we're looking at 450. We raised our numbers twice now on, on 28 earnings kind of. We like to look at where things are heading. I think this earnings season, you know, looking at plus 20, 22% year over year earnings growth and those numbers are probably too low. So yeah, I mean the earnings, stocks eat nominal earnings and some of that is inflation for sure. But that's why people invest in stocks and hot bonds because they eat nominal earnings and, and yeah I think it's going to reinforce the case. Now the stocks have run up into this, the sell side has raised their numbers into the, into the earnings season. Last three months earnings are up about 4% estimates off of where they were three weeks, three months ago. Normally we're cutting into earnings so it doesn't seem like there's going to be a big disappointment out there. There may be stock by stock for sure. It's become a stock pickers market but it looks pretty solid to us. I mean the earnings, the bank's earnings, the banks have been raising dividends, you know, since their capital test last few weeks ago. So they're not doing that because earnings are about to surprise to the downside.

[Jonathan Ferro]

We should reflect on how unusual this is though in direction and in size. As you indicated, to be raising estimates into earnings season and to have expectations this high outside of recoveries is incredibly rare. Very, very unusual. In fact, some people might say unprecedented. What's behind that positive earnings shock?

[Stephen (Steve) from Federated Hermes]

A lot of it is margins. You know the, the, the bears have been saying for the, for actually the extent of this bull market which has been almost 15 years, 13 year anniversary a few weeks ago their bears have been saying quarter after quarter we're at peak earnings because it makes them crazy. I mean peak margins rather that the margins keep going up. But the margins do keep going up because the mix of the US economy is shifting increasingly towards higher margin businesses. And the companies that are in the index are using things like now AI but before that the Internet of things and the cloud. It's a transformative technological change that's driving across the board margins to go higher. And you know, one of the reasons we've had this broadening out idea for the market is that, you know, the

[Annmarie Horden]

first stage of AI was the spenders.

[Stephen (Steve) from Federated Hermes]

Then it was the, you know, the companies that are immediately beneficiaries of that.

[Annmarie Horden]

And now it's the guys that are using AI which across the broader economy. So we see margins going up and

[Stephen (Steve) from Federated Hermes]

we've got margins continuing to rise over the next couple of years.

[Lisa Abramowicz]

I'm going to take the flip side of Jonathan's question. What could go wrong?

[Stephen (Steve) from Federated Hermes]

Well, a lot of things could go wrong.

[Annmarie Horden]

As usual, that's the wall of worry we're riding. But you know, what is it? The Strait of Hormuz? I was supposed to shut down everything and what's happened is the world has figured out how to get oil out of the Mid east without the Strait of Hormuz. We were looking for 10 million barrels a day. We were all hysterical. You know how many barrels a day are now getting through the strait or some other means? I said to you this a few months ago, if it can't happen, it won't happen. People are figuring out how to get the oil out. So I think it's, I know it's a headline today but my guess is a year from now no one's going to really care about the straight or moose.

[Lisa Abramowicz]

But how long can we live in this somewhat purgatory? Not at peace. We're not outright war.

[Annmarie Horden]

It looks like we can go on for a while. Amari. I don't see it every day. The Iranian military capability is declining. So it doesn't feel to me like we hit the peak of problems here probably three months ago and since then it's been going down. It's going to be kind of like a purgatory as you said. But we're finding other ways to get the oil out and the market's kind of looking past this issue.

[Stephen (Steve) from Federated Hermes]

You know another thing like the chip stocks today are getting hammered. And we talked about this on the

[Annmarie Horden]

show, you guys have been talking about

[Stephen (Steve) from Federated Hermes]

this for a While. Spot Market vs Futures Market. And you know one of the lessons I've learned over the years is focus

[Annmarie Horden]

on the futures market, not the spot market. So for oil it became very obvious to people spot oil has a clearing price. Longer term investors were looking at the futures market. You guys kept talking about that that was the right thing to do. But if you think about it, even in the stock market there's a kind of spot market for stocks and a

[Stephen (Steve) from Federated Hermes]

longer term market for stocks.

[Annmarie Horden]

The spot market in chips, chip stocks is being set in Korea.

[Stephen (Steve) from Federated Hermes]

These are folks that are using the

[Annmarie Horden]

market as a gambling mechanism. They're playing short term movements, they're playing charts, not really look at fundamentals. So we had a huge move up 5x. Now we're had a 30% correction. A long term investor looks at that and says okay the first move up

[Stephen (Steve) from Federated Hermes]

in these chip stocks was an earnings explosion.

[Annmarie Horden]

We've seen that.

[Stephen (Steve) from Federated Hermes]

The next move now is a revaluation because now we're down to three manufacturers

[Annmarie Horden]

we had which is a really well controlled oligopoly adding capex is more very very expensive.

[Stephen (Steve) from Federated Hermes]

So that is a discipline in itself. And what's happening is, and we're seeing it, we've been expecting this. The chip manufacturers are now getting long

[Annmarie Horden]

term contracts with built in price increases that's changing them from being cyclical growth companies to growth compounders. They're still priced like Cyclical companies.

[Stephen (Steve) from Federated Hermes]

So somewhere out there is a revaluation in these stocks.

[Jonathan Ferro]

Give me an idea what those numbers look like. They tried a single digit piece ease right now where should they be?

[Stephen (Steve) from Federated Hermes]

Think they should probably over the next five years trade up closer to a market multiple at least to 15 times.

[Jonathan Ferro]

That's a big reevaluation.

[Bank of America Representative]

Sure.

[Jonathan Ferro]

You think this market, that this earnings story is that durable? That's the same.

[Stephen (Steve) from Federated Hermes]

I think it's going to prove to be.

[Jonathan Ferro]

They've escaped the boom bust cycle.

[Wise Representative]

We'll see.

[Stephen (Steve) from Federated Hermes]

No, I mean not completely Jonathan, but not like they had not boom bust. Maybe a little more like this.

[Jonathan Ferro]

They're less cyclical.

[Ed Bastian]

Yeah.

[Jonathan Ferro]

Which is what you're getting.

[Stephen (Steve) from Federated Hermes]

Right. Why revaluation takes more time.

[Jonathan Ferro]

Just explain to everyone why they've become less cyclical. Well, we have this market right now buying the valuations.

[Stephen (Steve) from Federated Hermes]

We had six or seven of these guys every time prices went up they added capacity and then it's like an airline, you know, too much capacity.

[Annmarie Horden]

You got to drive the price down

[Stephen (Steve) from Federated Hermes]

until you can sell it. Now there's only three of them.

[Annmarie Horden]

It costs an enormous amount of money to build a fab nowadays and they're

[Stephen (Steve) from Federated Hermes]

being much more disciplined about adding capacity and they're, they're, you know, they're basically don't have enough capacity for the next three years. So we've got a pretty good backdrop and now they're signing long term contracts. We think probably 50% of their revenue base over the next couple of years is going to be kind of locked, not, you know, softly locked in.

[Jonathan Ferro]

Is this your contrarian bet right now? The revaluation trade of some of these names? Because it feels slightly contrarian. A lot of people are saying maybe this is the peak of the story. They start to raise capital. This is SK Hynix on Friday to build out capacity.

[Stephen (Steve) from Federated Hermes]

Well, we've been warning our investors that a correction was coming across the board. To us the spot market for stocks in general has gotten kind of overheated. What we've been happy to see is

[Annmarie Horden]

have been more of a rolling correction which is a healthier way to do it.

[Stephen (Steve) from Federated Hermes]

You guys have been talking about that as well on the show and, and on the chip stocks. Yeah, I mean this has been a pretty serious correction and usually in bull markets 20 to 30% pullbacks are the time to be for long term investors to add. Now do I know anything about the spot market? Not much more than you.

[Annmarie Horden]

It could be down another 10, 20%

[Stephen (Steve) from Federated Hermes]

the next three weeks. But I think adding layering into stocks into these stocks here makes we've got

[Jonathan Ferro]

some time for some final words of retirement wisdom over your career going back to when the 80s. Prudential.

[Ed Bastian]

Yeah right.

[Stephen (Steve) from Federated Hermes]

87.

[Jonathan Ferro]

What have you got to share with us this morning? Just reflect on that. Just some advice to the next generation of investors. What's your advice for them?

[Stephen (Steve) from Federated Hermes]

Well, you know the big piece I'm writing a book about this. Humility at the highs.

[Annmarie Horden]

But humility at the highs, confidence at

[Stephen (Steve) from Federated Hermes]

the lows, integrity always. Those three lessons in equities or in any other form of advancement in life make a lot of sense.

[Jonathan Ferro]

Stay with us.

More Bloomberg surveillance coming up after this.

[Carol Massar]

The Bloomberg Sustainable Business Summit returns to Singapore on July 22. Our 5th annual Asia Pacific Summit will explore how business and finance leaders are shaping the next phase of globalization by strengthening resilience and driving a multi speed energy transition across Asia's diverse markets. Join us for solutions driven discussions and networking opportunities. Thank you to our summit advisor, Bangkok Bank. Learn more at bloomberg live.com/sbs-singapore.

[Interviewer]

I am here in Atlanta at the headquarters of of Delta and I'm here with Ed Bastian, the chief executive officer officer of Delta after reporting earnings overcoming what was a record bill for fuel and still continuing to maintain full year forecast. You talk about the difficulties of this quarter as well as the resilience of the US Consumer. How much momentum is there under the US Consumer?

[Ed Bastian]

Well, first of all, thank you for coming down. You know, there's not just one consumer in our marketplace, but broadly speaking, I think the consumer is doing well, certainly the higher edge consumers doing very, very well. That's our consumer base. When you look at what's happening in the market, when you see what's happening in real estate, opportunities for that consumer to invest in themselves, invest in the experienced economy, they may not be buying things as much, but they're investing in things they care about for themselves, their families, their friends in the future and that's travel.

[Interviewer]

You also talk about the difficulty and we have seen oil prices inflect a bit higher. How much room do you have to maneuver if this is a new normal or potentially $80 on Brent crude is the new normal, which we're just up against.

[Ed Bastian]

I think we'll do do just fine. You know, we look at our business model, our business model is geared towards a higher end consumer. So our consumer has the ability to sustain this level. In fact, we saw it in the quarter we made at 9% operating margin with fuel prices much higher than where they are in the the existing, you know, the existing landscape. So I think, I think oil is going to stay sticky for longer. I'm not sure it's going to be in crude though. I think the refined cost or crack spreads are where you're going to find it's going to take a lot longer for that to come come down. All that's going to mean is those, those brands that have bring value to consumers in terms of experience being opportunity for people to go and explore and give him adventure as their means for, for enjoying life and getting away. And our international travel season is looking very, very healthy. Businesses international, as I just said, American Express, our loyalty programs, our cargo business arm, we have so many different lines of business including here in the US Our domestic travel, it's all doing very, very well and I don't see fuel prices deterring that.

[Interviewer]

You talk about how this has been a sea change in terms of the ability for airlines to catch up with the pace of inflation. Not completely, but enough. You saw a big jump up in airline prices over the quarter. How much further does it have to go to catch up and potentially offset stickier oil prices?

[Ed Bastian]

If you look at post Covid, airfares are about 10 to 15% below where inflation has been. So I think there is still significant room.

[Interviewer]

So if oil prices go further, you think that airfare prices could go higher without causing just demand destruction?

[Ed Bastian]

I think so. We just saw it in the quarter.

[Interviewer]

Is it going to come across the board or more particularly with the premium cabin?

[Ed Bastian]

It's going to be in the premium cabins. When we look at the lower end of the market, the low fare carriers, they're still losing a lot of money. And so while Delta, which sits at the top of the food chain did very well. We, we represented 60% of the overall profits for the industry are estimated in the quarter. Despite only having 20% share means the other 80% still has a lot of work to do to get caught up. And it's going to happen by being more disciplined in terms of the strategies they deploy, making certain that they can only put out capacity that is profitable that will return a margin to them.

[Interviewer]

Do you think that there's going to be more consolidation? Have you been surprised that there hasn't been more during this period of higher prices?

[Ed Bastian]

No, I'm not surprised. There's been some in the market on the, on the lower end. There's been, there's been some now, I think, I think we're going to be fine. We're going to get through this period of time. Now if you said that this is going to afford our oil is going to be sustainable for a very long period of time. Of course there will be, but not in this marketplace. I don't see oil prices returning back to the peaks we saw a few months ago.

[Interviewer]

Going forward, you talk about how the premium really is, where the revenue driver is, and you recently had the basic business rollout. What prompted a sort of paring back or a more specified product offering at a slightly cheaper price point, but still with the flatbeds.

[Ed Bastian]

We've been talking about this for a while. As an airline, you know, we're good about transporting people. We're not necessarily great at merchandising and retail strategies. And we kind of blunt force instruments. And you had your main cabin, you had first class and not a lot in between. Consumers want different value decisions to take. And if you can give people the opportunity to sit in first class, they may not want different elements. They may not need to go on the lounge. They may not care as much about certain aspects of what the, the fully bundled first class fare is. If maybe they just care about the seat. And that's actually what consumers care more about than anything is the seat. While the other things are nice, plus the seat and the comfort of the seat, that's most important. We can find different ways to bring greater value, to reduce fares at sometimes more or increased fares. In terms of people say, do you want to have the elite services drive you to the, to the club? Do you want, you want extra frequent flyer miles? We can become a much better merchandiser because we're a consumer brand. You know, I think that's been the biggest change we've seen at Delta over the last decade. We're now not just a consumer brand, we're a loved consumer brand and we can pull this stuff off.

[Interviewer]

You talk about how there is flexibility to raise prices at the premium. A lot of people are getting in because it is lucrative. We see, for example, even Southwest trying to get into the Premium or JetBlue. Of course, United has made a pretty significant inroads. How competitive has this area gotten?

[Ed Bastian]

I think that's a strategy. You know, we laid it out, we started this, this path 15 years ago. And you know, it's not easy. It's easy to say you're going to be it, but it's harder to do. It requires having great reliability, creating a great experience, building, building trust with your consumers, having the technology, having the corporate market share. Delta is the number one in terms of corporate share in the US and we've been the number one business traveler for the last 15 years in terms of all the surveys. So you know that's, those are moats that are going to hard. But there's room for more. I mean we're only 20% of the overall share in the market so there's certainly opportunities for more but it's much easier said than done.

[Interviewer]

Is there the beginning of pushback on the economy side of things in terms of pricing or just in general as capacity has come in, as flights have gotten reduced? Have you started to see some flyer fatigue in the main cabin?

[Ed Bastian]

We, we had good results in the main cabin. In fact we were to to your point, we reduced some of the supply in main cabin in the current quarter given the fact that we were concerned with oil prices, what that meant to fares. But our, our unit revenue growth in the main cabin was 10% year over year. So it looked pretty healthy.

[Interviewer]

Do you think that you're going to continue to constrain capacity?

[Ed Bastian]

You know, we're going to be disciplined. You know we've got, we've got a strategy and you know, airlines historically have been, you know, accused of, you know, when times are good they grow fast only to find out then they, they bring too much supply and, and all of a sudden and fares go down and the airlines are losing money and it's the up and down the roller coaster. We've been on a strategy path to kind of only put in the marketplace capacity and share that we know is going to be profitable and that consumers are going to value. And so we don't follow the day to day we around the edges, maybe 1, 1 to 2 points here, 1 to 2 points there. But we're very disciplined and if you look at our history, you'll see Delta will lead the way.

[Interviewer]

One issue has been pilots going forward and I just wonder from your perspective, do you think you're at a good staffing level currently or do you still expand the plan to expect expansion of the pilot staff?

[Ed Bastian]

We're at a good, good level. We've been hiring pilots this year. We had a number of changes in the contract that created some difficulties with respect to recovering from interrupted operations as quickly as we'd like to making progress on that and we'll continue to make progress.

[Jonathan Ferro]

This is the Bloomberg Surveillance podcast bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg terminal and the Bloomberg Business app,

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[Jonathan Ferro]

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[Carol Massar]

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[Carol Massar]

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