In this episode of Industry Focus: Wildcard, Dylan Lewis chats with Motley Fool contributor Dan Kline about how airlines are adapting to the post-COVID world. They discuss some promotions airlines are offering to entice people to fly again. They talk about how airlines can ensure a steady stream of revenue and retain customers and how this can benefit both parties. They also discuss the recent jump in Kodak (NYSE:KODK) stock and what it means for the company and investors.

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This video was recorded on July 29, 2020.

Dylan Lewis: It's Wednesday, July 29, and we are talking about Kodak's massive spike and all-you-can-fly passes. I'm your host, Dylan Lewis, and I'm joined by Motley Fool contributor Dan Kline. Dan, what's going on?

Dan Kline: Dylan, you sent me this story, and I thought it was like a joke. [laughs] Like, I legitimately -- it's like when I learned that Tootsie Roll was a publicly traded company. I had no idea that Kodak was still a going concern. I remember for a while they made printers, and that didn't go well. And the last roll of film has been sold. This was shocking, but it makes a ton of sense when you really dig into the story.

Lewis: Yeah, and I mean, for our own purposes, and maybe it's helpful to, kind of, pull back the curtain a little bit. You know, we have requirements about what we can and can't write about on the editorial side, because we are a large media company, and if we write about businesses that are too small, it's possible that we might have some impact on the market. We don't ever want to be doing that. And so we generally don't cover businesses under a certain size, and Kodak has been under a certain size for a very long time, and so it hasn't really been something that we can talk about much. That has changed dramatically in the last 48 hours. I think Kodak is now a $1.5 billion company. We're going to talk about that.

We're going to be talking about some all-you-can-fly passes coming from Chinese airline operators, and kind of what it means.

Let's kick off with the airline discussion. This week, China Southern Airlines (NYSE:ZNH) rolled out an all-you-can-fly pass for customers, Dan. They are not the first to do this. There are eight other Chinese airlines that have done something similar, charging around $500 for the right to be able to do it. These are, for the most part, domestic flights. Kind of an interesting model. We've seen it applied to a lot of different spaces; retail, consumer goods. So in my opinion, at least, [laughs] this is probably the first time I've seen it in airlines.

Kline: So Dylan, I don't know the rules in China, but there are certain flights in the U.S. that have to happen. And I'm going to guess, in China, that there's some level of that, where planes were just flying with a handful of people on them. So this accomplishes two things. First, it creates some revenue. That's great. Here's some cash; we need cash. But it also -- they had the capacity, so it's not like they're rolling out new planes in order to meet this. And I think this might be the most important thing: They're creating the idea that flying is safe and viable. If your friends and family take a flight, it's like, you know, when I go to Epcot on Friday. If I report back to you, and I say, "Hey, Dylan, I went to Epcot, the security procedures were great, I felt really safe. It was still fun. You know, I met Goofy, he was wearing a mask. Like, that all went well." You might decide, "OK, I'll drive down, I'll go on a trip. That's what the airlines are doing. This isn't a long-term shift in how airlines operate, but it might uncover some new things that airlines could incorporate for the longer term."

Lewis: Yeah, I think that's a good point, public perception certainly needs to change. And I mean, realistically, we need to be better, we need to be healthier, we need to be [laughs] a little bit more considerate of other folks as we're out in public; and you know, safety is always going to come first with those kinds of things. In the case of these China airlines, you know, being able to get $500 from customers, at least on a short-term basis, is a nice way for them to raise cash. I'm sure, if their industry is operating anything like the United States airline operators, they took a massive hit and had a lot of empty seats on flights.

Kline: Yeah, it's not sustainable, because in theory, you know, you're charging $529 for certain individual flights. And right now, that's getting -- but if those planes were flying anyway, and you could generate more cash -- there's not an enormous extra gas expense if your plane is two-thirds full or one-third full. There is a little bit of cost, but there's not a ton. And with fuel prices being so low right now, that's not that big a concern. This might also be some -- you know, there might be freight on some of these planes. This is just basically saying, and it's a model a lot of companies should look at. "Hey, I'm an Uber driver, if I can stop up on my way to pick up Dylan and take him to the airport, and get a package and I can deliver that package to someplace after the airport, well, I've made more money and gotten more efficient." We're going to see a lot of this in different fashions.

Lewis: Yeah, I think it's only natural for industries to experiment a little bit as they are in cash crunches. It raises a natural question, Dan. You know, is this something that we might see come to the United States, is it something that flyers in the U.S. might be seeing or might be offered sometime soon?

Kline: So I think you might see it in a couple of ways. You might see it as a premium product. Dylan, there's a service that you pay $2,000/month and you could stay in a different hotel every night. I've never heard of anyone doing it, but it kind of makes some sense. I might see Southwest say, you know, hey, for $1,000/month you can do this. You might also see, during some of the slower flying seasons, some limited version of this, where you could fly to, like, 10 cities, maybe you can pick from a list and it's $500. It makes sense. We've talked about how Disney does this. When things are slow, and there aren't as many tourists, they'll roll out a deal, a three- or four-day pass, for like, $149 for locals. That's about a one-day ticket, you get three. And it's a way to just get traffic when they don't have it.

So you might see weird things, you might see an airline say, "We're going to have, you know, an all-you-can-fly deal, but you can only fly on Tuesday and Thursday, because those are the deals where we have the least -- or we're not guaranteeing you any specific itinerary, we're just guaranteeing that we'll get you from here to there on that day." Some of this is, you know, you got to figure out how to keep the planes full. That wasn't a problem before the pandemic. Dylan, you know I fly about 35 times a year, almost every week, [laughs] and maybe 10 times the whole year was there any significant amount of empty seats on a plane. Right now, if you fly, there's a lot of empty seats on a lot of planes. Southwest is actually not selling middle seats. So unless you're with two relatives, they're going to be leaving seats open. And look, that makes sense. So I think we'll see experimentation. Do I think an airline that has a pretty successful pricing model will drop it? No, I don't think they will. [laughs]

Lewis: Yeah. And I think that U.S. airlines are probably going to be a little bit more reluctant to adopt anything like this. It seems like it's been successful, from what I've read. Apparently in China flights have been restored to about 80% of their pre-COVID level. So there's been enough there to, kind of, stoke people back into it. And they've been able to continue a lot of their operations.

But what I've seen so far from the airlines: JetBlue did a buy one, get one free promotion, but it was very limited and it was tied to also booking a flight and a hotel. It did not nearly come with, kind of, like the unlimited approach that these Chinese operators are using.

Kline: Yeah, Dylan, I'd like to see airlines get more creative. You know, you look at someone like me, and Southwest probably doesn't know that I generally only fly Southwest, so. And they can analyze and they say, "Hey, Dan flies to Baltimore two times a month, maybe we should go to him and offer him a locked-in price deal, so he doesn't have that volatility, and we have the revenue guarantee. Where they say, hey, OK, Dan, you normally spend $225 for that round-trip ticket. We will sell you all-you-can-fly on that route for $600/month, but you have to commit for a year and you have to pay three months up front." That kind of deal might lock in -- like, being an annual passholder at Disney, they've locked in the revenue, they know that I might fly more, but they also know that there's a certain amount of empty seats. And maybe I get to book X amount and then I have to fly standby, you know, at certain points.

There might be some clever iterations of this, especially as you're seeing people move to more rural areas but still work for a business. So you might have Facebook sponsoring a deal where you can fly to Nevada on Friday and come back on Monday, or whatever it is. It's not going to be a wholesale change, but this is an industry that, wow! They don't do a lot of clever things. Basically, they stopped evolving with the frequent-flyer model, the frequent-flyer miles. So I do think we're going to see some evolution.

But also remember, that if a U.S. airline does this during the pandemic, that doesn't mean they're going to do it postpandemic.

Lewis: Yeah, that's a good point. I think if you're looking at the timeline for possibly when some creative solutions might be coming, it could be soon. You know, the support that a lot of the airlines are getting is set to wrap at the end of September, and there's going to be some major changes unless they're able to further kick that can down the road coming in early fall, because the Payroll Support Program ends on Sept. 30. And we've already seen a lot of the U.S. airlines starting to signal what that means in terms of their workforce.

You know, earlier this month American Airlines, they sent out thousands of furlough notices to workers, and they have to provide 60-days' notice for this, because they're anticipating being overstaffed on Oct. 1 when their financial support expires. United sent out over 30,000 furlough notices. So this is a very real problem, and bringing cash in is probably one of the only ways that they're going to be able to avoid those furloughs.

Kline: Yeah, there's a big problem in that equation, though, I'm not sure where all these people in China are going. But there's not really a lot of places to go. So you might still take a vacation. Dylan, you know I'm headed to Vegas in a couple of weeks and going to have some very muted gambling in a not-traditional setting. And you know, you might go on one of your trips, where you disappear into the Grand Canyon for two weeks. But the average business meeting isn't happening.

Normally, I fly out once a year to meet the folks at Microsoft. Well, they're not in the office, there's no benefit to doing that. There's an awful lot of travel that was needs-based. I'm not going to fly to Boston to see my mom, because my mom is 70 years old. So even if Southwest were to do this or JetBlue or one of the more clever airlines, I'm not exactly sure it's going to work like it worked in China.

And, Dylan, you wrote down a lot of promotions like this, the Panera unlimited coffee promotion. Sometimes, yeah, that's just not going to be the driver you think it is. We don't know with Panera, because they're not a publicly traded company, but I feel like, you know, some of these deals just, you go, OK. Like Quibi, 90 days free for Quibi, and like, eight people signed up. Right now, if you don't need to fly, unlimited flying is kind of the same as limited flying. [laughs] Because even me, someone who loves to fly, I'm not going to take a trip every week right now. That's foolhardy.

Lewis: Yeah, and it's further complicated by the fact that in the U.S., we have all of these states that are making decisions about what people have to do in terms of quarantining, if they're doing any traveler or coming from different parts of the world or different parts of the country. So you know, it is not an easy thing for them to roll out even domestically, but you might see some creative thinking there.

And actually, Dan, yeah, I mean, that tees us up well, because the always-on model here for this airline approach is something that is in my view very clearly a short-term cash crunch kind of thing. They might do this kind of thing again at some point in a "normal world," but it would be far more promotional; they'd probably limit the number of seats, all that kind of stuff.

I do think it's worth exploring a little bit, the all-you-can-______ model, and kind of how it varies depending on what industry you're looking at. Because when it's the airlines, it's clearly promotional, it's clearly to bring cash in and lock in money, because they need it so desperately, because it's not sustainable for them to continue to offer all-you-can-fly in a world where people can freely fly and pay for things.

Kline: Not at a discount price. It doesn't seem crazy to me that they might consider doing it at a premium price. And you mentioned buffets in your notes. So there's two models in Las Vegas. Buffets are closed at the moment, but in a normal world, there are two models where buffets work. The first is what do you think of? Dylan and I want to go to breakfast, we walk out to the buffet, we pay somewhere between $12 and $60, depending on what level of buffet we're at, we eat some food, and we leave. And unless we're very, very strategic, they make a lot of money on us because we ate waffles and eggs, we didn't just eat shrimp and oysters or whatever it is that the money food is.

The second option, and this is generally a Vegas thing, is Dylan, you can buy a buffet pass. So you buy a buffet pass, and it means that in this group of properties, maybe I can go to the buffet at Harrah's, the buffet at The LINQ, the buffet at the Flamingo, and I could do that all day long, as often as I want to go. But that costs a premium price; that probably cost you a little bit more than if you just went three separate times; I don't know how often people are eating. And obviously, that customer is producing revenue, because how much could you possibly eat?

So an airline could say, "OK, I know that Dylan does a weekly commuter flight. I can give him some peace of mind by knowing that Thanksgiving week he's not going to face jacked up prices, he can give me some peace of mind knowing I'm going to have his revenue." But again, these are going to be nibble-at-the-edge kinds of changes; that's not the normal way people go to buffets.

Lewis: Yeah, I think that's right, Dan, because you could see them doing something where, you know, they know that the 11:00 p.m. Boston-to-New York flight that they do every day is currently at 50% capacity, in a normal basis non-COVID, and offer some deals related to that stuff, especially because business is such a huge part of the airline industry and those flights. But I think it's going to be hard for something to be truly all-you-can-fly anytime soon.

Kline: Yeah, and Dylan, what you just said, I think talks into where AI is going to play a bigger role in the airline industry. It always amazed me, if I'm on an empty flight, that they don't have the ability to see like, wow! Tomorrow's flights are crowded, and you can always sell tomorrow's ticket, you can't sell the ticket in the empty seat for the flight that's about to leave. Why did they not have a deal with nice airport hotels, where they message me and they say, "Hey, Dan, you want to leave a day early? If you leave a day early, we'll put you up at the Marriott for the night, when you wake up, you'll be there." Like, that kind of optionality, they should be managing their schedule. And obviously, they've been doing a pretty good job managing their schedule, because you don't see empty planes prepandemic, you do see oversold planes. So it does feel like there should be innovations.

And that might be -- maybe the 11:00 flight from Baltimore to West Palm, which is never crowded, and it is cheaper, but maybe they offer you a subscription where you could always get that flight for X amount of price. There's going to be some creativity, but it's going to be not a major wholesale change. And even in China, this isn't here to stay, this is here for the short term.

Lewis: Yeah, I don't think that this is going to save the airline industry, from an operational standpoint. I think it's something that could possibly provide some cash short-term. You know, for the most part, when we see these types of promotions, they are most successfully run, you mentioned Panera before. Panera is doing all-you-can-drink coffee, and they are doing something where -- coffee is probably one of the cheapest things that they have in the store for them to make in terms of input cost, it gets you into the store, it gets you using their rewards program, it gets your credit card on file. Those are things that they are happy to exchange for several cups of coffee a week or several cups of coffee a month. The airline industry can't survive on that kind of model.

Kline: Yeah, this would be like the airline model using peanuts to entice you on a plane. You know, that's the Panera coffee model. If Panera said, "OK, sandwiches and bagels are free now," hoping to drive coffee sales; [laughs] that would be an upside-down model. And the other one you mentioned on our prep sheet here, Dylan, is MoviePass, for those of you who don't remember, MoviePass was an all-you-can-attend movie service. You paid, I want to say $20/month, and then you could go to one movie a day, and you used like a credit card. Like, it looked like a debit card, and they'd bought the ticket for you. I used this, I abused this. And their idea was they were going to get data and use that data to make money.

So here's the problem -- and I talked about this on another program this week, on Industry Focus earlier this week. The problem is what value is it to know that Dan went to see the Avengers three days in a row? So the data they're producing isn't all that valuable, and that's where the, sort of, free program delta is.

You can find a way to make this work if it produces revenue in other areas. So if, you know, Disney World is letting me in cheaply, and because of that I'm eating dinner at an expensive steakhouse on property, that value proposition might be great for them. If they're letting me in cheaply and I'm bringing my own snacks and I'm not doing anything, maybe they've made a mistake. So I think you're going to see these offers in all areas, because they are enticing. You know, unlimited pasta gets a lot of attention for Olive Garden. One of our former colleagues won unlimited pasta for life. So [laughs] I assume she's not in great shape; you know, if that's the option. But those get a ton of attention, but they're gimmicks, you know, they're not changes to the business model.

Lewis: Yeah, I do think, while we're saying that, you know, this is probably not likely to come in any real or sustainable way for the airline industry, there are probably going to be some things that show up over the next two months or so in an effort to bring some cash in, and hopefully avoid some of the furloughs or some of the layoffs that are currently being discussed. I know some airline operators have been able to say, like, "We don't think we're going to be furloughing employees, we don't think we're going to be laying people off," but that's largely because they had a lot of early departure deal signed with employees who were probably on or near the cusp of retirement anyways. So even the folks who aren't going to be in that position are really making decisions that aren't necessarily great long term for the employees or necessarily the business.

Kline: Yeah, and, Dylan, I'll jump in with one last thing on this topic. The prices right now for most flights are so low that it's effectively all-you-can-fly anyway. My round-trip ticket to Vegas, which I rebooked from having a stop to being nonstop, my ticket, plus my son's ticket, with all the taxes is under $200. I have never flown myself on a good airline to Vegas for that price. I've flown on Frontier for that price. I would argue that twice the price on another airline is probably a better deal.

So right now, they're just trying to generate demand. We've talked about this: Cruise ships are offering incredible discounts so they can have press conferences and say, "Yeah, 2021 booking volume looks great." That's all about optics, that's all about making you feel good about your decision to do it. Because right now, it's a little difficult to decide what's safe. You know, if I said to you, Dylan, I'll give you a free cruise, it's going to be a third full, here's the long list of safety procedures. I might do it, you might do it, but someone a little older than us might not, you know? So they have to have pictures of people on an airline doing this. Same thing with cruise lines, same things with Disney World, you're not seeing a ton of publicity out of Disney World right now, because the crowds aren't good. You know, so you got to get confidence back, and low prices, gimmicky deals, that will do that.

Lewis: Our second story, Dan, and this is what we teased at the intro, we have an unlikely name putting up over 1,000% returns. This week, since Monday, Kodak shares are up 1,100%. This is a company that probably a lot of people totally forgot about.

Kline: I had no idea they still existed. This was a company, you remember Dylan when BlackBerry was a company that was, like, on our radar? It was like a ton of Fool.com stories, and then they stopped making a phone and then they'd make one, and that would be a flurry. They still exist, they're actually a reasonably healthy company. TiVo, another one that I was surprised -- and I interviewed the CEO -- I was really surprised to learn they had a CEO and that they were still a company.

But this one actually makes sense. So what did Kodak make? They made film. I had no idea, but making film was actually a fairly technical process, and it gave them expertise in making things that use complex chemicals. So what's happened here is they've got a $765 million government loans to make, I don't even know how to describe it, the underpinnings of drugs. You know, some of the technical compounds that you need to make other things that we've largely been importing from India or from China, from other countries. This is done under the Defense Act. So we control more of our own supply chain. So at the surface, you know, I'm making a lot of jokes about pictures, but then the reality is, oh, wait a minute, this is actually like a pretty logical offset of what they do.

Lewis: Yeah, the term, the industry term is active pharmaceutical ingredients or API. And, yeah, I mean this is kind of a national security thing, you know, to invoke the Defense Act to be able to do it, kind of speaks to that a little bit. And you know, we were kind of having a little fun about how we had forgotten this business existed. I went back and looked in; this company has not posted year-over-year revenue growth since 2004. So it has been in almost 15 years of sequential decline, an absolute tailspin. And if you look over the past 12 months, their revenue is a tenth of what it was in the mid-2000s. This isn't going to be something that immediately is a massive business for them, but their chief executive, Jim Continenza, told Wall Street Journal that he expects pharmaceutical ingredients to make up 30% to 40% of business over time. So it could become a sizable contributor for them.

Kline: So there's a big ramp-up for this. You have to build the capacity to do it. Just because you can create it in the lab doesn't mean you have the ability to mass produce, but once they can do it, there's going to be an enormous amount of pressure to bring this manufacturing back. It's fine if our video game systems and our smartphones are made elsewhere; it's probably not great to be reliant on a global supply chain for things that literally could go into the vaccines we're going to need, that could be part of the solution for all of this.

I think they're downplaying how big a business this could potentially be, partially because their stock went up so quickly. I believe trading had to be halted five or six times. And be careful about that, folks, because we don't really know the numbers here. We got a bit of good news about a stock that was lightly traded, and that sent shares crazy higher. So let's maybe wait till the next quarter before we throw any money after that.

Lewis: Yeah, I mean, that's the natural question here, Dan, is this an investable idea, you know, and...

Kline: It was if you knew about this two days ago. [laughs]

Lewis: [laughs] Yeah, I think it's a time machine stock, right, where if you knew on Monday that this was going to happen, for sure, you know why wouldn't you do it. But there's so much that needs to go right and so much that is currently unproven. I mean, Kodak does actually have a history working in the drug industry. If you go back to the 90s, they were involved in the production of nonprescription medicines, including aspirin, but they sold that business off to SmithKline Beecham [GlaxoSmithKline] for just under $3 billion. So they do have some time doing this, but that was before this business went through bankruptcy, that was probably several leadership teams and midlevel management teams ago. So they're going to have to rebuild a lot of that.

Kline: Yeah, I can't imagine their headcount was all that high given where their business was, and they've talked about how the area of upstate New York they're in, they're going to have to build out, hire people. Look, this is really exciting, but from an investment point of view, we don't know the numbers. And I'm sure -- how excited is someone, Dylan, who forgot they owned Kodak stock, it's been sitting [laughs] in their portfolio, and they woke up this morning and all of a sudden, it's 3,000% higher. There's got to be somebody who had that story.

This is really exciting news for us as a country, I think it's important. And I'm all in favor of a global supply chain, but we've seen with some of the issues around the world that, hey, it's nice when the farm down the street from you grows tomatoes, because it might be difficult to get tomatoes from, you know, Mexico at the moment. It's great that you can fish for shrimp in Key West, because we had trouble getting fish from the places we normally get fish from. So this gives us some optionality as a country, a little bit more security. And it's long term.

You know, look, 10 years from now this is probably great for Kodak, we don't know what this is going to look like. There's a massive expense that goes with this. And remember, this $765 million, it's a loan. Loans have to be paid back. I don't think this is a forgivable loan. So there's a long road from, hey, this is good news and you should celebrate today, Kodak, but tomorrow, you're going to get to work and it's going to take a while.

Lewis: Yeah, my view on this is, probably from a macro perspective and just looking at our economy, it's awesome. You know, it's great to bring back a business that was really struggling and needed something to be excited about. I'm not buying the stock. And I will happily follow the story, but so much needs to go right. And we have so few details on really what this looks like and how much it contributes to their business.

Kline: Dylan, how upset do you think the people at Polaroid are right now?

Lewis: [laughs] Yeah. You know, that's another business from like -- I haven't heard that name in a long time.

Kline: I actually have no idea if they're a stand-alone business. Polaroid actually had a lot of struggles with its pensions and issues that may -- they may not still be a stand-alone brand. I joke about this, but you know, I brought up BlackBerry before. Sometimes there are companies that are still chugging along and doing nice business. BlackBerry was really a turnaround story, but they're just, kind of, not sexy. So as investors, we don't really talk about them. And that probably makes sense, because they're a nice going concern. They're not really a growth business.

We don't know if this is going to be a steady business for Kodak that's good for the people who work there or if it's going to be something they can build upon, you know? And, hey, look, if they can get 20% of the U.S. market for this, that's going to be one heck of a big company, but there's no reason that other players can't pop up. And you know, you don't know what your pricing is going to be. Don't invest in this right now, [laughs] that's really all I can say about it.

Lewis: Yeah, I file this one in the "hard" bucket. And sometimes it's nice to just be able to say, I'm happy this is happening, but it seems hard and I would rather invest and put my own money in something that seems a little bit easier, is a little bit more predictable and doesn't require as much hoop jumping for me to see the end of the tunnel.

Kline: If I owned it two days ago by accident or because it has been sitting there since 1998, I'd be selling it today, because when stocks make these kind of moves for these kind of reasons -- again, this will be a nice business; we don't know if it's an investable business.

Lewis: I think that's a good way to leave things off. Dan, thanks so much for joining me on today's show.

Kline: Thanks for having me.

Lewis: All right, listeners, that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say "Hey!" shoot us an email over at IndustryFocus@Fool.com or tweet us @MFIndustryFocus. If you want more stuff, subscribe on iTunes or wherever you get your podcasts.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for all his work behind the glass. Thanks for listening, and Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.