Motley Fool analyst Jason Moser checks in on market news. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Oct. 11, 2021.
Chris Hill: It's Monday, October 11th. Welcome to Market Foolery. I'm Chris Hill. Joining me today, the name's Moser. Jason Moser.
Jason Moser: [laughs] Oh, man.
Chris Hill: Thanks for being here.
Jason Moser: That was well done. I mean, it will make more sense as we go on here, but I like that. That was very, very good.
Chris Hill: Yeah, we're going to get to James Bond and how James Bond did over the weekend, and we're also going to get to the big banks that are kicking off earnings season later in the week. But first, we're going to talk about Southwest Airlines (NYSE:LUV) because shares are down a bit today after they canceled nearly 2,000 flights over the weekend. Southwest blamed it on a combination of bad weather, air traffic control issues, and staffing problems. Although I will point out, other airlines have to deal with bad weather and air traffic control [laughs] and other airlines weren't canceling nearly 2,000 flights this weekend. We talked the other day on Motley Fool Money about hiring being an issue that's probably going to come up this earnings season on a lot of conference calls. You look at the storage and it really seems like Southwest is dealing with more than just hiring issues. They're dealing with staff issues.
Jason Moser: Yeah, I think you're right. To your point, that is a big spade of cancellations. It's about 24 percent of their overall flight operations. That is a very significant situation. Honestly, a little bit surprised that the stock wasn't under a little bit more pressure from this, but perhaps investors are willing to take a bit of a bigger picture view here. It's interesting to read about why people think this happened. There's the side of folks that say, "Well, that's what you get when you mandate vaccines," and then other sides say, well, it has something to do with the actual airline itself and it's a horrible jobs environment. Why are they having trouble staffing? I think it's a combination of, first thing, throughout the pandemic, Southwest has been making investments, has been making efforts to spread its wings, so to speak, gain market share, play a little bit of offense. Like I've talked about before with Darden Restaurants. They saw weakness in the restaurant space throughout this stretch of time and thought, "Well, we're in a position where we have the balance sheet and the ability, we can try to capture more of this market share, spend some money upfront really in the name of capturing more market share," and it may drag results a little bit in the near term. But longer term, it's a bigger picture, it's the right thing to do. Southwest during this pandemic, clearly air travel has been one of the most impacted markets, and Southwest has invested. They played a little bit of offense to expand their routes, to expand their services. I think that's the right thing to do, honestly.
With airlines, really, if you want to grow, you have to offer more routes and more flights. But what they did in the process of this is they started spreading themselves very thin. I think what this really does is it shines a light on air travel and shows how really difficult running an airline could be. It is one of the more complex logistical equations that you constantly have to try to figure out. Just go to the airport and you see the arrivals and departures, and it's just an amalgam of how the world do they make all of this stuff work. It is not just on the airlines themselves, you've got air traffic control to deal with and whatnot. There are clearly some air traffic control issues in Florida and there were some weather issues. That's not a made-up excuse, that is real. I think part of the staffing issue really more relates to Southwest's efforts to grow its adding of routes and services. They just spread themselves a little bit too thin, and then they got hit by a few external factors there that really made it a very, very difficult logistics problem, probably one that they really couldn't fully solve, and that's what resulted in having to cancel all of these flights. The good news I think is it's something that will pass, but they absolutely need to make sure that they are staffed up appropriately for this growing business, if they want to maintain that customer service reputation that they've been able to foster up at this point.
Chris Hill: I'm glad you mentioned the Darden example because I think this is something that we see a lot more often in restaurants and in retail, where typically at the end of a fiscal year, restaurant chains, major retailers will talk about their footprint and how many new locations are going to be opening and are they closing ones and all that sort of thing. I know that I have made the comment over the past decade at various points in time about a given retailer or given restaurant chain when they come out and say, "This is how many locations we're planning to open in the next year," and my comment at different points in time has been, "That doesn't seem like a lot. Why aren't they aiming higher?" To your point, it's like you want to grow smartly. You want to make sure you're not overextending yourself. It's not the sort of thing where you can just snap your fingers and throw up a new restaurant and hire a bunch of people to staff it accordingly. As you said, it might have been that Southwest got a little bit over their skis. But this is definitely something that bears watching. As we head into earnings season, it will be interesting to see if other airlines get questions about what's happening with Southwest and any comments they make.
Jason Moser: Yeah. Particularly as you watch the rest of this year play out, we're seeing all sorts of signs. I think we're just going to see more and more people traveling. We're at a point now where, we were talking about this with Delta I think last week, there's more and more people I think are feeling more and more comfortable getting out there and then feeling like maybe the "risk" is not as great because we have all of these tools. You're going to see I think traffic continue to pick up. Southwest, that's a nice thing. You're an airline, you want the demand, but you have to be able to satisfy that demand. There are a lot of airlines out there and a lot of bigger airlines that seemingly didn't have to deal with the same problem that Southwest had to deal with. They will want to make sure they don't let this persist. This is something where if you continue to see, well, they had to cancel more flights, and like you said, they're a little bit ahead of their skis. That could have some longer lasting implications on the stock price. Perhaps the growth prospects don't seem as attractive as they once were.
Chris Hill: The 25th film in the James Bond franchise opened in the US and Canada over the weekend. No Time To Die took in $56 million at the box office, putting it just over $300 million worldwide. This is an MGM film, but you read the coverage of this and it's clear, it wasn't just MGM that was rooting for the success. This is one of those tent-pole movies in the same way that the Top Gun sequel, the next Marvel movie. These are films that are designed to get people in the theater. It's hard to look at this as anything other than at least a little bit disappointing. They were really hoping for more. When I say they, I mean literally everyone in Hollywood.
Jason Moser: [laughs] Yeah, I guess. I feel like apparently MGM's expectations just landed squarely within their expectations. Now, hopefully they were going in there with more of a conservative take because it does feel like that's still a pretty light number. That's probably for a few reasons. We were talking about this earlier. For me, at least, it feels like maybe the James Bond franchise, I don't know if it's gotten stale or if it's maybe not resonating with as many folks, maybe that's just not it at all. I still enjoy it, but I definitely don't get the same out of it as I did in my younger days. I do wonder, too, given the timing of all of this, given where we are right now, we've got a ton going on in the sports world, the weather is terrific, I just wonder how many people really feel like, well, all of the options I have, maybe right now going to a movie theater just isn't at the top of the list. I can certainly see that. I'm sure a lot of people are enjoying this last bit of good weather before fall and winter really kick in. Maybe there's a little bit of a tiny thing there, but I think clearly we're not fully past COVID concerns to where the masses feel like going back to the movie theaters, and that's going to be a problem. But it is encouraging to see such good global results.
Chris Hill: The global results are good. I think you're onto something. You look at the data regarding the age of the people who are going to the theater for this film, more than half of them are over the age of 35, and it's the 18-34 year-old audience that really drives those tent-pole movies. I think your line of thinking regarding the James Bond franchise and who it appeals to, it's less younger people, it's more older people, and that data was born out over the weekend. I think you're right. I saw a stat this morning that the ratings for NFL football are the highest they've been in six years. We got the baseball playoffs going on. So this could be a little bit more of a long tail. Whereas there are other movies, the opening weekend they do well, and then there's a huge drop-off. I could see this film putting up decent numbers for a few weeks here. The last thing before we move on to the big banks is, it's another thing you and I were talking about earlier, nobody's really figured it out yet in terms of balancing the streaming versus the box office. You had made the point I guess this coming weekend, the next, I don't know, is that the 43rd movie in the Halloween [laughs] franchise? Maybe it just seems, though.
Jason Moser: It feels like it's up there.
Chris Hill: But that movie is going to be released in theaters, but it's also going to be released on the Peacock streaming service. Maybe that's just another test for the people who made the movie, but I don't know. I'm a little surprised that we're at the far end of the pandemic and nobody is still really sure how to balance theatrical with streaming yet.
Jason Moser: Yeah. Absolutely, the thoughts on the matter are all over the place. You've got however many days you feel like something should be exclusive to a theater before it can go into on-demand versus you've got Comcast, which owns Peacock and also owns Universal. Well, Universal is the studio responsible for Halloween. Clearly, Comcast is calling the shots here. They can just say, "Well, we want this thing to go in the theaters, but we also want it to go on to Peacock." I did check. It was interesting the Halloween thing, it's going to go on Peacock. It's going to be available for Peacock subscribers for no extra charge. Now, Peacock is a tiered subscription. So you have just that overall free, then you've got the five dollar ad supported, and then the $10 no ads. That makes the experience watching a new movie like that when you know that commercials are coming up. I mean, that stinks. [laughs] I don't think anybody really likes that. Now, the interesting thing is though, I've said this before, convenience is just super addictive. I mean, I don't think people really think about how addictive it is because we've become so used to it. Everything these days is built on convenience for the consumer. Amazon really got this ball rolling, but now anything that you want is just available at the click of a button on your phone. So for a lot of people, maybe it's a less than optimal viewing experience. But for the convenience of it all, maybe it's something that you are willing to forego and say, well, you know what? I'm going to go and pass on the theater just because this is so easy I'm still at the end of the day going to be able to see the movie. But yeah, I think it is dependent on the studio's putting out the movies and their relationship with the theaters, and then also their relationship with the streamers because they all have to figure out a way to play nice. But it sure feels like the theaters are the ones that they are moving closer and closer to the bottom of the pecking order here, it feels like, and I don't know that that changes. It's not to say that theaters are going away, but maybe when we're looking for large and growing market opportunities, maybe the movie theater experience just isn't that large and growing market opportunity. Maybe it's just a market opportunity that's going to become more localized toward the demand for that type of experience is.
Chris Hill: Well, it's Hollywood, so I'm sure everyone is absolutely going to get along and play nice with each other.
Jason Moser: [laughs] Of course.
Chris Hill: Earnings season kicks off later this week with the big banks. I know you and Matt Frankel are going to be talking about this on today's episode of Industry Focus. What are a couple of things you guys are going to be looking forward this season?
Jason Moser: Yeah, it's a big week. Earnings really going to full force for us on Wednesday when JPMorgan announces, then you've got Bank of America, Wells Fargo, Citigroup on Thursday. We've got Goldman Sachs. I was going to say Golden Slacks. That's like on my favorite little nicknames [inaudible 00:15:07] [laughs] I'll never forget it, Golden Slacks. [laughs] Goldman Sachs on Friday. Some of the things we're looking at going forward as things start to normalize a little bit more, deposits have been through the roof clearly because of all the stimulus. It's going to be interesting to see as that starts to abate if loan activity starts to pick back up. With interest rates starting to tick back up, that loan activity could be a good thing and result in some boosts to that net interest income number that has been suppressed for so long for these banks. Does feel like given the state of the consumer today and the status of all those deposit accounts are only the credit card businesses have been doing very well. Charge-offs are down significantly, particularly for credit card, heavy companies like Citigroup. You look at the way these banks perform to date, of all of those five, year-to-date, they're all outperforming the market, but Wells Fargo is clearly leading the way there with 60 percent gain. I think that's for a number of reasons, but they're really coming off of a low base and it was just a question of whether that is a value trap or a value play. It's starting to look like a value play. It's starting to look like it's worked out pretty well. Getting a better idea of where Wells Fargo stands with regulators is going to be something worth noting. One thing I did. You know I love to serve conference calls for terminology, words and terms and phrases. I went through these five banks earnings transcripts earlier today and searched the word inflation because I feel like inflation is a word we're hearing more and more these days. As it pertains to banks, that's a big deal, particularly these big banks because they have such a meaningful position on our economy. Last quarter, the word inflation was mentioned three times in Goldman Sachs call, two times in Citigroup's, zero times in Wells Fargo's, one time in Bank of America, but 14 times in JPMorgan's, which I just found fascinating, that discrepancy there, the disparity, the difference between those. Why so much more in JPMorgan? I think that's for a couple of reasons. I think it's because JPMorgan probably plays a greater role in more of our economy and more of our financial lives, even if you don't necessarily know it. Then also I think Jamie Dimon tends to take a bigger picture view of things as opposed to perhaps something like a Wells Fargo which is very focused right now on turning the business around and regulators and whatnot. I think these banks are in a pretty good position coming off of an underperforming year last year. They're performing very well this year, and it seems like we're going to get some good information in learning the state of the economy and how they're viewing the holiday season coming up here, too.
Chris Hill: Jason Moser, great talking to you. Thanks for being here.
Jason Moser: Thank you.
Chris Hill: As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening and see you tomorrow.