✈️ America's airline bailout bust

Monday, July 20, 2020 by Robinhood Snacks | Disclosures

"No Biscoff cookies?"

Last Week’s Market Moves
Dow Jones
26,672 (+2.29%)
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3,225 (+1.26%)
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10,503 (-1.07%)
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$9,135 (-0.44%)
10-Yr US Treasury
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Hey Snackers,

Ever sit around wondering what Elon Musk would name you if you were his child? This name generator finally answers the pivotal question. Ours is: SπλC-K5... Take it with a grain of SλL-7.

On Friday, the S&P 500 rose to just 5% below its all-time high from February 19th. Next up this week are earnings from Microsoft, Tesla, and Coke.

On our pod: WeWork saw its valuation plummet from $47B to $3B late last year. Now it claims it'll be "basically" profitable in 2021. On our digestible 15-min daily pod, we chat on how bankruptcy might be WeWork's best option.

FYI: Trying to analyze a stock? Wondering how to diversify? Curious about the world of ETFs? Our Robinhood Learn site got a fresh facelift with helpful guides and resources for your financial journey.

Fly
1. Airlines warn of massive job cuts in October, despite $25B in bailouts

$25B later... Back in April, airlines got $25B in bailouts from the US government so they could continue paying their hundreds of thousands of employees. Under the terms, airlines can't make any layoffs or job cuts until September 30th. The hope was that the funds would be enough to tide airlines over until October, when travel was expected to pick up again. Reality check: it's still bad.

  • While travel has ticked up since mid-April — when airlines had 96% fewer US passengers than they had in April 2019 — it's still pretty abysmal.
  • On July 16th, the number of passengers passing through TSA was down 74% from normal times a year ago. COVID cases are surging again, so it doesn't seem like this will trend well.

Honestly just sad... With depressed travel demand and high expenses, US airlines are burning through their bailout bucks. Now tens of thousands of employees are fearfully waiting for October 1st, when the ban on job cuts expires:

  • American warned 25K employees (almost 20% of its workforce) about potential cuts, citing an 80% drop in sales.
  • United told 36K employees (almost 40% of its workforce) that they could be furloughed.
  • Southwest, which has never had an involuntary furlough, told employees that cuts will happen unless passenger numbers 3X by the end of the year.
  • Delta, which took a $5.7B loss last quarter, might have to cut pilots' pay to avoid furloughs. CEO Ed Bastian called the pandemic's effect on the (formerly thriving) airline "truly staggering."
THE TAKEAWAY

Was the bailout a waste?... The government spent $25B of taxpayers' money to save US jobs, but it looks like jobs are likely to be cut anyway. It's even possible that airlines will still go bankrupt. Buuut: Had the government not bailed out the airlines, layoffs likely would have come much earlier. That would've meant government $$$ going to workers through unemployment checks. With the bailout, the gov gets to continue collecting income tax from those employees — at least until Sep 30th. For the bailout to have a happy ending, we need to slow COVID (fast).

Highs

Extra cheesy... Domino's US sales surged 16% because it doesn't give a crust that its spots were closed for in-store dining — it thrives on the out-of-store experience: mobile-order takeout, delivery, and now even "Carside Delivery." Dom's is one of the few restaurant chains that handles its own delivery (no Uber Eats or Doordash), so it gets to keep 100% of its mobile orders. Now it's focused on opening stores closer together to improve delivery times (aka "fortressing").

Hold the Dom... Chase, Citi, Goldman, and Morgan Stanley announced expectations-smashing earnings driven by record trading revenues. But Big Banks can't celebrate those big bucks yet. Last quarter, the government's multi-trillion stimulus powered bond trading and padded consumers' wallets. But the extra $600/week in unemployment benefits is set to expire next week, and COVID re-closures are happening. Banks see so many loan defaults in their future that they set aside $30B+ to cover those expected loan losses (on top of $20B+ last quarter).

Lows

No Flix Zone... Netflix added an Oscar-worthy 10M new paid subscribers last quarter, crushing the 8.2M expected. But shares fell 10% Thursday because investors are already thinking 3 months ahead (since you're already on Season 2 of Dead to Me). Netflix expects new subscriber growth to majorly slow this quarter to just 2.5M new subs. BTW: Netflix's current Chief Content Officer Ted Sarandos will join Reed Hastings as co-CEO in a leading role.

Kim K, Joe Biden, and Apple walk into... a bitcoin scam. Twitter suffered a major hack when accounts from Obama to Bezos started tweeting out requests for crypto payment. Twitter took the unprecedented step of blocking tweets from all verified users (aka blue checkmarks) to stop the damage. Despite the relatively harmless tweets (could've caused 1000X more havoc), the Twitter trust is bruised. The world is now questioning the security of the platform at the heart of market-moving breaking news. Just in time for the 2020 election.

What else we’re Snackin’
  • Work: 7 job search rules you should break — just because "everyone else" does it, doesn't mean it's right (if anything, the opposite).
  • Sweat: The Minimalist's Strength workout, for when your time is tight but your glutes aren't.
  • Write: This "dangerous" app could cure writer's block — if you stop typing for more than 5 seconds, all your writing disappears.
  • Earn: How much American men and women earn at every age — in 2020, women make 81 cents for every dollar men make.
  • Swap: Tired of staring out your window? Check out the view from someone else's, all over the world (that Istanbul sunset looks idyllic).

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Snacks Daily Podcast

WeWork is the badly wounded Unicorn that fell into the valley of the coronavirus — It went from a $47B valuation in early 2019 to less than a $3B valuation in March (still a unicorn — $44B less magical).

8K unfortunate job cuts later, the world's most famous (infamous?) coworking startup seems to have WeWork'd it out. Now it says it’ll be "basically" profitable in 2021.

Tune into our digestible 15-min pod to hear why We should go bankrupt if it wants to go big (and why "basically" is the new "adjusted").

This Week

Disclosure: Authors of this Snacks own shares of Twitter, Chase, Chipotle, and a Bitcoin

ID: 1250145

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