Barron's Streetwise - Time for Travel? Plus: Bowling's Back

Episode Date: May 29, 2020

An analyst upgrades Southwest Airlines, and the CEO of Booking Holdings talks hotels. Also, post-Covid bowling is two comeback stories in one. Learn more about your ad choices. Visit megaphone.fm/adchoices

With record levels of dry powder available for investment, find out what's in store for private markets in 2025 and beyond. Listen to Crafting Capital in partnership with UBS at partners.wsj.com slash UBS, Spotify and Apple Podcasts. So 4.30, I walk by the front door and I look out there and there's a line out in the parking lot. And I tell you, my heart got so excited. I thought, wow, this is, this is fantastic. You know, this is going to work. People are ready to come back out because you just don't know up until that point. You just don't know. Welcome to the Barron's Streetwise podcast.

I'm Jack Howe. The voice you heard, that's Tommy Barberini. He manages his family's bowling center called Oak Mountain Lanes outside of Birmingham, Alabama. And he's talking about his recent reopening. We'll hear more about that in a moment, and we'll talk with the chief of the Professional Bowlers Association about the sport's upcoming return to television. Why bowling? Because bowling is a comeback story, and I like a comeback story. We'll also hear from an analyst who issued his first buy rating for an airline stock since the pandemic. And we'll talk with the CEO of Booking.com about the broader outlook for travel.

I made a big purchase this past week, Meta. I don't mean big as in pricey. I mean big as in physically large. I bought a nine-person tent. Wow. For the backyard. I'm thinking of doing some glamping. Have you heard of glamping? Glamorous camping. That's my kind of camping. You're supposed to have like butler service and everything like that, but I think in this context it just means camping in the backyard next to the house because you can't really go anywhere right now.

Then I saw these sales figures that really astonished me. I always secretly suspect that I'm like a cultural thought leader, that everyone's following my lead when I do things like this, but now I really have proof. Or maybe I'm following them. I don't know. But I got this report that says that recreational tents sales are up 30%. Hammocks are up 103%. There is arguably a hammock bubble in America right now. Campfire equipment up 42%. Camp toiletries? I don't even know what that is, but it's up 24%.

You can't get toilet paper, so if that's what they're talking about, I don't really know what camp toiletries are. Is that just selling leaves? Now, Metta, normally in summertime, we wouldn't be backyard camping. We'd be planning our family's trip to Disney World. But we haven't been able to do that this year. I did see, however, just this past week, Disney announced the reopening of Disney World in Florida.

That will begin on July 11th. The biggest reopening announcement yet came this morning. It's the one many have been waiting for. Disney announcing plans for the park to reopen in Florida on July 11. Remember several weeks ago in this podcast, we talked with Bob Iger at Disney about what that reopening might look like. So this is as vivid a symbol as any to me of the return of American business and of jobs. Disney World had 75,000 jobs before the shutdown. That's the most of any single site in America.

And theme parks are also a big reason to fly and to book hotels. So reopening of theme parks could be key to a broader recovery for travel. I'm going to have to watch this carefully. I wonder if I can get the business channel out my big tent. Wait, this could change everything. Is the tent big enough for you to golf inside of it? Meta, last week we did some listener questions, and we had that one about airlines, remember?

Mm-hmm. And I mentioned that before the pandemic, the industry had rarely been more profitable, but the whole business model is flying packed planes. So when I think now about the reopening and the comeback, it's just hard for me to imagine how you get back to that level of profitability. Again, at a time when people are squeamish about maybe sitting close to someone else on a plane. So I had, I guess, maybe a bit of a gloomy view.

And then I wondered afterwards, is that too gloomy? Because we know these things and some of these things are priced into these shares. Are the share prices attractive enough to offset that? And then I saw this past week that a UBS analyst named Miles Walton upgraded shares of Southwest Airlines to buy. And so I want to hear more about his bull case on that company and his outlook for airlines in general. Hi, Miles. It's Jack Howe from Barron's. How are you? Good, Jack. How are you doing? I asked where things stand now in terms of business levels. Probably five or so weeks back, you were in a situation where bookings were coming in at a pace

that was getting eclipsed by cancellation activity. And even in a gross bookings level, we're seeing year-on-year declines of 96%, 97%, both domestic and international. And in just the last three or four weeks, you've started to see the domestic move from being down 95% or 96% on a gross bookings basis to being down maybe 80% to 85%. Importantly, international still sits kind of pegged to the bottom, right around 95 percent down year on year. So we've gone from a near total shutdown to a decline of 80 to 85 percent, at least domestically. That's a start. Miles says he expects leisure travel to come back first and that corporate travel might have to wait for a

return of things like big conventions and meetings. By the end of this year, he expects revenues to be down less than they are now, about 25% to 35% from where they were before the pandemic. Now, Miles says airline fares right now are about 15% to 20% below normal levels, and they could stay that way for months. That's good news if you're looking to book a trip right now, but it means that the return to profitability for airlines could take longer than the end of this year. Obviously, as the people come back, sit in the seats, get accustomed to flying again, I think some of these stimulated fares would start to

fade into 2021. That's the end of 21 into 22 is probably where the first hope of back to break even would come in in some of the domestic routes. Miles upgraded Southwest to a buy rating based in part on the company's strong balance sheet. That's his first buy rating in airlines since the pandemic. He says the stock is inexpensive compared with where he expects earnings to get back to in two to three years and that the stock price could have more than 20 percent upside over the next year. Southwest has been helped by government assistance and by compensation from Boeing related to the grounding of its 737 MAX aircraft. They get 2.3 billion dollars in grant money from the U.S. government, another 800 million from Boeing. Think about that as

being four to five months of cash burned. That's a lot of top cover that's been given to them through this recovery, which is effectively allowing them to maintain their position as nearly net cash or zero net debt company. Miles points out that much from here depends upon the course of the virus because it's hard to do true social distancing on an airplane. We should learn a lot by the end of this year. As the demand comes back, and in particular into the fourth quarter, you know, that'll be the true test of these social distancing exercises on the planes, at which point my guess is that the fare structures will win out and the general public will become a little bit more comfortable with, more comfortable with potentially having to sit next to someone else as opposed to a window or an aisle.

To get a broader look at the state of travel, I wanted to speak with someone who has a good view of the hotel business. Hi Jack, Glenn Fogle speaking. How are you doing? That's Glenn Fogle, the CEO of Booking Holdings, whose travel services include Booking.com, Priceline and Kayak. I wondered if a travel chief experiences cabin fever more acutely than the rest of us. Glenn says he's had other concerns. Our entire family, including myself, we had COVID. And, you know, fortunately, it wasn't so bad for us. We came out of it very quickly.

But the silver lining has been being able to spend all this time with my family. Glenn says everyone's doing fine now. And by the way, Metta, I told Glenn that I bought a tent. Guess what he said? First, I have to say that I'm smiling because my college-aged daughter, she just bought a tent and she actually used it in the backyard with her mom. Do you believe me now that everyone copies me? You are a true first mover.

Of course, it could also just mean that people aren't ready for long trips just yet. Booking Holdings makes most of its money from hotels, and Glenn says he sees early signs of recovery, but he expects travel to stay close to home for a while. On his latest earnings call, the company called it hyperlocal. People have been in lockdown for some time and they just want to go somewhere, just get out of their apartment or their home and just go somewhere else. And I think over the Memorial Day weekend, I think we saw people doing that.

We saw a lot of videos showing people going out and doing some travel, but we do know that this is a very small improvement and we don't want to get people ahead of themselves thinking that everything's going to be normal anytime soon. And in our call, we talked about it's not going to recover in quarters. It's going to recover in years. Wall Street expects booking to remain profitable this year, which might sound surprising for a travel company going through a travel shutdown, but keep in mind that as an online service, booking has much lower fixed costs than its suppliers like airlines and hotels. We don't have long-term leases on planes that we have to pay regardless whether it's filled or not. We don't have huge mortgages on hotel buildings that you have to pay that mortgage

whether or not you have anybody in the hotel. Our costs, when you look at our income statement, how much of it is really variable. We choose our biggest cost expenses is our marketing. And so much of our marketing is paid for performance marketing, where we know very well what the ROI on that spend is. And that's completely within our control. Low expenses help a lot with weathering a downturn. And long term, Glenn isn't worried about demand for travel. Travel always comes back. I mean, it came back from every pandemic that's ever been. Long before there was this modern medicine where they're going to try and come out with a vaccine so fast. There have been pandemics

before. And travel comes back. People say, oh, look how horrible it is. And it is horrible. But I'll say, you know, 1949, there were a lot of tourists going to Europe four years after World War II. So I know four years from now, we're going to have a lot of travel. Meta, do you watch any sports on TV? I do not. I watched something recently that was pretty darn exciting. It was called The Match, and it's the second match they've had featuring two great golf champions, Tiger Woods and Phil Mickelson. And this time, they were paired up with two NFL quarterbacks, Tom Brady and Peyton Manning, right?

What was wonderful about it is that Tom Brady, who's probably the greatest quarterback of all time, just played horribly through about six holes. It's fascinating if you're a golfer to see someone who is famous and struggling like you on the golf course. And what was wonderful about it is Tom Brady was hearing all kinds of trash talking and heckling. Charles Barkley was on the earpiece giving him a hard time. Hey Tom, how many shots you want? This is Chuck.

And then he hit a shot on the seventh hole. The ball just landed perfectly on the green, spun right into the hole. Get it to him! Oh my goodness! You made it! Shut your mouth, Chuck. Take the sport of golf goes. You can have a terrible day and you can have one great shot and you walk away loving the game. But the glory doesn't last forever because he walked up to the hole and reached down to pick up his ball out of the hole, and his pants split right down the rear end, facing the camera.

So it encapsulated so perfectly the life of a golfer, right? Difficulty, struggle, humiliation, one brief glimpse of glory, and you're riding on top of the world, and then you split your pants down the rear end for all the world to see and you're right right back into humiliation so i think i've been so starved for sports that i was on the edge of my seat watching this event i mean i really loved every minute of it and it reminds us that there's this pent-up demand out there for sports to return

to television you remember that we spoke a couple of weeks ago with Bob Backish, who's the CEO over at ViacomCBS, and he talked about how professional golf is returning to television on June 11th. But I noticed that a few days before golf comes back to TV, professional bowling has an exhibition event. And if I enjoyed that golf exhibition event so much, maybe I'll like the bowling one too. This one's on June 6th. It takes place in Jupiter, Florida, and it's called the PBA Strike Derby. So this is our version of the home run derby. It features eight of our top players. They each get two minutes to bowl as many strikes as they

can. That's Coley Edison. Coley is short for Nicole. And Coley is the CEO of the Professional Bowlers Association, the PBA. Think of it as the NFL of bowling. You are the first bowling chief I think I've ever spoken with. So I'm excited about this. I have a lot to learn. Awesome. Meadow, have you seen the 1996 movie called Kingpin?

No, I haven't. I think Kingpin deserves some of the blame for my misperceptions about the sport of bowling. There was this character played by Bill Murray called Ernie McCracken who is thrusting his hips for the crowd and he has this wild comb over that comes undone. A one pin victory for Ernie McCracken. and if I'm gonna blame Kingpin I guess I also have to blame The Big Lebowski which is a 1998 movie and I just remember John Goodman plays his character Walter who gets way too excited about the rules so his toe slipped over a little you know know, it's just a game, man. This is a league game. This determines who enters the next round, Robin. Am I wrong? Yeah, but I wasn't. Am I wrong? Part of Coley's job is showing people that the bowling world has changed whether they realize it or not. I think that there's a lot of this industry that still assumes that we have not

moved past where we were in the 70s and 80s, that it's all older men with beer bellies, and that's our sport, right? And then you see that you actually have a female in her 30s running this organization as a media company. It sounds promising, but don't turn your back altogether on us middle-aged men with beer bellies. You know, we matter too, Koli. Oh yeah, you are always welcome at our centers. I'm just saying your chances to go pro are not looking great these days. Not only is my bowling game not strong enough to take me pro anytime soon, but I'd have to get into bowling shape and I'm not sure I can do that. Koli points out that today's professional bowlers are much

younger and fitter than we've seen in past generations. Believe it or not, there's a lot of kids who are looking up to what these new PBA stars look like. People like Kyle Troup. There's Tim. There's a win for Kyle Troup. He's done it. Jason Belmonte, the number one bowler in the world, is from Australia in his 30s.

Young, fit guy. The number three seed is the reigning PBA player of the year. The number three seed is the reigning PBA Player of the Year. From Orange, New South Wales, Australia, Jason Belmonte. So people are starting to see what the future of a professional career in bowling looks like. And that's attracting a lot of young bowlers. The PBA wants to grow professional bowling, the prize money, the TV viewership. And the PBA is part of a company called Bolero, which is the world's largest owner and operator of bowling centers. So what's good for the professional game would be good for business.

And on June 6th, those pro bowlers will have the entire sports star TV viewing audience all to themselves. starved TV viewing audience all to themselves. I wish them all the best, and I'm just as interested to know what this means for all the mom-and-pop bowling centers around the country. So I called up Tommy Barberini from Oaks Mountain Lanes. That's a center in Pelham, Alabama, a suburb of Birmingham. I'm the general manager. My father owns the center, and basically I run it for him. My wife works here.

My daughter works here. So, yeah, we are the epitome of a family business. And your father doesn't work there anymore, or he works from time to time? Yeah, he's just kind of time to time. He comes in and keeps me straight in that setting. I think they call that semi-retirement. Yeah, that's exactly right. Yep, yep.

Tinkering. Tinkering. Yeah, well, basically you work what you want to work and let somebody else deal with the rest. What I like about recreational bowling is it's a comeback story within a comeback story. Tommy's a small businessman who got shut down by the pandemic and now he's bouncing back. At the same time, bowling is making a cultural comeback. Before the pandemic, employment in bowling was rising, and Tommy says his center was enjoying some of the best sales of its 16 years. Bowling is changing from the old dark, smoky alleys, getting off of second, third shift and going in bowling league, and bowling centers having two and three leagues a day.

Bowling's changing to a family outing. It's changing to a date night. It's really morphing into more of an entertainment business than it is the sport. Tommy's doors were closed for 63 days. That would make any small business owner fear for their survival. So the reopening about a week ago was a big deal to him. So 4.30, I walk by the front door and I look out there and there's a line out in the parking lot. And I tell you, I just, my heart got so excited. I thought, wow, this is fantastic. You know, this is going to work.

People are ready to come back out because you just don't know. Up until that point, you just don't know. With so many people having lost their jobs during the shutdown, we're all wondering how many of them will find work right away once the economy reopens. So I wanted to hear about Tommy's experience. He says he had 53 workers. A lot of them were part-time, either late high schoolers or early college students. 48 of his 53 were furloughed. And when he reopened, 42 of those 48 came back.

Meta, have you ever been bowling? Yeah. So you know that you rent the shoes, you use other people's shoes, and you know that you get the balls with the holes in them and people, you know, eat nachos and put their fingers in there. I think a lot of people are going to be wondering what kind of adjustments you make for bowling to get people less worried about cleanliness. I mean, I'm actually surprised bowling seems like the last sport in a way. It's indoors. You touch a bunch of things. You know what I mean?

I guess you don't sweat or get out of breath. I do. I mean, I guess you don't sweat or get out of breath. I do. I asked Tommy about this and he says, first of all, they opened at half capacity to give customers more space. So instead of 32 lanes open, they have 16 open. And that means they need fewer workers. And some of those workers can be diverted to new sanitation work.

And he has a whole set of procedures. We have them leave their shoes, the bowling balls, everything they got, they leave it right down in the lanes. And so once that lane is done, our sanitation specialist makes his way down there, and he sanitizes the shoes, the balls, the ball return itself, the touchscreen monitors, the chairs, the tables. All of it is sanitized top to bottom. monitors, the chairs, the tables, all of it is sanitized top to bottom. And then once that's all sanitized, then that equipment, i.e. the balls and shoes, is returned back to, you know, getting ready for the next guest. Now, Tommy's business isn't back to where it was yet, but it's on its way. And I asked him about his ambitions for the future. I have a son who's 14. He just

turned 14 and nothing would make me happier than one day hand the keys down to him and carry on what my father built. Hey, don't forget the best part, Tommy. Then you get to become the tinkerer, right? Drop in, you break his chops for an hour, you bowl a few frames and you're out the door. That sounds pretty good. There you go. I can handle that. I can handle that. Meta, last week we did all listener questions, so what do you say we skip the listener question this week? That's fine with me. But everyone, please keep the questions coming,

and send comments too. If you hear a topic here where you have a view, we want to hear about it. Just tape on your phone, use the voice memo app, and send an email to jack.how, that's H-o-u-g-h, at barons.com. Thank you for listening. Meta Lutzhoft is our producer. Subscribe to the podcast at Apple Podcasts, Spotify, or wherever you listen to podcasts. If you listen on Apple, please leave a review. Follow me on Twitter to find out about stories and new podcast episodes. That's at

jack how h-o-U-G-H. See you next week.