Morning Brew Daily - Airlines Make $33B on Bag Fees & Investors Are All in on Farming

Episode Date: February 21, 2024

Episode 263: Happy one year anniversary Morning Brew Daily! On today's show, Neal and Toby discuss why airlines are raising baggage fee prices and why Walmart is acquiring smart TV marker Vizio. Plus, investors are all in on farming and HBO wants you to stop watching YouTube and subscribe to Max. Finally, could there be a shortage of chocolate? And the story behind a former Disney star turned space CEO. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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at pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI Good morning brew daily show. I'm Neil Fryman And I'm Toby Howell. Today, checking a bag on a flight is going to get even more expensive.

Then we got to tell you about a former Disney Channel star who has probably the coolest resume you've ever seen. It's Wednesday, February 21st. Let's ride. Today is not just any Wednesday. It's the one year anniversary

of Morning Brew Daily. We are turning one. Neil, give me one rose and one thorn from one year of MBD. All right, so my rose is when people say they switched over to listen to us from NPR's up first. And I think that's cool because I grew up listening to NPR. Consider them maybe the industry standard in terms of audio news. So it is a bit surreal that people now listen to me and you do the news. I think that's super cool.

My thorn is when people watch the videos for the first time and go, I don't think you look like that. And they always sound a little disappointed. That is a fantastic Rose and Thorne calling out NPR as well. My Rose is just interacting with everyone, reading your emails, reading your comments in the YouTube section, meeting some of you guys randomly on the street. That's always very cool. It feels like we're all part of this amazing MBD community. So thank you for spending your mornings with us.

My Thorne is the fact that I've turned into my parents when it comes to pronouncing certain words. I swear I don't pronounce Jopolde wrong in real life. But as soon as the mics are on, I go full like Jepotel on it. But seriously, everyone, thank you so much for one year. Here's to many more. Before we jump into the show, let's hear a quick word from today's sponsor, VIME. So we had our monthly All Hands Meeting at Morning Brew yesterday, and a cool tidbit that came out is that one of our other ad partners listened to the podcast and purchase VIM for their company.

That was pretty cool. Dare I say we created some synergy between two ad partners. You can say whatever you want, Neil, as long as businesses are aware that VIM can protect your data and help you recover it should something go wrong. Listen to the man, business owners. Protect your data. Head to VIM.com today to learn more. That's VEEAM.com.

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Now through May 6th. Exclusion supplies to homedipo.com slash price match for details. Question, are you the kind of person who packs five different sweaters, four types of pants, and six pair of shoes for a weekend trip? Well, you might want to start packing a little bit lighter because checked baggage fees are getting a price hike. American Airlines said yesterday, it's raising its fee to check your first bag at the airport to $40 up from $30, and it'll cost $35 to check it online beforehand.

Your second check bag will soon cost $45 up from $40. The airlines said the price hike was needed to offset rising costs for everything from fuel to machinery to labor, and it wants to remind you, it hadn't increased check bag fees since 2018. But if only it were just American, raising bag fees is officially in for airlines in 2024. Alaska raised its price by $5 to $35 for your $4.00. first check bag earlier this year, and JetBlue is now charging $45 to check a bag at the airport. Overhead bin space is going to be even more scarce.

Yeah, I mean, it's simple math. The more bags you carry, the more costly fuel that you're burning as well. So they're both trying to make some more money by charging more for bags, but also maybe disincentivized people from packing as heavily or packing as many bags to save those fuel costs. It is been interesting, though, to see where airlines are trying to kind of nickel and dime you. they've mostly done away with flight changing fees, and other changes for like paying premium for extra seats or paying more for bags, that's where they're getting you. So it has been interesting where kind of like the calculus of how can we milk the most out of customers. And it clearly baggage fees is one of those places. Bag fees, they get a lot of money from this. There's a new report

yesterday that showed that airlines collected $33.3 billion total from just checked bag fees. That's a 15% increase from 2022 and 4.1% of global airline revenue. It's actually insane. That's where that's basically propping up like the bottom line of a lot of these industries. I just flew JetBlue and saw the $45 bag fee. And I was like, when did that happen? But yeah, JetBlue is one of those airlines that raise baggage fees. They say that they offer other amenities like free Wi-Fi, those little TVs in the back of

seat. So they're kind of saying like you're making tradeoffs here. Southwest, for instance, bags fly free, but you don't get any of the nice amenities that maybe JetBlue offers. So it is interesting to see the different paths that airlines are taking. This wasn't a thing 15 years ago. It was started by those ultra-discount airlines, the spirits, the frontiers of the world. You didn't used to have to pay to check a bag, but the bigger airlines, the Big Four, saw what frontier spirit, all of those were doing and JetBlue and saying, hey, look, maybe we should do this too. But as I mentioned, it is putting a premium on overhead bin space.

I mean, that is getting super crowded. So you have this phenomenon where people are actually going to fly fishing stores, buying vests that have a zillion different pockets on them and just stuffing their pockets. So they don't have to either check a bag or bring one on the plane where there's not enough space. I respect the heck out of people who are literally going buying fishing gear, buying safari vests on Amazon because apparently the pockets are so big. you can slide your laptop in there. And fly fishing stores have said they've seen this phenomenal

where they know people are coming in who aren't fishermen themselves and buying them for travel instead. If you are one of those people, I just tip my cap to you because if you are not afraid of looking like a dork, you can definitely save money on baggage fees. All right, Walmart is buying Vizio for $2.3 billion, which made me do a double take when I saw that headline. Really, Vizio, the TV maker that I haven't seen since my freshman year dorm,

dorm room, that Vizio? Yes, but it's much more than just a TV maker. It also operates a large ad network that is a real crown jewel in Walmart's eyes. Vizio's smart TV operating system, which allows users to stream free ad-supported content, has more than 18 million active accounts, accounts that Walmart can now serve ads to. The goal is to eventually stand toe to toe with Amazon's growing 12 billion a year ad business. Plus, advertising offers way media your margins than the razor-thin ones offered in retail, especially groceries. You know, Walmart is on a bit of a heater right now. It also reported earnings yesterday with quarterly revenue growing 6% after a strong holiday

showing. You know what we say, don't let Northwest Arkansas get hot. Let's go. All about Northwest Arkansas. But yeah, this is a huge trend of retailers saying, okay, for most of our lives, we have sold you goods. That's how we're going to make money. now they're looking at what Amazon is doing and saying, okay, maybe on top of selling you actual things, we can start selling ads.

This has been a huge pattern of Best Buy, Kroger, Instacart, any retailer you can think of saying, let's build out inventory to sell ads because we have data that marketers want. And Walmart probably has more data than anyone other than Amazon. So they are starting to sell ads in a big way because they're seeing how much money Amazon is making and they want to grab a chunk of that. Yeah, it's also just, I mean, I mentioned margins. Walmart works on razor-thin margins. Their grocery business is almost like a loss leader for their company, where everything is so finely, even though so many people shop at Walmart, it just isn't a high-margin business. And so, of course, you want to invest in ads, which is basically an infinite margin business.

It doesn't take very much input to create a lot of output. So this is how they are looking to expand profit streams ahead. This is what is kind of like the future for these retail businesses. We have. We're sitting on treasure troves of customer data. Let's finally utilize it. Yeah, but it has a long way to go. I mean, Amazon did $14.6 billion in ads alone in Q4, 2023.

Walmart earned $2.7 billion in global ad revenue in the full year. So it's so far behind, but it thinks that by buying Vizio, it opens up a ton of new inventory, can start selling ads and start catching up to Amazon. Yeah. And it's also, it's a hardware business too. So they get that added boost. That's just the cherry on top. With inflation and wars stocking the world, investors have zeroed in on an asset that can

offer steady returns in times of turmoil. It's not gold. It's not NFTs. It's a thousand acres of corn in Nebraska. In recent years, investment firms have gobbled up American farmland as a hedge against inflation and as a bet that a growing global population will just need more food supplies. The growth of farmland investing has been staggered. According to a new report, the value of farmland held by investment groups has more than doubled in just the past three years alone, going from $7.4 billion at the end of 2020 to $16.6 billion at the end of last year.

Over that time, the price of land has surged too. The average value of U.S. cropland jumped 8.1% last year and has risen by more than a third since 2020. The calculus is this. The world's population is going to hit $10 billion in 2050 from $8 billion today. we're going to need to produce 60% more food to feed them all. And on the flip side, it's not like you can snap your fingers and make more arable farmland. So it just makes it for an attractive investment. It makes for a great investment.

It is a little concerning, though, especially if you are a farmer sitting here saying, all right, we're already in this aging business. We're already finding it difficult to attract younger people to kind of take over our farmland. And now suddenly we're competing with these very deep pocketed investors. Even though it is a very tasty investment, you look at that line. it's going up and to the right. Like, is that really what we want from our farmland, the fact that it is a good investment? It does remind me of what happened in the single family home market,

where there was a great concern that huge investors like Blackstone were coming in to neighborhoods and buying up all of the homes and raising prices and pushing people out. It's pretty similar to what you're seeing happening here. And then the other concern, too, is that U.S. lawmakers really, they don't like corporate interests, but they really don't like the fact that foreign corporate entities are potentially looking at buying farmland here. So there's a few laws that are passing through Congress that would restrict the ability for China, Russia, Iran, North Korea to come in and gobble up land. So that is definitely something that lawmakers have their eye on. It is ironic,

though, because there's a Chinese billionaire who is the second biggest foreign owner of U.S. land. It does come out to right around 1% of total farmland, so it's not a big deal. But it is interesting. I don't think many people knew that we have this Chinese billionaire, Chen. Tien Cow, who is the second biggest owner of U.S. land. A foreign owner. But, yes, we should say that this is just a pretty small percentage of all farmland, 1.1 to 3 percent owned by corporate interests. But there's this new farm bill that's going to be negotiated.

It expired last year, and they had to extend it into the next coming years because Congress hasn't doing much. But this is a farm bill that gets renewed and rewritten every five years. It sets policy across, you know, farms and anything that has to do with conservation and farming, that is what to watch for. And it might be negotiated this year. It might be negotiated in the next few years. At some point, it will be negotiated, though. Let's take a minute to hear from our wonderful sponsors, but don't go anywhere because we've got a very cool story about exploding chocolate prices coming up after this.

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Your music deserves Bose. Find your perfect product at Bose.com. HBO has made an interesting decision to try to maximize people subscribing to Max withholding John Oliver's show from YouTube for a few days after it airs. So yes, last week tonight, we'll now hit YouTube on Thursdays. Traditional media and YouTube have long had a complicated relationship. Do you keep your shows exclusive to where they air and forego the exposure and ad revenue that can come from YouTube? Or do you just blast it out to the world and take advantage of the extra distribution? HBO made the choice to withhold John Oliver's British sensibilities from the platform for a few days and the hopes that it would drive fans to watch the entire show on Max.

It's a risky tradeoff, though, one that John Oliver has since come out and said he disagrees with. But it's one that the Warner Bros. Discovery-owned network thinks it needs to make in order to boost Max. subscribers. What a tricky dance you have to play. For this could just be a test too. I mean, they could do it for a short term. See if it leads to a spike in max subscribers. Personally, I do not think it will. I think people are just going to wait till Thursday. I don't think they need that three-day window to go, you know, I don't think they're going to clamor for whatever John Oliver is saying, you know, people do like him. But to go fork over $10 a month for for Max just to watch what he's saying for a few days.

So I think this is just a test. I don't know if it's going to be successful, but it illustrates this very interesting dance that these legacy TV companies do play with YouTube, because when you throw something up on Macs, it doesn't go viral. It just can't go viral,

but when you put it up on YouTube, that's where our generation watches late night shows. Yeah. I think it's pretty crazy because you just miss the whole social media hype cycle. By the time that this show hits the main line internet, if you will, hits YouTube. It is ages ago in terms of the news cycle. Like the jokes he's making on a Monday night don't hit on a Thursday. So they're basically just

completely removing themselves from the chance to go viral. And if you look at other shows to John Stewart, John Stewart, I couldn't remember. The other John, John Stewart, they're putting Daily Show clips up when the episode premieres. Those clips are going very viral. The recent one just crossed 9 million views on YouTube. So you are literally seeing two different strategies play out, and I think the John Stewart strategy is going to be much more successful in the long term. What we're saying now is that TV needs YouTube, but if you go back to the beginning of YouTube,

there was a very interesting story about how YouTube was kind of fueled. The initial rise was fueled by TV, and I'm talking about, I know people are getting this song in their heads right now, Lazy Sunday, SNL, they put that up on the platform five months after YouTube was launched, and it is credited with helping raise awareness, put YouTube on the map. So this dance has been going on for almost two decades. Yeah, that is such an interesting story. I highly recommend you read how much Lazy Sunday kind of boosted YouTube's profile.

Again, YouTube probably would have become YouTube without Lazy Sunday, but they say, like, we definitely gave it a shot of adrenaline and brought it to kind of the forefront of people's consciousness. All right, so just to get you on the record, this is a terrible move. This is a terrible move, and I am willing to stake my flag in there. Go more John Stewart, less John Oliver. Moving on. Did you all know we are experiencing a chocolate crisis? We are. The situation is stickier than a Hershey's bar you left in your jeans pocket for the last month. The basic problem is that the world is hungry for chocolate, but there's hardly any being produced.

That huge gap between supply and demand has pushed cocoa prices to a 46-year high last month, jumping 65% higher than a year ago. Experts warn this could lead to higher prices in the candy aisle or result in shrinkflation where companies keep prices the same, but give you less chocolate. To learn the root of this chocolate crisis, you have to go to West Africa, where four countries, Ivory Coast, Ghana, Cameroon, and Nigeria produce almost 75% of the world's cocoa. The weather has been terrible for growing cocoa in West Africa, thanks to El Nino, pushing harvest to come up short for the third straight year, and thus prices have gone skyward. Toby, it seems like consumers have been shielded from the chocolate crisis for now, but we may be forking more

for Snickers later this year, because this is going to get worse before. it gets better. Yeah, the cocoa beans supply chain is incredibly interesting because in West Africa, it's still mostly grown by kind of like these single farming operations. It never made sense just because cocoa beans, prices have been so low to kind of commercialize it and turning it into a big plantation business. And now we're kind of seeing that decades of underinvestment in the space kind of play out in these massive supply shortages. Another thing, too, is most of the, there hasn't been a big tree planting operation since kind of the mid-2000s. So these trees are bordering on 25 years old at this point, which reduces kind of their ability to produce a bountiful harvest.

So it is so interesting to see these mistakes or these underinvestment from over two decades ago finally manifacing itself in Coco prices. And it has been the fact that Coco prices have just been low for a long time. So it never warranted more investment. And we could see the classic boom and bus cycle that you read about in Econ 101. taking place right now because prices are at a 46-year high. It's probably going to spur more investment in planting. And so, you know, eventually this chocolate crisis, the supply dwindling will subside and will get more supply. But that's only going to come in a few years from now or even longer because of these high prices.

But meanwhile, let's talk about the demand side. Demand for chocolate has doubled in the past 30 years. You know, chocolate used to be a luxury good. It used to be this thing where it's like, oh, I get chocolate. Now, you go in anywhere to any convenience store and you can get chocolate. And I know some people are like, well, milk chocolate's not really chocolate. Still, it has become more of a commodity than a luxury item for many in the West. And that has also put pressure on supplies. Yeah, no, it was very fun diving into kind of the chocolate supply chain, if you will. There is now the industry is kind of a buzz with the fact that prices could maybe double once again, get to $10,000 a ton.

Or they could just kind of recede back to their more traditional levels. but I highly recommend you go take a look at the chart of showing the price of cocoa beans as a commodity over the years because this recent run-up is insane and really puts into perspective how big this current chocolate crisis is. For our final story of the day, I want to tell you guys about the incredibly impressive resume of Bridget Menler. Bridget was originally a Disney Channel star on the show Good Luck Charlie. But like all Disney stars, you grow up, you move on. In Bridget's case, she took a pit stop as a singer, pumping out a couple bangers like Ready or Not in Hurricane. Then she left the entertainment world behind, attending both MIT and Harvard Law in the last few years.

And now, even though the printer is running out of ink on this resume, she has a new career as the CEO of a startup called Northwood Space that aims to mass produce ground stations for satellites to communicate with. Neil, I thought you had a cool employment journey because you went from economic development for the state of New Jersey. to the world's biggest and best business podcast, but dang, Bridget is putting us to shame. Yeah, I know. Some resumes you don't want to restrict to one page. Saw a tweet that said something like Bridget Manler's story is really inspiring. It just goes to show that maybe some people are better at everything than you. And I think this is the case. Let's quickly talk about the space startup because it's pretty interesting.

It's way above my pay grade to understand what the hell is going on. But basically, there's a proliferation of satellites. And the point of satellites is to beam data back to. so we can learn stuff about space and communicate with one another. And there just has been a lack of ground infrastructure for that. So this company, Northwood Space, it attempts to build these huge substations on the ground to be able to receive and transmit data from the growing number of satellites to people back here on Earth to make that data usable. And I think that's what happened. But Bridget is a way smarter than me. I think you did great. I'm very glad that you dove deep on Northwood

space because I dove deep on like the Bridget Menler lore. So here's this very niche internet joke where Bridget Manler tweeted out, Kay, sit tight for news almost two years ago back in 22, 2020, and then never followed it up with anything. She just put it out there. And then people have been quote tweeting it for for years saying like, what are we sitting tight for, Bridget Menler? And so I don't know if this was actually what we were sitting tight for or if it was just something that she forgot to tweet. But it is very interesting that some people have just kept tabs on her for a long time. And now she just always just repops up.

And it's so interesting because I can't tell you how on the Disney track she was. She had guest spots on shows like Jonas and Wizards of Waverly Place, eventually became the lead of her own show. She had a main role in a Disney Channel original movie called Lemonade Mouth. And then she got the Hollywood's record contract, had a couple of popular songs. And then totally just leaves that whole world behind because she says, listen, I'm interested in a lot more than just like this Disney. child. And she was also a little overshadowed about like the messy post-Miley Cyrus,

Selena Gomez, Demi Lovato era. So maybe that also incentivized her to get out. So again, I told you. I'm just nodding a lot. I went down the Bridget Mendler rabbit hole. So it's very cool to see what she's doing. Yeah. People are comparing her to the real life Barbie with all with all these different professions. They raised $6 million in a seed round from Andreessen Horwitz and Founders Fund to very big VCs. So there's a lot of hype around this actual company and we unfortunately have to wrap it up there. Have a wonderful Wednesday, everyone, and happy half birthday to me as well. You can wish us a happy one year anniversary or send more critical feedback. It's all fair game to our email address, Morning Brew Daily at Morningbrew.com.

Let's roll the credits. Emily Milliron is our editor and producer. Raymond Liu is our associate producer. Eugenawa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is hoarding chocolate. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buckslot machine by Aristocrat Gaming, Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package. The biggest prize in Yamava's history. Club Serrano members can earn daily instant prizes and secure a spot in the finale May 29th. Don't pass go and own it all. Only at Yamava,

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