Morning Brew Daily - Southwest Scraps Free Checked Bags & Tariffs Hit Steel and Aluminum

Episode Date: March 12, 2025

Episode 537: Neal and Toby discuss why Southwest is ditching one of its most prized perks: ‘2 bags fly free’ and why the airline industry is still struggling to takeoff. Then, Trump scares markets with a hike of Canadian steel and aluminum tariff to 50% but quickly pulls back. But the 25% is still happening. Plus, Greenlanders will have their say on their independence during their election and are sitting on a goldmine of valuable minerals.  Also, Japan is seeing record snowfall which has skiers from all around the world flocking to its resorts… Which is also causing safety challenges. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow There are risks involved with investing in ETFs, including possible loss of money. ETFs are subject to risks similar to those of stocks. Investments focus in a particular sector, such as technology, are subject to greater risks and are more greatly impacted by market volatility, than more diversified investments. The Nasdaq-100 Index® includes the 100 largest non-financial companies listed on the Nasdaq. An investment cannot be made directly into an index.  Invesco Distributors, Inc. Learn more about your ad choices. Visit megaphone.fm/adchoices

Consider this comparison. PWC data found the percentage of CEOs who report revenue gains or cost reductions from AI is almost equal to the percentage who say they're still stuck. What separates these two groups? PWC points to a clarity issue. Even for CEOs, it's hard to tell what's AI hype, what's reality, and where this tech can make a tangible difference. Learn where AI can actually make an impact and what successful adoption looks like at

pwc.com slash US slash brew AI. That's pwc.com slash us slash brew AI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today tariffs go heavy metal as the U.S. hits trading partners

with a 25% steel in aluminum tax. Then remember when bags flew free on Southwest? Well, now it's bags fly for a fee. Yep, free baggage is gonzo. It's Wednesday, March 12th. Let's ride. A hot new play is setting fire. to Broadway. Well, it's actually a very old play. Shakespeare's Othello starring Denzel Washington

and Jake Gyllenhaal brought in $2.8 million last week over eight performances, making it the highest weekly gross for a Broadway play in history. The average ticket price was $338, but hearing Denzel recite, excellent wretch perdition catch my soul. But I do love thee, and when I love thee not, chaos is come again. Seems worth it. Watch out, Denzel. That was is well done. Very expensive ticket prices. I mean, you mentioned the average ticket price, but you can get tickets upwards of $800 to see these two on stage. There's a lot of movie star action on Broadway right now and also coming down the pipeline. This spring, you can come see a picture of Dorian Gray starring Sarah Snook, aka Shiv from Succession, maybe Glenn Gary, Glenn

Ross, starring Kieran, Colin, Bob Odenkirk, and Bill Burr is your thing. I have tickets to that. All right, that is your thing. That looks amazing. And if you want suave, good night and good starring George Clooney starts previews this week. So a lot of good Broadway out there right now, even if it may cost you an arm and a leg. Now a word from our sponsor, Invesco QQQ. Neil, were you a jock or a nerd in high school? Geez, Toby, getting a little personal here.

I'd like to think I straddled both worlds. I was on the tennis squad, but also on our Quiz Bowl team and we were elite. I'm sure you dominated. And this is why you're successful, Neil. You contain multitudes. You're kind of like the Invesco QQQETF. Does it have a nasty one-handed backhand and know every capital city in the United States?

Well, no, but it's not just a tech fund or an industrials fund. It's a mix of 100 of the most innovative companies in the NASDAQ. It contains multitudes. Want to know our Quiz Bowl team name? If it ain't Invesco QQQ, then I don't want to know. With Investco QQQQ, you can rethink what's possible. Before investing, consider the fund's investment objectives, risk, charges, and expenses. Visit investco.com for prospectus with this information.

read it carefully before investing full disclosure in podcast description. You said this place was steps from the water. We just haven't found the steps yet. How much did we save? Enough to get lost. Or you could book a stay with Hilton. Welcome to your oceanfront room. Just steps from the water.

The Hilton sale is on now. Book on Hilton.com or the Hilton app and save up to 20% to get the stay you expected. When you want savings, not surprises. It matters where you stay. Hilton, for this day. More than 50 years, Southwest Airlines built its brand around one simple promise. Bags fly free.

But that era is officially over. Starting May 28th, Southwest will begin charging for checked luggage, a stunning reversal for an airline that once prided itself on being different. It's not just a policy change, it's a survival strategy. The decision comes amid a brutal financial squeeze for Southwest. and the broader airline industry at large. Delta, American, and Southwest have all slashed the revenue forecasts, blaming a sudden drop in consumer demand,

rising economic uncertainty, and Trump's unpredictable trade policies. It's a sharp U-turn for airlines that have been riding high post-pandemic, only to now face a perfect storm of weak consumer spending, corporate travel cutbacks, and shaken passenger confidence following a string of aviation incidents. And Southwest is far from the only airline forecasting rough air ahead, Delta CEO called the start of 2025 a, quote, parade of horribles as revenue expectations crater.

American Airlines slashed its guidance and nearly doubled its projected first quarter losses. Across the entire travel sector hotels, cruise lines, and retailers are all seeing some signs of consumers pulling back. For years, Southwest was the last airline standing against the rise of extra fees and nickel and diming, missing out on $5.5 billion in baggage fees U.S. airlines raked in last year. But it did stay true to its identity. But after activist investor, Elliott Investment Management, began snapping up board seats and pushing the airline on missed revenue opportunities, Southwest believes it had little choice,

but you press the flight attendant call button to try and beef up its bottom line. Neil, bags, they're no longer flying free. Let's go back to September 2024, just a few months ago. Southwest praised its two free bags policy as far and away the top feature, distinguishing the airline. This guy, Ryan Green, who was the chief transformation officer at the time, did a study. He found that bag charges would bring in about $1.5 billion in revenue a year, but also cost Southwest $1.8 billion in lost market share as customers would go to other airlines if they made this change. So he said, guys, it is not worth it. Let's just say that Southwest is not

employing this man anymore. They got rid of him and they made this change in a bid to survive in the cutthroat market for airlines right now. Right. It has underperformed financially. That is undeniable. But with this Bags Fly Free policy, it had a unique selling proposition. It was differentiated in the market. And the market had been valuing differentiation at this point. However, when a business underperforms like South Coast was doing, management does lose a little bit of wiggle room when it comes. to acting differently from the rest of the industry. So with that being said, it looks like Elliott Management came in and said, hey, this is where we think that you guys are leaving a lot of revenue on the table. Obviously, the check baggage industry is a huge part of what makes airline profitable. Sorry, you've been different for a long time, but now let's fall in line and try to, you know, shore up this business that has been struggling.

But now that Southwest has fallen in line with the rest of the industry, the question is, how does it differentiate itself from Delta American and United? And the answer is very unclear. Southwest doesn't have those premium cabin spots that have really been the profit driver of all of those major airlines in recent years. It only flies Boeing 737s. It doesn't have a differentiated aircraft base where it can fly to different routes at more profitable areas. And then in terms of distribution and where people find Southwest, only recently it showed up in places like Expedia or Google flights. For many years, it wanted you to go to Southwest.com to book a flight.

Now it's changing course because it realized that that's just another lever it could pull to move in line with the rest of the industry. But there are major concerns that Southwest cannot differentiate itself right now. And then just to zoom out to look at the airline industry as a whole, Delta American and Southwest have all lowered the revenue forecast. Delta slash its Q1 earnings forecast by more than 50%. American Airlines doubled its projected Q1 losses. Southwest-sided softness and bookings. And it looks like part of it is because a lot of these AI-line CEOs are acknowledging changing spending habits where, you know, Trump's trade policies maybe have caused people to pull back a little bit. Goldman Sachs revised.

It's 2025 U.S. growth forecast downward. We've talked about that on the show. Also, just a spade of recent aviation incidents and safety concerns are making travelers hesitate a little bit. We think back to the deadly crash into Washington in January. had that non-fatal crash in Toronto last month. And Delta has acknowledged that passenger concerns about airline safety have contributed to weaker demand. So just across the board, you are seeing some softness in this industry. Delta CEO Ed Bastion called Q1, a parade of horribles.

Who knew that the brawls at the U.S. Canada hockey game earlier this year would be a preview of their much larger economic war to come? President Trump ramped up his fight against Canada yesterday, saying he would double-plan tariffs on Canadian steel and aluminum from 25% to 50% effective today. Trump said the tariffs would be raised after Ontario's premier Doug Ford imposed a 25% surcharge on electricity from the province to people living in New York, Michigan, and Minnesota, affecting 1.5 million households and businesses. But by mid-afternoon, the 50% tariff on Canadian metals had been called off.

That came after Ford and U.S. Commerce Secretary Howard Lutnik said Ontario would suspend its plans for a surcharge on electricity going into the U.S. and that the pair would meet in Washington on Thursday to discuss trade. With any negotiation that we have, Ford said, there's a point that both parties are heated and the temperature needs to come down. The temperature may be coming down, but the tariffs aren't. Starting at midnight, 25% tariffs on aluminum and steel went into effect against all the U.S.'s trading partners, including Canada,

which could boost American metals producers but raise prices for manufacturers who use steel and aluminum as inputs. to make other goods. The on again, off again, tariff threats continued to give traders a headache. A day after posting its worst session of the year, the S&P 500 tumbled another 0.75%. Yeah, it shows that investors, pardon the pun here, don't have nerves of steel. The big issue is that Canada is the top foreign source of steel and aluminum that is used in just everything that you mentioned, cars, planes, soda cans, so these import taxes, yes, they could boost U.S. steelmakers, could boost their bottom lines, but it also could make U.S. manufacturing a lot more expensive.

Auto industry execs in particular are very nervous about this because of how much aluminum in steel go into their vehicles. So, yes, it has been just this one. It was kind of everyone was really scared a little bit yesterday when those tariffs were at 50%. We have backed down a little bit from that down to 25%. But still, it is alarming that for auto manufacturers in particular and U.S. manufacturers that their input costs are going to be really.

so much. Yeah, and this is not the first time that Trump has imposed tariffs on steel and aluminum. He did it back in 2018 during his first term, and that might be instructed to see what the impacts might be this time around. Prices for both metal, steel and aluminum rose 2%, and imports fell by a quarter. That is probably the intended effect of tariffs. It's supposed to raise prices to help out domestic manufacturers who are competing with foreign metals. At the same time, it raised prices. Companies like Caterpillar raised prices for customers, citing $100 million loss and profit from those tariffs. So you see the give and the take from tariffs last time. President Biden actually kept those tariffs on for many of the U.S. trade partners, rolled them back a little bit.

So steel and aluminum tariffs have been with us for a while, and they're just coming back to the entire world right now. And Canada, not Canadian, Canada plays the outsized role in the global aluminum market. Actually, most of their aluminum does end up across the border in America. 90% of its aluminum experts go to the U.S., but 30% of one thing that is interesting about Canada is that they don't actually have a lot of the raw materials you need to make aluminum. Boxite is actually raw aluminum or they don't have any of that. Most of that comes in from Brazil.

what they do have is an abundance of cheap hydroelectric power, which, again, we've talked about it. This is something that it gets imported over the border. This was part of the entire spat to begin with. But their hydroelectric power infrastructure makes it one of the top producers of aluminum. So it's not just that they have a bunch of aluminum ore laying around the country. It's just that they're very good at fashioning it into aluminum itself. Moving on yesterday, Greenlanders bundled up and headed to the polls in a hugely consequential parliamentary election, one that will likely shape the future of the Arctic Island

and determine just how much leverage Trump has in his latest territorial obsession. The center-right Democratic Party won most of the votes jumping up from 9% in the last election to 30% this time around, while the pro-independence Nellarek Party surged to second place. Their victory signals that Greenlanders are thinking seriously about independent future away from Denmark. Taking a step back for a second,

let's talk about why Trump and a whole bunch of other world powers suddenly care so much about a mostly frozen rock with a population smaller than a Taylor Swift concert. Greenland isn't just strategically located between North America, Europe, and Asia. It's also sitting on a mother load of rare earth minerals, lithium, graphite, nickel, and rare earth elements that can help power the global tech industry for the next century. For the U.S., it is a tasty proposition. China currently dominates the rare earth supply chain, and Trump has made it clear he wants to, changed that. First, he pressured Ukraine to hand over mineral rights in exchange for military aid. Now he's trying to make sure Greenland's massive mineral deposits don't fall into Chinese or European hands. Meanwhile, Greenlanders are caught in the middle of this geopolitical tug of war.

The island has been inching towards independence from Denmark for years. In opinion polls show that most Greenlanders do want to be their own country, just not as America's 51st state. So it was actually at stake in yesterday's election. Voters elected 31 lawmakers who, will decide the direction of Greenland's independence movement, its mining policies, and by extension, whether the U.S. gets its hands on those minerals. So a lot was at stake. The stage is set for an absolute gold rush onto Greenland right now. It contains an estimated 43 of the 50 critical minerals that the U.S. considers vital to national security. It's hosted some of the largest rare earth resources known to exist anywhere around the world. People like Bill Gates and Jeff Bezos

and even Howard Ludnik, the Commerce Secretary, have invested in companies that are prospecting in Greenland. It is very strategic for Western powers as a way to box China out of its encroachment into their territory. However, only two mines currently exist in Greenland. There are a litany of challenges that prevent companies from investing there. So there is a ton of treasure to be had in Greenland. The accessing part is quite difficult. It is very extreme. I think Greenland. It's incredibly difficult to access these things, as you said.

80% of Greenland is covered in ice, and there's also not a ton of roads between these settlements. So most of these mining projects must build these huge infrastructure from scratch, which adds to the cost. You're right. The island only has two active mines right there. A third one closed due to bankruptcy because this is just like the surface of the moon. It's just as difficult to set things up there as well.

The U.S. already does have a foothold in Greenland. It is a military foothold. They have an air base there. It's been a military outpost since 1951. So it is one of those things where we've kind of been always had an eye on it because of its strategic importance. But now, obviously, it's very much in the crosshairs. As it kind of enters this pathway towards independence, you can see from these elections that both those parties are in favor of independence. So with that being the case, you see some other multinationals come in. and say what else is there to glean from Greenland, and it is these rare earth minerals. So, of course, you're going to see a lot of, you know, fighting over it from the geopolitical powers like China, like the United States, like Russia, etc. Up next, you ever wanted to go skiing in Japan? Today we helped a...

Latte for Sam. Coffee shop, get an insurance quote simply and easily, and made sure... A floral delivery van was able to make someone's day. We're the Hartford, with decades of experience ensuring millions of unique small businesses. When it comes to your small business insurance,

one size absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash small business. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill three burner gas grill.

Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th. Exclusion supplies to homedipo.com slash price match for details. Talk to any well-traveled skier,

and they'll tell you that the country with possibly the world's best snow is Japan. Light, fluffy, and abundant. Japan's snow has attracted a record number of skiers and snowboarders this winter who marvel at the fresh powder and unique cultural experience offered by Japan's 500 ski resorts. But this year, there was too much of a good thing. Last month, record-breaking snowfall, 122 inches on one mountain, has caused chaos on the slopes leading to closed resorts, dozens of stranded skiers, and burnout for staff as they've had to shovel out to make their mountains operable. A spokesperson for Gala-Yuzawa Snow Resort, which had to close for a day for the first time in more than 30.

years called this season's snowfall honestly disaster level, or to put a number on it, two and a half time last year's snowpack. The tumble is unlikely to dissuade more foreigners from skiing in Japan. In fact, it may only galvanize it. Once under the radar, Japan's ski mountains centered on the northern island of Hokkaido have officially hit the mainstream, as European, Aussie, and North American tourists head there in droves to escape the long line, steep prices and lack of snow that characterize their home mountains. And the Gossom why goose drips Opry ski doesn't hurt.

It does not hurt at all. I'm sure a lot of West Coast skiers in the United States are rolling their eyes listening to this right now and saying too much snow. Oh, poor Japan. Because Japan really is kind of the next iteration of this ski boom that we see going across the road. North America has been struggling with warmer winters.

They've been struggling with melting glaciers. Skiing has become unreliable in the Alps and in the rocky mountains. So you are seeing these things where ski ticket prices are just absolutely exploding 200 plus per day at resorts like Vale, Aspen, and Whistler. So you look over at Japan, they have lower cost due to the weak yen compared to the U.S. dollar.

They have a more reliable snowfall, so it makes for a lot of long-term tourism growth there. Japan's ski industry is less dependent on artificial snowmaking. So you are just seeing this absolutely explode on the world scene. And a lot of travelers are flocking over there because of things like reliable snowfall. A lot of people who ski this summer in North America, Europe are about to wins. But the most expensive lift ticket in Japan is around $75. Many cost much less. So essentially, if you pave the international airfare and you get there, you can have a really good time on the cheap. The snow is so abundant. It's just this swirling, swirl of climate factors where you

have the winds blowing across Siberia mixing with the, you know, warmer temperatures. the sea of Japan and then it slams into these mountains and creates a really, really abundant snowfall. Another factor that makes Japan attractive is that if you're afraid of altitude or get sick from the altitude, many of these mountains are below 1,000 feet in elevation. So there's no altitude sickness going on. Yes, there may be smaller slopes, smaller runs, but, you know, it makes up for it in terms of the experience. And I do think that Japan is a little bit at risk of having what happened to the North

American and European ski industry happen in Japan because these resorts are starting to get more crowded, which means that, you know, real estate costs around them are going to go up, make it harder for locals to afford housing. Also, labor shortages are a big issue in Japan as well, because we've talked about this as a larger problem in Japan. It's an aging population. And so to have, you know, young ski bums working those seasonal work jobs are not as easy to find in Japan as maybe you find in the United States as well. So the final, takeaway is Japan, maybe it's the future of global skiing. There are a lot of factors that are pushing it towards that, the weekend, climate change, global ski industry shifts in general,

but it does have to avoid the same pitfalls that these other mountains have gone through. Let's sprint to the finish with some final headlines. The mass layoffs at the federal government roll on with the education department saying it plans to shed more than 1,300 of its employees, about half of its staff, previewing President Trump's stated goal of dismantling the agency entirely. Officials insisted the education department would continue to fulfill key functions such as delivering federal aid to schools, managing student loans, and overseeing Pell Grants. Secretary of Education Linda McMahon said the downsizing was intended to reduce bloat and send more money to state school authorities. She has acknowledged that only Congress has the

power to completely abolish the agency. Right. This is an advancement of one of Trump's stated goals, get rid of the Department of Education. There is a lot of concern, though, if you can, a 50% reduction in stat allows you to continue to serve the people that the education department does. There was that reiteration that, you know, student aid will not be impacted, but there is some concern on whether, you know, you can do the job of the education department with half of the staff gone. Manchester United is taking the ultimate out with the old in with the new approach by ditching old Trafford. The club announced plans to replace its historic 115-year-old stadium with a brink. brand new 100,000 seat behemoth that co-owner Jim Ratcliffe claims will be the world's greatest football stadium. The project is part of a massive plan that aims to create 92,000 jobs,

17,000 homes, and attract 1.8 million visitors a year. While United fans might welcome the upgrade, their real concern remains the club's on-field struggles. As a fan myself, it is tough to see them languishing in 14th plays in the Premier League. The Theater of Dreams, as old Trafford is known as has become more of a nightmare. Yeah, this stadium is going, this new stadium is going to be huge 100,000 person capacity. That would be the biggest stadium in the UK. It's going to cost $2.5 billion. So the big question is where they're going to find the money.

Are they going to sell the naming rights? But just to put this in context, this stadium has been around for 115 years. It's like Fenway Park getting demolished to get a new Boston Red Sox Stadium. It's kind of similar to what happened with Yankee Stadium, where they took down the old one built a new one. I mean, as a man you fan, what do you feel about this? I mean, I saw the renderings. They kind of looked like a circus tent which led to a lot of jokes of

hey, look it. There's a circus tent above it and there's a circus going on beneath it. I truly just care what's going on on the field. Stadium or not, just play better. That's all I want. For the second straight spring, Major League Baseball is dealing with a merch fiasco weeks before the season

starts. Last year, players complained about newly designed jerseys from Nike and fanatics. This year, fans are mocking special edition New Era hats for showing nonsensical and sometimes inappropriate words on the cap. New Era recently released overlap hats that superimposes each franchise's logo over its wordmark, but it worked better in the brainstorm session than in practice because the Houston Astros hat reads Ash Hose and the Texas Rangers hat looks like it says Tetas, which you can Google what that means in Spanish. After getting roasted on social media, the Rangers hat is no longer

being sold, but it seems baseball cannot get out of its own way when rolling out new merchandise. They're so bad. I don't understand why you need to get so cute with it that you just completely obscured the brand's name altogether. The issue with New Era doing this is that unlike Fanatics, which had the Jersey fiasco last year where the jerseys were way to see through, they were sweating through. New Era has had a relationship with MLB dating back nearly a century. They've been supplying its game-used MLB hats since 19. So this was not just some new upstart company trying to save costs. It really looks like they just whiffed the ball.

I mean, I should say struck out on these designs. I encourage you to go look them up because you would never put it on your head. It just doesn't make sense. Next time you toss on severance, check to see if your pet is nearby because while your Audi might love dogs, your dog might not love them back. Fans of the hit Apple TV Plus show have noticed their pets freaking out, whining, pacing, even hiding, whenever the series is playing. Experts say dogs might be reacting to the show's unsettling sound design,

which includes high-pitched beeps and unnerving static, or even its signature blue color palette, which dogs perceive more vividly than other colors. But maybe the real culprit is you. If severance is stressing you out, your dog is likely just mirroring your anxiety, so maybe switch to something lighter like bluey. I mean, panting, pacing back and forth,

wanting to curl up with someone that sounds like me when I watch this so. So it's very understandable that a dog would be exhibiting these behaviors as well. It's just a very unsettling experience for both human and animals. Let's wrap it up there. Thanks so much for starting your morning with us and have a wonderful Wednesday. For any questions, comments, or feedback, send an email to Morning Brew Daily at Morningbrew.com. And if you're enjoying the show, share it with a friend, family member, or coworker Toby, who should everyone share it with today?

I want you to share the podcast with someone who has strong thoughts on Severance Season 2. The debate has been tearing up the morning brew office. A lot of, it's boring and there's no payoff takes being thrown around. So stir things up in your own group chat by sending this episode as a call list. Let's roll the credits. Emily Milliron is our executive producer. Raymond Loo is our producer, Olivia Graham, and Olivia Lake are our associate producers. Yucenoa Ogu is our technical director.

Scoop Starteris is on audio. Hair and makeup is scarfing down to geary after a long day on the Japanese slopes. David Emery is our chief content officer and our show is the production of Morningbrough. Great. So Daniel, let's run it back tomorrow. Own it all. 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.

celebrating its 40th anniversary. You win? Details at yamava.com must be 21-20. Please gamble responsibly. Monopoly is a trademark of Hasbro. Hasbro is not a sponsor of this promotion.