Motley Fool Hidden Gems Investing - JetBlue Has Jet Lag

Episode Date: January 28, 2025

The airline has wasted resources on two failed growth strategies. Can a new plan turn the plane around? (00:14) Jason Moser and Mary Long discuss: - Why not all airlines are facing the same headwinds - GM’s quarterly net loss - The just-announced partnership between X and Visa. Then, (14:54), Robert “Bro” Brokamp and Amy Bach talk about how homeowners can better understand their insurance policies and how to prepare for a potential loss. Tickers mentioned: JBLU, UAL, DAL, GM, V Host: Mary Long Guests: Jason Moser, Robert “Bro” Brokamp, Amy Bach Engineers: Rick Engdahl, Austin Morgan Learn more about your ad choices. Visit megaphone.fm/adchoices

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Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Nespresso.com. Prepare for landing. It might be a little bumpy. You're listening to Motley Fool Money. I'm Mary Long, joined today by Captain Jason Moser. J-Mo, thanks for being here with us today. Captain, I like that. I've never been referred to as a captain before. Maybe that'll catch on. Well, captain of stock picking, right? There we go. Got some good ideas. He knows some of his stuff. We got earnings from an airline and a carmaker today, plus a little development over at X, just in case anybody thought for a brief moment that things were getting a little too dull over there on the social media platform. We'll kick things off with JetBlue.

That stock is down over 25% this morning, last I checked. Revenue and earnings per share did beat Wall Street expectations, but it's the bumpy forecast for the quarter ahead in particular that have investors running. JetBlue is not exactly a stranger to bumpy rides and cloudy forecasts. Stock's down over 70% over the past five years. To turn the company around, JMO Management has rolled out what they've called the JetForward strategy. The idea here per company materials is to, quote, be loved and be profitable. We'll hit that profitability point first.

What is the JetBlue JetForward plan to return to profitability? Yes, well, the company, we would have you believe that it is on track and is helping to guide or drive positive adjusted operating margin for 2025. Now, I think that remains to be seen. But I think you said a lot of important things there in regard to what they're trying to do, the strategy behind JetFord. They have addressed some challenges that they've been trying to deal with over the last several years. I mean, talking about grounded aircraft due to the Pratt and Whitney engine issues. There are airline traffic controllers, right? The understaffing of ATC is having a big impact on them in wasted resources and initiatives like the Northeastern Alliance with American Airlines and a spirit murderer, both of which were shot down by the courts, even to the point where value carrier revenue has not kept up with inflation.

So they're dealing with a lot of issues, and some of these things are more in their control than others. But ultimately, that's what this jet forward plan is meant to address. You've got JetBlue that's facing these headwinds, but competitors don't necessarily seem to be facing the same ones. Delta and United both reported earlier this month they increased their first quarter revenue guidance. The Delta CEO predicted that 2025 would be the best financial year in the airline's history. Why do you get such different stories from companies that, yes, have their differences, but they kind of are commoditized a little bit? Why are we seeing such a divergence here? Yeah, they're similar but different.

I think when you look at companies like Delta or American Airlines or United, those are airlines. Airlines, it's a business where scale really does matter, right? The bigger that you are, the larger your network, the more airports that you serve, the more countries you serve, it gives you more flexibility, right? And you can attract a wider variety of consumers. And so when it comes to JetBlue, I mean, JetBlue is primarily a value-focused provider. And so they're just a little bit more limited in that regard. And I think that when you look at the guidance for the coming year, I mean, they're talking about some really difficult numbers for the immediate future. I understand the market's pessimism.

If you get available seat miles are going to be down 2% to 5%. Revenue per available seat mile will be anywhere from down half a percent to up 3.5%. And then cost per available seat mile is going to be up 8% to 10%. Now, this is a $2.5 billion company, something like that. When you compare that to its larger competitors, and given the fact that those larger competitors have such a much broader potential consumer base, it becomes very apparent the challenges that JetBlue is dealing with. Not saying they can't overcome them, but certainly it shows, I think, the advantage that scale offers in this industry. That be loved piece of the jet forward strategy is an interesting one to me. I am, I'll put my biases up front. I'm a Southwest girly. I love Southwest.

And that be loved idea strikes me as being really similar to the original Southwest ethos, honestly. Focus on customer delight, bring humanity back to air travel, give people two free bags, that kind of thing. There are so many things within the airline, the air travel experience that are outside of an airline's control. What does it take for an airline to genuinely become beloved by its customers? Well, I think you said a lot of it right there, right? I mean, it really is just, it's taking something that used to be a pretty fun experience and now has become more of not the most

enjoyable experience in the world, right? Traveling via air and you got to go to the airport, get on the plane. And you want to, at least, you know, the airport is going to be what the airport is. And so it's nice to know if you're going to step on the plane, that you're stepping into an environment where people are just going to be generally nice and friendly and they're going to treat you well. And certainly that's not all on the staff, right? I mean, you're dealing with a plane full of passengers as well. So I think there is, humanity bears a little responsibility here, but I think generally kind of going back to that high touch as much as you can, customer service, free bags, anything that you can do really to make the customer feel like they're valued. I mean,

that will go a very long way in bringing people back to your brand. The airline business is kind of a tricky one. It's not the hottest place for investors to be. You know, if JetBlue can succeed on that beloved piece, are there actual opportunities for good returns here? I think there could be. I mean, I view investing in airlines to be more work than it's worth personally. It's because I take a longer view, right? I mean, I look at like five years, 10 years. When you hang on to these airlines for really long periods of time, it doesn't really always work out very well. I mean, you look at over the last, what, 10 years, I mean, the S&P

has outperformed JetBlue, American Airlines, Delta Airlines, and Southwest Airlines. It's not even close. So I think I kind of liken airlines to value investments. You want to get them when they're down, but then be ready to cut the cord when the time comes. Well, with that, we'll move on to Carmaker General Motors. They also reported earnings this morning, again, beating analyst expectations, but still having a down day in spite of that. Quarterly revenue just shy of $48 billion. That's up about 11% from last year. Yet, the company posted a quarterly net loss of nearly $3 billion on that revenue. Management attributed that to non-cash restructuring charges and an impairment of interest in, quote, certain China joint ventures, plus half a billion in

charges tied to the earlier decision to stop funding Cruise, the robo-taxi business. We'll talk about Cruise in a moment. First up, what is the deal with, quote, certain China ventures? Well, so GM has a presence in China via joint venture partners. And so, as you know, They've recorded a $4.1 billion special charge on that business. Half of that is related to an impairment to the business, and the other half essentially was connected to restructuring actions that they've taken so far in China. Now, China is an important part of GM's business, but I wouldn't call it crucial, right? I think it's a nice growth avenue, but they are witnessing some challenges in China right now. The write-down was due to restructuring and heavy competition. And if you look at the numbers, GM has been losing share in China over the last several years. I mean, it's gone from 11.2% in 2021 to 8.4% as reported in 2023. My suspicion is when their annual report comes out regarding 2024, we'll see that number down even further.

Hence, these restructuring efforts and write-offs. But the good news, I think, for investors at least is that the restructuring efforts are in their final stages and that they are seeking to be profitable in China next year. So it is a near-term challenge, but it seems like it's one they're working to overcome. The other smaller piece of that net loss is attributed to this cruise write-off. If not robo-taxis, if GM is getting out of the robo-taxi business, what, J-Mo, is the next great big growth engine for the car business? Yeah, the big growth engine.

And so I think in the near term, at least the writing or off of or exiting of the cruise business can help the cause. I mean, they expect to see a run rate savings of around $1 billion on an annualized basis just by getting out of that business. I mean, ending the robo taxi development. Now, I think it's important for investors to note that this doesn't mean that they're getting out of AVs, right? They're just getting out of the robo taxi business. So I think there are a couple of things that could help return or, you know, help spur growth. They could return to growth in China, for example. I mean, it's not something that's going to, you know, make some world of difference, but it absolutely could be a good growth engine for them. And I think even with no robo-taxi, they will continue to invest in the AV opportunity on the consumer side, right?

They built out a lot of that technology over the last several years and will continue to do so as they pursue those L4 and L5 autonomous driving levels. And I mean, they'll examine partnership opportunities as they arise. They could potentially acquire some tech. But I certainly wouldn't look at getting out of the robo-taxi business as equal to, well, they're just not going to be dealing with ABs at all, because that's not the case. One other thing that I want to hit with GM, in the company's press release, they noted that 2025 guidance assumes a stable policy environment. That's noteworthy to me because

there are a couple of proposed policies floating out there that could theoretically impact GM's operating environment. One being tariffs on materials like aluminum that could increase the costs to build and make their vehicles. Two, taking away the EV tax credit could disrupt their EV business. This idea of assuming a stable policy environment, is that kind of projecting confidence and more PR posturing? Or how do you think these policies could realistically affect GM and other car makers? Well, I think GM is preparing for the worst and hoping for the best. If you look through their annual report, they noted commodity costs are reflecting greater variability, and they expect that to remain elevated due to macroeconomic conditions

in continuing government policies. Now, that can obviously change, but it's also something worth noting with GM. They have some big suppliers. I mean, combined purchases from their two largest suppliers are 11% to 12% on an annual basis. And so that can be great in good times, and you can cut some deals with those suppliers

because you're such a big customer. But when things start getting tight, it can get a lot more troublesome as your supply chain starts to dwindle, so to speak. So I think that's something to keep an eye on. And I think in regard to EV tax credits, that's absolutely something to consider. I mean, it was neat to see EV and hybrid sales at 20% of all sales in the U.S. of all auto sales in the U.S. in 2024 that favored hybrid vehicles, including the plug-in models.

But still, we saw very strong performance from EVs as well. I think the big question in regard to EVs, it's going to continue to be the supply chain for EV-critical minerals. I mean, that's another thing GM called out. I mean, there is just increasing scrutiny of sustainability and human rights implications. So that could play a role in some increases in those vehicles in the coming years. One other story to hit before we go. X announced this morning that it's teaming up with Visa to launch a digital wallet and peer-to-peer payment services. So this will work similarly to Venmo or Zelle, where users can move funds from a bank account to a digital wallet and then use that wallet to pay their friends, pay their peers.

Thing is, J-Mo, we've already got Zelle. We've already got Venmo. Are people actually going to use the X money account to move money? Why would somebody jump from Venmo to X to do the same thing? So I'm not saying it can't work. I mean, I don't have any interest in using it to move or hold money personally. But the one thing I will say, I think that Musk has done with X since he took it over. He's created a bit of a bigger creator economy on X where people can actually go in there

make money. You see a lot of people out there publicizing the money that they're making on a monthly basis. And who knows if that's true or not, but we like to believe it is. Regardless, it does seem like it's a little bit friendlier to creators than it used to be. And so for those folks, they might find it to be a convenient and helpful solution. But back to your point, I think the overwhelming masses are going to take a big pass on this one because there's so many great and reliable options already out there today. Is there a downside to this move to X, to Visa, or to both if this flops and it flops publicly? Well, for Visa, they just pushed through $15.7 trillion in total volume in 2024. So this isn't even a rounding error for the company. It's

much, much less. So there's not really any downside for Visa. I mean, they're seen as maybe trying something new and perhaps they find a new innovation there. X is trying, they're trying to figure out how to stoke some sort of growth there. And if this proves to not work out, well, that's going to be one less avenue of growth that they can pursue in the coming years. And given the state of the business today, Musk has got to take everything he can get with this one. Jason Moser, always a pleasure to have you on the show. Thanks so much for joining us this morning. Thank you. increasing instances of floods and fires make having the right home insurance all the more

important up next robert brokamp talks with amy bach an insurance consumer advocate and executive director of united policyholders to discuss how homeowners can better understand their policies and how to best prepare yourself to be made whole in case disaster does strike Over the past year, we've seen all these heartbreaking stories of widespread damage and destruction from wildfires, hurricanes, tornadoes, flooding, really all manners of mayhem. I'm sure many people are wondering, if something happened to me, would my home be insured? The answer lies somewhere in the policy documents. As they dig through their what should people be looking for? So you want to focus on what we call the big ticket item,

which is, of course, your dwelling, if it's a home insurance policy. And secondary is your contents, your personal property. And then third is your temporary living expenses. So you want to look at how much do you have? Are there extensions that you've bought or could have bought that you now should buy that would give you a little bit more coverage? And then how long would your temporary rent coverage last if God forbid you could not live in your home? So would it be a year? Would it be two years? What, what would it be? And what's the dollar amount available there for a renter? You, you know, it's, it's B and C without the A meaning for a renter, it's how much money would I get for my possessions? What specific possessions are excluded? So for

example, if you, like many people, are working out of your home and you have equipment from your employer, or you have equipment that you only use for business, you want to double check whether your renter's insurance policy would cover that equipment because it's used for business. A lot of renters policies will have limits or exclusions for business property. They also might have exclusions or limits for specific things like art, silver, you know, collections, guns, for example, you know, those, those things you as a renter would want to make sure that if you have those things, you want to check your policy and see if you're covered for those things. Those are kind of the main ones. And again, for a renter, you also want to see

if you had to move out of your rental, how long would you be able to collect benefits to cover the cost of wherever it is you have to move? When you're looking at your policy, are you looking for specific things that could happen or are you looking more for things that are excluded? Because I just mentioned a bunch of ways that things that could damage your home or your apartment, fire, theft, water damage, all that type of stuff. So do you want that list of everything specifically mentioned or are policies more likely to say everything's covered except these things? Well, look, reality check here. I think everybody kind of knows this. Insurance companies sell insurance as if it were like this warm and fuzzy blanket.

But what it really is, it's a contract written by their lawyers and rewritten and rewritten. You know, so every time they lose a court case or they win, they go in and they say that they fine tune the language. So for the average consumer to really understand their policy is very tough. And that's why we recommend United Policy Research suggests that at least once a year you have a conversation with your insurance company or their representative agent or broker and ask them point blank and have a notebook ready and be writing down notes of what they say and keep track of the date. and who you talk to and keep those notes in a safe place and ask them, what are the things that are not covered? What are the things that are limited? And are there risks that are outright excluded?

So for example, you live in Florida, chances are you might know this already, but a lot of home insurance policies now have exclusions for wins above a certain speed, right? So you do absolutely need to ask those questions. Do I have coverage for a hurricane? If you live in an area where there's hurricanes, do I have coverage for an earthquake? If you live in an area where there have been earthquakes, so chances are increasingly the answer is going to be no. And you're going to have to buy some extra coverage if you want protection you know flood damage hasn't been covered in a home policy since the 60s but a lot of people still are surprised to find out that you're not covered under a home policy for flood damage and that where the water has comes up from

the ground where if there's a hurricane and there's heavy rain what we call wind-driven rain and it gets into your house through an opening, say it rips off a shingle or a tree branch breaks a window and the water gets in and you have water in your house, some of it could have come from the wind-driven rain, some of it could have come from flooding from the ground, maybe a storm surge pushed the water, your house is full of water.

If it came from two things, you can try to get coverage for the wind-driven rain, But you're not going to get coverage for that flood damage unless you have flood insurance. So the bottom line is that insurance companies have been all over climate change for almost two decades now. They did not say it was a hoax. They have been steadily moving to protect their profitability. And the way they've been doing that is by increasing the things they don't cover.

It's by increasing deductibles, which leaves the household carrying a bigger share of the cost of repairing the damage. And they put all kinds of fine print in the legalese that makes it very hard for a regular person to figure it out on their own. And that's why we really recommend that annual conversation with somebody associated with your insurance company during which you get the straight scoop. Like, what am I looking at here? What's going to be on me?

What's going to be on you? And what can I do to fill any gaps that I might have? I've been a homeowner for more than 20 years, but then on Christmas Eve, I woke up and our water heater had burst and flooded our basement. So for the first time ever, I'm making a homeowner's insurance claim. And I would say so far, the insurance company has been pretty good. But as I'm digging through my basement, I'm finding all these things that are pretty valuable, like my old football card collection and collectibles and antiques and things like that so how do you document what you own so that if your home were destroyed that you could prove to the insurance company that you owned it well the easiest way is if you have a

phone that has a camera you put it on the video setting and you make a little video and you narrate as you go and you go into every room and you open every drawer and you either just show it or you talk through it. Here's my bedroom set that I bought from Macy's 10 years ago. You don't have to, if you don't remember when you got it, that's not important. What's important is you photo document and you create this inventory, right?

If you don't have a phone with a camera, you can take a notebook and you can create an inventory. You can go to uphelp.org, our website, and you can find, we have sample documents and you can see, you can download a spreadsheet that some poor disaster victim spent a year creating, you know, that jogs your memory of every possible thing that you might have, that you might have. But the easiest, fastest thing is just to, to create that cell phone video and then send that recording up to the cloud or to

somebody you trust and say, just please, you know, if I ever, God forbid, need this, hold on to it for me or just know where you can find it. And that will really get you a good part of the way there if you, God forbid, ever do need it. Are there things that insurance companies expect you to do before a loss or maybe something you should do that will either result in a lower premium or even just mitigate the risk that something will happen to you? For example, some fire departments will come out and take a look at your home and give you some sort of an assessment on that. In recent years, insurance companies have been paying a lot more attention to the age and the condition of properties that they've

been insuring. They're doing this largely because they have tools now that they didn't used to have like drone images of people's roofs and risk models that are extracting data from publicly available records on when's the last time somebody pulled a permit or when they look at something called your clue report, where they see what claims you might have filed in the past. So they have what I call TMI now, too much information, and that's causing them to both reject some customers that they used to take in the past, but also and drop some existing customers.

but it's also causing them to charge people more. So really the only strategy, other than being a good consumer, shop and compare whatever options you have, is to take steps to reduce the chances of there being damage to your home. So for example, installing a moisture sensor is something that a lot of insurers are asking their customers to do to detect a leak before it gets really serious. Having smoke detectors in your house is something that a lot of insurers will ask. Do you have that? And that's important. Trying to keep your home in as good shape as you can, maintaining. And if you know you have a leak, deal with it. Because what we're seeing is insurance companies being very tough on water damage claims if it's been

a slow leak that you didn't deal with. If you should have known or you knew about it and you didn't do anything about it, they may reject your claim on that basis. They may say, we don't pay for continued and repeated seepage and leakage. So again, not to scare your listeners, but this is just a heads up that times have changed in terms of insurance, and they are definitely using new tech tools to sift the better risks and risks that they think might result in a claim, right? Customers whose properties are in good shape versus customers whose properties may not be in as good shape. And so even though it's so challenging for households today and a lot of households just to keep food on the table, let alone pay your insurance, taking steps to make

it less likely that heavy rains or high winds or even a wildfire would take out your home or just damage your home is going to both help save your home, but it's also going to save you money on your insurance. Because across the country, we are seeing a lot of pressure on insurance companies to give what are called mitigation discounts. So there's a lot of pressure from my organization, from insurance regulators across the country, from elected officials on insurers to say, hey, you're raising prices like crazy here. We hear you that with climate change, you've got to charge more, but you've got to give people an appropriate break on their premium if they have mitigated, if they have done risk reduction. It's only fair. And if you're charging somebody the same premium who put on a new roof or that as you're charging to somebody with an old roof, that's you're overcharging that person with the new roof.

So you've got to reward your people. You've got to reward your customers who are taking the initiative to fortify their homes. And it's working. Some, we're seeing, you know, programs, lots of programs in the hurricane prone states where you can get a fortified home discount. Now in California, you can get a wildfire prepared home discount. So that's the one thing. You can't really force an insurance company to take you or keep you as a customer if they don't want you. That's not really a thing yet in this country. It might change, but it's not a thing. We have the Affordable Care Act for health insurance. That sort of makes insurance companies take some customers they would have otherwise said, no, we don't want this person because it's for sure they're going to file a claim and cost us money. We don't have that yet with property insurance. We may have to get that. We're not there yet. So for now, homeowners really do need to do their best to avoid being in a situation where they're going to have to file a claim and or if your home does get damaged. if it's something small, you definitely want to consider paying it out of pocket rather than filing a claim because these days, you know, insurers, you just can't hide from, you can't hide your history from your insurance company because they just, there's just a lot of ways

for them to know whether your home has been damaged in the past and that can really be a strike against you. 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. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally recommend to friends like you. I'm Mary Long. Thanks for listening. We'll see you tomorrow, fools.