# 681 – 😅 Boeing averts disaster – The Average Joe

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    # 681 – 😅 Boeing averts disaster

    victorlei

    April 25, 2024

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    Good morning. For decades, Americans have wished for high-speed rail like they have in Europe and Asia — and that wait might finally be over. The newly unveiled, all-electric Brightline West rail will zip passengers from southern California to Las Vegas in just over two hours. The entirely emission-free project is also a win for environmentalists — plus, it could save drivers from traveling 700M miles by car each year.

    The plan is to have it completed by 2028 when LA will welcome millions for the Summer Olympics.


    INSURANCE

    US Insurers Have Been Losing Billions On Policies Since the Pandemic: Here’s How They Plan To Get Even

    Sometimes in life, you’re the windshield — and sometimes, you’re the bug. But after years of being the bug, insurance companies are hoping to become more durable in their next life. In 2023, global insurance losses exceeded $123B according to Gallagher Re — the fourth consecutive year with losses exceeding $100B. With this unsettling trend unlikely to change, insurers are pulling out the stops to ensure they control the windshield in 2024.

    Insurer comeback: Catastrophe losses more than doubled from 2019 to 2022 as natural disasters and higher prices affected domestic insurers. Last year, property and casualty policies lost $21B — a slight improvement from 2022. This modest recovery was fueled by insurers hiking premiums — a strategy they plan to continue this year, which could shape 2024 into a comeback year. However, their success may come at the expense of policyholders.

    • Home insurance premiums soared by 8.6% last year to a new record — while auto insurance rates sawdouble-digit spikes, marking the largest increases since the 1970s.

    • This has helped insurers Progressive ($PGR) and Allstate ($ALL) offset dramatic losses — driving their stocks up 34% and 25%, respecitvely, this year, making them standout performers in the S&P 500.

    Your loss is their (premium) gain

    Some insurers argue that price hikes are necessary to cover mounting losses from increasingly problematic catastrophes — and to compensate for lower premiums during COVID. Either way, they’ve sent insurer profits skyrocketing, with Progressive’s earnings in the latest quarter more than doubling from the previous year. And with prices expected to continue rising and insurers threatening to leave states, profits could soar even higher.

    • Insurers took drastic measures last year, withdrawing coverage from disaster-prone states like California and Florida — leaving many uninsured and exacerbating the affordability crisis.

    • However, Allstate recently resumed new insurance sales in California after regulators allowed them to raise prices by an average of 30%.

    Return of reinsurance: Reinsurance firms, which insure the insurance companies, have also recovered — with Arch Capital Group ($ACGL) and RenaissanceRe ($RNR) seeing gains of 23.4% and 9.8% respectively this year. Last year, they posted significant increases in return on equity as investors flocked back to the insurance business — which could eventually help alleviate some of the pressure on insurance inflation in the long run.


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    And despite market conditions, the private credit industry has provided attractive returns and is currently estimated at over $2T globally in assets under management2.

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    LARGECAP RECAP

    🛬 Boeing unravels in earnings after 737 Max disaster

    Investors, please put on your seatbelt — Boeing ($BA) is hitting some rough patches in the stock market. Already down more than 36% this year, the aerospace manufacturer just released its first full quarter of earnings since the harrowing door blowout on an Alaska Airlines ($ALK) 737 MAX 9. And the damage is evident: its revenue dropped by 8%, marking the company’s first decline in seven quarters.

    • Boeing made 36% fewer jets in the first quarter amid a crackdown on its production line, which aims to increase oversight of the production process and fix quality problems.

    • The slowdown caused Boeing to post a $355M loss — and the company’s negative free cash flow nearly eclipsed $4B during the quarter, its worst since the pandemic.

    Turbulent skies: Although the results posted by the company exceeded analysts’ expectations, Boeing still has work to do. It has only been profitable in one quarter over the past four years, needs a new CEO, and will need to face questions from Congress. And making matters worse, Boeing’s effort to acquire its largest supplier has been derailed by conversations over what to do with its competition. In any case, it’s clear Boeing has a long road ahead in terms of recovery — $BA notched a 52-week low today while seeing its debt downgraded by Moody’s.

    Read: Boeing’s struggles are rippling throughout the airline industry

    🚭 Philip Morris is saying “no” to cigarettes — and it’s paying off

    With declining cigarette sales, Philip Morris ($PM) is embracing a smoke-free future. The controversial tobacco brand saw an 8.3% sales increase in the first quarter, fueled by growing demand for its Zyn nicotine pouches — which saw shipments rise 80% compared to the same period last year — and its IQOS heated tobacco sticks, which experienced a ~21% sales boost in Q1.

    • Philip Morris has big plans for diversification, aiming for over half of its revenue to come from non-cigarette products by 2025/2026 — and two-thirds by 2030.

    • This contrasts with competitor Altria ($MO), which spent over $20B to acquire vape giant Juul, only to face a ban on its products, leading to revenue declines.

    Zyn for the win? Philip Morris acquired the Swedish nicotine pouch brand behind Zyn two years ago for $16B — and an aggressive marketing campaign has turned the pouches into an unexpected “performance enhancer.” Now, some lawmakers are calling for a federal crackdown on Zyn, especially given its popularity among teens. But even as pouches become a social media craze, Zyn still lags behind other smoke-free alternatives — with only 1.5% of teens using them last year.


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    Markets & Economy

    Global disapproval of US leadership increased in 2023: While global approval remained steady at 41% from 2022 to 2023, disapproval worsened, rising from 33% to 36% as tensions rage in the Middle East and Ukraine. In fact, Ukraine saw the sharpest decline, with approval dropping from 66% to 53%. [Read]

    New Biden admin rule expands overtime pay eligibility: Previously, making over ~$35.5K meant exemption from overtime pay, but now workers earning up to $43.8K qualify for overtime pay. This change will impact ~1M workers, with the eligibility threshold set to rise again next year, benefiting 3M more workers. [Read]

    Labor Department extends fiduciary requirements to IRA advice: In line with the 1974 law called Erisa, which ensures advice given about 401(k) savings is in the best interest of the saver, these protections will apply to the trillions of dollars shifted from 401(k)s into IRAs. [Read]

    Business & Wealth

    The FTC bans nearly all noncompete agreements: Over 30M US workers may soon be released from restrictive covenants with their employers — assuming that businesses don’t win a lawsuit levied at preventing the agreements from being voided. [Read]

    Biden to sign TikTok ban into law: The US Senate passed the bill on Tuesday night, but that won’t mean you’ll lose access to your favorite TikTokers overnight. ByteDance, TikTok’s parent company, has nine months to sell its stake in the platform, and then a series of probable legal actions from ByteDance could further delay the process. [Read]

    Chicago grocery chains abruptly close six months after merger: Upscale grocers Dom’s Kitchen & Market and Foxtrot Market shocked customers by closing their doors, halting deliveries, and shutting down their apps. Hundreds of employees were blindsided, potentially putting the chains in violation of labor laws. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


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    DIGIT OF THE DAY

    Airlines Rake In $33B From Bag Fees in 2023 and Expect More Profits Ahead

    Packing your bags used to be just about fitting everything in, but now it’s also about making room for those soaring baggage fees. Last year, the top 20 global airlines pocketed $33B in baggage fees — a hefty 15% increase from the year before. Depending on the airline, checking a bag can cost anywhere from $25 to $89, prompting more travelers to pack lighter to avoid these charges.

    • In 2023, bag fees made up 4.1% of global airline revenue — up from 3.7% in 2019 — making it a significant source of income for airlines outside of onboard purchases.

    • In 2024, the average checked baggage fee increased by $5 — with Alaska Airlines ($ALK) and JetBlue ($JBLU) hiking their first bag fees by 16.67% and 28.57%, respectively.

    The cost keeps climbing: Airlines now use dynamic pricing for checked bags, meaning prices may vary based on when and where you’re flying. Different days mean different prices — busy travel days like holidays tend to have higher fees, while weekdays or off-peak seasons, they’re often lower. IdeaWorks’ President Jay Sorensen predicts that “dynamic pricing will be standard practice for the vast majority of airlines within three to five years.”

    Read: The Travel Industry Is So Back — 2024 Travel Spending Set to Surpass 2019 Levels, Adding $11.1T To The Global Economy


    EXTRA JOE

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