Raphael Stevens

Southwest’s COO will faces questions from a Senate panel on Thursday over the airline’s holiday meltdown.
The airline canceled some 16,700 flights in the final days of December.
The debacle made for an $800 million pretax hit and drove the carrier to a net loss last quarter.

A Southwest Airlines passenger jet lands at Chicago Midway International Airport in Chicago, Illinois, on December 28, 2022.
Kamil Krzaczynski | AFP | Getty Images

Southwest Airlines plans to apologize before a Senate panel on Thursday over the carrier’s December meltdown that stranded hundreds of thousands of travelers around Christmas.
“In hindsight, we did not have enough winter operational resilience,” Chief Operating Officer Andrew Watterson said in written testimony, which was reviewed by CNBC, ahead of Senate Commerce Committee hearing.

Southwest canceled more than 16,700 flights between Dec. 21 and Dec. 31 as its crew-scheduling software couldn’t keep pace with massive flight disruptions from brutal coast-to-coast winter weather. The debacle made for an $800 million pretax hit and drove the carrier to a net loss last quarter.
Watterson plans to tell the committee that the carrier has made short-term improvements to communicate more easily with crews when things go wrong and has improved tools that keep track of the operation’s stability.
With those mitigation tools, “we are confident in our flight network and the schedules we have published for sale,” Watterson plans to say, according to the testimony. “The upgrade to the Crew software will equip us to better handle recovery from a mass cancellation event.”
Committee Chair Sen. Maria Cantwell, D-Wash., called the hearing as political pressure mounts over a host of flight disruptions last year that drove up the cost of trips, if not derailed them, for thousands of consumers.
Lawmakers also have their sights set on airline fees. President Joe Biden is aiming to crack down on seat charges, among other fees, and mentioned the issue during his State of the Union speech Wednesday night.

Southwest’s CEO Bob Jordan, a more than three-decade veteran at the carrier who has been in the job for one year, will not attend the hearing Thursday. A spokesperson said Jordan had previous commitments, including an employee event.
The hearing will also include testimony from Casey Murray, president of the Southwest pilots’ labor union; Sharon Pinkerton, senior vice president of legislative and regulatory policy at Airlines for America, an industry group that represents the country’s largest airlines; Paul Hudson, president of consumer rights group Flyers’ Rights; and Clifford Winston, a senior fellow at the Brookings Institution.

WATCH LIVEWATCH IN THE APP More

SpaceX President Gwynne Shotwell said the company plans to attempt a major Starship milestone: firing all 33 engines at once, a key test before the first orbital launch attempt.
“Tomorrow is a big day for SpaceX,” Shotwell said in Washington, D.C.
SpaceX had hoped to get Starship to space as early as summer 2021.

Starship prototype 24 stacked on top of Super Heavy booster prototype 7 at the company’s facility near Brownsville, Texas on January 9, 2023.

WASHINGTON – SpaceX President Gwynne Shotwell said Wednesday the company plans to attempt a major Starship milestone this week.
SpaceX on Thursday will attempt a “static fire,” simultaneously testing all 33 engines that sit at the base of Starship’s rocket booster. The company conducted a test firing of 14 of those engines in November, as it pushes to make an orbital launch attempt with a Starship prototype.

related investing news

“Tomorrow is a big day for SpaceX,” Shotwell said, speaking at the FAA’s annual Commercial Space Transportation conference in Washington, D.C. on Wednesday.

SpaceX President and COO Gwynne Shotwell
Jay Westcott / NASA

Starship is a nearly 400-foot-tall rocket, designed to carry cargo and people beyond Earth. It is also critical to NASA’s plan to return astronauts to the moon, with SpaceX having won a nearly $3 billion contract from the agency in 2021.
Last month the company completed a “wet dress rehearsal,” with Starship prototype 24 stacked on Super Heavy booster prototype 7, in the most recent crucial test.

Sign up here to receive weekly editions of CNBC’s Investing in Space newsletter.

Speaking to reporters at the conference, Shotwell on Wednesday emphasized the scale of the prototypes and the experimental nature of a first attempt.
“Keep in mind, this first one is really a test flight … and the real goal is to not blow up the launch pad, that is success,” Shotwell said.

While SpaceX had hoped to conduct the first orbital Starship launch as early as summer 2021, delays in progress and regulatory approval have pushed back that timeline. SpaceX needs a license from the FAA in order to launch Starship, with Shotwell saying “I think we’ll be ready to fly right at the timeframe that we get the license.”
But on the development side, Shotwell said there have been “no big problems” that caused those delays.
“There’s a lot of little things to get done, especially because we weren’t really focusing on the orbital ship — we were focusing on the production systems that will build the ship. We know how to get to orbit,” Shotwell said.

While the company has ramped up the pace of its Falcon series of rockets to a launch every four days, Shotwell noted that those existing rockets can’t be produced at a daily rate.
“Why can’t we build a rocket every day? That’s what we’re focusing on with Starship, is attacking every part of the production process to be able to build lots of these machines,” Shotwell said.
SpaceX is already signing deals to fly crews on Starship, including three privately booked flights by wealthy individuals aiming to go to space and the moon. But Shotwell reiterated a previous caution that CEO Elon Musk has given, noting that Starship needs to launch on “hundreds of flights before we fly people.”

‘Starlink will make money’

The Starlink logo is seen on a mobile device with an grahpic illustration of planet Earth in this illustration photo in Warsaw, Poland on 21 September, 2022.
STR | Nurphoto | Getty Images

Shotwell noted that SpaceX’s current main product, its Falcon rockets and Dragon capsules, “makes money,” with the company’s regular outside fundraising going to its ambitious development projects.
SpaceX raised $750 million at a $137 billion valuation during its most recent round of funding, CNBC reported last month.
“The cash flow from those operations basically pay for our development. Where it falls short, we take external investment,” Shotwell said.
For its satellite internet service Starlink, the company is making progress in the financial stability of the business. SpaceX has launched more than 3,500 satellites to create a global broadband network, with the service reaching 1 million subscribers in December.
“This year, Starlink will make money. We actually had a cash flow positive quarter last year,” Shotwell said.
Asked about SpaceX’s plans to IPO its Starlink business, Shotwell on Wednesday said there is “no update.” Last year, CNBC reported that Musk told employees that the company isn’t likely to take Starlink public until 2025 or later.

WATCH LIVEWATCH IN THE APP More

Netflix outlined its long-awaited password-sharing guidelines for users in Canada, New Zealand, Portugal and Spain.
The streaming company is testing its crackdown on users outside of the U.S. before launching domestically.
Users will be asked to set a “primary location” for their Netflix accounts and will be allowed two “sub accounts” for users who don’t live in that household.

Netflix sign in page displayed on a laptop sscreen and Netflix logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on January 2, 2023.
Jakub Porzycki | Nurphoto | Getty Images

Netflix on Wednesday outlined its long-awaited password-sharing guidelines, starting first with users in Canada, New Zealand, Portugal and Spain, marking the latest step in the company’s telegraphed crackdown.
The streaming company said users in those countries will be asked to set a “primary location” for their Netflix accounts and will be allowed two “sub accounts” for users who don’t live in that home-base household. Beyond that, the company will charge a monthly fee per extra user: CA$7.99 in Canada, NZ$7.99 in New Zealand, 3.99 euros in Portugal and 5.99 euros in Spain.

“Today, over 100 million households are sharing accounts — impacting our ability to invest in great new TV and films,” said Chengyi Long, the company’s director of product innovation.
Netflix is testing its password-sharing restrictions outside of the U.S. before rolling them out domestically in March. The price in Canada could forecast what it will ultimately charge in the program’s U.S. debut.
The changes announced Wednesday will roll out right away, along with a new “Manage Access and Devices” page that will allow users to curate who has access to their accounts.
If an account has more than the maximum profiles allowed, the user will be able to transfer surplus profiles to a new account and save the additional fee. The transferred profiles will maintain all of their personalized recommendations and viewing history from the original account.
Netflix said it plans to revisit and refine the new account management page based on user feedback.

The user guidelines come after the streamer posted a huge beat in subscriber numbers for its fourth quarter and announced that former CEO Reed Hastings would step down.
The company announced last fall that it would limit password sharing with the stalling of subscriber growth in its U.S.-Canada region.

WATCH LIVEWATCH IN THE APP More

A household with the median income in New York City would have to pay nearly 69% of their income to rent the average apartment there, Moody’s Analytics found.
To not be considered rent burdened in New York in the average-priced apartment, a household needs to earn $177,000 or more a year, said Lu Chen and Mary Le, economists at Moody’s Analytics.

Spencer Platt | Getty Images News | Getty Images

New York is the most rent-burdened metro area in the U.S., according to a new report from Moody’s Analytics.
A household with the median income in the Big Apple would need to pay nearly 69% of earnings to rent the averaged-priced apartment there, the research division of the rating agency found.

Families who direct 30% or more of their income to housing typically are considered “rent burdened” by the U.S. Department of Housing and Urban Development, and “may have difficulty affording necessities such as food, clothing, transportation and medical care.”
More from Personal Finance:Biden to revisit ‘billionaire minimum tax’ in State of the UnionAmid inflation, shoppers turn to dollar stores for groceriesSavers poised for big win in 2023 as inflation falls
To not be considered rent burdened in New York in the average apartment, a household would need to earn $177,000 or more a year, said Lu Chen and Mary Le, economists at Moody’s Analytics.
Rents can be disproportionately higher than incomes when “the location is highly desirable from a lifestyle or future income perspective,” Chen and Le wrote in an email. “Both of these are true for a place like New York City.”

Keeping rent under 30% is ‘increasingly unattainable’

For decades, people have been advised not to spend more than 30% of their gross income on housing, said Allia Mohamed, co-founder and CEO of Openigloo, which allows renters to review buildings and landlords across the U.S.

However, Mohamed said, “in high-rent cities, in particular, this parameter has become increasingly unattainable.”
Recognizing that problem, the Biden administration last month rolled out a blueprint for a renters’ bill of rights, which aims to add new tenant protections and curtail exorbitant rent increases in certain properties.

More than 44 million households, or roughly 35% of the U.S. population, live in rental housing, according to the White House.
“Renters should have access to housing that is safe, decent and affordable and should pay no more than 30% of household income on housing costs,” the blueprint reads.

WATCH LIVEWATCH IN THE APP More

Even with hits like “Avatar: The Way of Water,” movie theaters are struggling with empty seats and heavy debt loads.
Some theater CEOs remain optimistic that more upscale food and beverage offerings like flatbreads and cocktails will bring in more revenue.
Theaters generate significantly more profitability from concessions, with some large chains pulling in more than 40% of their revenue from food and beverage.

The AMC Empire 25 near Times Square is open as New York City’s cinemas reopen for the first time in a year following the coronavirus shutdown, on March 5, 2021.
Angela Weiss | AFP | Getty Images

Movie theaters have struggled to fill seats during the Covid pandemic, but some are facing another problem — what to do with their menus.
At many movie theaters, popcorn and soda appear alongside flatbreads, lobster grilled cheese and elaborate cocktails. But with loads of debt and a shortage of box-office winners, theater chains of all sizes have been forced to change menus and launch creative food initiatives to beef up revenue.

“The American consumer now is really demanding more than just a popcorn and a drink or nachos or candy,” said Rolando Rodriguez, chairman of the National Association of Theatre Owners and senior advisor at Marcus Theatres. “They’re really looking for experiences that they’re having for meals associated with watching the films. The expansion … on the food and beverage is absolutely a must.”
Since 2019, before the pandemic, the number of North American screens has fallen by more than 3,000, according to Comscore. Market research firm Mintel said just 54% of people had been to a theater between April and October 2022.
Mike Gallinari, senior travel and leisure analyst at Mintel, said people are more inclined to wait to see a movie, giving streaming services a leg up on theaters. This has forced some theaters to improve their food game.
“It is things like concessions and how that fits into a broader movie theater experience that really are things that movie theaters need to focus on and hammer in,” Gallinari said. “Not only is that the part of the experience they can control, but that’s more of the revenue they can control since movie theater box office [performances] are variable based on the movie.”

Not enough films

Theaters struggled to keep their doors open during the pandemic. Cineworld, which operates Regal Cinemas, filed for Chapter 11 bankruptcy protection in September, reporting $8.9 billion in net debt. Regal Cinemas will reject leases for 39 theaters beginning Feb. 15.

AMC Entertainment, the world’s largest movie theater chain, exited its third quarter with more than $5.3 billion in debt. AMC’s stock has fallen around 50% over the past 12 months. On Monday, the company announced it will change ticket pricing depending on seat location.
AMC, which operates dozens of AMC Dine-In Theaters, is unlikely to turn free cash flow positive until 2024, said Eric Wold, an analyst at B. Riley Securities.
Lack of content is the biggest problem for theaters, he added. Compared with 2019, there were 50% fewer films released in theaters last year, Wold said. Box-office sales were down more than 30%. He predicted the industry will not return to pre-pandemic film release numbers until 2025 due to delays and production backlogs.
To be sure, though, studios have been more specific about what films get shown in theaters, favoring blockbuster-style releases. “Avatar: The Way of Water,” which came out in December, and “Spider-Man: No Way Home,” released in late 2021, are among the 10 all-time highest-grossing films.

Tom Holland is Spider-Man in the Sony-Marvel film “Spider-Man: No Way Home.”

“A restaurant can open if it can get its hands on food and chefs. A theme park can open if it has electricity and people to run the rides. But if there are no films coming out, a movie theater can’t open and show whatever they want,” Wold said.
While contending with lower attendance, Marcus Theatres reduced menus at its Zaffiro’s, Reel Sizzle and Take Five Lounge concepts, as well as its Movie Tavern locations. Now, menus are mostly back to what they were pre-pandemic as consumer spend grew.
“There’s a kitchen in everybody’s house, but people still go out to eat,” Marcus CEO Greg Marcus said.
“At the end of the day, humans want to be amongst each other,” he said. “They want to get out. They don’t want to stay home and they don’t want to sit on their couch.”

The economics of concessions

Revenue from ticket sales is about a third larger than concessions sales, according to Wold. But theaters generate significantly more profitability from concessions than from ticket sales.
About half the money from ticket sales goes to studios, while theaters keep all concessions margins, which typically amount to more than 80%, Wold said. Marcus Theatres pulls in 44% of its total revenue from concessions, compared with 39% at Cinemark Theatres and 36% at AMC.
“No matter how great of a flatbread or how amazing of a cocktail a theater can make, if the movie is crummy, no one is going to come to the theater,” Wold said. “If you can create better food while someone is already there and give them an added reason to why they want to go to a theater to see a film … that definitely is a draw and can be an added revenue source.”
According to data from research firm EntTelligence, the average medium popcorn at domestic movie theaters is $8.14, while a medium drink runs for $6.20. Wold said these items typically have mid-90% margins.
For more upscale items, margins are significantly smaller, meaning theaters cannot do away with the classics, but instead seek incremental revenue from sandwiches or entrees.
“Throughout the pandemic, you’ve seen the average concessions per patron go up dramatically,” Wold said. “That’s a combination of getting more out of each patron through increasing the basket size of what they order at the counter, but also getting more people to the counter who otherwise would’ve skipped it.”
Prior to fourth-quarter earnings, Wold said theaters have not seen pressure on consumer concessions spending despite rate hikes. Concessions have been a “pretty recession-resilient segment,” he said.

A Cinemark employee serves popcorn to a customer at a concession stand at Cinemark’s Century 16 at the South Point Hotel & Casino on August 14, 2020 in Las Vegas, Nevada.
Ethan Miller | Getty Images News | Getty Images

Theaters with larger menus, however, face issues similar to those of restaurants, according to Mintel’s Gallinari, with some raising prices in response to increasing egg and meat prices. Some are adopting healthier food and bakery items, as well as partnering with local businesses.
“With movie theaters and concessions already having a reputation for being overpriced, being subject to the wills of the market in that way can really work against the movie theater’s favor,” Gallinari said.
Wold said theaters have used the pandemic to make concession sales more streamlined amid labor shortages. Pre-pandemic, some theaters adopted a dine-in model in which servers would bring food from a central kitchen to auditoriums, though many have shifted toward pick-up apps and reserved seating.
Marcus Theatres recently debuted an online ordering app that more efficiently handles large quantities of orders. He said the app has been more effective for upselling consumers and reducing lines.
“If you take a minute or two, minute and a half off the [ordering] process and multiply that times 15 million transactions, that is a meaningful number if you can figure out how to structure yourself from a labor perspective to move from order taking to just order fulfillment,” Marcus said.

Hungry for long-term success

With some menus exceeding 50 items, theaters have been more methodical about staffing and food preparation for slower and heavier nights, Wold said.
Some theaters, such as Dallas-based Studio Movie Grill, predict attendance weeks in advance.
“We’ve got enough history with enough analysis to say we know, whether it’s a horror movie or a romantic comedy, how they are going to perform based on national predictions and based on our particular locations,” said CEO Ted Croft.
Studio Movie Grill, which takes orders at customers’ seats, recently shortened menus to focus on burgers, pizzas and alcoholic beverages, which the team can execute quickly to accommodate at times more than 1,000 seats. About 25% of the overall field team is back-of-house kitchen staff, Croft said.
After bringing operating hours back to pre-pandemic levels — and introducing themed drinks for films like “Black Panther: Wakanda Forever” — Croft said per-person concessions averages continue increasing.
“The fact that we are outperforming pre-pandemic key performance indicators gives us a lot more confidence that if we just get more movies, we’re going to continue to grow,” Croft said.

Angela Bassett stars as Queen Ramonda in Marvel’s “Black Panther: Wakanda Forever.”

Rich Daughtridge, president and CEO of Maryland-based Warehouse Cinemas, noticed a similar trend. He said about two-thirds of staff at the theater’s locations are in the kitchen or behind the concessions, preparing gourmet grilled cheeses, hot dogs with homemade beer cheese, and classics like nachos and a seasonal popcorn mix.
Daughtridge said the menu stays away from more perishable and lower-margin items such as steak or seafood.
There is a selection of craft cocktails and 32 craft beers and ciders on tap at its self-serve beer wall. This month, the theater will offer a themed cocktail for the movie “Winnie the Pooh: Blood and Honey.”
“Hollywood creates great stories, and it’s our job to make sure our products, the sound, the picture, the seat, all those things together are something that they desire as a big-screen event,” said Daughtridge, who is also president of the Independent Cinema Alliance.
Cinépolis, a Mexican theater chain with 25 U.S. locations, updates its menu twice yearly and serves lobster tacos and truffle mushroom pizza, among other nontraditional theater munchies.
For an advanced screening of the bloody culinary satire “The Menu,” Cinépolis launched its “Movie and a Meal” initiative to curate seasonal specials with the film. The company will be doing another iteration for “Cocaine Bear,” featuring two drinks, two appetizers, a main course and a dessert.
“As our founder used to say back in Mexico, we build theaters to sell food,” said CEO Luis Olloqui.
– CNBC’s Sarah Whitten contributed reporting.
Disclosure: “Cocaine Bear” is being distributed by Universal Pictures, which is part of CNBC’s parent company, NBCUniversal.
Clarification: This story has been updated to clarify that AMC Entertainment exited its third quarter with more than $5.3 billion in debt.

WATCH LIVEWATCH IN THE APP More