Morning Brew Daily
Klarna Wants to Replace Humans with AI & Spirit Leverages Southwest Debacle?
Mon, 17 Mar 2025
Episode 540: Neal and Toby dive into Klarna’s IPO filing and how the CEO has publicly embraced trading human work for AI. Then, the latest Trump policies have put the US dollar in a precarious position of losing its world dominance while the euro is rising up the ranks. Also, Spirit Airlines exits bankruptcy at a time where travelers are looking to leave Southwest for another low-budget airline. Perfect timing? Meanwhile, the weekend’s winners are law schools and NASA astronauts Butch Wilmore and Suni Williams. Finally, what’s coming up in the week ahead. Learn more at Sophos.com 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 Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: How is Spirit Airlines capitalizing on Southwest's changes?
Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, as Southwest tries to calm a spiraling PR crisis, a refreshed spirit wants to steal its customers.
Then Klarna filed for its long-awaited IPO. Will investors buy now or wait until later? It's Monday, March 17th. Let's ride.
Welcome back to the week and happy St. Patrick's Day to everyone of Irish descent and pretty much anyone else who wants to have a good time. And there are a lot of you. While only one in nine people in the US claim Irish heritage, about 61% of Americans plan to celebrate St. Patrick's Day. And that means big business for your local bar.
which treats the holiday like the alcohol-soaked version of Black Friday. According to Moody's, St. Patrick's Day is the number one day for beer consumption in the U.S., with sales jumping 174% above the average. Toby, dry January has never felt more distant.
We could not be further away from those early aughts of the year. But I have to call you out for a second, Neil. You are wearing absolutely zero green right now. Just a startling lack of holiday whimsy on display right here. Plus, you are very vulnerable to a leprechaun's pinch, which is actually the reason you're supposed to wear green in the first place.
According to folklore, green makes you invisible to leprechauns, which is a fun fact that I bet will hit a lot harder later today when everyone is having a good time at a bar. Now a word from our new sponsor, Sophos. Ooh, I am excited to tell you all about Sophos.
Okay, I'll bite. Why are you excited about Sophos? Well, they provide cybersecurity for growing businesses. You don't have a growing business, though.
Yes, but knowing that if I did, Sophos would be there to provide enterprise-level tech and real-world expertise to keep it safe. It helps me sleep better at night. Ever heard of putting the cart before the horse, Toby? I don't see how that is relevant here. As long as I have my cybersecurity figured out, the business part will come in no time.
I am excited to see what you come up with. In the meantime, if you actually own a business, big or small, you deserve enterprise-grade protection with Sophos. Learn more at Sophos.com. That's S-O-P-H-O-S.com.
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Chapter 2: What are the key details of Klarna's IPO filing?
Klarna, the Swedish fintech you use for buy now, pay later purchases, is finally going public. After years of anticipation and valuation swings and lots of lattes bought in installments, Klarna filed its IPO prospectus on the New York Stock Exchange under the ticker Klar.
Klarna was founded in Sweden in 2005, but became a household name during the pandemic when BNPL helped fuel lockdown-induced online shopping. But like a lot of its peers, Klarna suffered from rising interest rates and a VC bubble bursting. In 2022, it raised funding at just $6.5 billion valuation. an 85% drop from the $45.6 billion it was valued at a year before.
But recently, Klarna has bounced back, bringing in $2.8 billion in revenue last year and net profits of $21 million, a sharp turnaround from heavy losses just a year earlier. Its one-year makeover has given it the confidence to explore this long-rumored IPO, where it is aiming for a valuation of about $15 billion.
Neil, this is a company that arguably might be more interesting for what's going on behind the scenes. Klarna has embraced AI wholeheartedly, replacing 700 full-time customer service agents with an in-house AI chatbot, as well as multiple large SaaS vendors. And now it's riding that increased efficiency into the public markets.
Chapter 3: How is Klarna leveraging AI in its business model?
You're absolutely right. There's a lot of juicy storylines to dig into with Klarna's IPO. The A plot is the IPO of a major fintech company and one of the few buy now pay later giants to go public. The B plot is this major test for AI's promise to transform the workforce. As you mentioned, Klarna has bear hugged AI like forever. few other companies have.
It's been developing its own in-house AI system based on OpenAI's ChatGPT, and its CEO has said the quiet part out loud, while many tech CEOs, when asked about whether AI will replace human workers, they kind of hedge a little bit, and they'll say, no, it's a compliment, and we want our human workers to work alongside AI. He's come right out and said that he hopes
He's bragged that AI will automate his workforce, and he hopes to dwindle his workforce from 5,000 people working at Klarna at a peak to ultimately just 2,000.
Right, and I do think that he is not someone who shies away from controversy either. I mean, saying that you're replacing 700 full-time contract employees to save $40 million annually, that's not usually a popular talking point, but to him, that's exactly where he wants to take this company down.
Now, some people who have worked at Klarna before have pushed back and said that, hey, maybe this narrative around AI is more of a gimmick than actually something he truly believes in, because what's a great way to cover up your workforce dwindling from 5,000 in 2023 to 3,500 by the end of 2024? To say that, no, it's not because we wanted to lay people off.
It's because we're replacing them with much more efficient AI. So It's definitely, he's putting his neck out on the line saying this is what we think the future of business is. And you can't really argue with the results. It did have a remarkable turnaround in profitability right around the time where AI became big. So maybe he is putting his money where his mouth is.
Now, in terms of buy now, pay later, that sector that has grown a ton over the past six years or so where you can pay online in installments had that big boom during the pandemic. There was that big slump after the pandemic, but now it's coming back in a big way. It is still very popular. I mean, just look at the recent holiday season from November 1st to December 31st.
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Chapter 4: What is the current state of the IPO market?
The usage of buy now, pay later services jumped nearly 10 percent year over year. amounting to $18.2 billion in total online spending. That's about 7.5% of overall online sales. So as much as people bought over the holiday, 7.5% used buy now, pay later. Klarna, Affirm, Afterpay are the giants in this space. Whether they will be successful on the public markets is a different question entirely.
Affirm went public yesterday. A few years ago and its stock has fallen 57 percent since its IPO. And the market is quite turbulent right now. It's not exactly a time when a big company would want to go public. So we are watching to see whether Klarna will actually go public or get cold feet in the next month or so.
That's probably the C plot. I mean, you've already taken us through the A plot and B plot. The C plot is just the health of the overall IPO market, which right now, there's a lot of volatility. There's some plunging share prices we've seen earlier in the year. So it's been a pretty cold market, which a lot of people thought that under
This current administration, the IPO market was going to come roaring back to life. There are signs of life. Klarna is a big one. There's another company, CoreWeave. They operate data centers. They're filing for an IPO that should value the company at more than $35 billion.
It's been a rocky start to the year for the IPO market, but Klarna is one of those names that could turn around the whole year if it goes well.
You are well aware that stocks have taken a bruising from the rapid fire tariff announcements coming from Washington, D.C. But there's been another high profile casualty of the policy uncertainty, the U.S. dollar. The greenback is having its worst start to a year since 2008, declining more than 4 percent since New Year's Day.
The slump, depending on how long it lasts, could have dramatic impacts on everything from Fed rate cuts to inflation to where you decide to go on vacation. At a very high level, the strength of a country's currency reflects demand for that currency, and by proxy, the expectation of economic growth. Generally, if your currency is gaining, it means your economy is looking good. Congrats.
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Chapter 5: Why is the US dollar losing its strength?
And that's been the story for the U.S. dollar for more than a decade. as America's economic growth has sailed past those of peers like Europe. But events of the past few weeks have shaken those foundations.
Trump's trade war with every country on Earth, combined with Europe's massive spending plans to rebuild its military and infrastructure, have been ripping through currency markets, sending the dollar to its biggest weekly loss against the euro since 2009. Toby, the dollar is looking a little less almighty.
Right. Some of the reasons why the dollar is weak, and one, it has been those steep increase in tariffs, but also, it is what's happening in Europe that is causing this surge of optimism for that particular economy, which has driven the dollar down sharply. The Wall Street Journal's dollar index has declined seven of the past nine weeks. And the dollar affects so many things.
Obviously, global investment flows is a big one. But also, you said the direction of transatlantic tourism, if the dollar becomes weaker, certainly maybe more Europeans are going to head our way instead of vice versa, which has been the status quo for the last decade or so. So what are some implications of a weaker dollar?
One, it might make imports from places like China more expensive, which could potentially actually lead to a boost of inflation, which could make it harder for the Federal Reserve to cut interest rates.
Yeah, strong dollar, which has been the case for a long time is great for American vacationers abroad. Recently, the U.S. dollar last year hit its highest level versus the Japanese yen in 34 years, which led to a huge surge in tourism to Japan for the food. And last week, we talked about the skiing as well. Why does Trump and J.D. Vance, who's the vice president, want a weaker dollar?
They've been very vocal about wanting a weaker dollar, and that's because it would boost American manufacturers and exports. If the dollar is strong, it makes us selling goods abroad much more expensive. Sometimes you hear when the dollar is strong, multinational companies hop on their earnings calls and say, this strong dollar really hit our earnings overseas.
I remember companies like Pepsi say this, strong dollar, it's bad for our sales in foreign markets. So they've been quite vocal saying we want a weaker dollar to help domestic manufacturing because it would make it easier. The U.S. consumer would be the victim of that. Strong dollar does make things cheaper for American goods. Buying stuff from abroad, a weaker dollar makes stuff more expensive.
This is actually just a stated policy goal of the Trump administration right now. They could actually go as far as to seek currency agreements or policy shifts that would intentionally weaken the dollar to help U.S. exporters, to help U.S. manufacturing. This is something that has happened before.
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Chapter 6: What are the potential consequences of a weaker US dollar?
In 1985, there was a group of governments that got together and agreed to something called the Plaza Accord. That was against this similar backdrop where U.S., France, Japan, the U.K., and actually West Germany at the time all agreed to collectively devalue the dollar against their currencies because they thought the strong dollar was hurting the global economy.
And that was against a very similar backdrop, which was high inflation, high interest rates in a very strong dollar. So it's a very intentional policy decision by this current administration. Spirit Airlines is back from the dead.
The budget airline known for its bare-bones flight experience said it has finalized its debt restructuring and is ready to emerge as a beautiful yellow butterfly from Chapter 11 bankruptcy. What was the first thing it did after finding itself on more solid financial footing? Pick a fight with one of its rivals.
Remember when Southwest shocked the world last week by announcing plans to ditch its bags-fly-free policy, a decision that was maligned by analysts and customers alike? Well, Spirit CEO Ted Christie decided to jump onto the dog pile as well, saying, I think it's going to be painful for a little bit as they find their footing, and we're going to take advantage of that.
But even as Christie is throwing shade at Southwest Way, Spirit still has some ducks it has to get in a row. It still reported a net loss of $1.2 billion last year, more than double the year prior. And it's been the subject of not one, but two doomed merger attempts, courtesy of Frontier Air and JetBlue. So yes, Neil,
Spirit has got some pep in its step, but it's not like it's just smooth sailing ahead.
No, it is much smaller than Southwest Airlines. The way Spirit thinks it can win in the new aviation market is by moving up market. It is now offering flight options with tiered prices so you can pay more online. on Spirit to get extra legroom, which is a policy it didn't have before.
It's selling these bundled fares that include bigger seat, priority boarding, free bags, internet service, snacks and drinks, which is a big departure from its previous strategy of just selling these a la carte seats. So you can pay for every single little thing. Now it's bundling things together. And you've seen a Airlines jockey for position here.
Upscale travel is what is making money right now. These Delta is rolled out. You know, Delta has these lounges and the business class like that is where the money is had right now in airlines. And Spirit thinks that it needs to skate where the puck is going to win back customers.
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