Tag Archives: Leisure/Arts/Hospitality

Tesla, Ford attract new investments from George Soros’s fund

Billionaire investor George Soros’s investment fund has bought stakes in Tesla Inc. and Ford Motor Co. and added to existing stakes in EV makers Lucid Group Inc. and Nio Inc., according to a filing late Friday.

The fund acquired 29.5 million shares of Ford
F,
+2.21%
in the reporting period ended in June, the filing showed. It snapped up nearly 30,000 Tesla shares
TSLA,
+4.68%
in a new position as well.

New positions for the fund also included bets on Twitter Inc.
TWTR,
+0.73%,
the social-media company in the middle of a dispute with Tesla Chief Executive Elon Musk over their soured deal.

The Soros fund offloaded some of its holdings in Rivian Automotive Inc.
RIVN,
-0.13%,
however, ending the reporting period with slightly less than 18 million shares, down from a previous holding of around 20 million shares.

See also: Rivian loses nearly $2 billion in second quarter as expenses mount

New stakes for the fund also included Las Vegas Sands Corp.
LVS,
+2.60%
and Uber Technologies Inc.
UBER,
+0.71%.

The fund sold all of its shares of Bank of America Corp.
BAC,
+1.09%
and Citigroup Inc.
C,
+0.70%
as well as gaming company Take Two Interactive Inc.
TTWO,
+2.05%,
among others.

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Disney Reports Earnings Surge, Reduces Long-Term Forecast for Disney+ Subscribers

Walt Disney Co.

DIS 3.98%

reported a better-than-expected 26% jump in revenue Wednesday, driven by record results at its theme parks division and the addition of more new subscribers than projected to its flagship streaming video platform Disney+.

Disney’s results highlight the complex dynamics of the competitive streaming landscape. The company lowered its forecast for future Disney+ growth, raised the prices on its streaming offerings, outlined plans for a new ad-supported tier of Disney+ and said nearly all of the streaming service’s growth is coming from overseas.

The company’s earnings this quarter reflect the difficulties it and rivals, such as

Netflix Inc.,

face in attracting new customers domestically, where streaming options abound and many households use one or more services. Plus, in an increasingly difficult economic environment, some households are rethinking spending on in-home entertainment, industry analysts have said.

Chief Executive

Bob Chapek

said he didn’t think the price changes would result in any meaningful loss of streaming customers. “We believe that we’ve got plenty of price value room left to go,” Mr. Chapek said.

On the company’s call with analysts, Chief Financial Officer

Christine McCarthy

ratcheted down its forecast for Disney+, saying it now expects a total range of 215 million to 245 million subscribers by September 2024, in part because it lost the right to air popular Indian cricket competitions.

A few months ago, Mr. Chapek said the company’s previous target of 230 million to 260 million, set by the company in December 2020, was “very achievable.”

In the three-month period ended July 2, Disney+ gained 14.4 million new subscribers, bringing its global total to 152.1 million subscribers. Analysts were expecting 10 million additions, according to

FactSet.

Wednesday’s report brings Disney’s total subscriber base to 221.1 million customers across all of its streaming offerings, including ESPN+ and Hulu, surpassing Netflix, its chief streaming rival, in total customers. Netflix last month reported it had 220.67 million subscribers.

Disney shares rose about 7% in after-hours trading to $120.11.

Overall for the third quarter, the world’s largest entertainment company reported profits of $1.41 billion, or 77 cents a share, up from $918 million, or 50 cents a share, in the year-ago period. Revenue increased to $21.5 billion, above the average analyst estimate of $20.99 billion on FactSet.

Since 1967, the Florida land housing Disney’s theme parks has been governed by the company, allowing it to manage Walt Disney World with little red tape. WSJ’s Robbie Whelan explains the special tax district that a Florida bill would eliminate. Photo: AP

Sales at the parks, experiences and products division—which includes Disneyland, Walt Disney World and four resorts in Europe and Asia and has historically been Disney’s most profitable segment—reached $7.4 billion for the quarter, a record, and was up 70% from a year earlier. The division posted profits of $2.2 billion for the quarter, up from $356 million a year ago.

“Demand has not abated” at the parks, Ms. McCarthy said. Since reopening in 2021 after pandemic-related closures, Disney’s theme parks haven’t been running at full capacity, but a new online reservations system and ride-reservation apps have helped the company better respond to demand and generate more revenue per visitor.

Over the past year, CEO Bob Chapek and other top Disney executives have signaled an increased focus on international markets for growing its streaming business.



Photo:

Laurent Viteur/Getty Images

Ms. McCarthy said that if economic conditions worsen, Disney could tweak the reservation system to allow more visitors in on certain days, but as of now, demand is outstripping available spots.

Disney’s direct-to-consumer segment, which includes video streaming, lost $1.1 billion in the third quarter, widening from a loss of $293 million a year earlier. Since Disney+ launched in late 2019, the segment has lost more than $7 billion. On Wednesday, Ms. McCarthy said Disney’s estimate for overall spending on content for fiscal 2022 had fallen slightly, from $32 billion to $30 billion.

Disney gave a launch date of Dec. 8 and outlined pricing information for its previously announced ad-supported tier of Disney+ in the U.S., a new product designed to expand the reach of the company’s streaming business.

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What is your outlook for Disney? Join the conversation below.

The price of the ad-free stand-alone Disney+ service will rise from its current level of $7.99 a month in the U.S. to $10.99 a month, or $109.99 a year. The new, basic Disney+ service with ads will cost $7.99 a month.

The premium Disney streaming bundle, which includes ad-free versions of Disney+ and Hulu, as well as a version of sports-focused ESPN+ with ads, will remain at its current price of $19.99 a month in the U.S., while a bundle that includes all three services, but with ads on Hulu, will rise in price by $1 a month, to $14.99.

Mr. Chapek defended the price increases, saying that when it was launched, Disney+ was among the most competitively-priced streaming offerings and that the company has added more and higher-quality content to the service.

“I think it’s easy to say that we’re the best value in streaming,” Mr. Chapek said Wednesday.

Over the past year, Mr. Chapek and other top Disney executives have signaled an increased focus on international markets for growing its streaming business. Disney is spending heavily to produce hundreds of local-language television shows in countries such as India, and over the summer, Disney+ launched in 53 new countries and territories, mainly concentrated in Eastern Europe, the Middle East and North Africa.

Pricing for a Disney+ subscription in many of these new markets runs below the $7.99 a month that American customers pay. Still, Disney+’s average monthly revenue per paid subscriber—a key metric in streaming businesses—stood at $6.27 in North America, compared with $6.29 internationally, excluding Asia’s more inexpensive Disney+ Hotstar service.

Disney+ Hotstar, the service used by Disney’s 58.4 million subscribers in India, produces just $1.20 a month per user. Some analysts and former Disney executives predict that losing cricket streaming rights will result in millions of canceled accounts over the next year.

The flagging growth of North American Disney+ subscriptions is likely the result of a glut of content being released by in movie theaters and on a proliferation of streaming services, as well as fatigue the Star Wars and Marvel superhero movie franchises, said Francisco Olivera, a Disney shareholder who manages a small family fund based in Puerto Rico that has about 15% of its holdings in Disney stock.

The addition of an ad-supported tier, higher prices and possible further integration of the Hulu service in the future, could help reduce subscriber churn and make it easier to achieve profitability, he said.

“It’s a healthier market right now with the parks recovering, so they’re really flexing their muscles on pricing,” Mr. Olivera said.

Write to Robbie Whelan at Robbie.Whelan@wsj.com

Corrections & Amplifications
Disney+ launched in 53 new countries and territories over the summer. An earlier version of this article incorrectly said it launched in 54. (Corrected on Aug. 10)

Write to Robbie Whelan at robbie.whelan@wsj.com

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Stocks Rise on Services Data, Earnings

U.S. stocks rose Wednesday as investors considered another wave of corporate earnings reports and after a key reading on the services sector hit a three-month high.

The S&P 500 rose 1.1%, recouping losses after it fell Tuesday. The Dow Jones Industrial Average added 0.9%. The Nasdaq Composite gained 1.8%. 

Stocks had come under renewed pressure in recent days from geopolitical tensions, as U.S. House Speaker

Nancy Pelosi

met with Taiwan’s president despite warnings from China. Meanwhile, Federal Reserve officials said the central bank is likely to continue raising interest rates at coming meetings, dampening hopes in markets that slowing economic growth could mean a change in policy.

But some better-than-expected earnings reports amid low liquidity in August are lifting sentiment, investors say.

“Markets are taking a bit of a breather to assess what’s going on globally. There is still a lot of inflation, central banks are keeping that hawkish rhetoric and we get some geopolitics on top of that,” said Olivier Marciot, global macro portfolio manager at Unigestion. But earnings have been pretty good, in terms of beating expectations, he added.

The yield on the benchmark 10-year Treasury note rose to 2.805% from 2.740% Tuesday. Weak economic data have weighed on yields in recent days, according to Michael Hewson, markets analyst at CMC Markets. There are “raised concerns that the U.S. economy could well be slowing sharply,” he said.

There have been concerns about the pace of the economy, and even whether a new recession is coming, but the U.S. services sector continued to expand in July, according to a report from the Institute for Supply Management. The ISM’s index of conditions for businesses like restaurants, hotels and retailers hit a three-month high in July.

The broader problem for investors is that whether or not the economy is technically in recession, inflation and the pressure it puts on the Fed to raise rates is resulting in an environment for investors that is fundamentally different from anything they have seen over the past several decades, said Eaton Vance portfolio manager Aaron Dunn. That won’t end soon, he said.

There has been a bounce back recently in some of the more beaten-up stocks, he said, but those hoping the growth trade returns may be disappointed. “Equities returns are going to be a grind.”

In corporate news,

PayPal

shares jumped 10% after hedge fund Elliott Management confirmed it has a $2 billion stake in the payments company. Starbucks rose 2.7% after it said demand is still strong and raising prices partially offset higher labor costs.

Vaccine maker

Moderna

rose 16% after it posted earnings above analysts’ estimates and said it would begin a new $3 billion share repurchase program.

Airbnb

declined 4.7% after it said it swung back to profit but its outlook disappointed investors. Online dating group

Match

tumbled 17% after posting results that missed estimates and said the CEO of Tinder is leaving the firm. 

Chip maker

Advanced Micro Devices

fell 3% after it reported a drop in profit and issued guidance for the current period that came below Wall Street’s expectations. 

Clorox,

MGM Resorts,

and insurers

MetLife

and

Allstate

are scheduled to report earnings after markets close.

Oil prices fell after an OPEC+ meeting where a committee suggested a smaller-than-expected production increase, according to delegates. U.S. crude fell 2.5% to $92.10.

Traders worked on the floor of the New York Stock Exchange on Tuesday.



Photo:

ANDREW KELLY/REUTERS

Overseas, the pan-continental Stoxx Europe 600 ticked up 0.4%. British-listed cybersecurity firm

Avast

soared 43% after a U.K. regulator said it has provisionally cleared

NortonLifeLock’s

$7.3 billion acquisition of the company. French

bank Société Générale

rose 2.9% after reporting a narrower loss than analysts expected, despite its exit from Russia.

In Asia, major benchmarks were mixed. The Shanghai Composite Index ticked down 0.7%, extending losses after it closed down 2.3% on Tuesday. Hong Kong’s Hang Seng added 0.4% and Japan’s Nikkei 225 rose 0.5%.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

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Vince McMahon Retires as WWE CEO Amid Sexual Harassment Scandal

Vince McMahon, the king of U.S. wrestling, retired as chief executive officer and chairman of

World Wrestling Entertainment Inc.,

WWE 0.62%

following disclosures by The Wall Street Journal of multiple payouts to women who had alleged sexual misconduct and infidelity.

In a news release, the 76-year-old executive said his daughter, Stephanie McMahon, and the company’s current president, Nick Khan, will take over as co-CEOs. Ms. McMahon will serve as chairwoman.

“As the majority shareholder, I will continue to support WWE in any way I can,” Mr. McMahon said in a statement.

Stephanie McMahon will serve as chairwoman and co-CEO of WWE following her father’s retirement.



Photo:

Lauren Justice/Bloomberg News

Mr. McMahon didn’t respond to requests for comment, The company has said it is cooperating with the board investigation. Mr. McMahon won’t retain any role in the company’s creative content, according to a person familiar with the matter.

WWE describes Mr. McMahon as critical to the success of the company, which runs the world’s most famous wrestling business and reported record revenue of $1.1 billion last year. WWE said in regulatory filings that losing Mr. McMahon would put its entire business at risk.

Addressing the crowd at the start of WWE’s “Friday Night SmackDown” event in Boston, Ms. McMahon noted her father’s retirement and led the crowd in a chant of “Thank you, Vince.” Appearing emotional, Ms. McMahon mouthed “I love you, Dad,” into the camera.

Mr. McMahon temporarily stepped aside as chairman and CEO in June, when the company’s board of directors announced it would investigate allegations of misconduct against both Mr. McMahon and another executive, John Laurinaitis.

Mr. Laurinaitis didn’t respond to requests for comment.

The announcement followed a report in the Journal that Mr. McMahon had agreed to pay a secret $3 million settlement to a former employee with whom he had allegedly had a sexual affair.

The Journal later reported that Mr. McMahon had agreed to pay more than $12 million in hush money settlements over the previous 16 years to suppress allegations of sexual misconduct and infidelity.

Those payments went to four women, including a former wrestler to whom McMahon agreed to pay $7.5 million in 2018 after she alleged he had coerced her into performing oral sex.

World Wrestling Entertainment Chairman Vince McMahon during the WWE ‘Monday Night Raw’ show in Las Vegas in 2009.



Photo:

Ethan Miller/Getty Images

The woman alleged Mr. McMahon demoted her and ultimately declined to renew her contract in 2005 after she refused further sexual advances, according to people familiar with the matter. The wrestler and her lawyer approached Mr. McMahon in 2018 and negotiated the payment in return for her silence, the people said.

In another deal, a WWE contractor presented the company with unsolicited nude photos of Mr. McMahon she reported receiving from him and alleged that he had sexually harassed her on the job, according to people familiar with the woman’s 2008 nondisclosure agreement. Mr. McMahon agreed to pay her roughly $1 million, these people said.

And in a 2006 agreement, a former manager who had worked 10 years for Mr. McMahon before he allegedly initiated a sexual relationship with her was paid $1 million to keep quiet about it, according to people familiar with the deal.

In his statement, Mr. McMahon said it had been a “privilege to help WWE bring you joy, inspire you, thrill you, surprise you, and always entertain you.”

WWE in June confirmed details of the Journal investigation and said at the time that a special committee of the board “is conducting an investigation into alleged misconduct” by Messrs. McMahon and Laurinaitis, head of WWE talent relations.

The Stamford, Conn.-based company appointed Ms. McMahon interim CEO in the wake of the investigation. She stepped away from her role as WWE’s chief brand officer in May, writing in a LinkedIn post that she was “taking this time to focus on my family” but that she planned to return.

The 12-member board includes several WWE executives and members of the McMahon family, including Mr. McMahon; Ms. McMahon; her husband,

Paul Levesque,

better known as the wrestler Triple H; and Mr. Khan. Man Jit Singh, a former Sony Pictures Home Entertainment executive, is the lead independent director and is running the inquiry, the Journal reported.

The company on Friday also announced that Mr. Levesque will resume his position as EVP, talent relations.

Write to Ted Mann at ted.mann@wsj.com, Joe Palazzolo at joe.palazzolo@wsj.com and Denny Jacob at denny.jacob@wsj.com

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Business Losses From Russia Top $59 Billion as Sanctions Hit

Global companies have racked up more than $59 billion in losses from their Russian operations, with more financial pain to come as sanctions hit the economy and sales and shutdowns continue, according to a review of public statements and securities filings.

Almost 1,000 Western businesses have pledged to exit or cut back operations in Russia, following its invasion of Ukraine, according to Yale researchers.

Many are reassessing the reported value of those Russian businesses, as a weakening local economy and a lack of willing buyers render once-valuable assets worthless. Companies under U.S. and international reporting standards have to take impairment charges, or write-downs, when the value of an asset declines.

SHARE YOUR THOUGHTS

When or how do you expect companies to recover from their losses in Russia? Join the conversation below.

The write-downs to date span a range of industries, from banks and brewers to manufacturers, retailers, restaurants and shipping companies—even a wind-turbine maker and a forestry firm. The fast-food giant

McDonald’s Corp.

expects to record an accounting charge of $1.2 billion to $1.4 billion after agreeing to sell its Russian restaurants to a local licensee;

Exxon Mobil Corp.

took a $3.4 billion charge after halting operations at an oil and gas project in Russia’s Far East; Budweiser brewer

Anheuser-Busch InBev SA

took a $1.1 billion charge after deciding to sell its stake in a Russian joint venture.

“This round of impairments is not the end of it,” said Carla Nunes, a managing director at the risk-consulting firm Kroll LLC. “As the crisis continues, we could see more financial fallout, including indirect impact from the conflict.”

The financial fallout of the conflict isn’t significant for most multinationals, in part because of the relatively small size of the Russian economy. Fewer than 50 companies account for most of the $59 billion tally. Even for those, the Russian losses are typically a relatively small part of their overall finances. McDonald’s, for example, said its Russia and Ukraine businesses represented less than 3% of its operating income last year.

Some companies are writing off assets stranded in Russia. The Irish aircraft leasing company

AerCap Holdings

NV last month took an accounting charge of $2.7 billion, which included writing off the value of more than 100 of its planes that are stuck in the country. The aircraft were leased to Russian airlines. Other leasing companies are taking similar hits.

Other businesses are assuming that they will realize no money from their Russian operations, even before they have finalized exit plans. The British oil major

BP

PLC’s $25.5 billion accounting charge on its Russian holdings last month included writing off $13.5 billion of shares in the oil producer

Rosneft.

The company hasn’t said how or when it plans to divest its Russian assets.

BP’s $25.5 billion accounting charge on its Russian holdings include writing off $13.5 billion of shares in oil producer Rosneft.



Photo:

Yuri Kochetkov/EPA/Shutterstock

Even some companies that are retaining a presence in Russia are writing down assets. The French energy giant

TotalEnergies

SE took a $4.1 billion charge in April on the value of its natural-gas reserves, citing the impact of Western sanctions targeting Russia.

The Securities and Exchange Commission last month told companies that they have to disclose Russian-related losses clearly, and that they shouldn’t adjust revenue to add back the estimated income that has been lost because of Russia.

Bank of New York Mellon Corp.

, which in March said it had stopped new banking business in Russia, appeared to breach this guidance when it reported its results for the first three months of this year. The New York custody bank in April reported $4 billion in revenue under one measure that included $88 million added to reflect income lost because of Russia.

A BNY Mellon spokesman declined to comment.

Investors appear to have mixed reactions to the write-downs, partly because most multinationals have relatively small Russian exposure, academic research suggests.

Financial markets are “rewarding companies for leaving Russia,” a recent study by Yale School of Management found. The share-price gains for companies pulling out have “far surpassed the cost of one-time impairments for companies that have written down the value of their Russian assets,” the researchers concluded.

Bank of New York Mellon said earlier this year that it had stopped new banking business in Russia.



Photo:

Gabriela Bhaskar/Bloomberg News

Research using a different methodology found a more subtle investor reaction. Analysis by Indiana University professor Vivek Astvansh and his co-authors of the short-term market impact of more than 200 corporate announcements revealed a marked trans-Atlantic divide. Investors punished U.S. companies for pulling out of Russia, and non-American companies for not withdrawing, the analysis found.

More write-downs and other Russia-related accounting charges are expected in the coming months, as companies complete their planned departures from the country.

British American Tobacco

PLC, whose brands include Rothmans and Lucky Strike, said on March 11 it had “initiated the process to rapidly transfer our Russian business.” That transfer is still ongoing, according to a BAT spokeswoman. BAT hasn’t taken an impairment in relation to the business.

Accounting specialist

Jack Ciesielski

said companies might hold off announcing a write-down until they have a good handle on how big the loss will be.

“You don’t want to put a number out there until you’re confident that it’s not likely to change,” said Mr. Ciesielski, owner of investment research firm R.G. Associates Inc.

The ruble’s recovery is helping Russia prop up its economy and continue its Ukraine war effort. WSJ’s Dion Rabouin explains how Russia boosted its ailing currency and how it is affecting the global economy. Illustration: Ryan Trefes

Many companies are giving investors rough estimates about what to expect on Russia-related losses.

The manufacturer

ITT Inc.,

which has suspended its operations in Russia, said last month it expects a $60 million to $85 million hit to revenue this year because of a “significant reduction in sales” in the country. That is a small slice of the $2.8 billion in total revenue for the maker of specialty components for the auto, aerospace and energy industries.

As sanctions weaken the Russian economy, businesses still operating there are reassessing their future earnings and booking losses. Ride-sharing giant

Uber Technologies Inc.

in May took a $182 million impairment on the value of its stake in a Russian taxi joint-venture because of forecasts of a protracted recession in the Russian economy. Uber said in February it was looking for opportunities to accelerate its planned sale of the stake.

Write to Jean Eaglesham at jean.eaglesham@wsj.com

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Stocks Open Mixed Ahead of Fed Meeting

U.S. stock indexes were mixed at the opening Tuesday as investors geared up for the Federal Reserve’s policy decision this week and evaluated a batch of earnings.

The S&P 500 rose 0.3% in early trading. The benchmark stocks gauge rose 0.6% Monday, its third gain in four trading days. The technology-focused Nasdaq Composite added 0.4% while the Dow Jones Industrial Average was about flat.

Those moves belied a tense mood among investors expecting the central bank to accelerate its tightening of monetary policy this week, the latest step in inflation-fighting efforts that have already raised borrowing costs throughout the economy this year, scrambling stock and bond markets.

Traders are reacting to a slew of big companies’ latest reports and financial forecasts. Pfizer fell 0.7% after forecasting lower revenue than predicted by analysts. Investment firm KKR rose about 2% after swinging to a loss.

Estee Lauder

lost 4.4% after the company lowered its revenue and earnings outlook.

Elliott Investment Management disclosed a roughly 6% stake in Western Digital, pushing shares of the data-storage company up 12%.

Rockwell Automation

said quarterly earnings tumbled, sending shares down 14%.

The yield on 10-year Treasury notes topped 3% for a second straight day before slipping back to 2.928%, compared with 2.995% Monday. Yields, which move inversely to bond prices and are a reference for borrowing costs throughout the economy, have shot to their highest levels since 2018 in anticipation of higher interest rates.

They have also dragged up government borrowing costs globally. The yield on 10-year German government bonds, the benchmark in Europe, surpassed 1% Tuesday for the first time since 2015, before slipping back to 0.935%.

Overseas stock markets wavered. The Stoxx Europe 600 gained about 0.3%, led by shares of banks and oil-and-gas companies on a busy day for earnings in the region.

BP shares rose 3.1% after the oil producer reported underlying profit of $6.2 billion, when stripping out a pretax accounting charge related to its decision to exit its Russia holdings.

BNP Paribas

posted a jump in earnings, sending shares of the French lender 4.3% higher.

Sweden’s OMX Stockholm All-Share steadied, edging up 0.1%. On Monday, the market was among the worst affected by a flash crash in European shares sparked by an erroneous sale by

Citigroup.

Mainland Chinese markets were closed for a public holiday. Hong Kong’s Hang Seng edged up 0.1%.

All eyes are on the Federal Reserve’s next steps.



Photo:

BRENDAN MCDERMID/REUTERS

All eyes are on the Fed’s next steps as the central bank tries to tap the brakes on the fastest pace of inflation in decades. Rising rates have combined with coronavirus shutdowns in China and the war in Ukraine to send jitters through stock markets this year.

Rate-setting officials will gather Tuesday for a two-day policy meeting. At its conclusion Wednesday, the Fed is expected to raise interest rates by a half percentage point, the first such increase in 22 years and following on from a quarter-point rise in March.

Investors will also seek details from Chairman

Jerome Powell

on the central bank’s plans to reduce its bondholdings. Officials have recently indicated that they will allow $95 billion in securities to mature every month, unwinding another form of stimulus lavished on markets during the pandemic.

“It appears that the war in Ukraine hasn’t derailed the Fed in the slightest,” said

Gregory Perdon,

co-chief investment officer at

Arbuthnot Latham.

Financial conditions have already tightened significantly, Mr. Perdon added, pointing to a strengthening dollar, the increase in Treasury yields and rising mortgage rates.

Earnings season continues apace.

Airbnb,

ABNB -4.98%

Starbucks,

Lyft

and

American International Group

are on the block after markets close.

Broadly positive corporate reports have failed to steady the market in recent weeks. Earnings growth is in line with historical norms at about 11% annually, according to Deutsche Bank analysts, while margins have remained near record levels despite rising input prices.

In commodities, Brent-crude futures prices slipped 1% to $106.55 a barrel. Traders are awaiting a meeting of ministers from OPEC members and their allies including Russia on Thursday, and monitoring shutdowns in China that are curbing fuel demand.

A European Union proposal to ban Russian crude oil by the end of the year is due to be circulated to member states Tuesday.

Federal Reserve Chairman Jerome Powell has indicated that the central bank is likely to raise interest rates by a half percentage point at its meeting. Photo: Samuel Corum/Getty Images

Write to Joe Wallace at joe.wallace@wsj.com and Matt Grossman at matt.grossman@wsj.com.

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Former Theranos President Ramesh ‘Sunny’ Balwani Begins His Defense

SAN JOSE, Calif.—Ramesh “Sunny” Balwani wasn’t in charge at Theranos Inc., and the blood-testing company was neither his idea nor his creation, his attorney told a jury Tuesday as the second criminal-fraud trial involving the defunct Silicon Valley startup got under way.

The responsibility for the rise and fall of Theranos rests on founder and Chief Executive

Elizabeth Holmes,

attorney Stephen Cazares said in opening statements as he outlined the main points of Mr. Balwani’s defense.

“Sunny Balwani did not start Theranos, he did not control Theranos,” said Mr. Cazares. “Elizabeth Holmes, not Sunny, founded Theranos and built Theranos.”

By the time Mr. Balwani joined Theranos in 2009 as president and chief operating officer, Ms. Holmes had spent six years building “a small but sophisticated company,” said Mr. Cazares. His knowledge of the company was largely based on what Ms. Holmes, who was also his girlfriend, and Theranos scientists told him, Mr. Cazares said.

Elizabeth Holmes’s former top deputy at Theranos, Ramesh ‘Sunny’ Balwani, faces charges of defrauding investors and patients about the startup’s blood-testing capabilities, which he denies. Photo: Getty Images

Mr. Balwani, 56 years old, faces a dozen counts of wire fraud and conspiracy to commit fraud for allegedly lying to investors and patients about the blood-testing startup’s technology. Mr. Balwani helped run the company from 2009 to 2016 alongside Ms. Holmes, and helped finance it by underwriting a $13 million loan and buying $5 million in stock. The two had a romantic relationship that spanned more than a decade and was intertwined with their co-leadership of the company, according to evidence in the case.

Ms. Holmes was found guilty of wire fraud and conspiracy in January in a separate criminal trial.

Ms. Holmes and Mr. Balwani were indicted together in June 2018, but U.S. District Judge

Edward Davila

agreed in March 2020 to Mr. Balwani’s request to sever the trials so they would have separate court appearances. Judge Davila presided over Ms. Holmes’s trial and is also overseeing Mr. Balwani’s proceedings; the same assistant U.S. attorneys who brought Ms. Holmes’s case are also prosecuting Mr. Balwani’s case.

Mr. Balwani’s trial had faced delays due to a prolonged jury selection and the Covid-19 pandemic, and because Ms. Holmes gave birth to a baby boy last year, which postponed her own trial.

The government has accused Mr. Balwani, like Ms. Holmes, of misleading investors, business partners and patients about the capabilities of Theranos’s technology and its finances. Theranos claimed it could test for more than 200 health conditions using just a few drops of blood from a finger prick. Prosecutors have alleged and witnesses in Ms. Holmes’s trial testified that the company used its proprietary device for just 12 types of patient tests, and those tests could be inaccurate. Theranos relied on commercial blood analyzers for the majority of its tests, lawyers for both sides have said.

Mr. Cazares said that Theranos used investor money as it promised—to build the company. When Mr. Balwani left in May 2016, Theranos had hundreds of millions of dollars in the bank, patents and hundreds of blood tests developed by Theranos scientists, Mr. Cazares said.

“The money was there, the business was there,” said Mr. Cazares. And Mr. Balwani, whose stake in Theranos was worth as much as $500 million on paper, walked away from Theranos without selling any stock.

By the time Mr. Balwani left in 2016, Theranos was struggling with unreliable and inaccurate blood tests, deteriorating retail partnerships, unhappy investors and regulatory scrutiny, The Wall Street Journal has reported. Regulators had uncovered major deficiencies in the lab he oversaw. The company dissolved in 2018 following civil lawsuits, a settlement with the Securities and Exchange Commission over fraud charges in which Theranos didn’t admit or deny wrongdoing but paid a penalty, and the federal indictment.

The government’s indictment alleges fraud spanning from 2010 to 2016, during which Mr. Balwani was at the company. In Ms. Holmes’s trial, she described Mr. Balwani as her closest business mentor who had influence over how she ran the business—though he wasn’t the ultimate decision maker.

The government’s opening statements gave a preview of a case that echoed the one against Ms. Holmes.

“This is a case about fraud. About lying and cheating to obtain money and property,” said Assistant U.S. Attorney

Robert Leach.

Mr. Balwani “did this to get money from investors, and he did this to get money and business from paying patients who were counting on Theranos to deliver accurate and reliable blood tests so that they could make important medical decisions.”

Mr. Leach said Mr. Balwani was responsible for what he described as false financial projections that were given to investors. Mr. Leach said Mr. Balwani told investors to expect Theranos would have $990 million in revenue in 2015, when in fact the company had less than $2 million in sales, among other projections Mr. Leach said were misleading.

Mr. Cazares countered that allegation, saying Mr. Balwani accurately portrayed the company’s expected revenue growth based on an agreement from

Walgreens Boots Alliance Inc.

to put Theranos blood-testing devices in thousands of retail pharmacies.

Mr. Balwani is an entrepreneur and immigrant from a family of farmers, who became wealthy from his own success in tech startups before going to work at Theranos, Mr. Cazares said. Mr. Balwani had worked as a software engineer and had a business degree when he went to the blood-testing company, where he was put in charge of the lab despite having no medical or laboratory experience.

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Mr. Cazares took issue with the government for charging Mr. Balwani without reviewing a database that contained all of Theranos’s lab testing data, including 9 million patient test results.

The database is a thorny issue. The government subpoenaed a copy of Theranos’s proprietary lab-result database, but in August 2018, just days after the government received a copy on an external hard drive, Theranos officials destroyed the entire database, the Journal has reported. The government later learned that a passcode needed to make use of their hard drives was missing.

Before Mr. Balwani’s lawyers outlined the broad strokes of his defense, prosecutors on Tuesday described Mr. Balwani as one-half of a business duo that lied to cheat investors and patients out of money. “They were partners in everything, including their crimes,” said Mr. Leach.

Mr. Balwani was a full participant in the lies Theranos spread, Mr. Leach said, driven by its dwindling cash reserves and unreliable technology. The company went years without revenue and its cash had diminished to $6.9 million by 2013, he said.

For a time, said Mr. Leach, their fraud scheme was enormously successful: They raised hundreds of millions of dollars from investors, and it “brought them fame and adoration.”

Mr. Leach told the jury that they would soon see text message exchanges Mr. Balwani and Ms. Holmes shared during their yearslong personal relationship, which was largely hidden from Theranos investors, employees and board directors. Prosecutors also introduced hundreds of these messages during Ms. Holmes’s trial, showing the two worked in tandem as the top officers of a multibillion-dollar company and as romantic partners.

“They candidly explained to each other how bad things were inside Theranos at the time they were touting Theranos as a revolution in healthcare,” said Mr. Leach.

Theranos and the ‘Sunny’ Balwani Trial

Write to Heather Somerville at Heather.Somerville@wsj.com

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The Hidden Ways Companies Raise Prices

Lettuce Entertain You Enterprises Inc., a Chicago-based restaurant group, has added a 3% “processing fee” to checks at many of its restaurants.

Harley-Davidson Inc.

added a charge last year to its motorcycles to cover rising material costs.

Peloton Interactive Inc.

in January began charging $250 for delivery and setup of some of its indoor bikes, a service that was previously included free.

Companies are finding all kinds of ways to make consumers pay for rising costs. Often that is not reflected in the posted price.

The Labor Department’s consumer-price index, which measures how much consumers pay for goods and services, rose to 7.5% in January compared with the same month a year earlier—the biggest rise since February 1982.

The index accounts for some changes that raise consumers’ costs, such as smaller package sizes and some fees attached to hotel packages or car purchases. But it can miss other ways in which dollars don’t stretch as far– a hotel that changes sheets only between guests, a theme park that cancels its free airport shuttle, or an auto dealer that requires customers to buy a protective paint coating with a car.

With supply-chain challenges, pent-up demand and a tight labor market leading to inflation, businesses are looking for subtle ways to pass along rising costs. Particularly in the food business, companies have long used what the industry calls weight-outs, or shrinking package contents instead of raising prices, during economic distress periods such as the 2007-2009 recession.

“There is a lot more to come,” said

Doug Baker,

head of industry relations for FMI, a food-industry trade organization. “Everything is on the table in an effort to deal with those cost increases, and at the same time, not make it too difficult for consumers to shop.”

A global computer-chip shortage has reduced vehicle inventories just as Americans were buying cars in record numbers, pushing up prices for new vehicles. In many cases, they are selling for thousands of dollars above manufacturers’ suggested retail prices, said Tom McParland, founder of Automatch Consulting, which helps consumers find vehicles.

“They’re calling it a market adjustment fee,” said Mr. McParland. “That’s the new thing they are doing: hiding markups with substantially overpriced accessories like mud flaps and cargo protectors.”

Ford Motor Co.

and

General Motors Co.

have said they are cracking down on dealerships using that tactic.

Harley fees

Base prices on Harley-Davidson’s motorcycles haven’t gone up much in recent years, the Milwaukee company said. But to cover rising costs, it added a mandatory materials surcharge last year, which dealers are passing on to customers. Dealers said the fee, which varies based on the model, is easier for the company to adjust than base motorcycle prices when costs decrease.

Dealers said the fee is $850 to $1,500 a bike. Harley this week told analysts that the surcharges helped boost revenue during the fourth quarter last year.

Harley-Davidson added a fee to its motorcycles to cover rising material costs; a dealership in Louisville, Ky., this week.



Photo:

Luke Sharrett/Bloomberg News

Some restaurants are adding new fees in response to escalating costs for food and packaging, and for wage increases executives say are needed to keep cooks and servers.

Brinker International Inc.’s

Maggiano’s Little Italy in October 2020 started charging $5 for a second, to-go pasta dish offered as part of a two-entree deal. For about a decade before the pandemic, the chain had offered a second classic pasta dish free.

“We’ve had no push back,” Maggiano’s president Steve Provost told investors last October. A Brinker spokeswoman said the price change allowed the company to invest more in the value of its carry-out offerings.

When Michael Pfeifer, a marketing professional, picked up the check for his meal at

RPM

Seafood in Chicago this week, he was surprised to find a 3% Covid surcharge added to the bill. “What’s next?” he said. “A dishware rental fee?”

The fee, added in the spring of 2020, offsets the cost of pandemic-related government regulations and mandates, said RJ Melman, president of Lettuce Entertain You, which owns RPM. “These fees can be removed and refunded for any guest that requests,” he said, “no questions asked.”

Peloton, according to its website, is adding the new $250 fees on bikes and a $350 delivery-and-setup fee for some of its treadmills. It cut the price of its original stationary bike in August to $1,495 from $1,895. With the added fees, the total price is now back up to about $1,745, as the company dealt with slowing demand and its own rising costs.

Peloton declined to comment on the fees. In an earnings call on Tuesday, Peloton CFO

Jill Woodworth

said that the fees could cut into consumer demand but that they were part of a “critical learning” process as the company restructures and cuts costs for the post-pandemic era.

Walt Disney Co.

’s Disney World in Orlando stopped offering free airport shuttles—known as the Magical Express—this year, leaving Disney guests to pay for their own transportation. The parks added several fees last year while keeping the base ticket price at $109. A fast-pass system that let park guests make reservations for rides, which used to be free, was discontinued and replaced by a new system that costs $15. And some popular rides, like Star Wars: Rise of the Resistance and Space Mountain, now cost between $7 and $15, on top of the park admission ticket.

Disney offers “a wide range of options to match different budgets and interests,” said Disney spokesman Avery Maehrer.

At its theme-park restaurants, Disney is trying to avoid across-the-board price increases, Disney CFO

Christine McCarthy

told analysts in November. “We can substitute products. We can cut portion size, which is probably good for some people’s waistlines,” she said. “But we aren’t going to go just straight across and increase prices.”

Consumer backlash

Consumer pressure has led some companies to back off added fees, including

Frontier Group Holdings Inc.

The airline, which uses a la carte pricing that lets frugal travelers choose to forgo amenities, in May 2021 added a $1.59-per-flight-segment Covid-related fee. After consumer backlash, Frontier in June stopped breaking it out as a component of its base fare but it didn’t stop charging it. Frontier didn’t respond to requests for comment.

In a press release it said: “The charge, which was included in the airline’s total promoted fare versus an add-on fee, was meant to provide transparency and delineate what portion of the fare was going toward COVID-related business recovery.”

Some of

Marriott International Inc.’s

Autograph Collection hotels had been charging a “sustainability fee” of about $5 a night. The company that manages the properties, Innkeeper Hospitality Services LLC, says it covered things like more-efficient HVAC systems.

They stopped charging the fee several weeks ago, “because we understand that while we believe in environmentally responsible stewardship, not everyone cares about our planet’s health,” IHS CEO Amrit Gill said. He said Marriott had asked the company to stop charging the fee. Marriott declined to comment.

The Biden administration has begun to look into some forms of hidden fees, which it calls “junk fees.” The administration says the amount being charged is not always tied to the costs faced by the company providing the goods or services. The Consumer Financial Protection Bureau is seeking public input on financial services, such as bank overdraft fees, while the Transportation Department is planning actions on airline baggage fees.

John Fiorello, a father of four in Torrington, Conn., was dismayed to see prices rising in his local grocery-store aisles but was initially pleased to see that the blocks of cheese he usually buys hadn’t gone up much in price—perhaps 10 cents, he said. Then he noticed that the package had shrunk, to 12 ounces from 16.

“I picked up the block and said, ‘this is definitely smaller,’ ” Mr. Fiorello said. “It just adds an extra layer of stress.”

Shrinkflation, as economists call it, tends to be easier for companies to pass on to consumers. Despite labels that show price by weight, research shows that most customers look at only the overall price.

The food industry has long shrunk package contents instead of raising prices during economic-distress periods; a Salt Lake City grocery store in October.



Photo:

George Frey/Bloomberg News

“There are sizes that people remember, like a half gallon of ice cream,” said John Gourville, a Harvard Business School professor. “Once you break from iconic sizes, it’s pretty easy to move from 13 ounces to 12 ounces.”

Over the years, tuna cans have come to contain less tuna and toilet-paper rolls less tissue, said

Burt Flickinger III,

managing director of Strategic Resource Group, a consulting firm that works with consumer-product companies. “Historically,” he said, “it’s called a ‘cheater pack.’ ”

Companies have become more sophisticated and use multiple tactics to protect their profitability, he said. They can pull back on discounts, stop making low-selling products and create new varieties that sell for higher prices

Downsized Oreos

Oreo-maker Mondelez International Inc. raised prices by an average of 6% to 7% in the U.S. last month, but it wasn’t enough to make up for its higher costs, the company said. So Mondelez has been introducing new sizes and flavors it says are more profitable.

Oreo’s new 110th Birthday chocolate confetti-cake cookies cost about 10 cents more than regular Double Stuf Oreos at several grocery stores, even though the new flavor comes in a slightly smaller package. At a

Target Corp.

store in Chicago, the limited-edition birthday Oreos, which came out January, cost $3.79 for a 24-cookie package and the Double Stuf ones cost $3.69 for a 30-cookie package.

Retailers set the final prices. Mondelez said it charges the same for the two products, and its limited edition flavors are typically different-sized packages than regular ones. A Target spokesperson said: “We’re priced competitively throughout the markets we do business.”

Economists and analysts at the Labor Department’s Bureau of Labor Statistics monitor prices of thousands of goods and services. They can account for shrinkflation, because they track the cost of certain products by weight and quantity—so a cereal box that costs the same amount but now has 30% less volume would be registered as a price increase.

They said their efforts can’t identify every fee or dropped amenity, such as a hotel room rate that remains the same but that no longer includes fresh towels or a hot breakfast. “We do not capture the decrease in service quality associated with cleaning a room every two days rather than one,” said Jonathan Church, a BLS economist.

Disney World in Florida added several fees last year while keeping the base ticket price at $109; the Magic Kingdom last summer.



Photo:

Joe Burbank/Orlando Sentinel/Associated Press

Jeremiah Mayfield and Carlos Larrea stayed at Alohilani Resort in Honolulu in December and opted for a $75 a-night upgrade to “club level” for free food and drinks. But they said they could rarely use it because the resort didn’t have enough staff to replenish the club-level amenities. After complaining, they were offered free dinner.

Alohilani General Manager Matthew Grauso said that quality and efficient guest service are top priorities and that he tries to remedy any shortfalls immediately, adding, “The pandemic has presented a unique set of challenges within the hospitality industry.”

“We gave them hell for it,” Mr. Mayfield said. “We paid $800 a night. We never expected it would be so scarce in terms of service and amenities.”

Many hotel chains are replacing complimentary hot breakfast buffets with a snack bag. Some fitness centers and pools remain closed, and housekeeping doesn’t refresh rooms daily. Some guests feel like they are getting less for their money.

InterContinental Hotels Group

PLC, which owns Holiday Inn, said it has been working with hotels to return amenities and make it right if guests aren’t satisfied. “Hotel teams have been overcoming many challenges including supply chain and labor shortages, changing health guidance and regulatory requirements,” an IHG spokesperson said.

On a recent trip to St. Louis, Meg Hinkley booked a Holiday Inn because it said online that it offered room service. When she arrived, the restaurant was closed, so there was no room service. She said she would have stayed at a lower-priced hotel if she had known. “I was paying for that convenience.”

Write to Annie Gasparro at annie.gasparro@wsj.com and Gabriel T. Rubin at gabriel.rubin@wsj.com

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Cathie Wood’s ARK Faces Loyalty Test After Tech-Stock Rout

Cathie Wood

says the high-risk stocks in the exchange-traded funds sold by ARK Investment Management LLC are so cheap that they will inevitably rise. A surprising number of investors are willing to give it a shot.

Over the past week, with prices in the

ARK Innovation ETF

back at mid-2020 levels, investors have put about $168 million into the fund, boosting its net assets to $11.8 billion, according to FactSet. It is a noteworthy vote of confidence for a fund that has dropped 27% this month and lost half its value over the past year, as its brand of investing in largely unprofitable, untested firms has fallen out of favor.

What happens next at the ARK Innovation fund, which goes by the ticker ARKK, and other risky investments like it will help tell the story of financial markets in 2022. The most speculative assets, ranging from ARK and many of its holdings to so-called meme stocks such as

GameStop Corp.

and

AMC Entertainment Holdings Inc.

to cryptocurrencies like bitcoin, soared during the pandemic thanks to the enormous sums governments and central banks poured into the economy to counter the impact of lockdowns. Now those gains are eroding as the Federal Reserve prepares to begin raising U.S. interest rates as soon as March.

That is prompting a shift of investor behavior, causing a rethink of the sky-high valuations markets had attached to growth stocks. The result is a pullback from the riskiest assets and a repricing of even big technology stocks.

Ms. Wood’s ETFs are at the epicenter of the selloff that has pushed the S&P 500 down 7% and the Nasdaq Composite off 12% just four weeks into 2022. Worst hit have been the shares of technology and biotech firms that generate little to no profit, yet carry high valuations—the kind of companies Ms. Wood’s ARK favors.

Some of the holdings of the ARK Innovation ETF are down more than 50% from their recent highs, including

Spotify Technology SA,

Block Inc.,

Zoom Video Communications Inc.

and

Roku Inc.

Ms. Wood insists the fund’s holdings are due to rebound. “After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory, their valuations a fraction of peak levels,” she wrote in a blog post last month.

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Larry Carroll,

a financial adviser at advisory firm Wealth Enhancement Group in Rock Hill, S.C., still has some $18 million of client money in ARK Innovation after first buying shares in 2018. The firm manages about $55 billion across portfolios of stocks and bonds, with Mr. Carroll using ARK Innovation as a way of offering some clients exposure to hot tech companies.

Thanks to ARK’s sharp run-up in the early stages of the pandemic, he says he has already pulled more money out of the fund than he originally put in, leaving him comfortable maintaining a significant position in expectation that depressed shares will bounce back.

“The real question has been should we be buying more,” said Mr. Carroll. “I’ve resisted the urge mainly because I don’t think you’ll see ARK and the disruption stocks do well in this environment.”

Funds that beat the market often go through periods in which they lag behind, though the scale of ARK’s ups and downs makes it stand out. Investors have pulled a net $1.4 billion from ARK funds over the past month, the most redemptions of any U.S. ETF issuer, according to data from FactSet. That has pushed net outflows over the past six months to more than $8 billion, more than all the net outflows experienced by other ETF managers over the same period.

Some $16 billion flowed into ARK Innovation from the second quarter of 2020, when the Covid-19 pandemic took hold, through the first quarter of 2021, when the fund’s assets peaked at $28 billion. Investors who have bought in since then have been losing money, said

Vincent Deluard,

director of global macro strategy at

StoneX Group Inc.

Renato Leggi,

a client-portfolio manager at ARK, said some investors have started to agree with Ms. Wood’s assessment over the past week and are buying shares. She said the firm’s strategy requires that investors take a long-term view.

But

Klaus Derendorf,

a 50-year-old business-development executive from Los Angeles, said he sold his ARK Innovation fund shares in November and has boosted his cash holdings after losing about 20% in the fund in less than a year. “I gotta go back to real fundamentals,” he said.

Ms. Wood’s early returns gained her a large following on YouTube, Twitter and other social-media platforms.

Joe Seid,

a 58-year-old sales director from Chicago, bought ARK Innovation shares at the end of 2020, in part because he saw her on TV and his financial adviser flagged the fund as one of the hottest in the market. He sold last year after losing 10% of his investment and now thinks he might have gotten carried away.

“For me, these were way too speculative,” Mr. Seid said. “It didn’t really jibe with more core financial beliefs.”

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

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After Two Weeks of Flight Cancellations, Airlines Assess What Went Wrong

At JetBlue Airways Corp., executives felt confident coming into the Christmas season. The airline had flown through Thanksgiving week with hardly any hiccups.

Then Covid-19’s Omicron variant arrived. With its headquarters in New York, which leads the country in new case counts, JetBlue was quickly overwhelmed. Daily sick calls more than quadrupled. On Dec. 21, JetBlue canceled no flights. Four days later, on Christmas Day, it scrapped 12% of its schedule.

“Because of the exponential increase, you get to a point where you exhaust all your available reserves,” Chief Executive Robin Hayes said.

Airlines are struggling through one of the most severe and persistent mass-cancellation events of the past decade, according to data compiled by FlightAware. U.S. Covid-19 infections surged too quickly for carriers to manage without upending holiday travel, wreaking havoc on already-stretched airline workforces. Now carriers are assessing how to better manage what could continue to be a difficult period, at least for the next few weeks.

Airlines scrapped more than 3,000 U.S. flights and delayed more than 5,000 on Monday. The new wave of cancellations and delays comes as the surge in Covid-19 infections in the U.S. has left the airline industry stretched thin. Photo: Chandan Khanna/AFP/Getty Images

Airlines have canceled more than 1,000 daily U.S. flights for 13 straight days, including over 2,500 on Friday as another winter storm brought snow to Boston and New York.

Flights scrubbed from Christmas Eve through Jan. 6 exceeded 24,000, roughly 7% of the number airlines had planned to fly, according to flight-tracking service FlightAware.

For airlines, the upheaval of the pandemic is heading into a new phase. Unlike in early 2020, when terrified passengers canceled trips in droves, new variants dent but don’t decimate appetite for travel. But airlines are still rebuilding their operations. The twin challenges of rising numbers of employees calling out sick after being infected or exposed to Covid-19, and a series of severe winter storms that hit major hubs from Seattle to Chicago to Washington, D.C., created the perfect conditions for travel chaos.

It became clear that a problem was brewing early in the week of Christmas, said

Sara Nelson,

president of the Association of Flight Attendants-CWA.

“Thanksgiving went off without a hitch. We had two things going for us: We didn’t have Omicron, and we didn’t have any winter storms,” she said. “No one saw Omicron coming.”

The trouble spiraled as more workers became infected. “I was getting notices that entire crews were testing positive and they’re out of the country, in a location where they don’t have other crews. There’s no way to get that aircraft back,” Ms. Nelson said.

A check-in line at Seattle-Tacoma International Airport on Dec. 27.



Photo:

LINDSEY WASSON/REUTERS

Delta Air Lines Inc.

DAL 3.63%

was the first to flag the potential for disruption. Chief Executive

Ed Bastian,

along with the airline’s chief health officer and a medical adviser, asked the director of the Centers for Disease Control and Prevention on Dec. 21 to consider halving its recommended isolation period for fully vaccinated people who come down with breakthrough Covid-19 infections. They cited potential workforce shortages and new information about the Omicron variant. JetBlue followed with its own letter a day later.

Airlines had been under pressure from both travelers and lawmakers to deliver a smooth holiday season after meltdowns last summer and fall. Carriers including

Southwest Airlines Co.

LUV 3.25%

and

American Airlines Group Inc.

AAL 4.23%

at times struggled to maintain the buffer needed to quickly recover from storms or other disruptions, resulting in thousands of canceled flights.

Delta and

United Airlines Holdings Inc.

UAL 3.53%

were among the airlines facing the toughest problems in recent weeks. But almost no airline emerged completely unscathed.

“It has been one of the most difficult operational environments we’ve ever faced, and it forced us to cancel hundreds of flights as a result,” Delta’s chief customer experience officer,

Allison Ausband,

wrote to its frequent fliers on Jan. 5. Delta said Thursday that another round of storms headed for the Northeast would likely result in hundreds more cancellations.

Airlines aren’t alone in facing shortfalls as the Omicron variant rips through workforces. Public-transit services in New York and other cities have been disrupted. Retailers, bars and restaurants have had to temporarily close or curtail hours. School closures are at their highest point of the academic year as teachers call in sick.

Airlines operate under strict safety rules that can leave them little recourse but to cancel flights when they are short of staff in the right places. Pilots aren’t always trained to fly multiple aircraft types, for example. Regulations dictate how much rest crews must get between shifts. And employees such as flight dispatchers and mechanics can take on only so much extra work safely.

William Humphrey, 35 years old, had hoped to return on New Year’s Day from a family visit to Omaha, Neb. Citing weather, United canceled his flight and rebooked him for Jan. 2. He instead took a refund and switched to a quicker route with Delta, but that flight was canceled, too, as were two more of his Delta flights on Monday.

Dr. Humphrey, a resident physician working in Burlington, Vt., worried about finding coverage at his already short-handed office. On Tuesday, when a delay in his flight from Omaha to Detroit caused him to miss his connecting flight home to Burlington, he instead booked a flight to Albany, N.Y., rented a car, and drove the rest of the way, a three-hour trip.

“It seems like it’s getting more and more chaotic,” he said.

Waiting at Newark Liberty International Airport in Newark, N.J., on Monday.



Photo:

Christopher Occhicone/Bloomberg News

Airlines are preparing for the difficulties to last at least a few more weeks.

Alaska Air Group Inc.

ALK 2.94%

said Thursday that it will reduce Alaska Airlines departures by 10% through the end of January, citing an unprecedented rate of employee sick calls due to Omicron and the need to find a way to navigate Covid-19 as a “continued reality in our business and our world.”

“This will give us the flexibility and capacity needed to reset,” the airline said in a statement.

Southwest said that through Jan. 25 it will offer pay incentives, including up to double pay for working extra shifts, to employees such as flight attendants, customer-service representatives and mechanics. Southwest canceled over 2,500 flights this week, including more than 500 on Friday—17% of the flights it planned that day, according to FlightAware, as Omicron-related sick calls made it harder to recover from severe weather such as a major snowstorm that hit Washington, D.C., early this week.

An airline spokesman said Southwest is focusing on stabilizing its operation in the wake of winter storms while maintaining sufficient staffing as Covid-19 cases jump.

Carriers typically maintain higher staffing levels as a buffer against bad weather and other unexpected events over the busy holiday season—when demand runs high and staff callouts tend to be elevated even in the best of circumstances—said

Geoff Murray,

a partner at consulting firm Oliver Wyman. Airlines are still clamoring to hire more staff, he said, with regional carriers suffering a dearth of pilots and major carriers contending with training logjams.

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“There was not a lot of slack in the system,” Mr. Murray said. “The only alternatives the airlines had were to further cut back schedules going into the holiday. With the booking levels they were looking at, that would have been very difficult to do.”

At United, the number of pilots out sick, including those with Covid-19, those awaiting test results and those with other illnesses, climbed to about 900 this week from about 500 shortly before Christmas. And the number of pilots with active Covid-19 infections more than doubled to nearly 500 during that period, according to a spokesman for the union that represents United’s pilots.

The airline rushed to bump pay for pilots willing to take on extra trips, with negotiators working past midnight on Dec. 31 to craft an incentive agreement that offers up to triple pay for certain trips. United hasn’t shortened the 10-day quarantine period for pilots and flight attendants who become ill with Covid.

While airlines are still canceling flights, they will likely get a measure of relief from the typical travel slowdown following the winter holidays. Airlines tend to operate fewer flights in January than at the end of December. Airports screened 1.5 million passengers Thursday, pulling back from daily highs of more than 2 million at the height of the holiday rush, according to the Transportation Security Administration.

“I think we’ll start seeing more people coming back to work than calling out,” said JetBlue’s Mr. Hayes. “And I think that will allow us to recover very quickly from the middle of January onwards.”

A packed Miami International Airport on Jan. 3.



Photo:

chandan khanna/Agence France-Presse/Getty Images

Write to Alison Sider at alison.sider@wsj.com

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