Q2 2020 Delta Air Lines Inc Earnings Call
[music].
Good morning, everyone and welcome to the Delta Airlines June quarter Financial results Conference call. My name is the so again I will be your coordinator at this time all participants are in listen only mode until we conduct a question and answer session. Following the presentation. As a reminder, today's call is being recorded I would now like to turn the conference over to Jill Greer, Vice President of Investor Relations.
Please go ahead.
Thanks to tell you good morning, everyone and thanks for joining us for June quarter earnings call.
Speaking today on the call will be our CEO, Ed Bastian and our CFO Paul Jacobson, We also have our president Glen Hauenstein and our entire leadership team here with us for the queuing day to get in as many questions as possible during the Q and I. Please limit yourself to one question and a brief follow up [noise].
Today's discussion contains forward looking statements that represent our beliefs or expectations about future events.
All forward looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward looking statements. Some of the factors that may cause such differences are described in deltas SEC filings will also discuss non-GAAP financial measures all results exclude special items unless otherwise noted you can find a reconciliation of our non-GAAP measures.
On the Investor Relations page at IR that Delta Dot com and with that alternative for that.
Thanks, Joel Good morning, everyone. Thank you for joining us today.
We are now four months since it depends on mix and the nearly $4 billion pre tax loss that we just posted reflects the severe impact that cobot 19, as having one or a company and or industry.
The June quarter was remarkable for a confluence of crises that rocked ordination.
In addition to the pandemic and its impact on public health and the economy. The issue of inequality in social injustice for Black Americans has been front and center.
In this environment our number one focus is taking care of or people. This includes not only protecting the health and safety of our employees, but also maintaining or commitment to supporting the fight for quality and social justice.
We are committed to listening and understanding.
We must be a stronger advocate for justice equality across our business from our operating procedures to the programs that we all for people to support for policy change.
People or the heart and soul of Delta and I am incredibly proud of their press perseverance and resiliency through these trying times and forever grateful for the sacrifices that they are making for a company.
Just a man bottomed in mid April at less than 5% of our normal traffic, we've seen a small but well come up tick in passenger volume being driven almost entirely by domestic leisure travelers are those flying for central reasons.
And while it's encouraging to see customers start to return.
The revenue environment remains challenging.
We have thought from the start that the recovery will be choppy and the past few weeks have shown that to be true.
We're expecting our overall revenue for the September quarter will be only 20% to 25% of what we saw last summer.
And we've seen demand growth fly and recently with the rise in Cobot 19 cases.
We are watching trends closely and have pared back our capacity plans for August.
Business travel, which typically provides 50% of our revenue is not yet returns in any meaningful away.
With corporate offices slow to reopen quarantine restrictions in markets like New York in Chicago and states in the South Sunbelt reversing or pausing reopening plans, we remain cautious on the pace of recovery through the balance of the year.
In addition, there isn't a clear timeline when international borders will open for U.S. travelers.
So it's against that on certain backdrop that we're taking the industry's most conservative approach to capacity.
For the September quarter, we expect our seats available for sale, which accounts for 60% load factor cap.
We'll be 20% to 25% of last years level up from 10% in the June quarter.
Given how dynamic the current environment is we're maintaining our flexibility that we will adjust our capacity plans as needed based on changes in demand.
Since the crisis, but again, we have taken decisive actions to protect our people and our customers increase our liquidity and importantly preserve our ability to respond in the future.
Customer employee safety remain our top priority and restoring consumer confidence and travel is at the forefront of our recovery plan.
We have taken extensive and proactive measures to implement a multi layer approach to protect cussed. Additionally, all of our aircraft are equipped with help the filters generating high quality hospital grade air quality onboard.
Restoring consumer confidence to travel on Delta is the driving force behind their Delta care standard, which includes requiring customers and employees to wear masks enhancing clean protocols for aircraft electrostatic spring before every departure locking middle seats and capping load factors at 60% to provide.
More space onboard we're committed to blocking middle seats through September and expect to continue our policy beyond that date as well.
We've also created a delta global cleanliness organization and are collaborating with two of the world's best health organizations, the Mayo clinic and quest diagnostics. The Mayo clinic is helping to assess our safety protocols consulting on how to improve safeguards as well as designing coded 19 testing for our full workforce.
Both for the active virus and the presence of antibodies.
The added layers of protection or having a these changes as of the first to may be infection rate among our closest spend their days working onboard our aircraft and in our airports is well below the national average providing another solid travel.
In addition, our net promoter scores have never been higher as customers recognize our health and safety efforts onboard.
And on the ground.
I already has been to protect our liquidity.
Paul and the team move quickly and decisively to raise capital ending the quarter with.
Liquidity.
Entering this.
Crisis with a strong balance sheet allowed teen billion dollars in new capital on top of the 5.4 billion from the cares act without issuing issuing equity.
This critical the most important liquidity the action, we can take is reducing our cash burn.
In June.
The month average $27 million a day.
Substantial.
For improvement from the 100 million dollar thing in late March.
The major force and that improvement is our cost.
Well as we will take out over 50% of our total operating expenses for both the June and September quarters.
That's due in large part to the more than 40000 dealt to people who have volunteered to take sure.
Short term unpaid leads.
Our crews who have seen their hours reduced its flying has been cut back in the sacrifices made by our our work schedules have been similar similar to the produced by 25%.
I wanted for an unpaid leave there.
Making a real difference in helping us navigate this crisis.
I also want to thank all our colleagues.
Who have been serving our customers in the.
Inspirational and that Delta.
The difference has never shine brighter stalled at present, we expect to eyes daily cash burn to be similar.
As we go through the summer and into the fall.
Once what we're seeing in the revenue environment.
With our ability to get costs out of the business and keep us on the path to achieve our goal.
Of breakeven cash burned by the end of the combined effects of the pandemic and associated financial impact on the global economy, we continue to be.
Before we see a sustainable recovery.
So to succeed in this environment, we are building.
Brazilians across the company increase, albeit one that will need to be smaller.
He is accelerating strategies district.
Dreamliner accompany simplify our fleet and reduce our fixed caught in the past.
We have made the decision to permanently.
We retire more than 100 aircraft. This for MD 88, MD 90, Triple seven and seven three.
We have the most flux.
Pulling for these and additional fleets.
Which we believe will provide a lasting back.
Benefit to our cost structure.
The difficult reality of risk this small the workforce until we see.
Demand return.
We will be wrapping up our voluntary departure in early retirement program Tonight, we already had overseas.
17000 employees depart the company.
We also have thousands more signed up.
The absence into the fall.
We are hopeful that we can accomplish the vast majority of the headcount changes we need through these programs.
Minimizing if not eliminating the need for in voluntary furloughs. This will require in across all of our work groups.
And I'm hopeful that we can get there.
And as we navigate this difficult our airline partners around the world, who are facing even more significant financial challenges.
During the quarter, but.
Both little time, then aeromexico chapter 11.
And version.
Recapitalization.
Well each of these is disappointing.
None of our partners home country full financial support similar to what the U.S Treasury did with the cares act, which necessitated their decisions to restructure.
We had the most the most confidence and all of our partners partnerships, which will be important more resilient international network in the in the recovery.
In closing we remain grounded in the strengths that our core for to deltas business.
People are brand our networking.
These strengths and the shared values of the Delta family Guide every day.
Vision, we make differentiated positioning us to succeed when demand returns I want to thank everyone, who is contributing to delta.
Through the most challenging time it is storied company's history, our customers partners suppliers owners community.
Their support has been overwhelming.
And especial. Thank you to the finest group of airline professionals ever assembled our delta people whore, managing this difficult environment.
Determinant to return delta to or position of leadership in our industry, three and in our world and with that I'll turn it over to Paul to go through.
Our financial as well, thank you Ed and good morning, everybody.
These June quarter results, we were.
Yes revenues declined 91% and we reported a 3.9 billion dollar pre tax loss one of the largest in deltas history.
Results exclude several items directly related to the impact from Covidien 19 at our response, including.
Charges from fleet related decisions $2.1 billion and write downs related to equity partners and a $1.3 billion benefit from the carriers at grant recognized during the quarter.
During this quarter, our total operating expenses declined $5.5 billion or 53 per se.
At the June quarter cost performance was more than $400 million better than our original expectation ridable contributions of more than 40000 employees, who have elected to take voluntary unpaid unpaid leave.
Additionally, reduce flying fuel expense was nearly $2 billion lower compared to the prior year quarter, and we generated over $250 million of savings from parking more than 700 aircraft.
We're also able to reduce facilities expense by consolidating concourses and temporarily closing sky clubs, while eliminating nearly all discretionary spending.
In the September quarter, we expect to achieve a similar 50% year over year reduction.
A sequential increase in capacity. This reflects the increased variability we've achieved in our cost structure and what we've been discussing since the coded epidemic.
As Ed said, our top financial per priority remains to ensure that we have sufficient liquidity to whether whatever comes at us to this end, we've taken decisive action to bolster our liquidity position ending the quarter with $15.7 billion of liquidity.
Daily cash burn also improved sequentially each month during the quarter to averaged $27 million in the month of June.
This outperformed our initial expectation of $50 million cash burn per day during the two months of June during the month of June sorry, one third of that improvement came from better cost performance with two thirds from an improvement in net sales, which inflected positive in early June and remain there.
It's worth noting that approximately $10 million of our cash burn is attributable to our international business. So our domestic business is only burning $17 million a day, which is a testament to the efficiency of the reduced operation.
We're staying agile to balance what we're seeing.
Seeing in the revenue environment with ours. This approach improves our cat ashburn trajectory, which helps us to.
Preserve our balance sheet capacity for the strength of our balance sheet has been evident during the pandemic as we have raised $15 billion in new liquidity at a blended average rate of 5.5%.
When combined with funds received under the cares Act payroll support program. We ended the June quarter with this $15.7 billion of liquidity.
Even with no improvement in our cash burn rate this equates to 19 months of liquidity.
This is more than sufficient to address our upcoming maturities feed to continue to raise additional capital.
Leveraging our unencumbered assets.
X secured loan program.
In an effort to ensure compliance.
Great. We also amended all of them.
Our bank credit facilities to permanently covenant with a $2 billion minimum liquidity covenant.
So in spite of the significant amount of debt we raise our adjusted net debt has only increased by $3.4 billion since the start of the year to $13.9 billion.
[noise], reducing our daily cash debt down and that is why we remain uniquely focused on it.
Well, we have a long road ahead of US we've made tremendous progress in just the last four months.
By raising cash early in aggressively managing costs, we are prepared to navigate what will be a volatile revenue period, while making decisions that position delta well for the eventual recovery.
Our people have acted quickly and decisively to protect our customers and our company and I'm. So proud of what the people of Delta of accomplished with that Grace professionalism and determination that Ed mentioned.
They are the reason I'm confident we will emerge from this crisis as a stronger more resilient delta as.
Our customers return and went to begin the Q. It. Thanks, Paul Cecilia we are ready for questions from the analysts if you could give them instructions on how to get thank you.
If you like this it go for question at this time please.
And please make sure that your mute function is turned off so you're still going can retire equipment again star one and we'll go first 200 Cave Wolfe research.
Hey.
Hey, good morning, everybody.
Ed Ed You mentioned you recently said you expect some amount of business travel tickets at 20% will turn out to be unproductive.
Return so what are some of this.
Hi colors that do come back that might be different from the ones, who don't like for example, maybe they fly more per year, but to fewer cities are the people that use lounges more often.
Look like and how do you win them or keeps them.
Well first of all under I think fundamentally business travel is going to come back and it's going to come back at scale and I'm not one that that things that we already know permanently depressed.
Level of business travel for the foreseeable.
There's a lot of inefficiency, which we can all appreciate in business travel.
The number of trips that the.
Going to come down in certain cases.
The international trips that we've all been on where we've flown over to Europe for a for a two hour meeting.
Seeing and flown back that does nothing but Pete you up can you certainly be much easily better accommodated over a video call, but it's going to be trips that are focused on relationship building interacting.
Whether it's with with your customers convention.
Reviewing performance on a global scale those those are going to say I just don't.
Substitute for that overtime, it will take some time to get back.
At entirely to where we were in 2019 on the volume of business traffic, but the resiliency of the business traffic that we're going to now baked.
I think will be a better oh wait.
We have the recovery.
And then another one for you add one was the last time, you talked to Steve Squeri in what is your single.
Biggest shared commercial concerned revenue is most important to preserve the relationship and the economics, but your company share.
I talked to Steve all the time, it's not just a great business partner is a great friend.
And I wish our thoughts and strategies together, we are their biggest and most important business partner and American Express is hours in turn and.
This crisis together in a way that.
You would expect.
Well recovery over the course of the quarter in volumes on the card, which which is certainly one of them.
So the revenue recovery, we're seeing on spend but they provide a great lens into cuts.
Things that are going to be very important for adult.
Well into two to maintain company. So I'm I continue as Steve does to be optimistic of the future. We both realistic we realize.
The TV spend.
It's not going to be at the levels. We saw in the prior to our very best to build a better and better future for respective stakeholders.
Thank you.
Our next question comes from Jamie Baker, <unk> JP Morgan.
Hey, good morning, everybody.
Paul a question on labor, so as I see it there sort of for moving parts here. We've got voluntary unpaid leaves, which has already dropped off the PML for now, but some level phase back end in the future. We've got the early retirement.
Which will completely drop out we've got what might happen.
First and then I assumed in your Vanda Furloughs you you have some.
What I'm trying to reconcile with these various flows is whether the net.
Is that they temporarily give you labor cost relief from the fourth quarter and that's what gets you to cash breakeven, but then labor costs potentially rise after that I guess I I guess another way of asking is in what quarter do you think your labor expense Lauren will truly be reflective.
Of the cost structure going forward.
Hi, good good morning, Jamie there's a there's a lot in that question I think we were still really assessing the overlap right now the to the voluntary leave program. So there's a sense of duplication there, but what it does do you know at at an absolute minimum is it puts a permanent.
Around what were short term leaves and volatility. So we expect that in addition to the to the leaves that Ed mentioned I'm, sorry that the the separation that Ed mentioned voluntarily. We also have leaves that will continue on top of that.
So we're going to continue to assess and and see where we stand on the salaries and related line. There's no doubt that that's been a big driver of how we've gotten our cash burn down and quick action and as we continue to shape. The airline for how we think it's going to be sized next summer and into the future. We've got.
To be able to manage all of that agility and flexibility in the voluntary leaves are gonna be continue to be an important piece of that puzzle going forward. So as we think about.
Salaries and related you know, we should get to that kind of trend line I would think in that fourth quarter first quarter, but then we'll see as demand shapes back customers are ultimately going to determine how big the airline is.
Hi, Jane got I could add a couple of thoughts.
For the.
Second quarter and the third quarter, we are reducing our total operating expenses by a bit over 50%, so which is enormous and that we'll continue to be our goal is we as we progress through the fourth quarter as well and while the composition of the savings.
We'll be more sustainable given the size of the.
Early out so we had 20% of the company will be will be exiting and as you can appreciate it's the senior most 20% of the company as well, which is going to give us an added benefit on top.
There's a lot of creativity in collaboration with our workgroups about reducing.
I was trying to protect jobs and everyone pitching in two to work fewer hours, but to shave margin save more jobs and that's that's across the company there is a real.
Spirit of doing that so whether it gets through the fourth quarter first quarter at some point what is that the labor savings here ours are sustainable but to answer your question more specifically, it's really going to be on the commercial side of the business that's going to speed much more important to getting us down to that breakeven level, you know as demand hopefully starts.
Due to growth picks up once again as we look into the late summer and fall and that'll be the more important contributor to getting to a breakeven cash flow position.
Okay, that's very helpful.
Second multipart question, how do we think of loyalty in the remaining unencumbered asset pool.
Delta habit flexibility to do at United did with loyalty you know in terms of sort of a qualitative securitization of both third party sales and inter company cash flows.
Did you pledged guy milestones.
But as part of the loan.
So.
Jamie I wear a a infinitely competitive business, but you know hats off to United for that execution I thought they did a very good job with that.
And you know it's it's one that I think is available to a multitude of carriers that is not included in the most recent guidance that we've given of $6 billion to $7 billion of unencumbered assets.
And you know we're looking at all of our options and we will continue to keep them open we have made a we've advanced the ball with the government by assigning the term sheet, which they announced a couple of weeks ago, and we continue to move along that process, but we have not decided to take a government loan and we're assessing really all of our op.
Options as well as the environment that we're in.
Thanks for taking my questions ticket.
Well go next to join Pfennigwerth Evercore ISI.
Hey, thanks.
Don't totally agree with the perspective that Delta has been careful with capacity and how you brought it back.
Just from an industry perspective, it looked like the industry has guessed wrong on July.
At least so far so schedules indicate your capacity is up about 90% nine zero.
From June July.
Yet demand has stalled so I'm just curious how cash burn I can be similar in July versus June or was it just that we had a good July 4th on the books before demand rolled over or is there something going on with no debt payments in capex.
Well I'll.
I'll start with that doing first of all good morning.
The the trajectory that we've been on and what we articulated through through June was that we had seen steadily increasing.
Net sales that was coming really from from both variable sales were going up and trending higher while at the same time refunds have been trending down which put us from you know a Ah I think at the beginning we said $20 million to $30 million. A day, we were burning in March to turning positive and staying there in June so while we've seen.
Seem that that sales growth level off a in the wake of you know the latest ryzen infections and has remained relatively stable in that area. So as we see that continued trajectory of reducing our operating expenses, 50% and keeping those net sales numbers relatively flat, that's where our July.
Comes out flat to June.
Okay, Thanks, Paul and maybe maybe I'll stick with you.
Just high level, how is your budget for aircraft rent change for this year as we think about the net impact of.
Sale leaseback activity versus aircraft retirements, the only reason I bring it up is it looked like the op lease liabilities didn't really change much sequentially. So maybe you can help us understand what's going on under the covers thank you.
Yeah, I think Dwayne will take that offline and it'll be more apparent when the Q comes out later today, yes, just the breakdown between financing leases in operating leases under under all the new accounting guidelines. So it's all there but has a little bit of a different geography to it depending on the transactions.
Okay I'll keep it there thank you.
Well go next to Helane Becker of Cowen.
Thank you very much operator, I appreciate the time hi.
Sure I have two questions. One is your comments on international.
And the Triple Sevens that are leaving the fleet and some of this 767.
It would seem like you might have to do more pruning there.
Yeah. So soon do you like retired enough. The aircraft do you think or do we expect to see more during our sturdier.
Hi Lane, it's Ed I International is going to like domestic I think we have some time to watch how it recovers the triple seven.
Fleet for US was the self lead that.
I made the most sense to to sit down we certainly have additional international capable aircraft. We have a very large 76 seven fleet.
With opportunities to too early retire as we get a better sense for where the.
Recovery is but you know some of those decisions, we have a little bit of time to take it as as I indicated my remarks, there's theres more to be done and we're not investing any money in that lead and we can we can see how international recoveries shape before we make those final decisions.
Okay. That's very helpful. Thank you and then my follow up question really has to do with changes in booking patterns because of increased refunds.
Or because of more flexibility to you know people, who who stuck and then maybe cancel so could you just.
Address people booking and then actually showing up for the flights, especially in July or are you seeing people booking.
Canceling up the last instead.
[noise] playing high it's Glenn how are you do on a we've seen the notional rates are a good her oh pure swimmers going well, we see no show rates grow from about 3% historically to about high single digits. Most people a day of departure, who have reservations are showing up for the flight but.
The higher no show rates also makes a little bit harder to revenue manage with the caps. So we've been managing through that and we hope we can get better and better at that as we move through the fall, but clearly giving people more flexibility is where we need to be as a there's so much uncertainty and the virus right now.
Gotcha, Thanks, very much since I'm still in Paradise prison.
Hi summer if not going.
That's Wallace I would like.
Thank you for asking right, we're ready to release you Helane.
[laughter] not soon enough.
Thank you.
Well go next to Joe Colorado of Credit Suisse.
Hey, Thanks, good morning.
My first question relates to your pleasing and I'm actually your order, but any update on your discussions with what Airbus regarding your your order book There can you and can you describe for US maybe what it is that you were hoping to achieve there do you just want to sort of adjusted timeline for deliveries are you looking to restructure the composition of the aircraft in the order book.
Just any detail there thanks.
We are working with Airbus as you can appreciate and they've been very good.
Partners with us managing the crisis clearly we're in a situation, where we don't need any aircraft will give a lot of aircraft on the ground and doing our best to manage through the next Oh 18 to 24 months to minimize deliveries were not ready to make any announcements yet I can assure you there will be no cash capex.
On any aircraft at Delta for for some period of time certainly through the end of this year.
And Airbus is that there's been a very good part.
Got it that's that's very clear on on on the Capex, but I was curious just especially as it relates to your comments on on the expected timelines for recovery of domestic versus international.
I would also be looking to two adjusting the actual composition of the aircraft that are you in your order book as opposed to just step.
Actually delaying or revising the timeline for the deliveries.
And if I could just throw up my my second actual will follow up which is just a.
A quick clarification.
For Paul on the stalled demand recovery did you say that July net bookings are flat with June.
So they are positive month to date can you just describing a little bit more detail the evolution and those net bookings trends over the last two weeks.
You on start thanks for all that so all the helping to assist okay. Joe on your on your question with Airbus again, we're not we're not providing any specifics at this point is pushing a lot of the deliveries to the right and and when we're ready to a two we haven't reached a final plan with Airbus.
When we when we do reach that plan will feature to let you know.
And Joe on the on the cash burn so we had seen a pretty steady progression upwards of sales and a slight decline in refunds really kind of from May to early mid June and that's what we started to see it stabilize so the the.
Data there.
Consistent with what we saw at the end of June.
Soon which is really rough wave of infections throughout the <unk>.
The confidence that it's that somewhat stabilized here at these levels and hopefully its thing.
Those levels as we get later into the.
The quarter.
Thank you very much.
Our next Mike Linenberg, what's your bank.
Oh, yes.
Hey, Paul just back to.
You know, how you're thinking about the Hcl as we progressed through the quarter right.
Formal here you know the seasonal impact is that as we get to the latter part of a corridor, we tend to see keynote become a drag on cash and I realize it this is not a normal year.
Sure. So I mean are you sort of expecting that as we get into the latter part of the on the T. al or you know sort of where where's your thinking on that right now.
Hey, good morning, Mike a that's that's a bit of a duty of a question because I think the one thing. We all know is that the historical air traffic liability models.
It's not behaving in any way that.
Normalized seasonality pattern would have.
As evidenced we've actually refunded or now overall, it's about getting there which.
In the post co that post Mark.
So we actually think that.
A lot of that refund activity, particularly in the trans Atlantic in international destinations, which would it heading into this summer.
We refunded a lot of that activity, it's a big contributor to the.
That I gave that composition in my prepared.
See things stabilizing and we would expect that refunds will continue to trend.
Obviously, it's going to be choppy, but any new sales.
Data that come in any new demand, though in a way that seasonal.
So where were prepared.
Given is that there's a lot of uncertain.
The here, which is why we've gone looking to to raise as much liquidity helpful. And then just maybe this is an easier one.
You talked earlier about upcoming the charity care as well as we look to the second part of.
The year, what he is Capex, you know everything that you've you've cut back or deferred.
You did.
Luke or mentioned upcoming maturities, it's what what are the big maturities for the second question.
Yeah sure.
He a formal capex guidance because it's it's really the same as we gave.
The coded ECA epidemic, which as we've essentially eliminated all capex.
There are some technology spend on projects.
That are already in process and some small purchases here and there, but it's not material to the over.
For all story as far as debt maturities go I'm you know the biggest one we have is a 450 million dollar maturity in December when you combine that with a 600 million dollar unsecured in April of 20 deal that we just took out.
So we already successfully refinanced that and then we have the $3 billion bridge loan that is due in March that has a collateral attached to it that or you know, we haven't decided exactly what to do with that as part of the.
[laughter] amendment to the.
Credit facilities, we also extended.
By one year or the $1.3 billion maturity in April of of our revolver. So that's pushed out to 2022. So we've actually gotten a very very good handle on all of the maturities really for the next 18 months.
Great Thanks for that.
And going well go next to savvy side of Raymond James.
Hi, good morning on it couple of follow up questions I'm on the cash Darren and if we don't get much of an improvement on the commercial aside what what do you think you can kind of get the cash right by the fourth quarter went from about incremental things that are happening on the cost side.
Hey, Good morning, Savi, you know I think as we mentioned in our comments were kind of on this trajectory right now as things have stabilized and you know we're continuing to assess what the second half lips continue to monitor capacity and and demand.
Catalyst.
In fact, you know what we do on the cost input side as well, but yeah I think were.
Really counting on on some continued improvement in demand, however, I gradual and however, choppy that might be yeah were 90 days into this and we already know a lot more about this a little bit more confidence in the longer and intermediate term.
Hi demand profile, but we've got to continue to be agile. So I think we'll kind of being this mid twentys S and you know if we needed.
Take further actions, we will pay Savi. This is that I don't want anyone to get a sense that we've got to.
Gloomy forecast on revenue or demand growth not at all.
This is expected we said at the start of this is this pandemic that this will it's gonna be driven.
Hi factors outside of our control, it's really advances on the medical front.
And containing the virus its advances by by general the general public about wearing masks and doing their very best to be cautious and restoring confidence in air travel I'm optimistic as we get through you know to late summer in the fall, we're going to see some real improvements here, we need to see improvements and I think the sensitivity and.
We caution you hearing our voice for the current month is.
The fact that were in the south and we're obviously or more of a closed setting in in our local economy, then opening but at the same time, that's where the goal of reopening later this summer and fall to a bit I do think you're going to see continued.
Prudent in cash burn.
Cost on the margin could improve but when you got more and 50% your costs out it's hard to spend to be the same the same type of.
Momentum that we saw in June hopefully a re emerging in the latter part of this summer and early fall that's going to that make another material dent in bringing us down to that flat breakeven level.
Yeah that makes that sounds it helpful and my other follow up question I was just on the business travel commentary it looks like a lot it probably doesn't travel might not happen you fell 2021, but just based on your salaries and things like that is there any level of expectation now what we might see in that fourth quarter here and.
And can that tied to that I mean, that's kind of block middle C.
And get renewed you know when demand is stronger or when the virus is is is it a little bit more contain there you know what drives so transition.
We're talking to our corporate all the time time as you can appreciate and doing a lot of work with them because they're more competent they are starting to come back we did there and small numbers, but they're starting in what we've been doing is it's taking them out with us on a on tours and seeing the airport it's interesting there like.
Yeah.
In this environment, it feels very different and they need to resubmit the arise.
[noise] themselves with what it what it's like and the benefits of air travel and I'd say the most.
Significant observation that they give us is that it is actually not only say that significantly better for travel was pretty pandemic.
So there's confidence that's returning I think you're going to see it improve as businesses store to reopen I'd say, it's a post labor day.
Businesses start to open up as international operations start to slowly open up you'll see that will be in the travel well business travel is going to.
Clearly be it a 12 to 18 month, a like advances on the medical front vaccines hi, its therapy.
You know, it's say that companies.
Can safely put there there the other thing I mentioned this in one of the interviews I did this morning is that while the corporations may not be traveling we know.
The individuals are traveling and we see it in this guy miles data or information. So people are learning about the new way of travel and their tone.
Well, it's actually better than it was no.
And then the mix.
The document on Seacon is that it Matt and I've always had.
I'm, sorry, I didn't hear that so I'd say.
Hi.
Hey, you mentioned that then middle to see being blocked probably continue what drives that division.
Well, that's it that's going to be consumer confidence, we're going to hear from customers.
For those two there their comfort flights.
We have to add back yet and opportunities to add flights back.
The middle seats and of.
The the ended the year and into early.
The next year, but right now I don't see I don't see a push to do that we've got I'd, rather have more flights back in more seats into the market in the.
Safe way than trying to to maximize the number of people you can put on an individual airport fair airplane I think that's you know that would be inconsistent with the brand adult who represent thank you.
Well go next to Brandon Oglenski at Barclays.
Well it thanks for taking my question.
Question its business demand is going to lack here you know and you have some competitors out there they're going to come out of its without a lot of incremental to what.
Just in the networks, the more leisure focus maybe lower costs.
And does that impact in other parents strategy it really focusing on the branded products everything on board.
Oh, Brent is that I'm not sure who you are referring to.
I mean dollars at this point so.
And then this amount of increased.
Then on the company obviously, there's a lot large my money that we we raised well. We are we also have a significant amount of cash that we can use to to hopefully retire that once we get through the other side you know were.
We're not changing our long term goal for the for this company. This brand we already have business oriented airline Oh, we are premium oriented airline and there's nothing that I see from what was.
So, yes customers aren't going to value.
Premium value.
And but we're going to be more resilient, who because there is that there's a portion of that trial that will go away. It will size our business. Accordingly, So I don't I don't see anything that gives me pause of course, there's going to be a lot of dislocation disruption. It always happens in this industry during times of crisis, but I think we're pretty well position to be.
To come out this in a really simply stronger a competitive position than we are.
Well I appreciate you know what's important is anyone's guess here.
But can you give us any clarity.
What I think maybe Paul alluded to it but what level of demand here. So you get to cash breakeven by the end.
Yeah, and maybe even more importantly.
Where you're seeing that sizing up the networks are 2021, as you, making it difficult decisions.
And level brand in if you look at our cash burn in June as well as in July that 27 million dollar a day they number of virtually all of that needs to come through improvement in net cash sales, it's going to come in two ways. One the refund activity will continue to wind down that will be a contributor in that.
That's probably in the plus or minus 5 million dollar a day improvement by the time, we get to the ended the year.
Which leaves about $20 million of cash sales improvement and that's you think of the company or size is about a 20% improvement in our overall business volume that will.
About $20 million of cash sales improvement and that's you think of the company or size is about a 20% improvement in our overall business volume that will.
Hi time for one more question from the Alex.
Thank you that question will come from Joseph Denardi of Stifel.
Thanks, Good morning.
And I think over the last few years, you and your larger peers have been of the view that the Deo Jade kind of put a red light on additional consolidation I'm wondering if.
You think that has changed or that it needs to change and whether the calculus around how much.
Liquidity, you think you need takes into account that may be consolidation is eventually part of the strategy.
Hi, Joe you know, we can't speculate on that.
Okay.
Let me turn how that would you really.
Really inappropriate a response I'd have to give on that.
Okay fair enough.
Paul can you give us where are you guys our year to date on mileage sales cash proceeds I think you did that 4.2 billion last year, where are you guys year to date.
Yeah, we've seen Joe about a about a 50% reduction a in the a in the last quarter.
I think if you look at.
Some of the American Express his commentary it's in line to even slightly better than some other cards in their portfolio, which I think is encouraging that means that people remain attached to the brand and they see value in the miles program. So we're going to continue to see that but it obviously has been a far more resilient and the demand for.
Tickets on for travel itself, which is what we expect.
Thank you.
Thank you.
And that's going to Rafi analysts Fortunately the call I will turn it over to 10 may 13th my patients out there for the media question. Good morning, everybody. We have about 10 minutes of questions for members of the media just remind everyone. Please just a question and maybe a brief follow up we'll try to get through as many as we can.
And again that a star one to signal for you have a question at this time.
Well go first to Robert Silk I've traveled weekly.
Yes, good morning.
In the Virgin Atlantic, We now as I mentioned or their restructuring plan that they're doing that support of shareholders burgeoning group and delta as well can do investors. So I'm wondering if there's any color detail on <unk> and the better its delta importing this effort.
[noise] I'm not or other than what's already been disclose which is that we are.
Contributing through a deferral of brand fees as well and certain other.
Joint venture fees that we would typically earn we were.
Excited to see the the recapitalization come about its been an extraordinarily difficult a few months pulling that together and all stakeholders have made some meaningful contributions to enable a virgin to to fly again, and we're excited about them.
Yes. Thanks.
Well go next to Mary Schlangenstein at Bloomberg News.
Hi, Thank you good morning.
See if you could break down for us how much of your second quarter revenue and possibly revenue going forward. It's from newly purchased ticket versus how much is from what we scheduled flight.
Sure we have about two thirds of their revenue coming in from new we purchase tickets and about a third coming in from Rio shoes and credits from Oh.
As Paul on journey so.
Getting a significant number of new journeys come again, which is a good sign.
And did a I assume that that the new ticket purchasing Sal and this recent Florida slot as well as.
The rescheduled is that right.
If I could a re characterize it from a slump really a much slower growth rate is that yes. We have few industry had an awful lot of capacity going from June after July and so.
Well, we've seen is a.
In June we were growing at about 20% every week, we go a week I.
I think maybe in some ways or that capacity is going to take a little bit longer to get absorbed because the growth rates of if you take fourth of July out there are coming in between five and 10% now so the growth growth has gotten much slower rate.
As we look forward that you know it has it has slowed but it hasn't stalled I mean, it's it's pretty flattish to up slightly but it's not a small.
Okay. Thank you.
Well go next to Dawn gilbertson of USA today.
Hi, Good morning, and I think you mentioned I, employing calling a virus infections being down because of all the measures you put in place I can we talk about passenger and infections. You know we had the case everything case with endeavor on the flight from Atlanta to all but he how many instances is dealt testing.
You know hearing back from passengers after a slight about kind of virus infection thinking tunnel put that into perspective for me. Thank you.
Hi, John it's really minimal you know the of.
The flight or last week was a a endeavor flight as you mentioned and that was after the fact.
That goes or three customers found out so there's there's no question that in the general population. There's there's a there's a virus and when we do find out we go back and contact trace with anyone that would've been in the.
Immediate vicinity of a customer, but I can tell you. Those those instances are really really small and certainly know instances that we've been aware of where theres been any transmission onboard airplanes.
And did that answer your question ma'am.
Yes. Thank you.
Well go next Atrix C rosinsky of writers.
Hi, good morning.
I wanted to ask about the outlook for the trainer refinery. He has any plan to guide that that or stop operation.
Hey, good morning, Tracy. This is a this is Paul so you know the trainer refinery in the quarter, we had about 100 million dollar loss in the quarter, which was almost entirely focused in the month of April. So the refinery is continue to lead continuing to the produce economics.
At breakeven level on on the current trends and as with everything in the business, where we're looking at everything but our plans have not changed with respect to the refinery right now.
[noise] [noise] and our next question comes from Claire Bashir financial times.
Hi, I wanted to ask whether federal government you. She passed a law requiring mask on airplanes or do you are in flight crews have enough.
Leverage what passengers.
I'm, sorry, playing with the airline.
Oh, Hi, Carter. This is that I don't know that needs to pass a law.
But I certainly see the opportunity to reinforce the work that the airlines are doing to ensure that customers, where they're masks both in the airports as well as onboard our planes is helpful.
The airlines are I think are doing a very good job of reinforcing that as well as candidly customers onboard plans someone salt wearing a a mask they they quickly get to get pointed out and discussion with our flight attendants occur quickly.
So it's it's really important that that we as a as a nation comply with the mass policy or an industry. That's got a lot of regulation I don't know that we need another regulation around mask learning, but it would be it'd be helpful up a stronger that our federal government can reinforce the need to where amassed a better not just on aired.
Travel, but in a in life in general.
Thank you.
Well go next to Leslie Joseph a C N B C.
Hi, good morning.
How many pilot I need to be retrained on different aircraft keeping the retirements and then also potential furloughs and just kind of rejiggering, what they're going to be flying and what the cost might be of that.
That's why it's really pretty mature the pilot a retirement plan still has a almost a week you have to run, but we'll we'll be in a better position to assess that over the next month.
We're continuing to work with alpha to identify ways to to mitigate the need to at this place no pilots and for all.
Thank you.
So you have time for one final question. Please.
Final question comes from David Slotnick, a business insider.
Hi, how are you I'm wondering about walking the middle see have you gotten a sense from passengers are from service or anything that people are willing to pay a higher fair to buy less full airplane.
We have received a lot of customer feedback and in fact, I I would say when we surveyed customers today.
About and reasons, you're you're purchasing a ticket on delta.
The space onboard the playing the block middle seats has gone through the number one reason why customers are choosing delta, yes, they really they see it consistent with our brand.
Everyone. Appreciate just talking a last forever, but in the face of a health crisis, Bob that space onboard really matters and customers are telling that we're seeing it in our net promoter scores which have.
Going up considerably on a year over year basis, all 20 points in the month of June over the last June which last year was already a good number and we heard from our corporate so hear anecdotally from from any.
Many of our travelers.
And are you.
Looking at charging more of a premium or raising your fares or anything or is this more like a.
Branded marketing investment for later when things stabilize out and it's it's not a brand or marketing investment and no. We're not raising our fares to block. The middle say. This is this is your watch a really important safety feature answer health health crisis that were in in our country.
By being the most disciplined.
And then put in terms of the amount of supplying capacity that we're offering that's benefiting our pricing and yield of course.
And that's helping us have a better price onboard the overall cabin. So indirectly that that is coming through and price. But this is not that's not the objective. The objective here is to make certain that were restoring consumer confidence and air travel and being true to our our friend promises.
Thank you.
That will complete the June quarter earnings call. Thank you to everyone for your time and your questions today have a great day.
Again that concludes today's conference. Thank you for your participation today.
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