Q3 2020 Delta Air Lines Inc Earnings Call
This time, all participants are in a position to only mode until we conduct a question and answer session. Following the presentation.
Sure My nurse case call is being recorded I would now.
I would now like to turn the conference over to Gilchrist Vice President of Investor Relations. Please go ahead.
Thanks Cassidy good morning, everyone and thanks for joining us for September quarter earnings call.
Joining us from Atlanta today are CEO, Ed Bastian, our president Glen Hauenstein, and our CFO, Paul Jacobson, our entire leadership team is available for the <unk> session.
And we'll open the call with an overview of Delta's performance and strategy Glenn will provide an update on the revenue environment and Paul will discuss liquidity and our balance sheet.
You can go to <unk> and ask you to.
Hey, and ask you to limit yourself to one question and a brief follow up so we can get to as many analysts as possible today.
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 delta's FCC filing.
Well also discuss non-GAAP financial measures and 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 Delta Dot com and with that I'll turn the call over to Ed.
Thanks, Joe Good morning, everyone. I appreciate you joining us today.
This morning, we reported a $2.6 billion adjusted pre tax loss on a 79% decline in revenues for the September quarter.
We ended the quarter with over $21 billion in liquidity, having broader cash burn down to $18 million per day in the month is temper.
While we still have a long road ahead of us when you look through the large told that the pandemic has taken.
Youre showing progressive improvement across the business performing well on factors within our control and ensuring the company is well positioned as demand starts to return.
And there are signs that customers are becoming increasingly confident in reaching in returning to air travel, which you say counts growing each week. So we are.
We're still running at a fraction of our normal capacity is expected or December quarter revenues will be 30% to 35% of what we saw a year ago.
With the improvement in context or revenues bottomed out in the second quarter at only 10% from prior year levels for a 21% prior year levels in the third quarter.
We expect him to be roughly one third of prior year levels in the fourth quarter steady improvement as Q4 is expected to generate three times the revenue in Q2, but still a long way to go.
You see a meaningful step up in demand from here.
Business travel to further improve local.
Local quarantines and international restrictions to lift that will only come with widespread advances by the medical community and office is reopening, which many expect will start to happen in the first half of next year.
As we all know the path to revenue recovery is dependent on demand returning at scale.
Until then our focus is on doing a great job and what we can control taking great care of our people and our customers protecting our liquidity.
Managing our cost performance for our customers. We continue to emphasize say safety and help with the Delta care standard or multi layered approach that includes intense cleaning protocols blocking middle seats, and requiring masks onboard airplanes support.
According to why auto with over 1 billion air travelers worldwide in Twentytwenty. There have only been 44 documented cases of suspected called retransmission onboard in aircraft and virtually all of them were in the early months of the pandemic before masks and revised safety protocols came into existence.
Yes.
We carry at Delta over 1 billion people a week and it's had no documented transmission onboard to any of our aircraft. The Delta care standard works and it's keeping our customers and our employees safe and as.
And as a result customers are increasingly becoming comfortable returning to the year.
Our customer focused approach is producing record net promoter scores, which reached 75 in September which is up a staggering 22 points over the prior year levels. This is a testament to the Delta people, who have continued to shine throughout this historic crisis fiber.
By restoring customers confidence in travel and investing in their long term loyalty and trust, we're creating a path to sustainable revenue growth in the future.
We do believe it could still be two years or more until we achieve a normalized revenue environment until then we will be smaller in the short term, but also more agile and more efficient.
They were already 20% smaller than we were at the start of this year.
Having reduced our fleet or headcount and overhead.
These were difficult, but essential decisions that position delta to emerge as a more resilient airlines.
We have resigned start ground and flight attendant workforces by 20% I'm grateful to all those employees for the sacrifices from those taking early retirement decisions to the 40000 staff from Twoq unpaid voluntary leaves throughout the pandemic.
And thus, reducing our labor cost for non pilot groups by more than 40% over the past six months.
This was the driving factor that allowed us to avoid furloughs and protect their jobs we are.
We are still working with ALPA and hopefully we can achieve that same result, with our pilots, but if not we will be following roughly 1700 pilots on the first in November.
We've reduced our fleet by retiring more than 200 aircraft this year and accelerated our fleets implication to retire nearly 30% of our fleet.
400 aircraft by 2025.
Along with our revised bus order book this coach years off the timeline to achieving a higher gauge fleet with lower C cost and a better customer experience.
By making these structural changes to our cost base in this constrained environment, we will have significant cost and margin tailwind ahead of us.
As higher yielding business travel does return and our load factor cats begin to ease.
And we are seeing early signs of our cost efficiency steps paying off as our fourth quarter falling CASM is projected to be roughly flat. Despite a 40% reduction in capacity year over year. It's an incredible result, it creates nice momentum heading into 21.
The challenge is that this year have reinforced our belief in the importance of NN group, that's been great balance sheet, and our top financial priority will be to regain that as soon as possible.
The first step in that process is getting back to breakeven cash flow we had a.
We had initially hoped to be there by the end of this year, but as the virus has had a greater impact on our business. The unexpected that goal has shifted a few months.
We expect to average daily cash burn rate of $10 million per day in the December month with good line of sight to positive cash flow by the spring.
Once we achieved that milestone will have a heightened focus on paying down debt.
Putting all this good work into perspective.
It's been about positioning delta to accelerate into a postcode good recovery.
No exactly when that recovery will happen or what it will look like no.
So by taking out complexity, simplifying or cost structure, improving our products and service levels now and maintaining strong employee morale in the face of this challenging time, we do know that will be even more customer focused with a stronger brand in a solid financial foundation and with that we will be well positioned to.
To adapt and to win.
Now I'll turn the call over to Glen.
Thanks, Ed and good morning, everyone.
Since we last spoke in July we've seen a steady progression in demand.
This has resulted in our net cash sales improving from five to 10 million per day at the beginning of the quarter to approximately 25 to 30 million per day at the end of the quarter.
That said demand strength varied in different regions and segments of our business.
Corporate demand has shown signs of modest improvement.
And while the volume of corporate travel at the end of the quarter was 50% of last year's levels corporate volumes are trending our burger across all industries and we expect this to continue into 2021.
Apart from the Caribbean and Mexico International demand remains weak. This is largely due to government imposed restrictions in key markets.
In the U.S. Weve seen demand recover to 30, 20, 35% to 40% or pre pandemic levels with strength in leisure markets like Florida, The mountain West and the beach destinations.
However cities that are under quarantine requirements like New York and Boston, our recovery more slowly than are now just above 20% pre pandemic levels.
As we approach the holiday travel period, we've been pleased with the recent booking trends for Thanksgiving and Christmas would show the customers continue to gain confidence in booking further out.
Our non ticket businesses had held up relatively well during the quarter with both loyalty revenue and cargo outperforming passenger revenues.
To strengthen our loyalty revenue stream is in large part due to the spend on the Delta co brand card.
I can express has stated that the spend on our co brand card, it's held up better than other amex cards.
We recently launched a card acquisition campaign after putting those efforts on hold.
I've had excellent response to this offering.
This in combination with spend trends that amex has seen suggests that our customers aspirations to travel remain intact.
As Ed mentioned, we focused on making sure a delta is well positioned for a future recovery.
We've been in celebrating redevelopment projects in our airports and we were excited to open concourse say in Salt Lake City. This was the first new U.S. hub airport to open in 20 years.
In New York, and Los Angeles were taking years out of her construction timelines getting our customers a faster path to a better terminal experience, while also lowering our construction costs I'd like to.
I'd like to call out our properties and facilities team for the excellent work they've been doing across the network on accelerating Oliver.
Airport projects.
We've made it easier for customers to do business with Delta, eliminating most domestic change fees, extending medallion and Sky club benefits and refunding, approximately 2.8 billion back to our customers. So far this year.
We're also rebuilding the network by leveraging our strengths focusing on connecting customers through our core hubs and adding capacity to coastal hubs only as demand returns.
In the domestic network, 80% of our current capacity is on our core hubs of Atlanta, Detroit, Minneapolis, and Salt Lake City.
And in those hubs, we're using our most cost efficient highest gauge equipment as we retire less efficient aircraft.
Internationally, the majority of our long haul capacity isn't or a JV partner hubs, we are where we are able to efficiently connect traffic.
Similar to the domestic entity were moving towards using our most cost efficient wide body aircraft in our international operations by leveraging the Athree hundred Thirtys and the Athree hundred Fiftys and eliminating the six subscale triple seven fleets and sunsetting, the 767 300 yards.
Well the longer network rebuild is underway. We are also tactically managing the network in the near term we are.
The increase in capacity around the peak leisure holiday periods, like Thanksgiving and Christmas, while reducing it during off peak periods like Halloween and the election week.
This approach will result in our December quarter capacity being 40% to 45% lower year on year or approximately 60% lower when you factor in our block seats.
By doing so we are aligning capacity with the emergence emerging demand environment and our expectations. The December quarter revenue will be down 65% to 70% versus last year.
Before I turn the call to Paul I'd like to just thank our entire commercial team for all they've done in managing through these extraordinary times. We all know it's been a difficult six months, but we feel like we're very well positioned for where we stand and where the pandemic is and with that I'd like to turn the call over to my good friend Paul.
Thank you Glenn good morning, everyone and thank you for joining US. This morning, we reported an adjusted pretax loss of $2.6 billion on revenue of $2.6 billion. This quarter's results exclude onetime charges that are due to our response to the COVID-19 pandemic, including $2.2 billion in fleet related charges.
A $3.1 billion charge from the voluntary separation and early retirement packages and a 1.3 billion dollar benefit from the carriers that grant funds.
Our results this quarter were underpinned by a strong focus on cost as we reduced operating expenses by $5.5 billion or 52% similar to the decline achieved in the June quarter, Despite playing 23 points more capacity.
We also expect our December quarter operating expenses to be approximately 50% lower year over year, producing a december quarter consolidated CASM that is flat to down on 40% to 45% lower capacity a truly remarkable outcome.
We've gotten here by re sizing the airline by 20%.
First we had approximately 18000 of our coworkers opt to take either a voluntary separation or early retirement package earlier this summer and it did.
In addition, we still have over 12000 employees on a voluntary unpaid leave of absence, who will return at various times over the next 12 months.
In total the voluntary exit the voluntary leaves our reductions and other employee initiatives have saved delta over $1.9 billion in salary cost so far this year.
Second we accelerated our fleet simplification with our intention to retire our CHP Crj 200 fleet by 2023, and our 717 and 767 300 IAR fleets by 2025.
We've also reached agreement with Airbus on the restructuring of our order book this restructuring reduces our aircraft purchase commitments by more than $2 billion in 2020 and by more than $5 billion through 2022.
Our fleet actions will result in the retirement of almost 400 aircraft by 2025, including more than 200 this year alone.
This will eliminate for fleet families, reducing complexity and driving meaningful cost savings in areas like maintenance and pilot training, while also producing a far better customer experience.
So while some of the cost actions we have taken this year are temporary and will come back as we rebuild the business. The changes we have made on head count and fleet, our structural those actions and the eventual easing of our load factor caps will allow us to bring capacity back in a measured way and at lower incremental costs, providing future margin tailwind.
As for the business.
Our strong cost focus has also allowed the increase we've seen in net sales, which is tickets purchase versus tickets refunded to flow directly into an improvement in our daily cash burn.
Which improved from $27 million per day in June to $18 million per day in the month of September.
Looking forward, we expect to see a progressive trend in our daily cash burn and currently expect to exit the year with an average daily cash burn of $10 million to $12 million for the December quarter.
Turning to the balance sheet, we ended the September quarter with $21.6 billion in liquidity and adjusted net debt of only $17 billion up $6.5 billion since the end of the December quarter 2019.
During the quarter, we raised $9 billion backed by the cash flows and IP of our Skymiles program. The financing was nearly six times oversubscribed been priced at a blended rate of 4.75% and amazing outcome for the largest debt offering ever by an airline really really great work and amazing execution by.
Our finance Skymiles and legal teams all working together to get that done.
With our cash burn trajectory on track to achieve breakeven by spring and a solid liquidity position our balance sheet work has already begun.
Last week, we repaid the $3 billion outstanding under our 364 day term loan due in March of next year. We also paid down $2.6 billion. We had drawn on our revolver is earlier in the year and that capacity remains available in the future we have now.
We have now flattened our near term debt maturities with $2.3 billion of obligations due through the end of 2021.
Our actions also freed up more than $3 billion in collateral tied to the term loan as a result, we now have $9 billion to $10 billion of unencumbered assets, including newer vintage aircraft. We are on track to end the year with more than $16 billion in liquidity and adjusted net debt of approximately $19 billion.
In closing we've made significant strides over the last six months. However, more hard work is still ahead to ensure that we built the foundation for deltas recovery I'm confident that with the Delta spirit and values that our employees exhibit every single day, the airline will pull through and emerged stronger and more resilient.
And with that I'll turn the call back over to Jill to begin the queuing it thanks Paul.
We are ready for the analysts question, if you could give the instructions on how to get into the queue.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad if you're.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Press Star one caskets question, well pause for just a moment hello, everyone and I'll put cheney signal for questions.
Our first question comes from Joe Denardi and stuff.
Hi, good morning.
Paul you talked about all in CASM being in line with 14 19. Despite the lower capacity can can you talk about what level of Asms. You think you need to fly for X fuel unit costs to be in line with 2019 levels is it 70% of 2019 capacity is at 90 to 100.
105%, what's the right way to think about that.
Yeah Joe's.
On an all in cost basis going forward and I think it's important to note that we've managed to keep our total operating expenses flat.
Or or death, the reduction flat over the last few quarters as we continue to ramp up capacity the airline as I mentioned in my comments I think it's important to note that some of what we've done is obviously temporary and the balance here is making sure that we're bringing costs back at the same pace or at a measured pace.
Demand, returning and our capacity decisions as well fuel price is going to be an important part of that but as we look at where were positioned today fuel matters and.
And and we've got to make sure that we take that into account and the important thing is that you know we're we're flying a as we said with capacity down you know roughly 40% to 50% in the.
In the fourth quarter, but we don't have all of that available for sale, even though we're absorbing all the cost of it. So as we think going forward. We're positioning the airline to make sure. We're all in CASM at a reasonable level that can that can be absorbed as we grow capacity and I think the teams done a good job of that.
Okay, and then Ed along with this Guy miles transaction, you provided revenue and profitability. These disclosures for the loyalty program, which highlighted how profitable and durable that portion of your business is not.
Not seeing any of those disclosures being provided today, that's something you alluded to doing at your June Investor Day, three Covance. So my question is what will you commit to starting in 2021 begin disclosing those same metrics revenue EBITDA cash proceeds for the loyalty program on a quarterly basis.
Well. Thanks, Joe Yes, we are continuing to improve our disclosures I frankly haven't gotten to the 2021 disclosure Ah list, yet we're trying to get through 2020 Onest.
But yes, you're right when we when you look at the transaction and you start to get a sense for [noise].
Importance of the loyalty program to not just our balance sheet, but our overall future.
It's a strategic competitive advantage one of the most important ones. We have and will do I think has continue to do a better job of giving our investor base and appreciation for that but at the same time. We also have to be mindful of the other sensitivities around that data.
Thank you.
Our next question comes from Hunter Keay of Wolfe Research.
Hi, good morning, everybody.
I'm going to have Paul on the fourth good morning in the fourth quarter CASM ex the flat CASM ex PSM and how much do we need to strip out for the third party refinery sales and what's been driving that line up so much over the last couple of quarters and then more broadly how do we think about the overall ancillary business expense on the piano into 2021.
Yeah sure. Thanks for that question Hunter you know the refinery sales as you know we had managed a lot of that through a exchanges for jet fuel.
Obviously with jet consumption down we've had more volatility and just the pure third party sales is we're not able to exchange that so we're managing through that going forward and you know we expect that that will be a little bit noisy as we continue through our recovery before things normalize both in terms of capacity.
The airline and then as well as production and normalization at the refinery as well.
As well as as third party expenses go obviously, you know we continue to see.
Improvement on the horizon in our MRO business, we've talked about that before where the opportunities ahead of us with the Pratt the rolls Royce a agreements going forward. Obviously, there has been some noise around that in the midst of the coated pandemic, but we'll continue to see expenses related to those go up as well.
<unk> increase but you know that should we really be viewed as a as a separate kind of independent businesses. We think from the cost base of the airline a itself.
Okay, and then how many aircraft deliveries do you have now planned in relation to the 383.
That you have.
Out over that same time horizon.
Well, we've reduced with the with the deal that has been announced today and the numbers in our fleet tables, we've taken out about 77 aircraft through the end of 2021 and kind of redistribute that redistributed that overtime.
As a as we continue to work through the impact of the pandemic.
Thank you Paul.
Our next question comes from Brandon Oglenski of Barclays.
Hey, good morning, everyone and thanks for taking my questions I'm Paul just.
Paul just a quick clarification I think you said you wanted to end the year with about 16 billion in liquidity, but I think you ended Threeq you had about 21 can you just help US bridge that and then maybe off that last question like how are you thinking about capex into 2021. Please.
Hey, Thanks, Brendan so yeah. They obviously the the two sort of impacts here or the the cash burn which were reducing to $10 million to $12 million a day, which is roughly $1 billion for the quarter. We also had $3 billion that we paid down the the term.
Hello.
And then there's you know some of the residual onetime payments to employees, who are under the voluntary early retirement separation programs.
Et cetera that will continue to pay out into the fourth quarter. So that's the reconciliation.
Okay, and then any view on Capex next year.
I think it's too soon to tell at this point I think you know what you heard in Ed's comments.
Is that a you know we're going to continue to focus on paying down debt as soon as we get to cash breakeven and I think you're going to see similar discipline to what you've seen in the past that you know led to the balance sheet strength that we had pre cove. It I think that is reinforced by this pandemic and we'll manage.
Capex accordingly.
All right. Thank you.
And just one quick one quick follow up brand and I also.
I also failed to mention apologies to $450 million maturity in December is also a cost reduction.
Our next.
Our next question comes from Jamie Baker S.J.P. Morgan.
Hey, good morning, everybody a couple of questions for Glenn.
Can you remind us pre pandemic, what the top three or four types of businesses were that make up your corporate demand and maybe what percentage of total revenue they represent.
Oh sure sure Ah banking of course financial services.
And manufacturing and transportation.
And roughly what percentage of total revenue does that account for.
That did that account for.
Oh, no that account. So yes. This is this is an off the off the cuff number because I don't have that at my.
So let's get back to you on that.
Okay fair enough and second.
Can you discuss [noise].
The sort of the evolution of the booking curve since March and more importantly, what do you think has to happen to the curve in order to bring delta closer to cash breakeven and do you see any structure.
Structurally permanent changes in the curve post vaccine.
Oh, I think it's too early to tell what permanent changes there or in the booking curve. What we saw of course at the beginning of the pact.
Bookings at all and and cancellations to new bookings were like a 100 to one.
Favor of cancellations and as we move through this we saw net positive in terms of bookings that was the first game, we had to get through and the early parts and then to positive.
Bookings in the second quarter were actually generating positive cash flows and now in the third quarter I think we're still seeing a very convinced curve, but people really willing to book further out. So we're seeing good booking momentum for Thanksgiving and Christmas and really even into the off peak.
Periods in December and into early January we're seeing a more activity than we had in the last month. So every month, we move through this we see more and more customers with more confidence booking both close in further out and that's what we continue to need to see that develop confidence and I think when you think of.
What we've done with the brand and what we've done with a seating and the cleanliness Oh the protocols, we put in place. It's all about building consumer confidence because without consumers be confident we can do that so I think we've made a lot of great progress as an industry certainly more to go but we're on a good path and hopefully were.
Well, we know we're closer to the end of the pandemic than we are to begin.
So beginning but.
We don't know exactly how it's going to evolve from here so stay nimble.
And if I can just squeeze in a third what stat are you looking at to determine when you lift the load factor cap.
Or set of statistics I suppose Jamie this is Ed we haven't made that decision yet we continue to watch it obviously, it's going to be.
Conditioned on.
Sumer sentiment and confidence in air travel I think as each week goes by as Glenn said that confidence is improving.
Lot of studies coming out from experts about the safety of air travel and sometime in the first half of next year no doubt.
We will be lifting those caps, but we haven't picked a date, yet and I'd say.
We will continue to start the new year with the caps in place.
Thank you gentlemen take care.
Again, if you would like to ask a question. Please press the star can't solve other one key tell its star one.
Our next question comes from Sophie <unk> of Raymond James.
Thanks, Good morning.
I think that you said that you know it's not about building back to what was so building for the future. Although you probably put it a lot more eloquently than that so I was just wondering have you.
The teams.
Had substantial conversations like corporate customers to kind of get an idea of what the makeup and size of business travel may look like once and upon the next years are behind us, especially now that customers have had a chance to see both what videoconferencing technology can and cannot deliver.
Hi, Savi, yes, we are in.
Frequent a daily conversation with all of our our corporate customers and you know a couple a couple interesting stats today, we have.
Roughly 90% of our of our primary corporate customers, who do have travelers who are traveling small numbers in many of those but they're getting their own sense for what's the new travel experiences and anecdotally, they're coming back to US was really strong reviews of safety and confidence in restoring.
Their travel spend.
You know how video technology is going to impact.
Long term business travel I'm of the view that it will have some impact, but it's not going to be a substitute it will be a complement to business travel it won't be a substitute for business travel I don't think anybody knows.
Lots of experts out there that puts details as to when when the new normal will be achieved my sense is that we could be looking at anywhere from 10% to 20% reduction in the in the next couple of years, when we get to that new normal business travel, but the one thing I'll also tell you savvy, having been in this business for a long time if Rick.
Crisis that I've been part of it and it's been a lot of crises over 20 plus years.
This was the first thing that people always talked about was that business travel was.
The death knell truss business travel and technology was going to replace the need for travel and every single time business travel has come back stronger than anyone anticipated. So I think we're going to see that same consumer behavior.
That would be different but I think it's going to come stronger than most of the pundits view.
That's helpful and.
Then if I might ask a clarification question on on the cash burn is seeking an improvement from what you saw in September to what you're kind of thinking that you'll see in the fourth quarter is that just is that from that kind of has to come from all revenues given most of the retirements happens in August or are there. Some other drivers in that improvement.
It's principally revenue.
Thank you.
Our next question comes from Diane feeding worth of Evercore.
Wait until Duane Thanks for the time [laughter]. So just just on Sami's question. There may be some longer term perspective from Ed or whomever because I think you guys have been fairly thoughtful about the potential for longer term a impairment in corporate.
And my question is you know if that does play out how we.
How will delta off.
Offset that and work to restore its its earnings power is.
Is this strictly a cost challenge and obviously, we've got some good news on that front in terms of what you've given us for the fourth quarter.
Is it strictly a cost challenge or do you think the industry can think about how it prices leisure travel differently than it has in the past.
Well Theres Theres a lot of speculation in that question Duane.
Today, we're 20% smaller as an airline and that certainly gives us a chance to re size. The the demand. The man. So you know what it is.
Impact that will have on international is still an open question Mark.
You know weve worked very well positioned with our hub structure, we feel good about that.
That base of travel were really.
Getting great comments and complements back from our corporate customers about the travel they are doing so share is while small share is very very strong and we will see I wouldn't I wouldn't go out to try to suggest what kind of changes certainly there will be some some interesting.
Opportunities.
Look at a new business model route around pricing and in competitive markets, but you know.
Doing we're doing what we what we do here, we're playing the long game and over the long term I'm confident that the strength of our service levels.
<unk> focus.
Focus of our people and taking good care of our customers will be the most important thing of any of anything else there.
Thanks, and maybe if I could sneak in a shorter term one just on the down 40.
Capacity in the fourth quarter or would you be willing to talk about the cadence by month and any early look into the first quarter I. Appreciate you taking the questions.
Duane no. We we don't have a good enough crystal ball in this environment.
Okay, but it does feel like it implies a bit of a pickup into November and December.
A modest you know again very very small.
Thank you.
Our next question comes from Mike Linenberg of Deutsche Bank.
Yeah, Hey, good morning, two quick ones here Oh, just on Capex 21, and 22 I think you said at least your 21, you're gonna take 77 more airplanes at least on a gross basis could you give us what capex when a rough are forecasted for at least next year.
I think a little bit premature to give total numbers for next year, we talked about a 5 billion dollar reduction.
It's important to note in this environment all of the aircraft are going.
We are going to come with you know financing in place, Okay, where that we need we need to make sure. Obviously, we'll have decisions to make as we go into 2021, depending on the balance sheet the pace of recovery cash it et cetera, but you know weve got facilities in place to be able to.
To a backstop finance those aircraft if needed.
Okay Fair enough and then just my second question you know the headline out recently, where it looks like the Brazilian regulators are going to put Tom the Delta Latam deal on trial and that's of course after they approved it can you still see and move forward regardless of of an ongoing trial does that does that prevent you from getting what you want to do.
Hey, Mike its Peter good morning, good morning.
Good morning.
A couple of things one is our joint venture is under review.
The U.S. department of transportation, Okay any for that to go forward, we will need those approvals of course, we do have some codeshare agreements with them, which are ongoing and.
And we do expect we do anticipate that the Brazilian tribunal will approve the transaction. This is just a second look okay very good thanks for that Peter.
Our next question comes from Helane Becker of Cowen.
Thanks, Thank you very much operator, hi, everybody and thank you for the time completely unrelated to the things that we've been talking about you guys, having open pilot contract prior to covert starting and I'm just wondering if the negotiations that youre under.
Taking prior to November 1st to include updates to that contract or if that's just on pony.
Helane, we're not going to talk about negotiations publicly but what I can tell you is that the focus is trying to find a.
Find a way to two or eliminate the need for low 1700.
Junior pilots and.
We've given the.
Alpha the the Union a lot of different options and I'm hopeful we can reach a resolution, but I'm not I'm not trying to suggest or forecast that.
No I understand that just understanding that the main part of the contract is on hold until we get through this part.
Is that right.
I would say that's a fair that's a fair.
Sure.
Okay and then my other completely unrelated question is on the airport construction acceleration and all the other stuff that you're doing.
Which obviously will help improve customer experience as we come out of this.
Can you just talk about some of those things are you are there thermal camera imaging.
Imaging going into place or their testing centers for cove, it or other things how I see airport Gonna luck going forward and how should we think about.
The costs associated with landing fees, you know changing next year, if you're if your smaller and everyone else is smaller I guess, we should think landing fees going up is that true.
Well you asked a lot of questions [laughter] drugs.
Our made our main focus is.
Is to take advantage of the reduced volume of travel to accelerate progress and getting getting or our new facilities build and laguardia.
La Rics, Seattle, which has opened up the brand new Salt Lake city, or four which is magnificent.
Hopefully you all get a chance to get out there and see it sometime soon.
And and that that's been the single biggest focus yes, we are working on.
On a particularly for international travel.
Pilots by which we can start to open up lanes of international travel, which I believe will testing will be a an important ingredient to getting there.
And working with airport authorities as to how we would administer that we're working both here in the U.S. as well as overseas working with those authorities working with the CDC in a in very close contact so I don't.
See them, having a big structural changes I don't see testing being conducted for example on a U.S. basis.
Before before people fly it could see it for international.
Relative to thermal and temp screening. We we've asked he is a repeatedly to to take that over as part of their screening.
Services and right now we've been unable to convince them on that so I know a few airports are working on that but I can't I don't I don't see that being a meaningful change to the to the airport infrastructure.
Okay. That's something that's very helpful. Thank you and your and your question on landing fees I can't I don't know I think.
Our airports have done a very good job of minimizing their own cost and taking advantage of where they receive some government support.
Using that to reduce cost, but a 21 is a is an open question.
Gotcha, Okay. Thanks for your health.
Our next question comes from David Vernon EPS Bernstein.
Hey, guys. Thanks for the time, so Paul first question on the balance sheet can you tell us kind of what the maturities look like over the next 24 months. If we end the year at 15 16 billion is there anything that can be coming due and is there any flexibility in renegotiating.
It was yes.
Thanks, David we've done a lot of that work today. So the the biggest maturities that we have we've got a $450 million unsecured maturity in December that I referenced earlier, we have a $600 million unsecured maturity in April a previously we had already pushed out our revolver.
Into Twentytwenty, two and Weve got primarily just beyond those two amortization payments now that we've paid off that bridge loans. So I think it's it's very manageable under $2 billion over the next kind of 15 to 18 months.
All right. Thank you for that and then and maybe on that on the topic of testing we've been looking at that quite a bit and I'm wondering what your perspective is on on timing for when you think either through testing with partners and testing with with international other international entities. When you might start to think that the.
Quarters of International travel May start to open up is that something we should be thinking about in the next sort of three months six months nine months like how are you thinking about that in general.
Well, we're laying down that we're laying the tracks to create the testing environment, obviously, the the advancement in the development of rapid tests are key to that.
Not only in terms of a fairly quick turnaround, but also a relatively low cost as you know the U.S. government has is already acquired large supplies in advance of that so we're talking to the government about that but I think when you when you try to put a timeline on it one of the big wildcard is held.
The virus is doing both here in the U.S. as well as in other countries because the goal in all of this is to.
Eliminate the need to quarantine when you get to your destination.
And as we see going on in Europe, right now, we're seeing a another wave of the virus starting to starting to spike across Europe and that is that is of concern to to the local authorities certainly they're concerned likewise here is to seeing rising case counts in the U.S.. So I'd say that you are.
Your timing has more to do with the state of the virus and the medical containment of it than it does any specific strategy that we could deploy to make certain everybody stay safe because the goal in this is that we want to eliminate corn teams.
And would there would there be some work you need to do to kind of integrate some of the rapid test and the QR codes and things like that into the boarding process or is that stuff you guys have already figured out.
We are looking at how you could you could deploy rapid testing as part of the as part of the the check in and boarding process yes.
Thanks, very much guys.
Thanks, David.
Our next question comes from Joe Khanna of Credit Suisse.
Hey, Thanks, very much good morning, everyone. Just a quick one first study can you comment on the trends in American Express card spend in the third quarter or just how that compared with the second quarter and to the extent you can comment on it how that's trending here in the fourth quarter month to date.
Oh, well, we don't give a specific sun and I'd say, the the trends have been improving.
We I think we disclosed that we were down about 20% and so we've seen a 20% come back up and most encouragingly we've won.
We've watched the T.D. lines within the card and their progression and at the worst of the crisis. The airline spend was actually a negative number it was a minus 103% and we've seen that consistently move up and they were down in the low seventys. So that's another exciting sign for us not all.
The total spend improving but the spend on airlines itself is improving dramatically. So that's about all the color we can share.
That's great I appreciate that Glenn and then just maybe another quick one for Paul I think you'd previously talked about sort of the base level of investment just to maintain the business. So so maintenance non aircraft Capex is being maybe 500 to 700 million a year. Obviously, you took that pretty much to zero this year, but that's obvious.
They are not sustainable long term. My question is just given all the structural cost reduction efforts across the enterprise is that still roughly the ballpark for run rate maintenance Capex, you know two or three years out or is that run rate number now lower as well.
Well I think you know certainly were 20% smaller than we were before so I would argue that it's probably a little bit like a little bit lower than what it's been but you know a lot of this is going to be timing and you know we see this in terms of what we're doing across the fleet and and really kind of optimizing but we're not.
Missing out on the opportunity to accelerate where we can particularly in technology and that.
And that space and the facilities that Weve already mentioned, so you know I think that probably 500 million is a is a good range, but you know I expect that we're going to want to drive the airline to better cash performance to enable us to invest more and.
And that that's really the message here is that you know we've got to continue to invest within our means while we have you know the additional goal now of a of paying down a substantial amount of debt over the coming years and through the recovery.
Understood. Thanks, Paul Thanks for taking the questions.
Our next question comes from Andrew Didora of Bank of America.
Hi, good morning, everyone Paul.
Paul as you go.
As you get through the crisis and near you implement your fleets <unk> simplification plan, what kind of unit cost savings can you just give you say versus 2019 and that's it.
Is there anything that you're willing to share about where you would like your unit cost structure could be has the industry returns to a more normalized trend.
Yeah. Thanks for that question to Andrew we haven't given any specifics on the on the unit costs around that but when you look at the gauging potential the fuel efficiency the simplification of ever all overhead functions around training around maintenance tooling et cetera.
We have previously said as part of our Investor day that it was worth billions of dollars a year.
As we as as we complete that what we've been.
What we've been able to do is as you know to date, probably accelerate that timeline by more than five years against where we thought we were going to be pre cove. It. So I think as we position the airline going forward. There's no theres no doubt that we are we are very very focused on on keeping CASM below pre.
Co bid levels, you know I think the jury is out as to how effective we can do that based on how demand returns and how CASM come or how a capacity comes back but I think the early returns based on what we're able to what we think we're going to be able to do in the December quarter is going to be a pretty good.
Early indication of our of our focus working in the right direction.
That's great. Thank you and then just sort of a near term modeling question. When I just look at your pure salaries and wages line item. It's been at about $2 billion. The last few quarters. You think that's a good baseline to work off of going forward here or can you get that down a little bit more with some coming into four sections. Thanks.
Well I think Andrew as we've talked about you know, we're currently not anticipating or any furloughs of ground and flight attendant employees and with the with the leaves that we've taken we're approaching a pretty good run rate on on where we'd expect to be going forward.
So you know beyond the actions that we've already announced and and potentially.
A a a transaction with the pilots or or managing to get that cost out yeah, there's a little bit more to go but I think largely we've done what we we've needed to do today.
Okay, great. Thank you.
Kathy we're going to have time for one more question for me anyway. Thank you.
Our final question comes from Myles Walton of you'd be.
I know I'm, probably a little premature question, but thinking about the long game, Ed with the Airbus delivery schedule cleaned up retirement plan set through 20 Fives is now the right time for opportunistic overtures are going for.
Going for.
You know thinking about an order comp given the pro forma fleet in that out you're still 40% Boeing but obviously you know your order book there still essentially zero.
Hey, Myles I get asked that question by the press all the time and I'll give you my my standards responses that we talk to the Oems about fall aircraft all the time and always looking for opportunities. So I don't have anything to report on that but you can rest assured that we're always looking for opportunities.
Where where it was advantaged Nelson.
Is there a reason for the 2025, stating the retirement plan for the six seven and 172 particular.
It's just a convenient five year interval, obviously, there will be more retirements post close 25. So we figured five years is a is a pretty long look.
Given given what we've been through this year.
Okay. Thanks.
Sure.
And that's going to wrap up the analyst portion of the call I'll now turn it over to Tim meets our chief marketing.
Okay.
In addition to welcoming all the members of the media to the call in a few moments that we have here Cassidy if you wouldn't mind, just reiterating the instructions for each of them to enter the queue.
And again, if you would like to ask a question. Please press the star key followed by the one key star.
Star one to ask an audio question.
And again that was a star one.
Our first question comes Dan.
Tracy Rosinski from readers.
That was to be paid by goal and how much that mystery and you can if you don't mind, just repeating yourself, we're now able to hear you.
[laughter], so about that the Brazil.
Gold loan that was refinanced last months can you tell us how much much meat paid by goal and how much is outstanding and we financed.
Hey, good morning, Tracy This is Paul.
We had a we didn't actually have alone took all we had a $300 million guarantee and what we did was restructured that guarantee and let them $250 million and Oh, we've got amortization payments that are required and they are current with that with that loan. So oh that's worth.
Currently set.
Okay, and then just given your strong liquidity position no are you planning to inject any cash into lactam or aeromexico.
We have no plans at the price.
At the present Traci, we need to get through our own our own crisis here first.
Okay. Thanks.
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Our next question comes from Allison Shadow of Wall Street Journal.
Hi, Thank you and I was wondering if you could tell us anything about kind of what you are seeing or where things may stand in Washington over eight talk weve seen a lot of dealer.
Peter is that other topline executive and spending a lot of time in Washington, and pushing for more aid and and at least publicly haven't seen either as much Im wondering why that is.
Well, we certainly support the extension of the Cures Act.
Two as it's been labeled for PSP for airline workers and.
I certainly hope.
Given the strong bipartisan support that exists that a vehicle for that extension can be found here soon to be.
To be able to bring 32000.
Airline industry employees back to work, we don't we were fortunate we haven't had the furlough anyone yet to this to this juncture I do want to acknowledge the great work of the Delta team and making a real difference.
We are not facing furloughs and any work group with the lone exception to the pilots we still have an overstaff situation. We're trying to work with the unionized, but every other work group within Delta we can manage to me.
Mitigated through all the voluntary leaves 40000 people taking unpaid leaves throughout the summer.
20% of our employees.
Due to early retire we've had reduced hours and ER and work schedules share.
Share jobs spin incredible and.
Excluding the pilots for the moment out of the labor cost, we've been able to say, 40% of our employee costs over the last six months as a result, which is eliminates the need to undergo furlough. So that's my that's my view on that where this goes I have no idea.
Seems to change by the day, if not many times within the day, we are still hopeful somewhat.
I guess do you see it as on the West is a priority for Delta then sort of given your success getting labor costs down in other ways.
I don't I don't think it's less of a priority for Delta I think that you know with the large numbers of furloughs or at other airlines, it's a heightened priority there, but we.
But we would be pleased to see a c. that extension given to all the industry.
However, the industry and everyone within industries is manage the crisis a bit differently.
The reality is the virus is not at the level of containment that we all thought it would be when the first grant was issued and we will all need additional time to get our businesses in a in a better spot over to get ready for next year.
Thanks.
Capacity, we need to get Ed in the members of the leadership team to an employee townhall, but we have time for one final question. Please Sir our final question comes from Leslie just.
C N P C.
Hi, Thanks for taking my question and morning, everybody. Just a quick question on the loyalty program you said, you're seeing spending there you expect spending to increase in the fourth quarter do you have any detail about where you expect spending to go in the first and second quarter and how that could contribute to breaking even or you can go to cash flow positive.
Well clearly the the loyalty program and the American Express steel has been a great advantages for us through this pandemic.
You know we have seen continued spend improvement through the second.
Second third and fourth quarter.
Fourth quarter, and I think it's too early for us to go out and say that what Christmas will be like or what the post Christmas spend will be but the trends that we've seen today are very encouraging I think a lot of it also has to do with the stimulus fuel Bill gets passed a either in November and January. So there are a lot of factors.
[noise] into how people spend on those cards, but I would say we've been very encouraged by the trends we've seen.
Okay and would that contribute he going cash flow breakeven or positive I mean, generally what three or more news on that.
We're not going to disclose that but it's a significant contribution.
Okay. Thanks very much.
Great Cassidy. Thank you very much everyone. Appreciate everyone's time, we'll look forward to speaking with everyone in January.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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