Q4 2021 Delta Air Lines Inc Earnings Call
Please standby were about to begin.
Good morning, everyone and welcome to the Delta Airlines December quarter in four years 2021 financial results Conference call. My name is Cody and I'll be your coordinator.
At this time all participants are in a listen only mode until we conduct a question and answer session. Following the presentation as.
As a reminder, today's call is being recorded.
I would now like to turn the conference over to Julia Stewart, Vice President of Investor Relations. Please go ahead.
Thank you Cody and good morning, everyone and thanks for joining us for our December quarter, and full year 2021 earnings call.
Joining us today from Atlanta, our CEO , Ed Bastian, our President Glen Hauenstein, our CFO , Dan Junkie Eddie.
Ed will open the call with an overview of Delta's performance and strategy and Glenn will provide an update on revenue and Dan will discuss costs in our balance sheet. After the prepared remarks, we will take analyst questions and we ask you. Please limit yourself to one question with a brief follow up so we can get to as many of you as possible and after the analyst Q&A, we'll move to our media questions. Today's discussion contains four.
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 SEC filings.
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 Dot Delta Dot com and with that I'll turn the call over to Ed well. Thank you Julie good morning, everyone. I really appreciate you joining us today.
Before getting into the December quarter results and outlook I want to spend a couple of minutes discussing the current environment.
As everyone's aware the omicron Varian has significantly impacted our people our customers enter operation as well as most parts of society over the last three weeks.
The combination of the rapid spread of the variant at the peak of a strong holiday demand period and in the face of extreme winter condition in parts of the country created some of the most difficult travel conditions that we ever remember experiencing.
I'm incredibly appreciative of the great work that our frontline team has done and continue to do to help our customers get to where they need to be as safely and quickly as possible no matter the circumstances.
Our teams have faced these difficulties head on while also managing the impact of the virus in their own lives and I want to thank every member of the Delta team for your work during a very challenging period.
To our customers who have been affected we appreciate your patience and your understanding the good news is that over the past seven days, our operation has stabilized with omicron related cancellations impacting only about 1% of our flights.
Since Sunday the number of Omicron effected cancellations are around 20, a day out of nearly 4000 daily flights and in fact yesterday, we only had two AMA crime related mainline cancellations.
While the new variant is not done it appears that the worst may be behind us.
Based on how quickly the case counts have risen our medical team expects cases to peak in the U S. Over the next few days followed by a steep decline in cases, and we're already starting to see that happen amongst our own staff.
Given the high Transmissibility and lower severity of Omicron. This variant is likely to mark the shift in COVID-19 for being a pandemic.
So a manageable and ordinary seasonal virus, which should accelerate the path to a normalized environment.
When we spoke last month about omicron as a risk at capital markets day.
A lot was unknown today, we know a lot more.
While the first 60 days of the year will be impacted we're confident that the pace of travel recovery will resume its December trajectory as we move into President's day weekend, and a strong spring and summer travel season are ahead of us.
So as we reflect on 2020 one it was a year like no other for Delta while challenging we made significant progress in our recovery.
At capital markets day, we highlighted that our competitive strengths have deepened through the course of the past two years and I'm extremely proud of our entire team for all their efforts.
Our revenue of $27 billion in 2021 improved nearly $11 billion or 67% from 2020 with the rate of recovery accelerating from only 25% as measured against 2019 at the start of the year to a close of the year of nearly 80% as we exited December .
This resulted in a full year 2021 pretax loss of $3 $4 billion.
While we obviously have still much work ahead of us our pretax results improved by $5 $5 billion versus 2020.
And included a profit of around $400 million for the second half of this year.
This performance positions Delta is the only major U S airline to achieve second half profitability and demonstrates that we have significant momentum in the continued restoration of our financial Foundation.
Sharing our successes one of the pillars of deltas culture, which is why we are happy to announce this morning, a special profit sharing payment for all global employees.
February 14th the vast majority of our people will receive a payment of $1250.
This is a well earned recognition for the incredible work they have done over the past year to move our airline through the crisis and position us for recovery.
Turning to the December quarter highlights in our March outlook in.
In the fourth quarter, we recorded a pretax profit of $170 million, excluding the impact of omicron disruptions, we estimate our profitability would've been approximately $250 million in the quarter.
This was on revenue that was 74% recover to 2019 levels up eight points from the September quarter, we started the quarter with lingering impacts the prior variant, but encouraged by the significant improvement in demand and pricing that we saw throughout the quarter in each of our passenger segments.
Turning to the March outlook, we expect to incur pre tax losses in the months of January and February before returning to solid profitability in the month of March.
Omicron case surge is impacting business travel and international recovery. The most as meetings are canceled playing office reopening or postponed and countries put restrictions back in place.
On the consumer side, we're seeing some near term hesitation in booking behavior, given the prominence of Covid in our daily lives and that combined with the operational challenges that the industry is facing consumers are delaying travel until case count subside and the industry operational reliability is restored.
So as a result, we're seeing the rate of recovery stepped down in the months of January and February to approximately 70% versus 19 levels from nearly 80% where we were in December .
And while the downturn in demand has been quick we expect an equally rapid improvement once U S case counts begin to decline.
We remain confident in a strong spring and summer travel season, with significant pent up demand for consumer and business travel both domestically and internationally.
We expect the month of March to return to the recovery trajectory that we're on in December resulting in revenue recovery of 72% to 76% for the full quarter Glenn.
Glenn will talk in greater detail about the revenue environment, and Dan will walk through our costs shortly.
Based on our current outlook, we expect first quarter to be the only loss, making quarter for the year and we're confident that we will generate a meaningful profit for the full year of 2022 as the recovery zooms and accelerates in the spring and the summer.
Despite the challenges of the current environment, the multi year recovery plan that we laid out last month at capital markets Day is unchanged no. One is better positioned than delta to lead the recovery as business travelers returned to the skies.
Alta is also uniquely prepared to benefit from the reopening of the international markets, which we are optimistic we will start seeing this spring as restrictions lift.
Our three core priorities discussed lap last month remain unchanged.
Fortifying, our trusted consumer brand restoring financial performance and foundation and building a better future for our people and our planet.
As part of this we remain firmly committed to our values and ESG goals, including our commitment to fighting climate change and moving forward towards the future of net zero aviation.
We recently announced the hiring of her new Chief Sustainability Officer Pam Fletcher.
Industries only C level C S O <unk>.
<unk> established an impressive track record as a senior leader at General Motors and has an extensive history of putting the customer first and developing products that help to enable a world free of emissions.
So as we move past the final phase of the pandemic I'm confident that we'll continue our trajectory to not only emerged stronger than before but to expand our lead in the industry and strengthen our position as the premium airline of choice in the years ahead, our ambition to transcend. The is this transcend the industry and create significant long term.
Value for all of our stakeholders everything we've done during this long crisis puts us closer to achieving that ambition.
Thank you again and with that I'll turn the call over to Glenn.
Thank you Ed and good morning, everyone.
Well again, I couldnt be prouder of what the Delta people accomplish during 2021 and I want to congratulate our people on their much deserve special profit sharing payout there'll be receiving leader next month.
During the December quarter, we generated $8 4 billion of revenue. This was above our expectations at the onset of the quarter driven by strong consumer demand over the holidays.
Total RASM was up 6% from the September quarter on a 7% improvement in yields.
For the quarter capacity was 79% restored versus 2019 five points below the industry as we maintain a disciplined approach to restoring our capacity.
The strength, we spoke about last month at capital markets day are evident in our December quarter results.
First we saw very strong demand during the holiday period domestic results were particularly strong with holiday PRASM, finishing up 8% versus 2019 and with passenger revenue more than 90% recovered.
Second long haul international trends were positive in October and November as borders reopen and restrictions lifted.
This momentum installed in the second half of December as the Omicron variant resulted in more stringent restrictions and impacted our bookings.
Third we saw continued progression of business travel with domestic volumes approaching 60% restored during the December quarter.
Fourth our premium products continue to perform well domestic premium revenue was 84% recovered versus December quarter, 19, nine points better than main cabin.
Fifth our diverse revenue streams remained resilient amex renew mauritian during the quarter was more than 110% restored and cargo revenue was more than 160% of 2019 levels.
We also continued to see very strong consumer engagement with another record quarter for fly Delta App downloads and sign ups for our loyalty program.
In the December quarter, we added one 5 million new Skymiles members up 5% from 2019 levels through.
For all of 'twenty, one we added $5 5 million new Skymiles members.
This growing engagement demonstrates strong brand preference and our customers' desire to travel on Delta in 2022.
As Ed discussed the recent rise in Covid cases is having an impact on near term demand and bookings.
Omicron has been different than previous waves, while infections are thankfully less severe in most cases, it's high transmissibility is resulting in a swift increase in case counts and impacting short term demand.
With the U S case counts expected to peak within the next few days, we expect booking levels to rebound quickly.
Once case counts begin to decline, we expect revenues to rebound within 30 to 45 days.
Additionally, we expect some of the January and February demand decline to be recaptured in future as customers make up for canceled trips.
Consistent with our approach all along we are remaining nimble and agile in how we fly our network.
For the March quarter, we expect our capacity between to be between 83 and 85% restored.
A few points below our initial expectation.
This includes a more conservative approach to long haul international flying that we expect to be and we expect to be 15% to 20 points lower than the industry.
We have also action to our regional capacity to ensure labor constraints at regional providers do not impact our operational integrity.
We expect these constraints will ease in the second half of the year for.
For 2022, we still expect our full year capacity to be approximately 90% recovered versus 2019 with a progression weighted to the back half of the year, but this will ultimately be determined by demand.
As we outlined at capital markets Day last month Delta is well positioned for the next phase of the recovery.
The Delta people have proven time and time again wide delta as the global airline of choice.
We remain focused on improving our competitive position and extending our commercial advantages by investing in premium products growing our loyalty ecosystem and increasing our revenue diversification.
We are confident that the demand recovery will accelerate as the variance subsides keeping us on a path to exceed 2019 financial performance by 2024.
And with that I'll turn the call over to Dan.
Great Glenn Thank you.
The Delta team executed well in 2021 in an environment that remains very dynamic I want to thank our people for their hard work congratulate them on a well earned special profit sharing payment.
So let me start with the highlights from the December quarter we.
We delivered a profitable fourth quarter reporting earnings of 22 per share representing a pre tax income of $170 million and a 2% margin on total revenue of $8 4 billion.
While it was a strong close to the year operational disruptions during the last two weeks of the quarter impacted our pre tax results by $80 million.
Total fourth quarter operating expenses were $8 1 billion.
A 3% increase from the third quarter, driven by both fuel and non fuel costs from the continued restoration of the airline.
Fuel expense of $1 6 billion increased 4% sequentially as fuel prices per gallon increased to $2 10.
Total fuel expense included a 24 cent per gallon benefit from the refinery and.
Embedded in fuel cost is a continued benefit from our fleet renewal, which supported a four 3% improvement in fuel efficiency compared to 2019.
Non fuel CASM was up eight 3% compared to 2019.
This included a 1.2 impact primarily due to lower capacity from cancellations during the last two weeks of the quarter.
Now turning to cash flows and the balance sheet, we generated operating cash flow of $518 million, we invested $948 million into the business and we repaid $1 $1 billion of debt in the December quarter. We ended the year with $14 $2 billion of liquidity and adjusted net debt of 20.
Eight 6 billion.
Now under the current environment in the March quarter outlook is Ed and Glen noted the variant is magnifying normal seasonality in the March quarter, which is our seasonally weakest of the year. The operational challenges has reduced our capacity outlook and we now expect first quarter ASM to be between 83% and 85%.
Recovered to 2019.
This reduction is a few points from our previously expected capacity recovery.
In this environment, we're also paying higher crude premiums overtime and COVID-19 related costs as we work through staffing challenges mitigation of cancellations and protect our people.
We estimate that this will impact first quarter by $60 million to $70 million.
Disruptions are impacting our first quarter non fuel CASM comparison to 2019 by three points with the majority of that drive driven by fewer ASM.
Absent a crime disruption.
Quarter non fuel CASM is 12% higher than 2019, as our network remains 15% smaller.
The sequential step up in non fuel CASM from December to March quarter is due to maintenance normalizing to 2019 levels.
As we talked about last month, when comparing non fuel CASM to 2019, there was a seven point benefit related to maintenance in 2021 total year due to depressed flying.
And flex to a one point headwind in 2022 is flying is restored our quarterly progression basis. The maintenance tailwind was about five points specifically in the fourth quarter of 2021, and there will be no benefit in the first quarter of 2022.
Additionally, with the ASM sequentially essentially flat sequentially, we are not yet benefiting from the scale and efficiency as the ASM restoration progresses, and we exit 2020 to close to fully restored we will realize the scale and efficiency benefit and our comparison.
2019 will improve.
This is consistent with the framework and guidance, we laid out last month at capital markets day.
Underlying our 7% to 10 full year cost guidance, we expect non fuel CASM versus <unk> 19 for the first half of the year to be up in the low to mid teens while.
While in the second half of the year, averaging mid single digits is that scale and efficiency are restored and transition cost subside.
While we did not previously expect I'm a crime related operational disruptions. There is still a lot of the year to unfold as it equates to both the capacity and demand and we remain confident in our non fuel CASM framework.
And the guidance, we laid out last month.
For the March quarter, adjusted fuel price per gallon is expected to be between $2 35 sets 2050.
Fuel efficiency is estimated to be approximately 6% better than the same period in 2019.
When combined with our revenue outlook Glenn provided we expect a loss in January and February months and have returned to profitability.
In the month of March.
Now looking beyond the March quarter, even with the challenging started the year, we remain positioned to generate a healthy profit in June September and December quarters, resulting in a meaningful profit for 2022.
At this point in the year, we are not providing additional full year guidance beyond the metrics given last month the capital markets day. This includes capacity at 90% resorts 2019, non fuel CASM up 7% to 10% and gross capex of $6 billion.
The $6 billion compares to $2 9 billion in 2021 and includes $4 7 billion.
Aircraft Capex, including delivery of approximately 70 aircraft and $350 million of modification costs. The remainder is related to ground and technology projects.
March quarter will be our largest delivery quarter with 22 deliveries, resulting in March capex of $1 6 billion.
Now reducing debt remains a top financial priority during 2021 we reduced gross debt by $6 billion.
Fully funded our pension on our pension Protection Act basis, with a $1 5 billion dollar contribution and a 16% return on our planned assets in 2022, we have $1 8 billion and debt maturities with $1 2 billion in the current quarter.
With a heavier capex quarter, we expected adjusted net debt increased to $22 billion in the first quarter.
As we achieve sustained cash generation over the next 12 to 18 months, we will continue to opportunistically manage our balance sheet, reducing debt to return to investment grade metrics and making progress towards that $15 billion adjusted net debt target by the end of 2024.
So in closing at our recent capital markets day, we outlined our financial priorities and our recovery path over the next three years.
Power of the brand the strength of the competitive advantage give us strong conviction and a directory and the path to full financial recovery.
So with that let me turn it back to Julie for Q&A.
Dan can you please remind the analysts how to queue up for a question and go to our first our first question.
Absolutely. Thank you if you'd like to ask a question. Please Sigma pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again that is star one if you'd like to ask a question.
And we'll take our first question.
Savi <unk> with Raymond James Please go ahead.
Hey, good morning, everyone.
Yes.
And maybe this is for Glen just you know early January is a fairly important time for booking into the rest of the year I just curious if there isn't then.
<unk> on some of the forward looking trends or if I'm, just maybe on the impacting kind of close in bookings and I'll say, we're just.
If theres any color on how it's impacting kind of the difference.
The four different entities.
Sure.
If we could pick a peer.
Period of time for Omicron variant to surge, we would probably picked this time of year because I think it's got two components that are unique to this time of year. One is these five weeks that it is.
Impacting our five of the latest weeks in terms of business travel and two as you indicated it has really impacted more of the close in demand and the further out demand and we believe we have plenty of time to recover those deferral of vacation bookings for summer.
If they don't come in the third or fourth week of January easy for them to come in sometime in February and March so really not concerned yet about spring or summer. We feel that we will have a very very robust demand profile for spring and summer and while some of the bookings have been slightly delayed we are still seeing much.
The biggest magnitude of the impact impacting the next few weeks here.
On a regional perspective for all intensive purposes Asia remains very constrained.
We expect that to continue in our restoration of Asia through the summer is very minimal.
Europe .
<unk> seen some countries imposing more restrictions and at the same time, we've seen some countries trying to lift restrictions of course, you saw in the U K restrictions were added and they were removed we're anticipating even further loosening of those restrictions over the next few weeks to the U K Irelands come out with much less restrictions. So I think everybody is preparing.
At this point for the <unk> to be in the rearview mirror and the travel will be much more restored for this summer than it was four four.
Any of the last two summers and that will lead to really what we think should be very very strong and healthy demands for trans Atlantic leisure travel this summer.
And then Latin America has continued to be a more resilient.
As restrictions have come off in a lot of those countries and clearly the short haul Latin markets are performing well in long haul are continuing to improve so hopefully that gives you the color you need.
No that's super helpful. Glenn and I think you alluded to this as well that maybe kind of some of the operational issues should ease up heading into the summer I know you've been hiring a lot of Gannett and <unk>.
<unk>, and especially pilots and flight attendants and kind of the second half of last year I was wondering if you could.
He'll provide some color on just how much like.
Like slack is being built into what these hirings as you go into the summer because your capacity levels are also coming up into the summer as well.
How much slack, what do you mean by slugs savi.
In the sense that.
Yes, I didn't know if it's like employee per aircraft are or.
Just like you are hiring but you're also increasing your capacity. So just curious if we come into the summer and if we get another variant or something like that is if we will have a little bit more I can add.
Yes.
Reserve ratios or something like that to handle the next peak period.
Getting we're getting better positioned on staffing we did hire a lot of people in 'twenty, one because we had a lot of people leave in 'twenty.
We were looking at hiring several thousand people in 'twenty two a lot of those are more longer term flight attendants pilots to take a while to get in the pipeline and include the airline over time, but I think I'm very comfortable with our staffing levels.
You can't you can't plan in advance for something that comes up overnight like on the ground there where the the world decides to shut down for 60 days and we're going to get through this really quick and where we're going to be glad we have the staffing in place because I think it's going to be in the book and to your earlier question. The bookings look very good post a president's day looking forward and really haven't seen them.
Ager impact at all relative to 19 expectations in that so we think it's going to be a quick rebound.
Makes sense. Thank you.
Thank you we'll take our next question from Andrew <unk> with Bank of America.
Hi, good morning, everyone.
Maybe I'll follow up to all to Sotheby's hiring question I guess, we are beginning to hear a little chatter from the regional airlines that its becoming more difficult to attract and hire new pilots.
I know these airlines often feed pilots into your airline than others, but you.
Maybe give a little bit of color on how many pilots you need to hire over say the next three years to kind of hit your capacity plans and if reasonable start to have a hard time, finding new pilots in 2022. When do you think you would start to impact more than other mainline carriers ability to <unk>.
If at all.
Thanks, Andrew we're hiring at the mainline somewhere between 1% to 200, a month presently and we expect that pace to continue for some period of time certainly through 'twenty two into 'twenty three we don't want to get too far ahead of ourselves, but that's the that's the pace that we're hiring at and everyone else in the.
The industry is hiring too so it's not it's not just delta we are not having any problem at all adult to hiring and getting great pools of candidates. It's viewed as a premium airline that employees in general, but particularly pilots wanted to come work for which we're thrilled that but it is having the impact that the at the regionals as you as you mentioned we are.
We are down flying in the first half of the year.
On some of the regional.
Carriers, given some of the staffing challenges, we're facing primarily because of because of plywood hiring.
The largest regional is our own that we work with which is endeavor. So we're working closely with them to help to mitigate some of the disruption in the <unk>.
The.
The churn that's going on through the process, but I think this is a normal period of time as you know that.
The next order of the of the.
Crisis that we've all been through is pulling through and it's it's actually going to be good it's going to it's going to enable us to to make sure that we are we pay good attention to the to the regional carriers and meet their needs, but at the same time.
I'd much rather have the issue down there to the mainland.
Understood and then just.
One other question for me just wanted to you mentioned a little bit.
A little bit about this at the capital markets day back in December you did.
Announced that you were putting about $1 billion of new equity capital in Q3 of your International partners I just wanted to get your thoughts why do you. What is why is it so important to delta to have such a such a large equity investment as opposed to maybe a smaller one or none at all.
Why is there such a focus there just curious on why you think other airlines don't follow with similar similar strategy. Thanks.
I can't I can't speak for other airlines you'd have to ask them that question, but I know for US is the right strategy long term our opportunity is international and.
When you think about growth when you think about expansion when you think about the natural opportunities that Delta has for the future is going to sit in the international Arena and working very closely with that international is expensive international is hard international the competitive set is very difficult and it's hard.
To do it on your own to go out there and try to advance.
U S airline and international borders unless you had some really good strong partners in the international marketplace. We're fortunate we have great partners in the international marketplace with Virgin and Air France, KLM and.
Aeromexico, Latam Korean et cetera.
But we also know that those airlines have their own objectives and they have their own their own desires and we have found over time that it's very very difficult through solely joint ventures or contractual means to try to enhance the customer experience and provide the very best quality of service.
Just trying to do it as through a contract as compared to being in the room.
Seat in the inside the company if you will influencing the decision to ensure that we're putting our customer interest at the center of what because it's got it the growth is going to be based on customer preference and it just as you've seen everything that we've done here domestically to grow customer preference big opportunities for us to grow customer preference now sit in.
The international market so.
We're thrilled with the with the investments, we're making we've made certain that each one of those investments.
Pencil out on paper, there theyre, good financial investments as well, we expect to get to generate.
Significant returns and candidly given the fact that we've already made.
Significant investments in the past, it's going to actually allow us to recoup.
Some of that past investment easier by by staying invested in the in the companies.
Thank you for that.
Thank you we'll take our next question from David Vernon with Bernstein.
Hey, good morning, guys and thanks.
Thanks for taking the question and happy new year.
Glen can you talk a little bit about.
What youre seeing sort of sequentially in terms of yields on the business and the leisure front as you kind of move through it moved through the quarter and into the first quarter and then specifically kind of as you look out past Presidents' day.
How booking activities.
Shaping up there.
We usually don't comment on future yields, but I can say that through the past quarter, while the bottom of the business yield was about minus 25, which was in the September timeframe, and then that moved up to.
Being down low single digits, and I think we talked about that at our.
Investor Day, and we were pleased with where the structure, we're sitting as we move forward and I don't think anything's really changed since then so I think that's the outlook I would give you is that we think the structure spine now we need the traffic back.
Okay and then.
Do you have any updates on.
Discussions with business travelers about their plans for budgeting travel for the remainder of the year is there anything you'd share on that front.
Yes, absolutely as you know we pulse our corporate clients very often and we did it right before Investor day, and we did right before this call.
And what we saw was that the.
<unk>.
Percentage of customers, who thought in the first quarter that they would travel the same or more.
Down slightly but it was still 80% of the corporate travel survey respondents thought they would travel the same or more in the first quarter than they did in fourth quarter.
Obviously openings have been pushed out as you know, but we are expecting as Ed indicated when we get to spring and summer that we'll see a robust demand for business travel as people get back into the regular routine and feel safe traveling so really optimistic about those results and optimistic about where we think this is going to head in the not too distant future.
Sure David this is that the.
The business travel I'd say, the best way to characterize I read as kind of a wait and see there trying to understand what's going on in the omicron theyre trying to understand when their offices, if theyre not back when theyre going to open and they're going to they're all making those decisions here and the good news is that as we're watching the case counts.
Start to crest in peak here in our country.
And declining in certain early parts of the country that have the.
Have the variant hit first.
Giving them encouragement to realize that they're going to be able to to get back.
And get their people in open their offices sooner than maybe they were we're thinking when first news of armour crown.
James So where.
We're in a pretty good in a pretty good place.
When you think about the trajectory we saw over the fourth quarter, we saw a really nice growth.
In business, both small business as well as big corporates and <unk>.
Small businesses as we pointed out at the Investor Day is something we haven't talked as much about historically, but it's just a bigger pool as the as the corporate spaces for us.
And then and then when those offices opened starting this spring we think it's going to pick up where we left off in December and grow from there.
Great. Thanks, guys.
Thank you we'll take our next question from Ravi Shanker with Morgan Stanley .
Thanks, Good morning, everyone.
So just to kind of pick up on that last point and hopefully.
The next few weeks.
The last real disruption from the pandemic, especially with.
But anyhow boosters in therapeutics and hard immunity and everything else. So if there is like genuinely like light like real light at the end of the tunnel.
Are you having conversations with the regulators on when the weekend fly without master plans and timeline they would like from the service being restored that Kraft.
How did you get some kind of the timing of that.
Well I think it's premature Ravi to speculate on masks on planes obviously.
That's going to be driven by the medical experts and not by the airlines and we will follow their their guidance.
But in terms of restoring service on planes, yes, we're doing that.
Pretty aggressively and over the course of the next two to three months youre going to see.
Our surface patterns.
Largely restored from where we were we were in 2019 and continue to make good prudent.
When I say restored restored is not the right word it's going to be improved from where we are where we were at 19 and we've taken the opportunity during the pandemic to make.
Make substantial changes to the whole catering spec who is providing it took ownership positions in terms of kitchens.
Really a big big change that customers are going to be delighted when they when they start traveling again back in the springtime, particularly internationally, it's going to be it's going to be good.
The thing you were mentioning about the rapid move with a very and I agree with you I think that there's a real silver lining here is that since this thing is moving so fast so infectious. So many people are getting it it's going to push push the pandemic.
<unk>.
US into all of our normalized environment here sooner than we would've liked so while we were together at capital markets day, we talked about.
The uncertainty that omicron presents.
The good news is that the uncertainty is going to be short lived and.
The path to normalization I think we're even more confident in it when we think about our 'twenty two numbers and travel pattern. So it's not all it's not all negative that's for sure.
Understood and just a follow up forgive me if I missed this but is there an update on what premium cabin. It would look like relative to main cabin in the fourth quarter I think in the past you've said it was running 10 percentage points ahead.
How do you expect that trend through the year, especially as corporate and actually come back. Thank you.
Well, yes, we're very excited about the fourth quarter results I think it was in the comments that it was nine points ahead of my main cabin for the entire fourth quarter and we see those trends continuing.
We hedge.
The headline for us is that.
Premium leisure, we believe it's here to stay and that's something that we want to continue to exploit as we think about how we service our customers moving forward and how we are how we lay out the plans and what products and services we offer.
Great. Thank you.
Thank you. Our next question comes from Mike Lindenberg with Deutsche Bank.
Oh, Hey, good morning, everyone, Hey, just two quick well one quick one.
For Dan.
On the refinery.
The revenue piece for the March quarter, I know normally you don't give guidance there, but it is it's been a big number. It was 1 billion. This last quarter should we assume just given where crack spreads are that March quarter refinery sales will maybe be of a similar magnitude.
Yes, I think that's the right way to think about it our jet consumption will be about the same.
And the refinery output so keep it consistent yes.
Okay very good and then second question to Ed here.
I think if you look across the industry.
Across the industry right now I take most airlines their pilot contracts have now been opened there at an amendable point Tom Yours included I think one of your competitors is trying to do a quick sort of two year type extension can you just give us an update of where you are and I guess within the context I mean, you didn't furlough anybody during the pandemic. So.
You're sort of maybe approaching this from a different perspective. Thank you.
Thanks, Mike we did not furlough any employees during the pandemic pilots included yes, we're in a similar position I guess in some of our our large competitors are as well, particularly relative to the pilot contract.
During the pandemic it was very difficult for any of the airlines to order the union for that matter to to feel confident in.
And project in the future. So I think all talks across the across the industry are probably put on hold.
But we're now getting ready to to Reengage.
And we'll see where that goes but no we're not trying to do an expedited anything.
We're trying to get a real contract with our people.
Thank you.
Thank you we'll take our next question from Jimmy Baker with JP Morgan.
Hey, Good morning first question for Glen could you expand on your answer to the Saudis question Rod you anticipate trans border testicle impediments to ease during the quarter for example.
Move from a one day back two or three day testing requirement for U S re entry.
Specifically in your forecast or the guidance revision that we get back to November eight levels of.
Tesla impediments and I'm, only asking because that'd be headlong do improve we're gonna be asked whether that be incremental for the guide or not.
Well.
What we've seen in <unk>.
A little more color on that as we've seen that initially everybody reacted by putting in some pretty onerous testing requirements.
Countries that are further along with us like the U K.
Who is now on the backside of the Omicron has now started relaxing those.
Restrictions than we've seen in other countries like Ireland relax, we've seen Israel relax on the margin so.
I think that's what we would expect.
I don't think for a customer who is traveling that the one day testing requirement that the U S has imposed is that all on orange suits.
Pretty easy to take a Procter test with you when you travel overseas so.
I couldnt speak to whether the U S government was going to go back to the previous policy, but in general I think once once governments feel comfortable that.
They have a handle on the variant.
Have backed off and started easing the restrictions again I think that would be something that the whole world is looking towards as we move forward here.
Okay, and then for Dan.
The flat air traffic liability from third quarter to fourth quarter that that's pretty unusual ordinarily there's about $700 million sequential decline even 2020.
We saw a few hundred million of decline.
What should we read into that other than strong bookings I mean has there been any change in how you are accounting for travel credits and on a side note having.
Having recently bought a delta ticket and having forgotten to apply some existing credits.
I can't believe I'm, the only passenger experience.
I'm just trying to think.
<unk> grew any implications.
Credit travel breakage, and how that might influence the ATL going forward any color there.
No no change right, but I think we talked about this a little bit in the third quarter call that the.
Remind you that maybe historical seasonality won't.
Apply azure restoring.
Travel and the airline and that proved to be the case in fourth quarter than what we saw.
Youre going to see a similar dynamic in first quarter normally that air traffic liability will grow you got to account for the additional.
Restoration that you see as you progress towards second quarter.
That would that changes that are seasonal impacts. So just take that into consideration I think fourth quarter is a good proof point that you just can't take historical practices, but it is not due to the underlying change in practice, it's really just the dynamic that's going on with the restoration of the airline.
Okay.
Okay perfect.
And to your question on Hey, Jamie This is Ed on your question, Yes credit.
I don't know, if we announced it this.
Yes.
We did a good news so we extended the expiration date through the end of 'twenty three so youll be fine you can use it Jamie.
Okay, I wasn't particularly worried about it. Thank you I appreciate it thank you gentlemen.
Thank you we'll take our next question from Duane <unk> with Evercore ISI.
Hey, Thanks, maybe just to continue on Jamie's line of questioning there.
Can you tell us what breakage as a percent of revenue was in the fourth quarter and kind of how those trends have changed over time.
Yes.
The trends haven't changed and they are consistent but we don't actually give breakage report that.
Okay.
And then just a broader question as you look back at the.
Business travel recovery, you started to see in <unk>.
Do you think that return to office is as meaningful of a guidepost relative.
Relative to your initial thinking have you seen any decoupling between return to office.
And business travel recovery and it's not a that's not a January 13th question Thats. The recovery you were seeing in the fourth quarter.
Yes, I think there is a there's a correlation.
A lot of business travel is triggered by going to visit companies in.
The companies are closed it makes it a little more more difficult to do that that's not a one for one.
But the fact that particularly with the big the Big corporates, the fact that our overall level of corporate.
Demand the volume return is actually fairly closely correlated and maybe it's a coincidence or not I don't know, but the numbers are pretty tightly correlated to the amount of re openings we've seen.
Indicates there was a real there's a real cause cause and effect there Duane.
Okay, and just wondering if we found <unk>.
Travel has a higher utility then going back to an office, but I appreciate the thoughts.
Yeah, No we do have we do have.
Office is not the only thing we have a lot of people traveling that art back into into office. Yet. So we have a lot of noise, probably in the numbers and theres a lot of choppiness.
As you as we navigated the course of it felt like two or three pandemics over the course of 2021.
With the various variance, but where we are.
We're continuing to make good progress the good news is that all of our corporates are saying they just can't wait to get back.
To be with people and be with their own people will be with their customers.
Visit new opportunities and invest for the future and I think this is a this is gonna be a strong spring and summer they're just waiting for the all clear sign that you don't have to.
Worry about a variant as you're traveling.
Makes sense. Thank you.
Okay.
Thank you we'll take our next question from Sheila <unk> with Jefferies.
Good morning, guys. Thank you for the time, so you talked about Q1 international capacity being 15 to 20 points lower than the industry. Maybe can you talk about what metrics you'd like to see for that path to bring capacity back up how are you.
Plays into that and how you think about international capacity as we progressed through the year.
Sure I think we get it gave you a pretty good outline of how we expect international restoration to occur and what I'd say is we haven't changed from where we think we'll be in the summer yet while we have changed is the the.
The lull season.
Winter IATA the remainder of the winter IATA, we had some seasonal services starting up earlier than we would have otherwise done because we thought demand might be back early and now we're taking that bad off and moving those start dates to later in the year and I think we still remain very very confident that once as Ed said once people feel that.
Safe to travel that they will and as we said in today's comments in all previous as we will remain agile and if we don't see that developing will pull it down and if we see it coming faster we have the ability to to accelerates to a certain extent some some growth in international so really it's a.
We're still very optimistic about the summer and we.
Expect to be 85% to 90% restored in the Trans Atlantic.
Less than 50 in the Pacific and largely restored in Latin America, and Thats, what we outlined previously we really haven't deviated from that yet.
Okay, and maybe just a follow on for that in the domestic market, you're seeing capacity come on with us.
From a low cost carrier now how do you think about the risks of supply.
Supply come along for the last of my job.
We've competed with you all Ccs for many many years and I think that's really where we came to a couple of different strategies, including our premium strategy and I'd like to say that.
Some of our highest return markets historically have been straight up against <unk> and <unk>. So I think we're really not afraid to compete in those markets and we think our products stand on their own and it is a very different product in a very different customer than they are going after.
Okay. Thank you.
Thank you we'll hear next from current Cunningham with <unk> partners.
Hi, everyone. Thanks for the time.
One point from your from your capital markets day that I found interesting was just the domestic share gains in the on the corporate side during the pandemic in the past those gains have been somewhat minimal year over year, but you clearly use the pandemic to your advantage I was just curious is there a gating factor to your growing share from here and if there isn't.
What's your expectations over the next couple of years.
For your for your share there. Thanks.
Connor This is Ed yes, you're right, we did have a a meaningful and an outsized.
Share gain and that's.
Amongst the big the big corporates.
As our corporate is really focused on premium.
They appreciated the work we did around blocking the middle seats for the entire length of the pandemic law was quite active and.
What we find is when companies come to delta or customers come to get Delta. They tend not to leave which is a good thing and so weird. So the share tends to be sticky and we work really hard to ensure that we are we maintain that.
We've had we've had good share gains in the past, who don't don't don't get me wrong. We haven't we kind of had plateaued at a level pre pandemic and.
We are significantly.
Higher share than art and our natural seat share in those markets. So I think we're going to we're going to work hard to make sure we maintain and if we can grow it we will but I wouldn't expect you to see additional growth not at that level for for the next couple of years.
Okay, Great that was a big Miss.
Then just maybe just take the other side of of Robbie's question assume that there is actually going to be another wave of cases at some point.
Each each wave has been different but could you just speak to lessons learned during.
During this current wave the reason why I ask is it just seems like your ability to work directly with your workforce actually benefited your operation relative.
Relative to some of your some of your competitors as you turned around pretty quickly. Thanks again for the time.
Yeah. Thanks, Scott.
Proud of our team and it was it was a <unk>.
Three weeks.
So yes, there are definitely some learnings in there.
But the good news is we recovered quickly we got the operational integrity of the airline back to where it needs to be.
It was not easy to do but the fact that we have a very very direct and strong and flexible workforce that we will do whatever they need to do to ensure our customers are being well taken care of and served.
What is important and that has shown through.
One of the things that to me was really interesting about the last few weeks of the of this omicron search is.
That to me.
<unk> was really strong I mean of course it was built prior to that as it was going into the holidays, but we didnt see cancellations cancellations were taken us because we could staff our staff the planes, but the so the resilience of customers and their their willingness and interest in getting into travel once once things are clear I think.
Is going to be that much stronger and each as each successive wave occurs I think people are getting more used to the fact that we're having as a virus, we're going to have to manage and live with overtime and it's going to be a seasonal virus is not going to be a pandemic.
That's what the doctors all believe and that's what I think we're going to go to wind up seeing here and we've got all the tools and the technology and the capability and the confidence that we can manage just that.
Great. Thanks, Ed.
Thank you. Our next question comes from Myles Walton with UBS.
Thanks, Good morning.
Just wondering if maybe Ed how do you think the zero Covid case policy in China.
Plays out through the course of the year expect to your business I know, it's a smaller piece, but just curious.
What do you think.
Can make them move to endemic because clearly zero K Covid case policy would still be in the pandemic manner.
Well that's a question Myles is way above my pay grade.
National policy in China.
Yes.
It's been interesting as we've watched a lot of nations around the world.
We'll manage it seemingly somewhat differently as it relates to us youre right.
Not a big part of our of our network.
We'd like it to be a bigger part, but historically hasn't been it's going to it's going to be.
Pretty small.
Part of our network at least for the next the next couple of years.
We will see see beyond that you know one of the things, we do and we look at that.
Where we put our metal is demand and there is not strong demand.
Between the U S and China now so I don't think it's a situation. That's that's that's alarming to us.
But hopefully.
Asia, and it's not just Japan, but China was Japan and other other doctors, Hong Kong and Singapore wherever they are.
All going to need to figure out how to how to move to that seasonal virus I've just talked about and they've got the tools and technologies to manage it I think it's just going to be a longer a longer road, we have a very.
Downward feel as to as to growth rates in Asia for some time here and we're fortunate we've got a great partner in Korean that can do can do that flying in the meantime for us.
Okay, and then just a follow up Dan on the other expense non operating other expense for 2022 anything too to throw out there as a placeholder or whether it's interest or pension moving parts.
No I think when you look at the total year for 2021. It was just around 900, when you take the interest expense with the pension.
It's going to be about that level slightly above actually you're going to have a little less pension income and then net debt interest expense line will start to really move down in 'twenty, three and 'twenty four.
As you see that adjusted net debt coming down to a $15 billion target.
Okay. Thank you.
So do we have time for one more analyst question before then moving to media Q&A.
Thank you we'll take our final question on the analyst side from Hunter Keay with Wolfe Research.
Hey, good morning. Thank you a couple for me.
John I think you wrote for Glenn I know you had a need obviously, the sandeep, leaving but how can Scott large Scott Laurence Hunter team and what is it about him that you like the most when you interviewed them.
Listen we don't comment on individual performance of our individual reasons, but I think Scott.
Very well seasoned industry executive and I think he's going to bring us some additional value.
Value over time, we will see when it gets here starting next week I believe.
Okay.
Then.
Do your capacity planners talk to a doctor team when you plan to schedule.
Every day.
[laughter]. Okay. Every every schedule is now taking approved.
Got it.
Thank you very much.
Thank you your honor that will wrap the analyst portion of the call I'll now turn it over to Tim Mapes, our chief marketing and Communications officer to start the media questions. Cody, we have about 12 minutes for conversations with members of the media. If you would please just remind everyone the process to get into queue for that and I would remind everybody that we're going to try to keep this moving and do one.
Question with one follow up in and about 10 minutes after the hour. Please.
Absolutely once again as a reminder.
You'd like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure that your mute function is turned out today your signal to reach our equipment. Once again that is star. One if you would like to ask a question. We will pause for just a few moments hello, everyone an opportunity to signal.
Okay.
Okay.
Okay.
And once again as a reminder that is star one.
All right, we'll take our first question from Mary <unk> with Bloomberg News Bloomberg News excuse me.
Hi, Good morning, I Wonder if you could comment on.
Of the passengers who had canceled flights.
During December .
How many of those what percentage of those were able to actually complete that travel rebook or whatever and complete that travel during the holidays.
Can you talk about that percentage.
Hi, Mary This is Ed I don't have the numbers in front of me, but the vast majority of the customers that have to be re booked.
Had space that we were able to accommodate another other flights to get them to their destination. So.
It's not something that we enjoy doing.
But we were able to get people to where they needed to be for the holidays.
Okay no.
Notable are noteworthy amount of lost revenue from that.
Well there was closer was flying and some customers decided not to travel.
So that's we estimated there was a $70 million.
Hit for that but no there is not a not a substantial if customers wanted to travel on Delta we made sure we got them there.
Thank you very much.
Thank you we'll take our next question from Alison Sider with Wall Street Journal.
Hi, Thanks, so much.
You talked about through the pandemic entering this new phase, where it's becoming more seasonal and it doesn't necessarily impact people's willingness to travel all that much how does that change the way you plan and staff for peak periods, if theres going to be a feature brief but dramatic flare up like we just saw.
You have a smaller peak holiday schedule or how does that change kind of your planning process.
Well our goal is to ensure that were meeting customer demand and so I don't know that we can change our customers' demand and interest in traveling during peak periods or holidays and thats when they go and we need to make sure. We're we're there to serve them.
Are there learnings from <unk> as I mentioned on the on the analyst call.
But the probably the most important learning that I saw was that <unk>.
Even with omicron being the headline throughout throughout the country.
And the disruption that the airline industry was experiencing from people getting sick from omicron travelers are still traveling and they were determined to travel they were resilient and we didn't see mass cancellations, we didn't see people deciding it wasn't it didn't feel right and so I think that this was another phase that we've passed through.
Who knows.
They're going to be another pandemic.
Type virus awaiting us Theres no. We don't know what it is but we're also humbled by by the fact, we don't know what we don't know yet in this in this environment.
We do really believe that we're going to enter a nice period of of being able to manage and create a.
Set of normalcy around.
Around travel behaviors, particularly but hopefully life in general.
And this virus will become very similar to what we have with the flu right now and move into a seasonal category with with tools and technologies to.
To manage fluids fluids.
Pretty significant.
Cause of death historically.
Our country, I think where we're seeing a lot less of that.
Over the last couple of years because of the new the new tools and mitigation that we've learned to live with and I think youre going to see people may be wearing masks, and then doing different things and having having technologies.
And anti Virals that they can take to help manage to in order to keep themselves moving we're getting to a point where I think.
We're going to focus our efforts on the.
The small percentage of people that are immuno compromised that there are most at risk, but the general population.
Learning and willing exhibiting.
Exhibiting an interest to live with live with this risk.
Thanks.
Okay.
Thank you, we'll hear next from Leslie Josephs with CNBC.
Hi, good morning, everyone.
Just a question on hiring.
Update us on the number of people that you want to hire and is there any detail on perks or increased salaries that you're offering to.
To attract workers and if theres anywhere that you are having problems attracting worker either work group or geographies look to hear that.
Yeah, Leslie as you know we hired a substantial number of people in the past year I think it was around 9000.
We're gonna be hiring less people this year.
But this number is still in the in the say three to 5000 range, depending on how demand shapes and comes back.
We're not having any meaningful impact in terms of difficulty of getting people to come work for this company regionally, yes, theres some theres some pressure points in some of the higher cost markets, particularly in the northeast, but no. We're doing a very very good job of bringing.
The team together and we're not having to put any any unusual <unk> out there in order to attract talent.
Okay. Thanks.
The ability to the ability to travel free is a great perk.
And we've always had that at Delta.
Thank you we'll take our next question from Edward Russell with skipped.
Alright, thank you.
Following on what Leslie asked in terms of the regional flying reductions that you are joining the first half and what is dealt with doing to mitigate that.
Well, we've taken about 20% to 25% of our regional flying down in the first part of the year end.
That is stems really from.
Flows flow through pilots to the mainline as well as.
Getting the right people and the right training seat at the regional carriers and I think those are the two things.
We are counting on as we get to the back half of the year to resolve themselves. So I think one of the things is how many hours you havent seat can you get trained and can you get moved we're working through all the details of how those transactions or transitions actually happen and we're really pretty confident now that by the second half of this year that <unk>.
<unk> will be more full and we'll be able to restore a lot of the small and medium sized communities that we've had to pull down during the shortage in the first half of the year. So.
We are meeting on this really daily and weekly to make sure that this actually can materialize, but right now we feel very confident that we can catch back up again as we get to the back half of the year.
Okay. Thank you and one follow on have you added to park any regional aircraft as a result of our exit any markets.
We have had to exit a handful of markets, mostly those are on pro rate.
So there werent directly schedule by Delta So as of now things that Delta had schedule control over we have not closed any stations, although our partners have.
And what was the second part of that question.
Have you had to park in the regional aircraft as a result, there are there are parked regional airplanes right now, but we expect those to return back into the Sky as I said earlier in the second half of the year.
Thank you very much.
Thank you we'll take our next question from David Slotnick with TPG.
Good morning, and thanks for taking the question I wanted to talk a little bit more about.
Premium leisure, which you mentioned that the capital markets day, and you can say.
What does that look like in the long haul market, particularly is that people who are able to pay for delta one more affordable Delta one tickets at that.
More widespread premium economy or.
Something else.
Well, we've got big plans for our long haul premium leisure sector. This year, we will be ubiquitous and introducing a new product delta premium select to the trans Atlantic marketplace and that is really designed specifically for high end leisure as well as corporate travelers who is travel policies don't include.
The flatbed Delta one product. So our early returns on that are phenomenal far above our expectations and as we get to ubiquity.
We'll monitor that closely and we'll report back to you, but we're excited about that we're excited about the enhancements that Ed talked about as we get to spring and summer on the existing premium products in the long haul and we think we have over the years developed a great suite of products that fit a lot of needs for customers whether or not it.
Just basic transportation and getting there safely and on time to.
To really more of the luxury products with the flatbed seats in the luxurious.
I'm curious.
Amenities that come with that so.
A wide spectrum and if you think of where we started we started with just a flatbed.
Coach product. So now we have a full suite of five products that we can offer in the trans Atlantic marketplace and that will extend to all of our international's by 'twenty three.
Thank you.
Tony We have time for one final question. Please before we have Ed wrap it up.
Thank you, we'll take our final question from Robert Silk with travel weekly.
Good morning, guys.
So I think you said you expect to close.
So do you expect the pilot shortage.
I guess the flow through to sort of resolve itself as the as the year progresses.
So explain to me how are you.
Spect that to happen to get more people.
Just to get more pilots coming back into the system.
Really there are no shortage of pilots wanting to come to us or really to our regional partners. It's a matter of them getting through the training and getting into the right seed it with the right number of hours. So that's what we're working through as we look to resolve the current staffing issues. There is how long does that take.
To really catch up and when we'll be in a position to start growing those regional players again.
Okay. So.
I guess that answers my question. Thank you.
Well, thank you everyone I want to.
Wrap up here and I. Appreciate your time. This morning, Thank you for joining us.
Particularly want to thank once again, the delta employees for the amazing work. They have done over this course of this last year congratulate them on this special profit sharing payment, which we were thrilled to be able to award them with and realize that we're making really good progress.
Amazon has been a challenging period of time, but we've learned from it.
Theres no new findings and one of the most important findings is that we're going to move through this thing fastly.
Quickly and get to a point of stabilization in our views so with that being that we are in the state of Georgia, we have to deal with the close of the go dogs and congratulate him on his part.
Our place in the National champions. Thank.
Thank you all for joining us today.
Yeah.
Thank you that does conclude today's conference. We do thank you all for your participation and you may now disconnect.
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