Q1 2022 Delta Air Lines Inc Earnings Presentation
Please standby.
Good day, everyone and welcome to the Delta Air lines March quarter, 2022 financial results Conference call My.
My name is April and I will be your coordinator at this time all participants are in a listen only mode until we conduct a question and answer session.
Following today's presentation as a reminder, today's call is being recorded.
I'd now like to turn the call over to Julie Stewart, Vice President of Investor Relations. Please go ahead. Thank.
Thank you April and good morning, everyone and thank you for joining us for our March quarter of 2022 earnings call joining us from Atlanta today are CEO , Ed Bastian, our president Glen Hauenstein, our CFO Dan Junkie.
Ed will open the call with an overview of Delta's performance and strategy Glenn will provide an update on the revenue environment and Dan will discuss cost fleet and our balance sheet. After the prepared remarks, we will take analyst questions. Please.
Please limit yourself to one question and 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 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 SEC filings, we'll 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 well. Thank you Julie Good morning, everyone. We appreciate you joining us today.
Before we begin I want to acknowledge the humanitarian crisis in Ukraine. We are proud to have raised the Ukrainian flag at our global headquarters in Atlanta, and solidarity with the people of Ukraine.
At Delta, we've provided meaningful financial and operational support to assist the people the region in connection with our partnership through the International Red Cross.
This morning, we reported March quarter results, marking another important step.
In our recovery, we generated $200 million of free cash flow in the quarter and a 10% operating margin in the month of March.
Our revenue recovery in the March quarter reached 79% of 2019 levels five points ahead of the midpoint of our initial guidance.
As expected January and February generated operating losses.
I'm, a koran receded, we saw a surge in demand supporting an inflection towards solid profit in the month of March.
Delta continues to provide best in class operational customer and financial results in a dynamic environment.
This results from the dedication professionalism and hard work of delta's more than 75000 people worldwide.
Storing capacity during a period of rapid demand recovery has proven challenging for all of us in the industry, but delta people continue to lead the way.
I want to thank our customers for their patience and understanding as we navigate the challenges of ramping up operations into the peak travel period.
And I know our teams have been working incredibly hard and I wanted to thank all of them for what they're doing for our customers and for each other.
We rewarded our people excuse me with a special profit sharing payout in February .
Just on the second half of 'twenty, 'twenty, one profitability and announced a 4% pay increase that's going to be effective made the first.
These actions align with delta's long standing values at shared success with our people.
With the rebound in demand the month of March was the best cash sales month in Delta's history outpacing our prior brokered from spring of 2019, despite offering 10% fewer seats.
March we had our first month and two years of positive unit revenue compared to 2019.
We achieved record co brand acquisitions co brand spend in cargo revenue.
Domestic consumer revenues are exceeding 2019 levels and the recovery in business travel.
Revenue has accelerated as offices reopen and business travelers rebuild face to face relationships.
For long haul international was growing as travel restrictions lift led by the Trans Atlantic.
To date, we have not seen an impact to travel demand from the conflict in Ukraine, but we of course are monitoring this closely.
Nearly all European countries have now removed entry testing requirements for vaccinated customers. We continue to join the rest of the U S travel industry in urging the U S government to lift pre departure testing requirements.
As we prepare for the peak summer season, we continue to be very focused on operational readiness with 4000, new members joining the delta team already this year, we feel good about our staffing and our ability to meet demand as we continue to restore the airline.
Our customers are seeing the benefits of our ongoing investments to improve the travel experience.
This spring we are opening new modernized terminals in Los Angeles Laguardia in Seattle.
These generational investments enhanced delta's already leading positions in key hubs and provided an elevated ground experience for our customers.
We continue to upgrade our fleet recently taken delivery of our first Airbus 321, Neil.
The state of the art aircraft is scheduled to begin service made the 20th from Boston to San Francisco and features our new domestic first class seat design with nearly one third of the seats in premium cabins and improved fuel efficiency. These will be the best aircraft that we fly for our customers and generate the highest <unk>.
Returns for our owners.
Our strategic decision to accelerate investments in our airports, our fleet and our technology during the pandemic will benefit delta and our customers for years to come.
As COVID-19 shifts from a pandemic to a manageable seasonal virus there are clear signs of pent up demand for travel and experiences as consumer spending shifts from goods to services and experiences.
Restrictions lift and business travelers continue to return to the skies against this improving backdrop. We are building momentum in the June quarter with expectations for a 12% to 14% operating margin and strong free cash flow despite higher fuel prices.
Our revenue recovery is expected to reach 93% to 97% of 2019 levels with double digit unit revenue improvement.
We are successfully recapturing a significant portion of the run up in fuel. This is occurring almost in real time, given the strong demand environment as well as delta's growing brand preference, our premium product focus and measured approach to capacity.
While we are confident in summer demand and the capacity plans that we have in place given macro uncertainty we will remain nimble on capacity for the second half of the year and continue to prioritize sustained profitability.
I'd like to pause and put that Q2 guidance into perspective.
At 12% to 14% operating profit we are only four points behind our June 2019 quarterly operating margin and that's despite fuel prices being up 50% from that time period, and our capacity only 85% restored. So we are greatly encouraged by the momentum.
We are seeing and we remain confident in our outlook for meaningful full year profit for 2022.
As we take note of these achievements I am pleased with the progress we're making across the three core priorities we laid out.
Capital markets Day last December .
We continue to fortify our trusted consumer brand demonstrated by loyalty.
And record engagement with our customers the strength of our brand has never been greater and has been recognized by the Wall Street Journal Fortune business travel news and many many others.
Our customers are taking note that our net promoter scores consistently above 2019 coming out of the pandemic.
We intend to build on the momentum we gained over the last two years.
Second we are restoring our financial performance as revenue improves and we regain a competitive cost structure, we're returning to profitability generating strong free cash flow and making progress on debt repayment.
And our third priority is building a better future for our people and our planet, including our ongoing commitment to creating a sustainable future for aviation.
We are continuing to invest in the physical emotional and financial well being of our people, while prioritizing diversity equity and inclusion at all levels of the company.
Our mission of connecting the World has never been more important than it is today and I'm as confident as ever that we will achieve our ambition for a leading consumer brand to transcend the industry and deliver financial outcomes that creates significant and resilient long term value for all of our stakeholders, it's been an encouraging peer.
<unk> of recovery and it's exciting to see our customers returning to the skies. Thank.
Thank you again and with that I'll turn it over to Glenn to update the revenue environment.
Thank you Ed and good morning, everyone.
With robust demand growing preference for the Delta brand and quick actions to recapture higher fuel prices, we achieved significant milestones in the month of March and have momentum as we head into the summer.
None of this would be possible without our people and I couldnt be prouder of the Delta team and the results that they are delivering a huge thank you to all.
During the March quarter, we generated $8 2 billion of revenue. This was approximately $500 million higher than our initial guidance in January resulting in a revenue recovery of 79% compared to 2019.
We continue to execute a disciplined approach to keeping capacity in line with demand.
For the quarter capacity was 83% restored versus 2019 and at the low end of our initial guide and below the industry.
The quarter was a tale of two house, while omicron depressed demand in the January and early February we saw an unparalleled demand recovery from Presidents' day on.
Our revenue recovery versus 2019 progressed from 70% in January to approximately 80% in February 285% in March with momentum building into April .
March was the first month in two years of positive unit revenue compared to 2019 with PRASM up 1% and tries them up 3% pre.
Premium products once again led the way with domestic premium revenue approximately 100% restored to March of 2019 levels.
We also achieved our highest ever monthly cash sales as Ed mentioned, our highest direct sales highest co brand acquisitions highest co brand spend and highest cargo revenue in the month of March.
Business travel volumes reached the highest post pandemic levels, we've seen and importantly in March corporate fears inflected to positive versus 2019 for the first time.
This drove an acceleration in the recovery of business revenues with improvement in both corporate contracted customers and small and medium size enterprises.
As we exited the quarter domestic corporate sales improved to approximately 70% recovered versus 2019.
And a recent survey result results show that 90% of our corporate accounts anticipate travel volumes to increase in the June quarter as offices continue to reopen.
Additionally, we are seeing more corporates implement changes to travel policies.
For example, domestic travel restrictions have been completely removed for all of our top corporate accounts and increasingly corporates are allowing upsells to premium cabins and refundable products.
Strength in cash sales and seasonality drove a $2 $8 billion sequential increase in our air traffic liability.
The increase in advanced ticket sales outpace normal seasonal trends, resulting in an ATL balance of $9 1 billion at the end of March.
Up from $6 6 billion in March of 2019.
We expect the ATL will continue to build in the June quarter, albeit at a slower rate than what we saw in the March quarter.
For the June quarter, we expect revenue recovery versus 2019, as Ed mentioned to improved to 93% to 97% an 84% capacity restoration.
This reflects a low double digit <unk> growth versus 2019 with all entities expected to post positive unit revenues compared to 19, except for the Pacific.
We expect April yields to be up double digits compared to 2019 with further strengthening as we approach June positioning us to successfully recapture a significant portion of the higher prices fuel prices in the June quarter.
Geographically domestic and Latin revenues continued to lead the recovery and fewer restrictions in major international markets are unlocking demand for long haul travel.
We expect a very strong summer in the Trans Atlantic based on demand trends and in the Pacific. We are encouraged by the opening of Australia, South Korea and other countries in southeast Asia when.
When countries reopened we see a rapid restoration of demand for example, following South Korea is border opening on April one we expect load factors to improve from the low fifty's in March to the low Ninety's by June .
We expect that heavily restricted regions, such as China, and Japan will continue to put pressure on overall Pacific unit revenues until borders fully reopened.
A few months ago at capital markets day, we outlined three commercial strategy pillars, and we've made strong progress of course across each of these started this year.
First our premium products continue to lead the recovery and the introduction of Delta premium select to the Trans Atlantic marketplace has been a success with early returns far exceeding our expectations.
By this summer we will have expanded delta.
EPS to 80% of our transatlantic flights.
Over the next few years, we expect premium seat growth to continue to outpace main cabin and we're confident in the consumer shift towards higher quality products is here to stay.
<unk> premium recovery has been led by consumer and we see further upside as more and more business travelers returned to the skies.
Next growing loyalty is evident across several key metrics. Our net promoter score remains above 2019, even as volumes increase and during the quarter. We acquired a record number of new Skymiles members and our co brand spend continues to far outpace 2019 up 39% in the month of March.
Loyalty is an important driver of our third pillar pillar, increasing our domestic increasing our revenue diversification and other.
Other revenue was fully recover to 2019 levels during the March quarter led by loyalty and cargo.
For Numeration from American Express during the quarter of $1 2 billion was 25% higher than 2019, a new quarterly record that keeps us on track for our full year goal of more than $5 billion in renewal ratio.
Cargo had an exceptional quarter up 51% compared to 2019 with the month of March marking our best ever cargo month in the company's history.
MRO revenues were 22% below 2019 as supply chain issues slowed our engine throughput.
MRO margins remain healthy and we are excited to scale. This business over the next few years as the installed base of next generation engines continues to grow.
By leveraging the Delta platform. We are further diversifying our revenue mix in the March quarter premium products and non ticket revenue sources generated 58% of total revenue up three points from the same period in 2019.
This improvement gives us a high level of confidence in achieving our goal of more than 60% by 2024, as we laid out in capital markets day.
In closing Delta has emerged in a stronger relative position by staying true to our core competitive strengths and our commitment to our customers and employees.
And as the final phase of demand recovery takes hold and preference for our brand continues to grow.
More confident than ever in delta's path to exceed 2019 financial performance by 2024.
And with that I'd like to turn it over to Dan to talk more about the financials.
Thank you Glenn and good morning to everyone starting with the highlights of the March quarter, our operating loss was $793 million was better than our expectation as anticipated we saw losses in January and February due to omicron and seasonal weakness.
And we inflected to a solid profit in March with a nine 4% adjusted operating margin.
Fuel expense was $2 1 billion it increased 32% sequentially from the December quarter.
Fuel price per gallon averaged $2 79 for the quarter. This included a <unk> <unk> per gallon benefit from the refinery.
Non fuel cost rose, 6% sequentially with non fuel CASM up 15% compared to 2019 on 17% less capacity.
We generated operating cash flow of $1 8 billion.
We reinvested $1 6 billion into the business, resulting in free cash flow of $200 million.
Delivering a profit in the month of March and positive cash flow for the quarter were important achievements, especially considering the impact of Amazon and higher fuel prices.
We ended the quarter with adjusted net debt of $20 9 billion.
This was more than $1 billion better than our initial expectations due to strength in cash receipts that Ed and Glen spoke to.
We repaid $1 4 billion of gross debt ending March with nearly $13 billion of liquidity.
Now turning to the outlook, we expect the June quarter, non fuel CASM to be up 17% compared to 2019.
The two point increase from the March quarter is driven by higher selling related costs unexpected, 45% sequential increase in revenue and our anticipated step up in maintenance costs on a similar level of capacity restoration.
With the first half non fuel CASM in the mid teens, which is two points higher than planned on lower capacity, we expect to be closer to the high end of the full range of up 7% to 10%, implying the second half will improve up to the mid single digits.
This improvement is driven by continued capacity restoration from the low to mid eighties, and the first half to the mid 90% by the end of the year.
The resulting scale and efficiency will drive the step function change in our non fuel CASM.
Now, let me give you a little context on how we get this improvement.
The recovery in international travel enables us to shift our wide bodies from our domestic to international where we get better efficiency from gauge and stage and improve staffing.
Narrow narrow body utilization will improve with a 10 point increase expected by the end of the year, giving us combined benefit of higher capacity and more efficient allocation of our fleet.
Further as we fill out our schedules and we create greater stability in our operations with more consistency and depth in both the domestic and international network. This is enabling efficiency gains in our facilities and productivity of our workforce.
We remain confident in our multiyear cost framework laid out a capital markets day.
Sure.
Regaining our competitive cost structure is critical to our success at the same time, we will continue to remain nimble on capacity as we manage for profitability in this higher fuel price environment.
On fuel for the June quarter, we expect that adjusted fuel price per gallon of $3 20.
$3 35.
This includes a <unk> benefit from the refinery and these are based on the forward curves as of last Friday.
Our Monroe refinery provides a unique benefit <unk>.
Acting as a partial hedge to elevated cracks. This is especially true with New York Harbor jet cracks, where our production at Monroe provides 100% offset.
Based on our June quarter outlook for revenue and cost, we expect operating margins to be between 12 and 14%.
The expectations for solid profitability and further build and our air traffic liability, we expect to generate another quarter of positive free cash flow after investing $1 2 billion in the business and expect to end the June quarter with adjusted net debt of approximately $20 billion.
As we achieve sustained cash generation, we will continue to opportunistically manage our balance sheet, reducing debt to return to investment grade metrics and making progress towards our $15 billion adjusted net debt target by the end of 2024.
For the year, our Capex outlook of $6 billion is unchanged with our reinvestment primarily driven by the continued renewal of our fleet we.
We expect to take delivery of approximately 70, new and gently used aircraft this year, including 26, <unk> hundred 21 Nikos.
This large grade gauge aircraft fits well with our up gauging strategy and will be our most fuel efficient aircraft in our fleet with the lowest seat cost.
We also continue to accept delivery of new two <unk> three.
<unk> 39, hundreds and $3 59 hundreds.
These aircraft are expected to contribute to the full restoration of our capacity and to our goal of using his 7% less fuel per ASM in 2022, when compared to 2019.
In addition to the financial burden of Feds improved efficiency is an important step in our journey to a more sustainable future.
During the quarter, we announced actions to scale and advanced sustainable fuels, we signed an off take agreement with <unk> for approximately 75 million gallons of SaaS annually over seven years, we anticipate to start in mid <unk>.
2026, progressing us towards our 2030, 10% SaaS commitment.
We also announced a collaboration with Airbus on the research and development of hydrogen powered aircraft.
And the infrastructure it requires.
So in closing.
We are executing against our priorities laid out a capital markets day, and I'm encouraged by the momentum in our financial recovery.
I would sincerely like to thank the Delta people for everything they do every day, our people will always be our most important competitive advantage.
So with that I'll turn it back to Julie for Q&A.
Thanks, Dan April can you. Please remind the analysts how to queue up for question and then go to our first question.
Absolutely.
I'd like to ask a question simply press the star key followed by the digit one on your telephone keypad.
So if you are using a speaker phone. Please make sure your mute function is switched off to a lighter signal to reach our equipment.
Once again press star one at this time.
And well first hear from Mike Lindenberg of Deutsche Bank.
Oh, Hey, good morning, everyone fantastic.
<unk>.
I guess I wanted to focus on capacity.
So my question is Glenn.
Look you will operate at 83% of 2019 in the March quarter, and things have obviously gotten a lot better for the June quarter. I mean, just sort of think about the Amazon impact in January and February it was pretty impactful and yet we're just moving up one point sequentially and up 83% to 84%. So I guess Glen is this as much.
Driven by the fact that it's all about maintaining opt.
Operational reliability and really just running the best schedule that there is and that will drive not just a revenue premium, but overall revenue less re accommodation costs and I guess as a.
Sort of a corollary.
A corollary to that question are you are you watching what's going on over in Europe , and seeing how several European carriers are being forced to cancel because of the spread of this other variant and so you guys want to make sure that you are just well prepared and well reserved.
I think it's all of the above your I think you asked and answered your own question there did a great job.
Articulating our viewpoint is the priority is to operate reliably and the.
The other priority is to not get ahead of demand so.
<unk> is a very recent demand increase that we've seen the uptick just started about six to eight weeks ago in February late February and March and so as we get through the year. If these demand trends continue we have the opportunity to take another tick up or we could pivot.
In a different direction, if warranted, but I think it has made it very clear to us that being nimble until we get to the very end of this is the key to our success and I think we've done a very good job as a company being nimble in our offering throughout the pandemic and really been closest to actual demand. If you look back at what demand was.
Great.
Investors love the discipline.
Thanks.
Okay.
Next we'll hear from Catherine O'brien of Goldman Sachs.
Hey, good morning, everyone. Thanks, so much for the time.
Thank you.
A bit of a follow up to my question.
I've been hearing from some of your peers and other industry folks that labor supply is continuing to weigh down on the ability to ramp up capacity and then as we entered Q2 labor might actually be a bit tighter than we thought I thought at the beginning of the year, just given it <unk> driven train delays and higher attrition rate.
Firstly, I think the thing that Delta and if so did that impact your <unk> capacity plan versus your planned back Investor day at all thanks.
Hi, Katie this is Ed I'll take that we've been at this for the better part of the last 18 months getting ahead of it and we hired over 10000 people last year. We fired another 4000 people already this year. So we've hired 15000 people and we are largely where we need to be on staff.
And yes pilots.
Have a training pipeline and it will take some time.
Before pilots are fully in category, and where we want them position probably take another year or two.
Flight attendants Likewise, we're hiring flight attendants and there is a queue as to how much maybe people we can put through the training pipeline, but that's not where the real congestion is it's in the airports. It's on the ground experience is making sure. We have our suppliers are ready and positioned one thing we did last year really almost two years.
Now as we took over a lot of the.
Functions at the airport that had been outsourced catering cleaning wheelchair pushing and we have delta people imposition of we've hired delta people to do it to make certain that we get the best experience for our customers and you know what not only are people doing a much better job at it. We're also doing it much more efficiently and effectively.
And customers are appreciating it so the labor situation Youre right has changed pretty dramatically over the course of the last two years. We've been out ahead and Thats why you look at our operational stats over that timeframe, we've led the industry consistently.
That's great.
And maybe just a quick one for Glenn the NXP configuration, and a bright spot again this quarter, but what are the correct thing maybe omicron created some noise at the start of the Q and immediately see that accelerate even further as we move through the year.
I know you just reiterated your goal that you said at Investor Day for 5 billion plus contribution this year, but if we do see an acceleration from one you might see some upside to that and thanks again for all the time congrats.
I think we're always hopeful for upside of I think what we're excited about when we dissect. The spend is that you can really see the spend moving from goods to services.
Particularly increases in airline spend on the card. So those are very encouraging.
Statistics, there for us to continue to monitor as we move through the year, but I think you're really seeing that as the movement away from goods and the movement towards experiences and services.
Anything further Kathryn.
No that was it for me. Thank you so much for the time.
Next we'll hear from Brandon Glenn.
Yes.
Hey, good morning, and thanks for taking the question.
Glenn you provided an update I think you said domestic corporate travel 70% recovered in international 50% in March can you just give us some insight into how those bookings are shaping up here early in <unk> and then second question how much do you think the international testing requirement is holding back <unk>.
<unk> across the Atlantic right now.
Well first of all answer the second first I think that is the next leg up that we see in the demand set and we think we have very quite robust demand, but there certainly is in the minds of some consumers. Some hesitancy to go abroad, and risk being caught not being able to get back because of catching COVID-19 . So.
Hopefully we can see that rolled back in the next few weeks here I think there. We are hearing good signs from Washington will see hopefully that comes out here and that would be one of the final things that we would need in place to for us to really say that COVID-19 is in our rearview mirror, so hopefully that happens.
And then your second question was what I'm sorry.
I think when you were talking about I think domestic corporate travel at about 70% International at about 50 in March can you give us any insights into how that's improving in <unk>.
Absolutely and I think the one that we're really excited about right now is trans Atlantic business, which for the first time last week crossed domestic restoration in terms of volume and so that was a big big improvement from where we had been just six or eight weeks ago. So it does look like Trans Atlantic business is returning robustly.
And thats very exciting for us and I think what we are also excited about is the survey that we just got back that's a 90% expect to travel more in <unk> than they did at <unk>. So I think when we report to you next quarter, we will see both of those numbers continuing to move up and of course, the Big question Mark is when will Japan and China reopening.
That's probably not in this next quarter and hopefully sometime this fall, but that's a little bit a little bit further out what I would say is when these countries are open business returns quickly so to Korea to Australia, we've seen very rapid increases in business demand as those countries have opened.
Thank you.
Next we'll hear from Helane Becker of Cowen.
Thanks, very much operator, thank you for the time everybody.
So just a couple of questions on the cost side of the equation I know theres not a lot you can do about fuel.
But on the labor cost side to attract people I mean, I think Ed you said youre not going to have to hire that many more people this year.
To retain people are you finding that you have to raise salaries more than the 4% that you've already slated for me first.
Hi, Helane no we're not one of the great things about our brand is throughout this period, we've been able to attract and bring in the 15000 people that I talked about with fundamentally not having to change the scale we've used.
And select high high price markets. Some sign on bonuses very very judiciously, but fundamentally know our scales are intact and a 4% increase may 1st helps.
That's very helpful. Thank you and then my other question is like kind of unrelated but.
I think.
I like it with Glenn you mentioned that you saw a.
Record cargo number in.
March I wanted to say so.
So I'm, just thinking about what youre carrying and what youre seeing in airfreight rates.
Why you think it was so strong.
And whether that can continue into the second quarter.
Yes.
Like 18 questions in there Glen.
Well clearly we know about supply chain is trying to catch up and clearly airfreight has been one of the ways to relieve that pressure and so we've seen air freight rates continue to move in a favorable direction I'd say the one caution I have right now is the closure of China and China has been of course, a very strong strong market for us in the car.
<unk> area and with Shanghai closed and we're literally not flying to China right now until Shanghai Reopens, So that's going to weigh a little bit on cargo revenues as we move forward, but as that does reopen then you can see that pent up demand for goods that need to get shipped out of China and potentially even another leg up so I'd say, we're in a temporary.
<unk>, a pause right now because of the issues in China, but I expect as China comes back online and I don't know the exact date I don't think anybody does but we could see an even stronger demand coming out of that alpha Goodyear last year off a great year last year.
Yes.
Helpful. Thanks, Thanks team very helpful.
Conor Cunningham.
M partners.
Hi, everyone. Thanks for the time.
You really invested in the operation over the years and just the customer experience in general maybe this is a follow up to what Mike was getting too just theres been a lot of.
Meltdowns around you and I'm just curious on how you as Delta go after those customers.
That have maybe been displaced by another airline I think about like Boston. This past weekend, just curious on how you attract them and make them permanent Delta Delta passengers.
Well, thanks, Conor I think the again throughout the pandemic, we have as Glenn said in the most disciplined and the return of supply.
And have probably have a better matched to demand than anyone else and it's been interesting to watch because a lot of airlines have taken different different approaches over the course of the last two years.
Fundamentally our commitment and our promise to our to our customers to give them a great safe on time reliable experience and we continue to invest more and more in the premium categories of our aircraft of our service elements and the quality of our.
The service that our people drive and it speaks for itself.
We are we take a very humbly.
The various awards we've won over the course of the last couple of years I think we've expanded.
Our leadership during Covid.
We had the most to lose and I think we gained the most over that timeframe candidly.
And we're building we've got some really nice momentum as we're bringing.
And opening new airports, who got the new Laguardia opening in June which will all be very pleased to be the new elas that we cut the ribbon on with America four weeks ago, and the new International facility in Seattle and continued expansions in Salt Lake and improvements in Minneapolis. Many other places so we're going after the customer experience.
On the ground as well as in the year with a with a heightened focus on premium that's about all we can say.
Myles Walton UBS.
Thanks, Good morning.
There are some concerns about looking for potential consumer softening through the course of the year and obviously youre not seeing that in <unk>, but I was wondering Ed if youre if youre looking for signals of softening in your business do you think it would sort of start to show up first in a lower uptake of premium products.
It show up first and maybe leisure roads demand drying up there or or somewhere else. Maybe you can just talk to what you would look for in your watchtower.
Well youre right miles, we're not seeing it but at the same time, we acknowledge our crystal ball is only as good as the next 60 to 90 days or whatever we have in terms of a kind of a decent build of bookings on hand, and certainly the next 60 to 90 days look good as evidenced by our guidance. So we expect a very strong summer coming through that.
Consumer health of the consumer is something we spend a lot of time talking about and watching and looking at but there is there is other elements at play here with respect to the consumer one is that consumers have not been traveling over the last two years. So this is a category that they're.
Zing as Theyre looking at where their spend is going into travel you see it in credit card data you see it all across the board and this is not just drew a delta this is true within our industry.
Hotels are seeing it rental car companies et cetera people are looking for experiences.
Seeing a pretty significant shift coming out of goods and retail into experiences and services and Thats and thats not just the fact that people haven't having traveled they've also save money.
As they've accumulated.
Meaningful.
Cash and distress discretionary income.
For what they have been doing over the last couple of years. So we feel pretty strongly that we're going to continue to see the strong demand extend beyond just the normal summer.
Serge but into the fall at the same time, we're watching it I think the place we'd be we'd be looking for as pricing resistance when we start to see.
Pricing, particularly with with high input costs like fuel starting to challenge, our our demand and supply assumptions then we'll we'll take the next step up for now.
Feeling cautiously bullish about the summer.
Great. Thank you.
Okay.
Next we'll hear from Duane <unk>.
Evercore.
Hey, Thanks, good morning, Thanks, good morning.
Glenn if I could on your commentary on yields improving sequentially through the balance of <unk>.
Assume that is based on what Youre seeing in advanced book yields.
Can you just comment on like when you add it all up not just advanced book yields, but also bookings how would you characterize kind of your visibility into May June .
Versus a normal time is also running ahead I mean, its not its not as snarky as a question as it sounds I guess my question is as you.
Offer higher fares out into the future are you seeing any.
Pushback are you are you seeing any hesitancy.
Well.
I'd say, absolutely not as a matter of fact, we've been trying to catch up to this robust demand in our quest and the revenue management team, who I think has done an excellent job in managing the surge is to not run out of seats as we get towards the peak travel summer travel season. So we want to have reasonably priced off.
Or as in market.
Right up today of departure, and we don't want to be running out of seats, having said that we are running ahead in terms of absolute bookings domestically in the rest of the quarter and so we're actively managing that down a little bit. So that we don't run out as we get very close to departure date. So I hope that gives you some color as to what we're looking at right now.
But we're right now in the in the motive trading traffic for yield.
That's helpful and then.
I don't know if we've seen enough of.
And off peak environment, yet here in to Q, but can you contrast for US how are you seeing sort of peak yield improvement realm.
Relative to 2019 versus off peak yield improvement are you starting to see any.
I guess torque on off peak. Thank you.
No as a matter of fact, when you look at where we are booked ahead. We have had the offer is slightly ahead.
In peak days and peak travel periods versus off peak and we've seen the consumer demand that you would expect travelers moving into the off peak period, but at higher yields. So you know really really encouraged by what we see as we head into late spring and summer and we'll see how it actually materializes, but everything we see right now.
Points to a very very robust travel through the through the remainder of spring and summer.
Thank you Glenn.
Okay.
Okay.
Next we'll hear from Jamie Baker of Jpmorgan.
Yes, good morning, Glen a question on premium revenue what percent is sold at the initial time of ticketing.
As opposed to during the window between ticketing and departure and how has that changed over time.
We have moved more and more too.
Ticketing time of ticketing.
So I would say and I don't have these numbers I can follow up with you, but my guess is that there are around 70% is done at time of ticketing and about 30% post purchase.
Andrew <unk> of Bank of America.
Okay.
Andrew Your line is open you can release your mute function.
Hi can you hear me.
Yes, we can hear you now.
Glenn I know, it's really early on in the corporate travel recovery, but we've been hearing from some hotel companies.
That the corporate booking curve is just shortens tremendously I think <unk> been mentioning under two weeks versus.
Normally 30% to 45 days are you seeing a similar shortening in the corporate booking curve and I guess are you beginning to see any other changes to the way corporate's behavior as the recovery unfolds.
Yes, I would not say that we're seeing that same phenomenon or corporate booking seems outside of 21 days now it seems.
To be trending similarly to inside of inside of 'twenty one so.
I would say we are receiving very normal booking curves in terms of business and I think what we're seeing and this is more anecdotal than you see in the type of transaction you have People's reason for traveling for business is slightly different we are seeing an increase in meetings.
An increase in groups and I think that may be why hotels are seeing.
Further out it's because it's harder to get big blocks.
Okay.
Thank you.
Okay.
April can we please go to the next question Savi <unk> with Raymond James.
Hey, good morning, everyone.
So just a quick follow up to Brandon's question earlier. So just if you look at the Q2 guide what's the level of demand recovery that's reflected in that God is Mr. Mann.
The business demand is in the low seventies.
Okay got it and then just.
Switching a little bit to the the regional airline segment you started a transition in that in that segment getting back to that in 2012.
And I can accelerated here in during Covid I was just curious if you kind of view the kind of the pilot supply issues in the regional industry are facing are those kind of transitory or is there a need to revisit the regional airline strategy at Delta.
Thanks, Savi, yes, there is certainly a challenge to the business model that the regionals are experiencing.
And you're right. We've we've moved pretty aggressively to transition out of the lower category. The 50 seat regional jet over the last 10 years or so as a result of that we have less lift coming out of the regional in terms of aggregate shells.
Pilot requirements and staffing obligations than.
Some of our other.
Competitors in the industry.
We're down to less than 150 seat regional it's probably meaningfully less at the present time and we don't we don't intend to grow that it's going to continue to drop.
It's a reset period.
Thank everyone is dealing with their partners in a certain way certainly it's driving up cost on the on the pilot side too.
The pilots in the regional category until we're ready to bring them up to the main lines, but fundamentally it's a it's still a good business for us we've got a considerable investment in it and we're going to do our best to continue to grow it.
But not at the lower the lower category, we're happy with our 76 seat product and to the extent, we can get more of those we would.
Next we'll hear from David Vernon of Bernstein.
Hey, good afternoon, Eric good morning.
And I appreciate the color.
The incremental cost guidance I think we get back into what that number looks like in absolute dollar terms.
Could you give us some sense of what are the what are the risks and upside downside risks to achieving that cost guidance do we need international to really kind of reopened on some set schedule or do you feel pretty good about where we're going to be and then as a follow up as you think about 22% to 23 given that we've hired ahead as Ed had mentioned Resourcing the network, bringing people and get them to <unk>.
Training up.
How should we think about that incremental cost in absolute dollars for the next 5% of capacity relative to what we're seeing in the back half of this year not looking for guidance I'm, just trying to get a sense for how we think about or how we should be thinking about that cost build from 'twenty two to 'twenty three given the hiring ahead of demand recovery that we've seen a delta.
Yes.
The.
So when you think about it.
Related to it the biggest risk when you think about the step up and step function change that we talked about an opportunity ultimately comes back to capacity and as the ASM set we fly and.
So that is and you saw that when we talk about the first half were two points lower.
Capacity and that translates to us to be higher than where we thought we'd be so put that out. There is that is the biggest element of it.
That's two thirds to three quarters of it the other quarter of it is driving the efficiency efficiency and the aircraft to deficiency in the airports and the facilities and the people, but the biggest one is related to the restoration of assets. We're building this to be back restored and it's the progression of that.
So we think when we said the multiyear framework. If you go back to that capital markets said, where we'd be this year would be seven to 10, we'd be low to mid single digits as it relates to 'twenty three and then very low single digits as it relates to 'twenty four that again has you're stepping up to being a 100% risk.
In that period of time, so you really have at that point in time, all that transition expense that we've talked about is now has been sunset.
Through the restoration now you're getting a real benefit of running at a 100%.
Ravi Shanker of Morgan Stanley .
Thanks, Good morning, everyone, just a follow up on the.
Previous commentary on the on the <unk> transition, obviously <unk> guidance is pretty strong is it fair to say that the kind of extreme peak that we saw in the back half of 'twenty, one juxtapose by extreme trough between add kind of that is in the past. So when you think of it.
During breaks to similar traveler transition, you're not going to see as much of a trough in between those peaks.
Is that because of corporate.
What does that mean for your network reliability and your ability to run the airline.
Well I think one of the issues is moving out of co.
Covid, we probably will not run the peaks as picky as we had in the past in order to create more efficiency in the network on a year round basis.
I think we've come up with.
<unk> instituted a lot of plans in that.
And that space to try and ease out some of the peaking is of our operational schedules and I'll give you. An example is.
Historically pre Covid, we operated about 20% more wide bodies in the summer than we did in the winter. So when you think about.
The way that we utilize our pilots or flight attendants in those categories.
Net.
They had very easy rosters in the off peak and very tense.
Tenant rosters in the peak and what we've been really working on during Covid has to come out of this with a.
More D season lives network. So we can improve the asset utilization flatten out the peaks and buildup on the troughs and we spent a lot of time thinking about that and creating it and I think as we get to the fall and winter schedules, you'll see how we've dealt with it I don't want to talk about that right now in detail, but I think.
So the real things that we're looking at doing.
Next we'll hear from Steve.
Jefferies.
Hi, Good morning, guys and thank you for the time.
From Jefferies.
Can you maybe talk about your pricing strategy in this inflationary environment, how you've managed stock how that's changed and then.
Have you seen the impact of load factors I think you said in an earlier question demand hasn't changed but obviously for Q2 the guidance that capacity.
16% below 2019, so maybe can you talk about how you're managing.
Yeah, I mean, we don't talk about future pricing as a rule. So we'll stay away from that subject and I would just say that when you have stronger demand you clearly have opportunities on the margin to improve the offer.
In the marketplace and see if consumers respond to that and that's really what we've been doing as fuel prices have continued to run up and demand continues to remain strong so.
Those levers alone have gotten us to where we feel very comfortable about the <unk> revenue environment.
Okay. Thank you.
Joe did you have another question I'm sorry.
Okay.
That will wrap up 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 question.
Everybody April if you wouldn't mind reminding everybody about how to ask a question and we have a lot of energy in the room, if we want to keep the pace of these moving we will try to knock out as many of these as possible.
Sure. Once again, if you would like to ask a question simply press the star key followed by the digit one on your telephone keypad also if you are using a speaker phone. Please make sure. Your mute function is turned off to a lighter signal to reach our equipment.
And we'll first hear from lastly, Joseph.
The CNBC.
Hi, good morning, everybody.
I was wondering if you could talk a little bit about the union drive of your flight attendants theres been a lot of attention on other companies like Amazon and Starbucks and do you expect your flight attendants to unionize this year and what is the impact on Delta do you think it helps or hurts. Your recruiting and then my second question are you still charging $200 a month additional for unvaccinated employee.
Health insurance.
You.
Well Leslie on the on the question with respect to Labor and Union. This is not new at Delta.
<unk>.
The unions for many many years.
Looking at the Delta employees and.
Have been actively seeking their support.
So we on the one hand, absolutely support our employees to make the best interest the best decision that sit in their best interests, but at the same time, we know historically that the employees of Delta has been best served by having a direct relationship with their leadership. So we don't.
This is not anything new or different its really more of the same so I wouldn't I wouldn't read too much into what the what's going on at Amazon or Starbucks or other places and try to equate that to delta, it's a very different situation.
And we've dropped as of this month, the additional insurance surcharge.
Given the fact that we really do believe that the pandemic is moved to.
Seasonal virus and <unk>.
Any employees that havent been vaccinated.
It will not be paying extra insurance costs going forward.
Thank you.
And next we'll hear from Alison Sider of Wall Street Journal.
Hi, Thanks, so much.
Curious what your take is on all the discussions of consolidation among some of the midsize Airlines.
Without asking you to comment on any specific deal that may or may not happen.
How would that sort of change the competitive landscape. If you did start to see more consolidation amongst some of these carriers.
That's a really good try but we're not going to bite on that either.
Okay.
Thanks.
Next we'll hear from David <unk> of associated press.
Hey, good morning.
Glenn You said you were hearing good signs as you put it about Washington, perhaps.
Rolling back to pre departure test requirement, what exactly are you hearing and from whom and I guess I'd ask the same question about the mass mandate.
Maybe I'll turn that over to Peter our Chief legal officer.
We're obviously engaged throughout the administration and I will tell you that.
We are getting a strong indication that the testing the pre departure testing.
We will be phased out in the near future, which is of course quite encouraging.
Dawn Gilbertson USA today.
Yes.
Hi, good morning, two questions.
First for Glen Yes, there are a lot of questions about pricing resistance and just a quick check of your fares for July shows $500 round trip from Atlanta to Maui $750 from L. A X toward lando.
There are a lot of American is going to be priced out of vacations. This summer and do you see any backlash. That's my first question and the second one is Ed you mentioned the top of the call about travelers patient.
Where are you still seeing issues and how how long before and then how long will travelers put up say with long waits on the phone and other ways to reach you guys. Thank you very much.
Sure.
We haven't seen a lot of resistance to the price points that we have in market and our goal is to have reasonable price points in market up to day of departure and.
As we head to the peak there are going to be constraints on peak days and so as you shop around if youre looking for lower fares you have to be flexible in terms of which days you'd be willing to fly.
As we sit today, we have a load factor cushman versus where we sat in 19. So we have a higher percentage of our total seats already booked which is of course, putting a little bit of pressure on the ones. We have remaining to sell in terms of increasing the offers on the margin. So my advice to travelers to book early and be flexible.
Fares are your most important.
Attribute but what we're seeing more and more is that that is not the only attribute that quality of service and that level of service accounts more and more so I hope that answered your question.
And Don on the question.
To reservation, specifically, that's that's what you were asking.
We have continued.
Very very aggressive drumbeat of hiring in reservations to the point, where now over 50% of our total employees and reservations have been hired just within the last couple of years and we're continuing to grow that and as our people are getting more experience and more comfortable.
The service levels continue to improve and we've also invested aggressively in our digital self service options, where several years ago, maybe only 20% of the reasons people would call us could they could actually manage it digitally through self service channels today, that's over 60% of the reasons people call us.
Can be handled digitally and people are continuing to expand in the adoption of self service is growing substantially obviously as demand has surged.
That continues to put more pressure on the apologize international is opening that puts more pressure on the phones, but on balance our phones are generally.
<unk>.
We allocate based on the level of service and the medallion category they get they get responded to.
Quick is spot on average the wait times and the phones are less than 30 minutes.
Make one.
The number of transactions that you could actually complete on digital is in the low eighties. The adoption rate is in the low sixty's, so continuing to push people and.
Since you have a direct line to the consumers encouraging continue to encourage them to seek a digital answer first rather than calling and waiting on the line because most.
Only very complicated transactions now can't be handled digitally.
With that April we have time for one final question before we turn it back over to Ed. Please.
Absolutely. Our final question will come from Nora chassis of New York Times.
Hey, Thank you I just had two questions on fuel.
First I was wondering if you could speak to the effect of the higher cost of fuel could have on fares and the other is that.
If there's anything more you could add about sort of the world. The refinery is playing and helping to offset that.
I'll take the first question and Dan can talk to the refinery.
It's really a function of demand.
To the extent, we we continue to see very very strong demand for our products our ability to push on.
Not just the increased cost of fuel, but all of our cost inputs.
We're shortening the time lag between when.
When we experienced that cost and when it's in.
In the in the pricing structure, and but it's it's really a function of demand more so than than any decisions that we take on our own.
And then related to the role of the refinery as it relates to managing fuel.
20% of the refinery production is jet and jet fuel goes to our New York operations. So it is a direct hedge as it relates to the spreads associated with that.
So it really 100% hedge as it relates to how we run our operations and what it provides the.
The rest of the 80% production is as diesel and gasoline as you go through that process and so that provides a partial hedge related to the correlation of diesel and gas.
And so by and large they were finally, when you think about an aggregate relates to spreads it's about a 40% to 50% hedged as it relates to our fuel cost.
Thanks, and just on fares.
Last month at the Jpmorgan conference, Glenn given an estimate that delta.
To ultimate need to recover I think it was 15% to 20, each way on a $400 round trip average.
Are you able to kind of provide any update on that kind of figure given the higher fuel costs now.
This is Ed again fares are all over the place they move every day and fuel prices move every day, so we're not going to track to.
Any specific comment I think you heard in our remarks that we were actually.
Seeing in pricing today are real time.
Coverage for where fuel costs are.
And at this time I'll turn the call back over to our presenters for any additional or closing comments.
Well. Thank you all for joining US we are thrilled with the performance of our team. The progress we've made in terms of serving the demand that is returning we've been waiting for two years to say this and we're ready to go customers are ready to go and we look forward to a very very soon.
<unk> spring and summer season, and look forward to speaking to you all.
In July when we can report on the second quarter results. So everybody have a good day, thanks for joining us today.
That does conclude today's conference. Thank you all for your participation you may now disconnect.
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Yes.
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