Q3 2022 Delta Air Lines Inc Earnings Call
Okay.
[music].
Good morning, everyone and welcome to the Delta Airlines September quarter 2022 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 a reminder, today's call is being recorded.
I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.
Thank you Cody and good morning, everyone and thanks for joining us for our September quarter, 2022 earnings call joining us from Atlanta today are CEO, Ed Bastian, our president Glen Hauenstein, Our CFO, Dan Jenkins and we'll open the call with an overview of Delta's performance and strategy Glenn will provide an update on the revenue environment and Dan will discuss costs in our balance sheet.
After the prepared remarks, we will take analyst questions and media questions. We ask that you. Please limit yourself to one question with a follow up so that we can get to as many of you as possible. After the analyst Q&A, we will 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.
Is 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 Dot Delta Dot Com and.
With that I'll turn the call over to Ed well. Thank you Julia and good morning, everyone. We appreciate you joining us today.
Before we begin I want to recognize all of those who have been impacted by hurricane G and F E on ups, including Delta employees, who live in the affected communities. We have contributed $600000 to the Red Cross relief efforts and activated our delta care for them to take care of our employees, who have suffered loss Delta will continue to.
To support our people and our communities recovery and rebuild it.
The demand for air travel remains very strong and that is reflected in today's results and outlook.
We generated earnings of $1 51 per share in the September quarter.
Our results Mark clear financial progress as we report the highest quarterly revenue in Delta's history three.
3% above the third quarter of 2019.
And $1.5 billion of operating income generating a 12% margin.
This was our second quarter.
Second quarter of double digit operating margins and importantly, we achieved these results despite record high fuel prices and on capacity only 83% restored relative to 2019.
Our customer satisfaction scores are running meaningfully above 2019 and loyalty to Delta has never been stronger with record Sky miles acquisitions and American Express results ahead of our plan.
I wanted to zero, we thank the delta people for their great work in delivering these results and restoring our operational reliability through a very difficult summer.
Delivering safe reliable and on time service for our customers remains our top priority.
No airline does this better than delta.
We saw strong consistent improvement in our operating metrics throughout the quarter.
For example, excluding the impact of Hurricane and we ran at 99.9% domestic completion factor in September and month to date in October with 90% arrivals on time.
To put that in context out of 120000 mainline flights over the last 45 days. We had just 108 cancellations in total performance that is even better than our pre pandemic levels.
And year to date Delta remains the number one industry position amongst our peer set and completion factor and on time arrivals.
After two years of delaying travel it is clear that consumers are getting out and traveling the world business travel continues to recover in line with our expectations as bookings have improved after labor day and companies reconnect with their teams and their customers.
And while consumer spend on experiences is growing.
Wine industry revenues are still $20 billion to $30 billion below the historical trend against GDP, highlighting the significant opportunity still ahead.
We expect our December quarter revenues to maintain this momentum and we will be 5% to 9% higher than 2019.
With strong demand, we expect earnings per share of $1 to $1 25.
On a 9% to 11% operating margin.
While we faced numerous challenges and headwinds this year Delta has demonstrated its resilience.
Ahead of our plan that we laid out for you last December on profitability and cash flow and we expect to be free cash flow positive in 2022 this year.
Our priority over the next six months is to prepare for full network restoration by next summer.
Consistent with our original plan, but always conditioned on continuing demand strength.
This will support another meaningful step up in profitability and cash flow next year as we stay on our path to earn over $7 of EPS and $4 billion of free cash in 2024.
We will provide more details on our outlook for 2023 and progress towards our long term targets at an investor meeting that we will host December 14th in New York.
As we think about our long term plan, we had some really important achievements this quarter.
Building on Delta's Global network and partnerships, we strengthened our network with the recent approval of our joint venture with lead time.
Together with Latam, our JV work will have the number one market position in South America.
To support our best in Class network, we continue to reshape our fleet and recently placed an order for 100, Boeing 737 Dash 10 aircraft.
We're also expanding the power of our loyalty ecosystem with the recently announced Starbucks partnership, bringing two premier brands together and this week, we announced a strategic partnership with an investment in <unk> aviation aligning the industry's best airline with the innovation leader in developing E VTOL.
<unk> shares our vision of providing customers a premium experience. We're excited to help support <unk> long term vision of faster more reliable and more sustainable transit to the airport.
In closing, while we are mindful of macroeconomic headwinds the travel industry is experiencing a counter cyclical recovery.
Global demand is continuing to ramp as consumers shift spend to experiences businesses returned to travel and international markets continue to reopen.
Demand has not come close to being closed by a hectic summer travel season.
At the same time industry supply is constrained by aircraft availability regional pilot shortages and hiring and training needs with record high fuel prices.
And increase in cost of capital the hurdle rate is rising for incremental capacity across an industry, that's still restoring its financial condition post pandemic.
Against this backdrop and.
Coupled with meaningfully improved asset utilization at Delta, we are uniquely positioned to grow our earnings and cash flow in 2023.
At the same time, we will remain nimble and have the tools to manage through any changes in the overall environment.
Over the last decade Delta has structurally improved in significant ways, creating a trusted consumer brand built on a foundation as the most reliable airline globally driven by the very best professionals in the industry and I truly believe that we are positioned to come through this period as a stronger airline than ever before.
With that let me hand, it over to Glenn who can provide more details on our commercial performance.
Thank you Ed and good morning, everyone.
Want to first thank our employees for their hard work, restoring our operations and delivering for our customers during a very busy summer travel season.
Demand for travel on Delta remained strong investments in our products Airport service and reliability are reshaping customer perceptions and driving record satisfaction scores.
Brand affinity supports our revenue premium to the industry.
And we're making meaningful progress against our multiyear commercial strategy September .
September quarter results reflect momentum in premium products and loyalty supporting continued diversification of our revenues.
This quarter a record 54% of our total revenue was generated by premium products and diverse revenue streams.
We expect this to grow to 60% by 2024.
September quarter revenues of $12 8 billion is a new quarterly record and 3% higher than 2019 on 17% less capacity.
Hurricane Irma impacted revenues by approximately $70 million with the impact evenly split between the third and fourth quarters.
Total unit revenues finished 23, 4% higher versus 2019, improving three point sequentially as international demand accelerated.
Demand was strong throughout the quarter with premium revenue growth outpacing main Kevin by 10 points.
Delta premium select is performing well ahead of our expectations as we expand the offering to more of our international network every day.
We see continued runway ahead with the return of business.
Travel complementing strength in premium leisure.
Our growing loyalty base drives higher margin revenue and support the continued growth in our valuable co brand relationship with American Express.
Sky miles acquisitions are running 40% above 2019 with over 60% of our passenger revenues now generated by Skymiles members.
In the third quarter record spend in strong acquisitions on our Amex co brand cards resulted in $1 4 billion of Amex renew Mauritian.
This was 37% higher than 2019, and we now expect 'twenty to 2020 to renew Mauritian of $5 5 billion further reinforcing our confidence in achieving our $7 billion target in 2024.
Other revenue streams continue to perform well with cargo revenue up 27% and MRO revenues up 4% versus 19.
Business travel continues to improve we expect corporate sales recovery in the December quarter in the low to mid Eighty's at a system level.
Importantly, less recovered sectors like banking consulting and consumer services have all seen double digit growth post labor day, helping bring New York largely in line with domestic system.
We have growing confidence that while there will be changes corporate travel will fully recover and increase worth cliffs workplace flexibility is creating new travel patterns.
Our recent corporate survey validates our perspective with nearly 90% of accounts expecting their travel to stay the same or increase as we move into the fourth quarter.
That optimism is also reflected in GBT as recent travel survey, where 80% of respondents expect travel volumes to increase in 2023 compared to 22.
On the consumer side domestic revenue remains well ahead of 2019 with international consumer revenue now fully restored.
International is being led by the Trans Atlantic where revenue was 12% higher than 2019, an 89% capacity restoration.
Specific was the most improved to entity in the quarter and generated the highest unit revenue growth. We are encouraged by how the Pacific recovery is progressing led by strong demand in our hub in Korea and to Australia.
And we expect continued improvement as Japan reopens.
Turning to the December quarter bookings for travel and spending on our co brand cards continued to show healthy trends.
We expect our revenue compared to 2019, we will continue to improve in fourth quarter up 5% to 9% on 8% to 9% less capacity.
Demand for Trans Atlantic travel is extending well into the fall starting in October we anticipate flying more trans Atlantic capacity than 2019, making it the first geography to exceed 2019 capacity levels.
And while European currencies are down versus the dollar foreign yields are more than offsetting the foreign exchange impact in U S demand is driving higher U S point of sale in 2019.
October and November revenue is trending well the December month will be impacted by an elongated period between the holidays and more return traveled unusual pushed into January .
Demand for the entire holiday period, however is very robust.
Fourth quarter unit revenues are expected to be up mid teens versus 2019, as we continue to restore international capacity and increased domestic stage length.
During the pandemic and through 2022, we set out a goal to improve our share in coastal gateways to become the leading global carrier and these important revenue centers and I am proud of the team for successfully achieving this goal.
Looking to 2023, we are shifting our focus to our core hubs Atlanta, Minneapolis, Detroit in Salt Lake City with approximately 75% of domestic seat growth dedicated to full restoration of our higher margin core hubs.
As our plan progresses Delta will continue to prioritize our people and our customers and extend our competitive advantages in closing we're coming into the final quarter of the year with a healthy demand backdrop, earning the most reliable operation in exceeding our key commercial goals.
And with that I'd like to turn it over to Dan to talk about the financials.
Thank you Glenn and good morning to everyone. The September quarter demonstrated progress on our financial priorities to drive margin improvement and reduce debt. We reported a $1 5 billion operating profit and Thats on a margin of 11, 6% our second consecutive quarter with a double digit operating.
Margin.
That is on our network at 17% smaller than 2019.
Our non unit fuel cost were 22, 5% higher.
In line with guidance, excluding the impact of the hurricane on capacity.
The refinery generated profit of $192 million, partially offsetting the impact of volatile crack spreads.
Gross capex spend was $1 billion five.
As we took delivery of 11 aircraft, including five <unk> hundred 2001, Nicos, which are generating margins approximately 10 points higher than the aircraft they are replacing.
Capex was lower than our guidance with fewer delivery with a few delivery delays and we now expect capex spend of $5 7 billion.
For the full year.
We ended the quarter with $25 billion of adjusted net debt.
We repaid $1 $8 billion of debt during the quarter as we continued to manage down our maturities over the next several years. This.
This brings our debt repayment to over $4 billion year to date.
Reducing our run rate interest expense and reflecting our continued focus on returning to investment grade metrics by 2024.
For the December quarter, we expect earnings to be between $1 and $1 25 per share and an operating margin of 9% to 11%.
Fuel prices remain volatile.
With the most recent move up last week, we expect fourth quarter adjusted fuel price per gallon between $3 35.
At $3 55.
This includes a $105 million contribution from the refinery equating to a 23 set per gallon benefit.
We expected December quarter unit cost to be 12% to 13% higher than 2019.
This is a 10 point improvement sequentially and shows clear progress as capacity restoration increases from the low 80% to low 90%.
Its taken significant resources to rebuild the airline with industry leading reliability.
We are nearing the final stages with a workforce now in line with 2019.
From here, we expect further benefit from scale as we reach full network restoration and better utilization of our fleet, our hubs and our workforce.
The incremental cost to restore additional capacity as low as the resources already in place reducing unit cost.
As Glenn noted much of our growth next year will be in our lowest cost core hubs through increase mainline aircraft utilization.
Approximately 75% of our domestic seat growth in 2023 will be in our core hubs.
Including 45% from Atlanta alone.
Further between inefficiencies and rebuild expenses, we are carrying over a $1 billion of excess costs in 2022.
With the teams in place and the operations running reliable we are seeing early improvements in efficiency.
October metrics are pacing ahead of September and we expect to return to historic levels.
As elevated training and a network normalize next summer.
Achieving scale, while restoring efficiency are delta's largest CASM levers.
These are within our control.
Based on the pace of restoration and running an operation in line with Delta standard of excellence.
We know managing costs down is the best protection from economic uncertainty and it is a company wide priority.
We are progressing we are making progress restoring our financial foundation with significant profitability and positive cash flow this year.
As we fully restore our network and unit cost improve we expect another step up in earnings next year, resulting in meaningful cash flow to further reduce our debt on path to our long term targets.
We are confident in delivering a competitive cost structure.
And our 'twenty 'twenty four mid teen margin target.
In closing I want to recognize the delta entire global team for the operational improvements they delivered over the past few months.
We are on track for meaningful and well deserved employee profit sharing payments and I look forward to celebrating with our employees in February .
Now with that I'll turn it back to Julie for Q&A.
Toby can you please remind the analysts how to queue up for questions.
Absolutely. Thank you if you'd like to ask a question. Please taking by pressing star one on your telephone keypad. Once again that is star one if you would like to ask a question.
We will take our first question from Conor Cunningham with Melius Research. Please go ahead.
Hi, everyone. Thank you.
Touched upon it a little bit in the in the prepared remarks, but the kind.
Kind of land.
Okay.
Conor will get better.
So.
Conor you are cutting out can you. Please repeat your question.
Is this better.
Try again.
Okay.
Is that better.
Yes.
Okay.
You talked about the opportunity in Atlanta, and the other core markets 2023, I think that's a really powerful trend for you guys and I was just wondering if you unpack it a little bit more just.
Alright, Thank you Youre really rough math floor traffic.
You kind of prioritize the model for hub market as our other markets.
Our recovery so if you could.
Just talk about the margin profile of slow traffic in general and just how you expect that to trend into next year. Thank you.
Alright.
We sit really two priorities during the pandemic that we wanted to come through that we felt would be important for the long term strength of the franchise and one was to improve our competitive positions in the coastal gateways and we've certainly completed as we exited the pandemic and get into more.
Our own normalized demand sets.
So if you look at places like Los Angeles, where we've now taken our number one position our Boston in terms of revenue Sam in Boston, and we strengthen our position in key markets like Seattle So.
That was very important for us the other thing to do was to not lose share in our core and that was really the very tricky part.
So we went in with a share in our core hubs of about 58% to 59% when you added them all up.
And our goal is to exit at 60 or above and we did that as well. So if you think about our core being approximately 20 points less per store than the coastal gateways, which are now fully restored are actually growing.
Maintain your core hub share or actually increase it there was a lot of focus on that through the revenue management systems. So we chalk choked off what I would say is more of our traditional flow in very key markets, where delta has historically been the leading carrier, particularly in the southeast.
So as we head into and these customers are our customers are in our loyalty program.
<unk> cases, they couldnt get fares that were competitive on delta because we didn't have the seats to produce those and really as we head into 2023, our task that we've assigned our team is to get those historical high yield flow customers back on Delta and that's really our what our rebuild phase for 2023.
Is all about.
Thank you we'll take our next question from Savi <unk> with Raymond James.
Hey, good morning, everyone I'm, just curious in and to achieve those kind of goals that you just talked about on the pilot side could you detail a little bit more about what you're seeing in terms of churning bottle now from pilot staffing on the mainline side as well as maybe a question on staffing levels on the Rosemont filed.
I could take it savvy, we continue to make good progress in <unk>.
Clearing those bottlenecks and getting our pilots into into seats in categories. Every week, we're producing more and more pilots back to the operation as we said in our remarks, our goal is to be in position to have our network fully restored by the summer.
And the pilots are obviously, a big part of that.
Can you provide a little bit more color on the regional side, given thats a lot more units.
So what's happening there.
And not just about training throughput.
Is some of that kind of the changes that you're seeing on the administration in terms of.
Yeah.
Okay pilot, sometimes like that is that having an impact.
They are included to make sure you're right you are rebuilding does.
That capacity.
Alright, well clearly the labor rates at the regional carriers have moved during the pandemic and they're at significantly higher rates than they were pre pandemic I think long term conventional wisdom is that will mean that the regional fleets in the long run are smaller.
In the short run we're wanting to get to a stabilization of demand for pilots and we think that will occur sometime in 2003. These new higher rates should keep more people in place and so.
But we don't think it will be fully restored in until probably 'twenty four 'twenty five at the earliest and.
We're uniquely positioned there because we have the of course 800, twenty's, which we're delivering.
Every month or so and we've reactivated the $71 seven which were actually not in our original plan for reactivation, but we've leaned on them pretty heavily to rebuild more quickly and we think it's a better product and now with the new Labour exits at lower unit cost as well.
Yes, much lower unit costs and pre pandemic. So I think we're uniquely positioned there.
Really the only major carrier that has these a plethora of 100 seat airplanes.
We'll see what happens with the regionals in 'twenty three but we think we're near the bottom in terms of pilot availability there.
One other thing I'd add is that we have the lowest regional jet footprint in the industry. We've been on a path you know savvy over the last decade to eliminate the 50 seat regional jet we're just about there.
So we are out of that category.
Do have.
325, two class regional Jets, which we will continue to maintain going forward, but we are far less exposed than others to the some of these regional pilot shortage issue.
Helpful. Thank you.
Thank you, we'll now move on to our next question from Brandon <unk> with Barclays.
Hey, good morning, and thanks for taking my question.
Glenn I'm sure you've gotten this from a lot of investors, but obviously folks are worried about a looming recession in the U S. Just driven by rates and inflation were reminded of that again today.
But obviously your revenue guidance is pretty positive, but I do think it's a sequential decline in your yields can you talk to the components here because I know your long haul flying is coming up as well.
If youre seeing any weakness or softness across your geographies.
I think that.
It's a great question and I'm happy to explain it really it's three main factors one is international restoration continuing in <unk> as we.
Specific continues to open up and we continue to increase our capacity in the Pacific that has downward pressure on RASM domestic stages going up dramatically and at a different rate than some of our competitors all of our competitors as we head into <unk> and that's really being driven by a lot of additional flying into Hawaii from the East coast.
That we didn't have pre pandemic and.
And lastly, it's that period and the shift of the holiday return in December where December will be below trend in January will be above trend. So those are the three main factors that are driving the sequential decline and we're not seeing taking those out we're not really seeing a decline at the market level, it's actually continuing.
To be quite strong.
We don't just see any any impact yet we're looking of course vigilant looking for it and we'll make adjustments as necessary. If it does but I think Ed was very clear earlier that we think that we have.
As an industry very off trend in terms of our percentage of GDP and just getting back to that represents a huge upside to the industry.
And I guess related to that can you talk about business travel recovery in the quarter and what Youre seeing right now in the fourth quarter.
Yes, I think we.
We outlined earlier it earlier conferences that we've seen about a 10 point improvement between <unk> and <unk> and we see that continuing through <unk>.
So we're now in the low to mid <unk> in terms of revenue with traffic being about 10 points below that.
And.
That's what we see as we head into the end of the year.
Thank you.
Thank you, we'll now take our next question from Michael Lindenberg with Deutsche Bank.
Yeah, Hey, good morning, everyone, Hey, Ed I wanted to Ed I want to go back to the comment that you made in your opening comments, you said something about $20 billion to $30 billion on the table relative to GDP can you shed some light on that and are you assuming that we get back to that historical relationship are you building in some cushion there.
If you could elaborate.
Sure Mike that's an industry number as you can appreciate and that gets you closer to the historical relationship we've seen over many many years, it's a very sticky relationship we saw it.
A bit after 911, and we saw a bounce back we saw it fall during the recession, we've seen a bounce back and we certainly saw it the biggest fall ever coming back from the pandemic. So one of the things that we're seeing as such outsized demand.
For our product.
The board.
And when you couple that as well with the industry constraints that we also talked about that is also keeping the pricing.
Strong and at the same time, so whether we get back to the full 20 or $30 billion I don't know, but I think where we're gaining on it as we go.
Okay, great. Thanks, and then just a quick one Glenn on the percentage of your total revenue that ties to premium and diverse revenue streams I think we're at 54% now, but the goal is to get to 60% by 2024.
Seems somewhat conservative, but maybe youre envisioning just a much bigger pie.
As other segments of our copper like Asia Pacific and that's probably why it's taking that much longer am I thinking about that correctly or is there something else going on to that.
I think we're very very confident in getting to 60, given that we've been less restored internationally and internationally has actually a higher component of premium revenues and.
As well as the new fleets coming in.
And the continuation of growth at American Express and the non so.
I think the one that we are not confident with right now is cargo for 2024, the we've seen some.
Lower yields.
Uh huh.
That's being more than offset by the international restoration, So I don't see that continuing to grow at double digits as we head into 'twenty four but I think 60 as you've pointed out was our aspirational target as we get closer and closer to it it looks like it's.
We may need to increase that as we get closer to 'twenty four.
Very good thanks, everyone.
Thank you, we'll now move on to our next question from David Vernon with Bernstein.
Hey, good morning, guys. Thanks for taking the question. So Dan you mentioned the cost of adding incremental capacity right. Now is very low as we get through to 'twenty three 'twenty four but can you talk about how low that is relative to the average and then maybe as a follow on Ed or Glenn can you talk to the to the topic of.
Maintaining capacity discipline right, obviously, there if there's a if there's a way to unlock cost you one on market cost, but you also don't necessarily want to flood the market.
How could how would how would you suggest we kind of.
Two of the investor concerns about that tension between adding capacity at a lower cost versus potentially.
Potentially adding too much capacity and tipping over the aircard.
Okay first on.
On the cost opportunity and the incremental cost associated with it when you think about where we are this year in 2000.
And 'twenty two we're 18 points higher on a unit cost basis versus <unk> 19 in in there.
There's over nine points related to scale and the ability to put scaling going from 85% restored to being fully restored.
And that would go in at low incremental CASM in the 3% to 4% range.
And then there is another five points related to I talked about over $1 billion related to the rebuilt and efficiencies have almost half of that is rebuilt and when you think about that that bucket half of that is just <unk>.
Hiring and training intensity that we're under.
And that will as Ed talked about as we put people back in production that will sunset and then the other pieces split between elevated over time as we've protected the operation and also the reactivation of the fleet.
From that product that isn't normal run rate maintenance. So that's really where you get the 14 points of opportunity. After 18, but the incremental piece is that nine points, which is very attractive incremental growth at low CASM.
And on capacity, we are just going to continue to monitor it as we move forward in each one each market is different.
We look at it not at an aggregate level, but at a market level to ensure that our margins stay where we need them to be and so I think thats. Our has been our approach historically, that's worked quite well and our approach moving forward is that it.
It's actually a very granular thing and what we've seen as demand has come back very different.
In 2022, then it left in 2019, although the aggregates are now above where we were at 19, where people are flying and why they're flying is very different and so that's where we're going to continue to focus on seeing opportunities and capitalizing them in 'twenty three as we move forward with a rebuild.
And David if I could add to Glen's comments as you also appreciate we've been by far the most cautious about building back our network given that we wanted to make sure we're doing it reliably and we're doing it with our customers and our people in mind first and foremost.
So a good chunk of the restoration is solely that just getting back up to our normalized industry share our full capacity and utilization of the airlines. There are a lot more governors in this environment.
Capacity than ever before whether it's high fuel prices high cost of capital difficulty getting pilot staffed.
Cope with Oems producing to producing aircrafts so.
With respect to investor questions around overall capacity levels.
Feel very comfortable with what we're doing here at Delta.
So fair to say that the profitability is more important than achieving some some unit cost and market share goals.
Of course, it's always about profitability and margins and that's why I said in my remarks, I think we are uniquely positioned to do both to grow where we haven't had the opportunity to grow as quickly as others have grown.
With strong strong demand supporting that coupled with a significant unit cost benefit as we as we move forward because we already own all the assets and we already have the full staffing numbers pretty much on property.
Alright, thanks for the time guys.
Thank you we'll take our next question from Sheila <unk> with Jefferies.
Good morning, guys. Thank you from Macquarie.
Mobile I wanted to ask a big picture question on.
Industrial grew net revenues at <unk>.
Over the long term trend toward a number of factors that <unk> talked about.
I know you don't want to comment on forward pricing trends for you, but broadly about the industry.
Think that through the pandemic with the growth of <unk>.
Expansion of premium growth that loyalty products and other ships do you think that there is a.
<unk> shipped in a row airlines think about pricing and the consumer picks up right.
Yes.
We don't ever comment on forward pricing and I think what <unk> seen is that the industry has done a good job historically now in recovering the higher costs in both fuel and non fuel and I don't see anything that would indicate that that's not going to be the case moving forward.
Okay, and then maybe just a quick follow up can you just talk about the strength of the dollar versus other currencies and then how that's.
Potentially affecting international demand at all.
Absolutely Great question as we know the dollar is at historic highs right now.
Normally we would see that impacting our offshore point of sale in terms of realized fares.
But given the demand and supply balance that's existing right now in all of the international marketplaces that we serve we see that not materializing in the fare increases have more than offset.
The lower currency rates and indeed, the onshore tracking as a percent of 2019 is roughly in sync with offshore revenue. So really good balance and what we've also seen is given the strength of the dollar that outbound travel has more than offset.
But a weakness in terms of the outbound travel from the foreign point of sale. So all in all Thats been a very positive mix for us our service level, you might look at it and say that could be trouble, but for us it has not been trouble.
Delta.
Okay. Thank you.
Thank you we'll now take our next question from Scott Group with Wolfe Research.
Hey, Thanks morning, guys. So on the Amex side, five 5 billion Youre talking about going to seven 5 billion by 'twenty four how do you think about 'twenty three is it linear.
How does the downturn in consumer spending impact that trajectory.
I'd say, given where we sit right now we are very confident in the five five and we have some rate adjustments that occur in 'twenty. Three that gives you a good way to the $7 billion and then the continued acquisitions.
We have some cushion in there.
Right now.
It's not a stretch objective to get to 7% and 24 as we sit today and so theres a little cushion in there should we see revenues plateau, we're having said that we have not seen card spend plateau and although we have a record number of accounts and for US. We're also seeing record spend on individual cards right up until today. So I mean this.
Is really current numbers that we're looking at and so while we're mindful that that may trend down a little bit I think we've got some cushion in there given the strong acquisition in affinity of the brand.
Okay, and then with all the talk about the excess cost in the network right now and restoring the network.
You're in a degree of confidence.
CASM could be down year over year 23 versus <unk> 22 in.
You can maintain sort of double digit margin, even if pricing starts to moderate.
Yes, it goes back to a little bit what I talked about earlier, when you think about sequentially year over year.
Up 18 points. So our confidence is high as it relates to the 14 points that I talked about.
In.
An opportunity for clear improvement.
Because of the capacity going in 15 points alone drives over nine points of that.
The other one.
Dave you have a lot of color on is regarding the rebuild cost and those will certainly sunset and dissipate as we complete the rebuild and then I think the last one is the efficiency, which is the other half of that five point and we will get that over time, that's about to proficiency.
The workforce our resources getting more effective it certainly has helped by the operational reliability that is foundational to that as that happens and we see that the workforce.
We'll get the hours more aligned to the operations and the underlying processes that efficiencies will come through.
And Scott if I could wrap that.
When you think about next year, obviously, we're going to be bringing a fair bit of capacity into the domestic system, that's going to help with what Glen mentioned earlier a lot of our customers are priced out of our products and so we're going to be bringing more affordability open.
Opening us up to additional buckets of demand yet at the same time, the incremental marginal cost of delivering that supply is substantially lower than any any any modest price adjustments we would see.
Okay.
Thank you Dan.
Thank you, we'll now move onto our next question from Andrew <unk> with Bank of America.
Hi, good morning, everyone.
Glenn when I look at Colombia domestic passenger revenues <unk> they were up to in <unk>. They were up three.
What do you think it takes to get this domestic network growth accelerating as it is it just the capacity adds in the core hubs that you spoke of earlier on or should we just think about the opening up of international markets being the main driver of the revenue recovery over the next few quarters.
I think it's both right.
And pretty evenly distributed we have.
Our first time forever, we're actually now bigger in the Trans Atlantic in the month of October then we Werent October of 19, and with very successful unit revenues and improve profitability. There. So I think as we head through the winter its international growth, we have flattened now really starting to come online in earnest and then the.
Japan opening in right.
Right now.
As a very exciting thing for us being a historically very large carrier in Japan. So if the international marketplace are open and open without restrictions, we see robust demand and we see that continuing to be our backdrop.
We see we have good visibility now to the winter in Europe because of the Aps are a little bit longer in Europe , and so now we're thinking about the spring.
I can't imagine that.
As we get to spring and summer of next year that we don't see another robust demand because.
We did miss three years of demand for the.
The leisure travel to Europe . So people people run out of time myself included or you think gosh, how many years do I have left to do that and so I think we have.
A really good backdrop, there and then domestically. These are customers that we know want to fly Delta. These are in our core regional markets that we just weren't able to produce.
Capacity at attractive inventory levels that they would want to purchase on Delta and as we bring those down as Ed mentioned earlier as we bring those relative fair premiums down as we open up the hubs, we think that's going to be some relatively easy lifting for us.
Got it. Thanks, that's helpful and just wanted to follow up from an earlier.
Earlier question is with regards to the improved training pipelines that all that Ed mentioned earlier.
Look <unk> been very consistent about carefully building back the network by next summer, but if you wanted to would you have enough pilot availability and enough labor to accelerate that work restoration nothing that you you will I'm just trying to get a sense of where you stand just in terms of the pipeline, but the training training backlog.
Thanks.
You can expect our network rebuild to be disciplined it's going to steadily grow, but we're not going to fall in the trap. We were last spring, where we pushed ourselves too hard.
So we learned from that we're not going to accelerated faster than we are ready to deliver.
Okay. Thank you.
Thank you, we'll now take our next question from Jamie Baker with Jpmorgan.
Hey, good morning, everybody I'm, Glenn you've commented a couple of times on corporate recovering, but looking different.
We can expand on that but also include leisure and just a couple of examples looking at Jpmorgan employee patterns Friday meetings are increasingly difficult to get so most of our employees are coming back Thursday nights, instead, I'm seeing people leave earlier for Thanksgiving since they know they can work on the road.
I'm just looking for more examples of these type of shifts and more importantly.
Whether revenue management and scheduling have to evolve to take advantage of it.
I think they already have.
And I think as I mentioned earlier that the demand sets are very different than they were in 2019 in terms of places people are going in terms of times theyre going.
And we're making those adjustments I think one of the more interesting things as you mentioned Monday Sunday night outbound Monday morning, outbound used to be the peak, that's now bleeding into Tuesday out Tuesday back Thursday, so some shorter trips midweek.
It's bleeding into people.
Taking mixing business and leisure so I know myself I went to Paris last week for meetings and I spent the weekend for leisure.
I, probably would have just come back so I think we see that we see in the holidays with people not having to necessarily be in the office as regularly as they did before the pandemic, we see people stretching out the holiday so.
Sunday Night Monday morning, Sunday Night returns for the.
Sunday after Thanksgiving was historically the highest revenue day, we had in our network. That's now a little bit lighter and we see that travel moving into Monday, and Tuesday returns.
Yes, and we've been making those adjustments along the way and I think.
Pretty successfully.
I think it's pretty exciting right is that it's coming in aggregate, it's coming back differently, but it's coming back even stronger okay. Thanks for that and quickly for Ed So.
Mark and I have been doing quite a bit of work on Latam.
You referenced it before now that the GBA has in place can you update us on the partnership I mean, how have your forecast changed because of their restructuring.
Well as the industry dynamic in South America, how should we think about the contribution that delta going forward.
Just an update there would be appreciate it thanks in advance.
Sure.
A couple of things that have changed one is you know they've also worked through the very difficult restructuring and there is still not out of the core process, though they expect to be out.
Sometime next month, so we're anxious to see them out and thats going to provide them some additional.
Opportunities to start to grow and really take advantage of the powerhouse they become as well as the substantial reduction in cost as well as balance sheet.
The reductions on debt that they that Dave.
<unk> been able to achieve through the bankruptcy bankruptcy process.
We just got the ATI from D O T.
We're excited about that so we haven't really been able to talk in three years to them at a detailed level about the JV itself. So those meetings are beginning literally as we speak.
<unk>.
It's a little bit of a delayed response, but there is nothing in there that we laid out.
Three years ago, when we announced the investment in Latam that many less excited for four I think if anything we're going to have an accelerated impact there the competitive balance in South America is less intense as a lot of local airlines Scott got hit by the pandemic pretty hard.
And you look at that when you look at what we're doing with aeromexico in the same time to you.
We see a lot of growth potential for delta as well as the JV.
Okay. Thanks for the color I appreciate it take care everybody.
Thank you, we'll now move onto our next question from Duane <unk> with Evercore ISI.
Okay.
Hey, Thank you most of my questions have been asked but.
Maybe one for Glen on seasonality and sort of getting back to normal seasonality, which some other carriers have have referred to can.
Can you just talk about which regions if any are sort of back to normal and maybe contrast that.
Mastic with with some of the international regions, which are probably outperforming sequentially.
I would say there is a new normal on all of this.
Well, we do start to see seasonality patterns reemerging.
We're not as present in the early stages of the rebuild.
Theyre not as acute maybe as they were pre pandemic. So we had a fantastic September to Florida absent of the hurricane.
Which you wouldn't have thought if you look at September which is historically one of the worst months for Florida, you Couldnt buy a ticket to Disney we had some people who were on break here and they said they would.
Wanted to go to Disney with their families and they couldnt buy a ticket.
<unk> closed out and so I think we've seen this shift.
And as fare airfares have increased and as hotels have increased and the whole people are also moving to the shoulders, a little bit more because they can take advantage of the fact that on the margin, it's a little bit less expensive and they have more flexibility with their work that they don't necessarily need to be in the office on those days. So I think yes, there are definitely.
Things that are reappearing in terms of more traditional seasonality.
Also there are a lot of things that are offsetting that muting, it and making it a little bit less pronounced as it was pre pandemic.
That's helpful and then maybe just one for Dan.
Given the move in rates.
Any high level thoughts on.
Pension gains versus the interest expense then.
Any particular pieces of debt that youll need to roll.
In 2023, and how we should be thinking about that thanks, thanks for taking the questions.
Yes, certainly.
As it relates to the debt stack, 17% of our debt is variable and.
The size of that relative to our cash position, our cash position to outsized. So as you have increasing rates actually interest income will outpace interest expense.
Meaningful through that period of time.
On the pension.
You have both the when you think about it rates reduce your liability change your interest expense those are fairly neutral as youre going forward.
Certainly change in your asset returns.
Versus your expected performance and given how that end.
Debt markets and equity markets have moved.
Underperformed the expected target rate. So you smoothed those into earnings over a 20 year period, and then you earn off of lower rates, so that would create a headwind as.
As you think about going forward, we'll talk more about that in December we had that stepping down.
Somewhat but not to the degree that it will but interest expenses ahead as we've been ahead on on managing down our our debt levels and ahead on that our interest expense is coming in better than our interest income will be better which will be a partial offset to that.
I appreciate the thoughts.
Thank you, we'll now move on to our next question from Ravi Shanker with Morgan Stanley .
Great Good morning, everyone.
Just wanted to confirm something that I heard you say about.
The holiday season being extended in that.
Pushing.
Demand into January can you unpack that a little bit to kind of talk about how much that impacted your <unk> comps versus 2019, and also did you see something similar over the summer into the fall.
Some people who may have been priced at a traveling over the summer alright, I was traveling in the fall.
No I think it's mostly the fact, just a calendar shift of where the returns are and so I think thats and we think it's about two points of sequential decline from.
Our 23, 5% to 17 about two points of that is a shift of.
Some of the returns of the holiday into January .
Understood. Thank you.
We will now go to our final analyst question.
Thank you, we'll take our final question from Helane Becker with Cowen.
Alright, thanks, very much Chris Cushing man here I appreciate the time.
Here's my question as you think about the shift in mix that you've been talking about not just this quarter, but most of the year.
How should we think about the importance of loyalty you've talked about the increase in Skymiles cards.
And.
And the spend youre seeing but.
Think that loyalty is shifting.
Kind of away from that business travelers to the leisure traveler so how.
How should we think about that going forward.
Well Helane I think at a macro level is that whatever your purpose was.
The redemptions.
The Caribbean at the end was always for the leisure travel and so as people continue to see our brand evolving and want to become involved with it whether or not it's for business or for leisure.
We've seen the opportunity to continue to grow the program itself at record pace, which is very exciting and I think a real testament to the brand strength and all the hard work that Delta people put out every day and now it's our job to take that brand strength and turn it into.
Profitability and of course, we do that through using those as prospects for our American Express card, but we're also increasingly making our ecosystem broader I think just yesterday, we had a very exciting announcement about partnering with Starbucks and linking our programs together and I think creating an exciting.
Dynamic ecosystem.
It is the cornerstone of our loyalty program, which is of course based on the fantastic airline that Delta runs every day is really the base of it but we are very excited about where we can take this over the next five years in terms of expanding that loyalty platform to be more than just delta as an airline.
Thank you that's very helpful.
Alright, well that will wrap up the analyst portion of the call I'll now turn it over to Trevor Trevor band Center, our managing director of Enterprise and lead our communications to start the immediate question.
Thank you Julie Cody as we transition to the media Q&A. Please remind all the reporters on the call the process for joining the queue, we're going to try to get to as many questions as we can in our remaining time.
Absolutely. Thank you once again, if you'd like to ask a question. Please signal pressing star wanting your telephone keypad again its star one if you'd like to ask a question.
For just a moment to allow everyone an opportunity.
Once again, please press star one if you'd like to ask a question.
Okay.
Thank you once again, please press star one if you'd like to ask a question.
Take our first question from Mary <unk> with Bloomberg News. Please go ahead.
Hi, Thank you very much I wanted to first get a quick clarification. When you were talking about.
The regional capacity being constrained continuing to be constrained.
And thus your capacity being constrained by the pilot shortage.
Thought I understood you to say you don't expect the full restoration at the regional level until 'twenty four 'twenty five at the earliest I wanted to make sure I was hearing that correctly and whether youre talking about just delta or if you're talking about the industry there.
Well I can't speak to the industry I can speak for Delta.
Yes, you got it right, 24% to 25 is when we think we will have the utilization back to historic levels on all of them, but we have contracted.
Okay and my second question was.
In terms of.
During the pandemic, where you had a lot of leisure travelers, who were flying opting to buy up into premium.
Because a lot of them were empty are used to seeing that same thing.
Seeing a lot of them buying up or do you have you seen that pull back now and not happening quite so much.
It is strengthening as we get come out of the pandemic. So we're very excited and I think we highlighted in the call that.
Our recovery is being led by our premium products and premium products or restoration of its 10 points ahead.
Coach.
Kevin and basic economy, so very excited about people getting used to this people enjoying it and intend to repurchase is over 70%. So you see the customers coming back for more of this as well.
And have you dropped the number of basic economy fares that you offer per flight.
Total net fluctuates every day based on demand and supply so in general it's been trending lower but that could that could reverse itself today or tomorrow. So.
It's not something that we actively manage it as kind of a.
A daily occurrence.
Okay. Thank you very much.
Okay.
Thank you and once again, please press star one to ask a question.
Thank you we'll take our next question from David Slotnick with TPG.
Hi, good morning, Thanks for the question.
I am wondering just with the growth in co brand spend.
Card acquisitions and everything are you seeing more.
Numbers, just year over year and year over 19 meeting medallion.
Status through meeting the higher levels of status.
Absolutely and we want to continue to evolve our program.
Premium for our most premium customers and as you well know we announced some changes for the 24 program earlier this month, which was really designed to ensure that.
We had the correct people we were the most generous as you know also during the pandemic and extending benefits. So we actually have.
Seen an incredible increase in the number of our most premium customers.
And.
But our intent is to make sure that everybody who is a premium customer hasnt really premium experience. So we've got to balance that off.
Thanks, and then just consider the capacity cuts this summer.
And then the capacity discipline that we've seen going forward I'm wondering if you have any thoughts on.
Just the outlook for the holiday season, what we're going to see in terms of operational reliability.
We will.
Deliver the type of experience for our customers that they expect which will be continuing to Rhonda just a very very strong operation.
One of the things that Glenn talked about earlier.
Shifting travel within the holiday period itself, and I think youre going to see a more normalized flow than you would typically do holidays tend to be very picky on the highest day rates.
Later on some of the less.
Yes.
Lower lower travel days with.
With travelers, having a lot more flexibility and mobility relative to work.
I think youre going to see a busy period for the Thanksgiving week throughout the week and Thats going to help us operationally a bit as well managing managing flow and I think you'll also see that over the Christmas new year break as well.
Great. Thank you very much.
Thank you we'll take our next question from Alison Sider with the Wall Street Journal.
Alright. Thanks, so much I guess, just kind of thinking about the economy broadly just curious from your vantage point, where do we think the economy is like are we headed towards a recession, but it maybe one where travel is more resilient than it's been in the past.
I guess.
You guys have a pretty big picture view from where you sit so just curious for your thoughts.
Hi Ali.
We mentioned in our remarks that and I really do believe this so the airline industry not just delta is in a counter cyclical recovery because we are still.
Building back.
Where we were and so the amount of supply that's in the market probably has already taken into account somewhat of any any recessionary risks, we're not operating at delta anywhere close to what we used to operate in the past and that's why the demand for our products and the pricing for the product has been so strong.
Our Crystal ball is good for 90 to 120 days after that it gets a little a little murky or advanced bookings don't go out too much further than that in large numbers.
What we can see and what our big corporates are telling us is that the travel sector of the economy is going to be very strong through the quarter and into the new year. So that's the best we can I can't speak for the broader economy. I know there is there are some pretty significant macro shifts going on and spending.
Out of goods and into services, which we are beneficiary of of course, we contributed.
The last two years to the other side of that and we're glad to see people back on the road.
And then if I could ask one more just curious how youre thinking about share repurchases like.
You can sort of see that becoming a political issue already I'm. Just curious how much is sort of the pushback, we've already seen from from certain lawmakers and labor groups, how much that factors into your thinking about that.
Our sole priority at Delta is to make sure that any excess cash that we're generating as is used to pay down debt and we acquired a meaningful amount of debt during the pandemic and we want to get our investment grade rating back as we've talked so over the next couple of years that will be our and beyond by the way not just in the next call.
For years that will still be the top priority for any excess cash and of course, we will also be using our cash to continue to invest in the business and invest in our people.
That's where the cash is going.
I don't see any share repurchases happening here at Delta for.
For the foreseeable future.
Thanks.
Thank you we'll take our next question from Leslie Joseph with CNBC.
Hi, good morning, everyone.
This doesn't have been putting a lot of effort.
<unk> software, it's a premium airline and Theres a lot of buy up into the premium cabin longer term do you see a need for basic economy anymore. And then just second question, how much bigger with the airline be if it didn't have.
Was it up to date on pilot training hiring and how many aircrafts okay.
Basic.
Basic economy is not a hard cabin it is a.
It's an availability of a fair and we want to keep that in place.
A very effective tool.
We haven't used it as much historically, because we've been so hold but as we get to a more normalized environment, there probably will be more basic economy and <unk> available in 'twenty three than there were in 'twenty, four and we created that because of.
The way that the ultra low cost carriers price their products, where they don't show you all of the add ons. They show you a very low <unk> and then add on everything from carry ons too.
And so we wanted to have a relatively deep content product. Although it is still far superior to the product that you buy on the <unk>. It doesn't have all the perks and we upgrade ability that the higher fare structures do and it's a very effective competitive tool.
But as I have mentioned earlier.
The fare structures are there and they're either available because we're not selling out on airplanes or they're not and so that's the way we've created it and it is not a cabinet in and of itself where the premium products are actually hard cabins, there comfort plus or delta premium select or Delta, one, which actually have physical attributes as well as.
As well as the other components so.
On your second question.
This summer we operated roughly 15% below.
Where we were in the summer of <unk> 19, and we said our goal is for next summer to close that gap and have our network fully restored so I think thats fair.
Ballpark number of 15% that doesn't mean, we're going to a 15% more people over 15% more planes.
It really just utilizing the people we already have because we are already at pretty close to 2019 staffing levels.
And the fleet, we have has taken a pretty significant utilization hit.
We've reduced supplying and bringing you back so it's really using the assets and the people we already have more efficiently that's going to generate a meaningful amount of that of that growth.
Okay. Thank you.
Just use most of their vouchers and credits.
<unk> got during the pandemic or are they still sitting on a lot of that was lucky if you'd have any detail on how much or how many.
Well with the value we.
Greg we don't release, but we don't release any details, but there's still we have very long dated.
Exploration on that so nothing is going to expire until the end of 'twenty four and there is still a sizable number of credits out there.
Thank you.
Thank you we'll take our next question from Edward Russell with Scott.
Hi, Skip today I wanted to ask what Delta's plan is if the if Congress did not extend the waiver for the 737 Max 10.
That's <unk>.
<unk> ended the year.
We I was asked this question on CNBC. This morning, as I said there is a plan of.
Of course, when we made the decision to buy the 10.
A lot of conversations with Boeing around that specific question, because it's a big part of our capacity and we want to make certain that we're not going to be left without without an alternative. So we do have a plan b. We're not discussing what that plan is but there is a plan to do with Boeing in the event it doesn't get certified that said.
We remain optimistic it will be certified.
Great. Thank you very much.
Thank you, we'll now take our next question from Dawn Gilbertson with Wall Street Journal.
Hi, Good morning, I wanted to ask you about the <unk> latest proposal on honesty transparency you guys. Another airline Glasgow 2014, what is your take on this latest proposal.
I know you haven't filed the formal comment yet and secondly.
What do you think the chances are of this coming through thank you.
Okay.
Good morning, Don It's Peter Carter.
What I would say in response to the proposal is we think that customers do have access to fee and pricing information today.
On the Internet.
We think our pricing is transparent we will be providing formal comment to the Dod because one of the challenges with the rule as proposed is the way they're viewing transparency theyre expecting okay.
Carrier to provide at.
A moment of making the surge every single potential.
Fee or price without regard to who's actually searching so it may be a fee that's not relevant to the consumer which of course could create quite a bit of confusion for consumers. So we'll be providing that input to the Dod.
And we hope that they obviously see that rule is something thats unnecessary to impose.
Thank you very much.
Thank you Dawn and we have time for one final question.
Thank you we'll hear next from Kelly Yamanouchi with the Atlanta Journal Constitution.
Kelly Your line is open.
Can anyone unable to hear you. Please check your mute function.
Alright hearing hearing no response.
<unk> will follow up with Kelly later, but I think that is going to conclude our call. So thanks to everybody for listening and participating.
Thank you and that does conclude today's conference. We do thank you all for your participation you may now disconnect.
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