Q4 2022 Delta Air Lines Inc Earnings Call
Good morning, everyone and welcome to the Delta Airlines December quarter, and full year 2022 financial results Conference call My.
My name is Matthew 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.
If you have any questions or comments during the presentation. You May press star one on your phone to enter the question queue at any time.
I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.
Thank you Matthew and good morning, everyone and thanks for joining us for our December quarter, and full year 2022 earnings call <unk> 20.
29 from Atlanta today are CEO , Ed Bastian, our President Glen Hauenstein, our CFO Dan Janson.
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 costs in our balance sheet.
After prepared remarks, we will take analyst questions. We ask that you. Please limit yourself to one question and a follow up so we can get to as many 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 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 noticed 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. Thank you Julia and good morning, everyone. We appreciate you joining us today.
Earlier Delta reported our full year results, including our December quarter earnings per share of $1 48.
On record revenue that was 8% above 2019 levels, we generated a 12% operating margin our third consecutive quarter of double digit operating margins pointing to the strength of our recovery.
I want to sincerely. Thank the 90000 strong delta team for their outstanding work in delivering these results and serving our customers during a very busy holiday travel season.
In my opinion 2022 was the most difficult operational year in our history. It was capped off by severe winter storms over the holidays I am grateful to our employees for their great work to recover the operation, while keeping our customers and each other safe.
They are the reason our brand and customer loyalty is at the top of the industry.
Our December quarter earnings per share and margins exceeded guidance, marking a strong close to a year, where we made significant progress regarding.
Restoration of our financial Foundation.
For the full year, we reported earnings of $3 20 per share on $46 billion of revenue, we delivered pretax income of $2 7 billion an.
An improvement of more than $6 billion over 2021.
Delta's profitability led the industry.
And in our nearly 100 year history 2022 was our seventh highest result, even with a $1 billion loss in the first quarter.
We were pleased to report positive free cash flow for the year, which funded $6 billion of capital invested back into the business and we repaid close to $5 billion in gross debt.
Sharing our success as a longstanding pillar of deltas culture, and I'm proud to announce that we will be paying our employees $550 million and well earned profit sharing come Valentine's day.
2022 came in ahead of our plan on revenue earnings and cash flow demonstrating strong execution in the first year of the three year plan, we laid out into 2021 capital markets day I'm incredibly proud of the team for rebuilding the world's best performing airline and importantly, we're not just building back.
We're continuing to improve and extend our competitive advantages.
Delta's brand continued to strengthen in 2022 with record performance from our loyalty and co brand card programs and customer satisfaction scores consistently perform above pre pandemic levels.
Through the year, we've hired and trained 25000, new employees now representing over a quarter of the total company.
Our team showed their operating talent and resilience as we retained our number one position in completion factor on time arrivals amongst our peer set despite having so many new team members. The Delta brand is centered on our safe reliable and exceptional service and our operational excellence was recognized by cerium last week.
Which named US yet again, the most on time airline in North America.
We fortified our international partnerships in 2022 position positioning us for profitable international growth in the years ahead.
As detailed last month, expanding our international margins to domestic levels as an important opportunity for delta and the years to come.
We've invested in the customer experience at every stage of the travel journey from the continued refresh of our fleet with next generation far more fuel efficient aircraft to generational airport rebuilds and technology investments that are providing our employees better tools and our customers a more seamless experience and.
We continue to attract and partner with leading brands to grow our sky miles ecosystem and further enable customers to use their skymiles turn travel and beyond.
Heading into 2023, our momentum continues at the consumer electronics show in Las Vegas, just last week, we unveiled the next phase in our vision to connect with Sky.
Starting February the first Delta will be the first major U S Airlines, who provide fast free unlimited Wi Fi to all through a free skymiles accounts. This.
This will be available on nearly 80% of our U S system to start and growing every week by the end of next year, we expect to deliver this service seamlessly throughout the rest of our international and regional fleets.
And we debuted delta sync, which will create personalized experiences and engagement opportunities on the free Wi Fi portal, we're partnering with great brands like T mobile and Paramount plus as well as building on our long standing relationship with American Express to bring to life, our vision of a more connected and personalized travel.
Experience as a trusted consumer brand Delta continues to differentiate the premium flying experience building loyalty and supporting our ambition to transcend the industry move.
Moving to our outlook at our Investor event last month, we provided full year 2023 guidance for revenue growth of 15% to 20% year over year earnings of $5 to $6 per share and free cash flow of over $2 billion.
We are affirming that guidance today, and introducing our march quarter outlook, which Glenn and Dan will provide in detail for.
For the March quarter, we expect to deliver a 4% to 6% operating margin and improve our pre tax income by more than $1 billion compared to the same period last year. Importantly, we are embedding the assumed impact of all labor cost increases throughout our guidance metrics. We are pleased to have reached an agreement.
Payment in principle with our pilots, but out of respect for the process, we will not be discussing the details of the agreement on today's call.
As I outlined last month, I've never seen a more constructive backdrop for the industry demand remains strong as passengers return to the skies and industry returns to the long term trend to GDP all while supply constraints continue I believe our industry will see tens of billions of dollars of incremental demand.
In the next few years coming out of the pandemic.
As the industry leader with a proven strategy and strong execution track record Delta is well positioned to build on our momentum in the new year, we're confident in our ability to deliver significant improvement in earnings and free cash flow in 2023.
Distant with the plan, we laid out last month and we are on track to deliver our 2024 targets of more than $7 of earnings per share of $4 billion.
Free cash flow.
As always we remain mindful of the macroeconomic trends and have demonstrated that we have the tools to effectively manage a chain changing economic climate in.
In closing Delta delivered in 2022, outperforming our plan and leading the industry operationally and financially we are uniquely positioned to grow earnings and cash flow in 2023, 2024 and beyond the power of our premium brand continues to grow and with the very best people in the industry.
Be more excited about what's ahead for delta and our customers. Thank you again with that I'll turn it over to Glenn.
Thank you Ed and good morning, everyone I couldnt be prouder of what the Delta people accomplished throughout 2022, and I want to congratulate our teams on their much deserve profit sharing payout there'll be receiving next month.
For the full year, we generated revenue of 46 billion, a $19 billion improvement year over year.
We delivered record December quarter, and full year unit revenues sustaining our revenue premium to the industry of more than 110%.
For the 12th consecutive year Delta was named the number one corporate Airlines and business travel News survey as we continue to invest in our network and product offerings.
And through the year, we made significant progress on our long term commercial strategy to deepen our network advantages expand premium revenues grow our loyalty ecosystem and further diversify our revenues.
Starting with our network strategy, we focused on solidifying our positions in coastal gateways, while protecting our core hub shares we secured the leading positions in both Boston and Los Angeles, while increasing local market share in our core hubs.
Premium literal year with paid load factors higher than 2019 and yield growth outpacing main cabin, while basic economy made up less than 5% of revenue half of the 2019 levels.
We expanded our delta premium select rollout during the year.
Customer response has been positive in the cabin performed better than our initial expectations.
Our rollout continues in 2023, and we will have this product on 84% of our international Widebody fleet by this summer.
Our loyalty program continued to exceed our expectations with record Skymiles acquisitions in 2020% to 42% higher in 2019.
As Ed noted, we're partnering with leading companies to expand our loyalty ecosystem, increasing the value of our program for customers and deepening customer engagement with Delta.
With an expanding ecosystem and free fast Wi Fi, we expect continued growth in our royalty base.
Our partnership with American Express delivered record results with full year renew Mauritian a $5 5 billion ahead of our initial target and positioning us to deliver over $6 5 billion in 2023 and over $7 billion in 2024.
Cargo revenue was a record in 2022, and we expect to grow cargo revenues in 'twenty three as increased capacity offsets the cargo yield environment.
With strong execution across our business lines, a record 55% of revenue was generated by premium products and diverse revenue streams, we're confident in our path to exceed 60% by 2024.
While not without challenges 2022 was a strong year for Delta and we exited the year with momentum.
During the December quarter, we generated revenue of $12 3 billion, 8% higher than 2019 on 9% less capacity.
We saw revenue recapture at the end of December that offset the impact of weather disruptions in our system around Christmas.
Fourth quarter unit revenues were 19% higher than 2019 with strength driven by consumer demand throughout the quarter.
Corporate travel demand was steady through the quarter with corporate domestic sales, 80% recovered to 2019 levels.
We expect March quarter revenue to be up 14% to 17% higher versus 2019.
On capacity approaching full restoration, we expect March quarter unit revenues will be up 15% to 17% compared to 2019, including a two point impact from higher stage.
Based on how we're deploying our network our stage length is expected to be up five points compared to 2019, resulting in a higher restoration of ASM and seats.
This is a temporary dynamic that is unique to delta among major carriers stage will begin to normalize relative to 2019 and relative to the industry as we rebuild our core hubs later this year.
For 2023, we expect to grow revenues, 15% to 20% year over year as we fully restore our network and further diversify our revenue streams.
Consumer demand remains healthy with advanced bookings significantly ahead on both yield and load factor for each month of the March quarter compared to 2019.
And in our recent corporate survey results were positive with 96% of respondents expecting to travel as much or more in <unk> and <unk> led by financial services.
In the new year bookings reflect the survey optimism and are accelerating.
International revenue continues to be Red led by the Trans Atlantic we are seeing robust demand across our expanded footprint in Europe and expect this spring and summer to set new record revenues.
Latin America is performing very well led by Mexico, The Caribbean and Central America with the <unk>.
Every and deep South America now accelerating.
And we are pleased with the early results from the launch of the laptop JV and I'm excited about the opportunities for us in 2023 and beyond.
In the Pacific we're expected record first quarter profits in both Australia, and Korea Korea, as our multiyear international transformation delivers unanticipated results. Japan is also building momentum and we expect a very strong summer there.
And lastly, with China, indicating its reopening we expect to rebuild capacity in line with demand starting later this year.
In closing we delivered on our key commercial priorities in 2022 supporting a significant improvement in our revenue while strengthening our competitive advantages.
We have started the new year with great momentum and are well positioned to extend our leadership position in the years ahead.
And with that I'll turn it over to Dan to talk about the financials.
Thank you Glenn in 2022, we made significant progress restoring our financial Foundation, we delivered earnings of $3 20 per share with pretax income of $2 7 billion.
Ahead of our plan.
Operating margins of seven 8% was driven by three quarters of double digit margins we.
We improved profitability and a strong advanced bookings.
We generate $6 $2 billion of operating cash flow, enabling continued investment in our people our fleet our partners and technology.
After gross capex of $6 billion, we generate $244 million of free cash flow.
We ended the year with liquidity of $9 4 billion and adjusted net debt of $22 3 billion.
Our adjusted net debt to EBITDAR was five times and our after tax return on invested capital was eight 4%.
We finished the year strong reporting a $1 4 billion operating profit on a margin of 11, 6% for the December quarter.
Our non fuel costs were $13, 4% higher than 2019 in line with guidance, excluding a one point impact from the severe winter weather in late December .
Now moving to guidance as Ed mentioned, we are including all expected labor rate increases and our guidance metrics, including non fuel CASM.
As it relates to our pilot if they vote to ratify the proposed agreement by March one pay rates would be retroactive to January one.
This results in a three point impact on our non fuel unit costs for the year and in each of the quarters.
Including this in the full year guidance. We gave last month brings our 2023 non U feel unit declined to 2% to 4% on a year over year basis.
Delivering a competitive cost structure is a key financial priority Delta.
Delta has led the industry and investment in our people and our customers and this is embedded in our outlook as as a full reset of regional costs and inflation.
As we move through the year.
<unk> and efficiency will drive a decline in 2023 non fuel CASM versus 2022.
While approaching 2019 capacity provide scale benefits, we are still bearing the cost of fully restore our network to the peak summer levels with a continued emphasis on operational reliability. During this ramp up we expect to complete our rebuilt by the second half with the majority of our flex fleet re.
<unk> and training levels for our pilots reverting to historical levels.
This will allow a significant shift of resources from training to production.
Given us the confidence in our ability to deliver a fully restored network during the peak summer period, while enabling our operating teams to drive efficiency in the back half of the year.
One unique item within the year as the pacing of our core maintenance as we prepare to step up the network for summer flying with the first half year over year.
Higher than this.
And then lower in the second half of the year.
While these dynamics impacting early part of the year, we expect <unk> non fuel unit costs increased 3% to 4% on a year over year basis.
We expect the year over year unit cost to progress improve through 2023, as we complete our rebuild and elevated maintenance activity while.
While driving efficiency across our operating groups.
This cadence is consistent with our full year outlook for non fuel unit cost to decline, 2% to 4% year over year.
With our outlook for revenue, we expect the March quarter operating margins to be 4% to 6% and.
And earnings of <unk> 15 to <unk> 40 per share.
For the full year, we are readying our outlook for earnings of 5% to $6 per share and operating margins of 10% to 12% delivering a two to four point.
<unk> of margins, including over one point impact from higher profit sharing.
We expect our full year free cash flow to be more than $2 billion with gross capex of $5 5 billion.
In 2023, non operating expense is expected to be $470 million higher year over year.
This results from noncash pension expense, increasing over $550 million year over year due to broad market.
Declines more than offsetting the reduction in interest expense from repaying debt.
We plan to pay cash for our $2 4 billion in debt maturities, while opportunistically, reducing debt with excess liquidity tool.
It will bring our leverage to three to three five times target for 2023 and remaining on track for 2024 adjusted debt to EBITDAR to be two to three times.
Returning to investment grade metrics by 2024.
While continuing to reinvest in the business remains our focus for capital allocation.
In closing.
I want to thank.
Add my thanks to the Delta team and people for their hard work. This year, we outperformed the first year of our three year plan and we enter 2023 on track to generate a significant improvement both earnings and cash flow.
We remain confident in delivering on our 2024 target of $7 earnings per share and generating over $4 billion of free cash flow.
With that I'll turn it over back to Julie for Q&A.
Thanks, Dan Matthew can you please remind the analysts how to queue up for questions.
Certainly at this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask them about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality we.
We do ask that all Q&A participants please limit to one question and one follow up question then reenter the queue.
Once again, if you have any questions or comments. Please press star one on your phone.
Your first question is coming from Catherine O'brien from Goldman Sachs. Your line is live.
Good morning, everyone. So good to be back.
So maybe I'll start with a question on the capacity bottlenecks that you mentioned in your prepared remarks.
So I know Delta itself has made a lot of progress on hiring and getting to a large wave of training, but there are other constraints outside of the airline and the chief control with aircraft delivery slower than planned and aviation stock infrastructure, Phil still fairly strapped at airports.
Now I know the answer will be.
Different for Delta than some of your peers, who are further behind in their pilot hiring.
How do you think about the timeline to remove some of these bottlenecks across the industry.
Arent directly to airlines control and I guess really what I'm asking is do you expect there to be continued tension between supply and demand over the medium term just how do you think about those rolling off thanks, so much.
Thanks, Katie and welcome back.
Yes, I think is summed it up well and I mentioned at the capital markets day last month.
While we.
Delta and I think the industry broadly we provide to our our capacity.
Expectations, I think expectations have quotation marks around them and they do feel as still a little bit more aspirational than then because there are a number of things that are outside of our control.
We're doing our very best to get our our people in place. The hiring is strong we have the team assembled.
Need to get them through principally our pilots through the training the limited training devices and schoolhouse that we have available to us.
We expect by the summer that we will be in position to have not just.
Get through most of that bottleneck, but then the large resource drain that it takes with respect to all of the training that our existing team has to do to train our new plays whether Thats pilots flight attendants mechanics at the airports reservations it doesn't matter where in the system you said.
Yeah.
It's hard to see I can appreciate that if you're sitting in your chair, but it's very meaningful here on the airline and then by summer we hope at Delta that we'll be able to be back a 100% I also used the term fragile last month when speaking about the aviation system as we continue to return to the skies and I think we see.
Just in the last few weeks a couple of illustrations of that for agility. So we're going to continue to do our best to make sure. We don't fly in excess of our capabilities. So that we can deliver a great product for our customers and provide all the tools and support for our employees.
That's great. So helpful and if I could maybe just for my follow up Glenn I know, 75% of this year's growth out of your core hubs can you help us think about RASM performance at your core hubs versus the rest of your network or are even better since we know it's lower cost capacity capacity can you help us think about the margin differential on adding capacity courthouse.
Competitive coastal hubs. Thank you so much.
Sure I think we outlined that at the Investor day.
Core hub.
Is about <unk>.
10 points higher than <unk>.
Coastal hubs and 10 points in margin.
And about 20 points in terms of RASM and I think.
As we continue to build our core hubs out we will see expense one of the things. We're counting on is access acceleration of profitability in those core hubs and driving efficiency through getting them back to scale as we mentioned at our Investor Day, we are already at scale and our coastal cities that was our priority just because we thought it was a once in a lifetime opportunity during.
The pandemic and.
So that was our priority to ensure that we came out in a good position. There I think we're very happy with the positions we have.
We've established there and now it's back to the core where we think it's actually easier lifting.
You very much.
Thank you. Your next question is coming from Ravi Shanker from Morgan Stanley . Your line is live.
Thank you good morning, everyone.
And you said in your prepared remarks that you've never seen a more constructive industry backdrop black.
Black Swan events aside what do you see are probably the biggest risks are things to watch out for the industry in 2023 is.
Is it your previous response on kind of infrastructure and things Thats outside of your control or kind of what are you looking at.
Well thanks Ravi.
That's right I think the most important thing at Delta. We can do is to continue to restore confidence of back to the traveling public we know the traveling public wants to travel.
Outsized amounts that we see continuing and we have to do our very best not to.
Disappoint them as they return to the skies I think 2022 was very difficult in that regard.
<unk> clearly exceeded our ability to supply it for lots of ways, including in the service levels of the exceptional degree of service that we want to provide our customers and I think we all in the industry or to our customers to make sure. We don't fly in excess of our capabilities. So I think thats the single biggest thing.
<unk> that we all need to pay attention to them.
So I wouldn't call it a black Swan risk other than just trying to stay within our.
Within our capability.
Understood and maybe as a follow up maybe for Glenn can you just unpack your thoughts on corporate and then near term a little bit more I think thats, obviously, one of the big focus areas for investors right. Now you said, 96% of corporate No survey.
They're going to be kind of flat to up in the near term, but obviously macro is really choppy.
Some of the hotel would be kind of coming into January .
<unk> down.
What are you seeing in terms of your booking curve kind of any signs at all on cracks in corporate demand and given where macros.
We've had our highest post pandemic days in terms of corporate booking over the last week or 10 days. So we see a very strong <unk>.
<unk> holiday.
Demand set.
In a kind of a strange period, right now because year or 19.
This is MLK weekend MLK weekend was next weekend. So I think once we get past <unk> will give you a better view, but we're counting on it to stay in that roughly 80%.
That's not the survey would indicate that it's better than that so I think thats. If it does materialize is better than that that's upside for our forward looking forecast.
Very helpful. Thank you.
Thank you. Your next question is coming from Scott Group from Wolfe Research. Your line is live.
Hey, Thanks, good morning.
So Glenn if I look at the RASM guide for Q1 down about 6% interest in absolute terms from from Q4, So that's worse than normal.
For the Q1 seasonality any color on that and then when do we really start to see this hub tailwind show up in RASM.
Right.
Quarter over quarter, we have a two point increase in domestic stage. So.
And that again is unique to Delta and we think that's about one point of pressure from the 19 down to the 16. There is another international mix length of haul changing internationally as well so that's another point.
And so then we're thinking about this as really being sequentially about one point difference to get from a 91% restoration all the way up to 99% restoration.
Sure.
Core for core same source door sales were actually seeing first quarter being stronger than the fourth quarter with that sequential improvement from February being better than January and March being better than February . So I think we're sitting in a pretty exciting place right now as we as we look at how 23 has started.
Bill.
The rebuild of the core.
We wish we could do it sooner again I think our priority has been to make sure that we can sustain industry leading operations.
And so that's going to work throughout the year I think when we talked about at Investor Day, We didn't really give you color that this is not a first quarter event, while theres some rebuild domestically in the core.
Major rebuilds, we expect for example, Atlanta, which was about 85% last year in terms of seats to be close to 95% by summer and then a 100% by fall.
Minneapolis close to Atlanta, and Detroit, a little bit behind so we're working on that that's our priority and we will get there we believe by fall, but it really doesn't impact significantly the first quarter to quarter.
Okay, and then just for Dan just help bridge us from CASM up three to four in Q1 to down.
Down 2% to four for the year, you mentioned maintenance how much does that hurt Q1, how much of that then help the back half any any color here. Thank you. Yes, certainly there is two pieces in their maintenance being one.
It's about a two point headwind in the first quarter first half.
Driven by.
Engine induction levels in scope of work related to that as you get into the back half of the year. That's at two point to three point benefit year over year. So a five point progression from beginning to end and then the second piece of that is related to the completion of our rebuilt.
And those rebuild costs stepping down most of our rebuilt over 85% of that cost is in the first half of the year you don't have that in the back half of the year and as Glenn just talked about.
One of the enablers that efficiency is as we restored our core hubs. These low cost low CPA most cost competitive as we put that capacity and that drives efficiency of our assets and our workforce.
That is five points so the five points related to that in the five points related to maintenance of 10 point progression as you go through the year from the beginning to the yen and that drive that continuous cadence improvement as you go through the quarters.
Helpful. Thank you guys.
Thank you. Your next question is coming from Sheila <unk> from Jefferies. Your line is live.
Thank you and good morning, everyone.
I wanted to maybe ask about just the profitability of that Bob.
Margins and are guiding to Q1 with point of FX and given the full year guide how do we think about margin progression throughout the year.
It will.
Part of it is tied to.
The cost progression.
And.
As you see that progression being up and I said, you got about a 10 point improvement in cost from beginning to add that will drive your expansion of margins throughout throughout the year as you progress.
Along with what that Glen talked about which was the commercial rebuilt related to the core.
So youll see its progression certainly Europe or here the improvement versus the comp that we're coming off drives a material improvement here in the first quarter over $1 billion pretax a big part of the step up in earnings year over year, but Youll also see improvement as we go through the year.
That's helpful. And then just maybe one follow up related to that just market margin progression.
No I think Andy you mentioned.
Margin that that graph that being up I think it was Australia and Korea.
Wanted to items, we should watch for as you will see that international recovery help margin.
Our international recovery is well underway and if you think about Europe will actually be bigger in the trans Atlantic. This year than we were in 19 by about eight points in terms of seats early advanced bookings for that are incredibly strong. So we're very pleased with how that's developing and so what's really left are reopened.
Is China.
And Thats.
We're not going to get ahead of ourselves in terms of capacity to China, we're going to be very mindful to see how demand warrants and how this opens up but that's the big question Mark I think in terms of international.
For 2023 that we don't know yet I think the others. We're very confident that we have a good path forward that will get us back to 19, new bigger and better margins and I think as we talked about at Investor day that multi year progression on international.
Actual elements here right that next generation fleet that we're at reconfiguration of more premium seats with Dps better cargo capability.
Stronger partner network all of those are systematic drivers not only in this year, but really on a multiyear base and if you go back in our history not to go into too much detail, but we.
We had a multi year restructure of our Asia capacity and that has been a drag on earnings for many years, leading up to the pandemic and now as we come out of that we feel like our restructuring is really done in earnest and so we should still see really good improvements in specific profitability moving forward.
Great. Thank you very much.
Thank you. Your next question is coming from Jamie Baker from Jpmorgan. Your line is live.
Hey, good morning, everybody Glen it's been awhile since we visited the topic of domestic and international RASM premiums.
We know what those metrics were pre COVID-19, there's obviously been quite a bit of international out people. Since then a bit of domestic change and of course, the premium market at least is stronger than what I was anticipating in 2019, how should we think about the magnitude of delta RASM premiums going forward and any related.
Timing.
Yes.
I think right now we're sitting probably at a low point relative to the industry given our stage length. The way we rebuilt the airline and I would expect to gain a couple two to three points domestically back as we get towards the back half of the year on on how we rebuild the airlines. So that's how I view it.
I am pleased with at.
At a macro level or at an individual flight level I am pleased with where we are and when you add it all up.
To sum total it looks like you're taking a step backwards, but I think it's really the way we've done it rather than a structural book away from Delta or anything that we're losing customers. So I think we're in a good spot for that.
Okay. Thank you and second for Dan as we think about the order book, particularly on the wide body side, considering the OEM backlogs that Katie welcome back by the way I've mentioned in her question, how should we be thinking about the cadence of capex in coming years.
We tend to model you on a normalized basis.
But you know one of your competitors is on the Capex holiday. Another right now is on a capex vendor.
I'm just trying to assess whether 2024 represents a potential peak in cash flow in light of future aircraft needs.
To get steady as it goes we've been very consistent and very deliberate very disciplined.
Related to Capex, we certainly had this period, where this past year in 2022, there was some catch up in there we are continuing to do that here in 2003 for what was deferred for a couple of years, but I think as you exit 2020 or your normalized now at the same time, we're getting bigger as an airline.
Growing from that perspective, but.
<unk>.
A good foundation for us as it relates to where we're stepping off in 2020 for Jamie. This is Ed I'd agree with Dan's comments don't forget we are exclusively taking Airbus equipment over the last couple of years in the next couple of years pretty much and we'll.
I'll be back with the Max starting in 'twenty five.
So we did not have any supply interruption of any note over the last couple of years through the pandemic. This year for the year is going going forward. So there is a consistency in.
I'm confident youre going to see a.
You can see any jumps or any significant declines.
We're ensuring that we're staying rated within our sweet spot here on the fleet.
Jessica answer we were looking for thank you everybody take care.
Thank you. Your next question is coming from Duane <unk> from Evercore ISI. Your line is live.
Hey, Thanks, good morning, and thanks for the time.
Maybe just start with Glenn on Trans Atlantic typically this is a pretty quiet time of the year.
But it appears the industry is sort of.
Doing less seasonal shaping or kind of Dcs analyzing.
Trans Atlantic, which probably makes sense in light of a rebuild.
For the summer can you just talk about what youre seeing in Trans Atlantic less about this summer and more about.
Getting from here to there.
Alright, well theres not a lot of room between here and there we're seeing really robust bookings for March and beyond so it's really.
If I look at how we view the trans Atlantic theirs.
April through October peak spring IATA March is getting to be a peak month. These days.
So that leaves you really.
The non holiday weeks in November and.
Non holiday weeks in January and February is real year lull periods and so.
How we've shaped it this year is we've had a bigger transatlantic for 2019, we had some operational issues in Amsterdam, excluding those we were very pleased with the.
With the results in the off peak season, and setting up really well because I think one of the things that you forget about building up for the summer as the first few weeks for the high point of sale U S. Travel are always throw away weeks, because you've got a significant amount of outbound traffic and very light inbound traffic so getting those out of the way earlier in the season.
And really allowing the summer peak to be even more robust than it has been before is I think how we're shaping so I don't know if I answered your question, but I'd say, we really like what we saw there are things we're going to do differently next year are there learnings from this year that we can improve on.
So we're excited about those learnings and then really excited about the summer peak season to Europe . We think this is going to be a record breaker.
Thank you Glenn and then just just on fuel.
Maybe this is ed or Dan.
You own a refinery.
Can you talk a little bit about your outlook for jet fuel and I'm not asking for guidance. We can obviously see that but just with respect to the unusually high crack spreads and refining margins, which week to week look like we're going to get relief and in that release sort of goes away.
So you have a hedge in that regard, but I wondered if you could talk kind of intermediate term.
When the when.
We see sort of refining margin relief.
Yes, no you saw it constrained market throughout 2022 state elevated certainly was disrupted significantly in the second quarter, particularly.
We don't anticipate it being at those levels.
For the current year.
Giving back, but I would say for the next 12 to 18 months I think you are at least in a period where.
Youre structurally can change constrained.
Global flows for both oil and refined product has changed.
Things that used to revert both gasoline diesel and jet coming out of Europe into the U S are taking place utilization of our refineries are high and you get disruptions <unk> seen it as a winter storms came through in December .
Incredibly low temperatures.
Refineries were impacted and youre seeing that rippling effect here in January and the unusual nature, even in the last seven to 10 days, where the physical market is short jets.
Yet.
Many times throughout 2022 with diesel and you see a spike and then as the refineries get the utilization back up and optimize it you've got a balancing but they are still tight and we expect them to stay elevated.
I appreciate the thoughts.
Thank you. Your next question is coming from South East <unk> from Raymond James Your line is live.
Hey, good morning.
Glenn.
Talk a little bit more about what youre seeing on the corporate demand side on the across the international entities and just as you get to the summer I realize it's early days, but where you expect capacity be restored across these entities.
Yes, I think we are.
Talked a little bit about that in the previous question, we expect the trans Atlantic to be about 108% restored to 2019 levels.
So it will be bigger than 2019, most of that is engaged as we bring and the newer more efficient fleets, but we have some exciting departures, we havent loaded our entire summer schedule, yet that will be announced over the next eight to 10 days or a few more things we need to put back in.
<unk>.
Then in the Pacific absent of China, we are more than rebuilt in Australia were more than rebuilt in Korea.
And we are about 75% rebuilt in Japan, we expect to be.
Somewhere between 75, and 100% rebuilt in Japan.
If we if we do or don't receive slot waivers. If we do receive slot waivers will probably stay in that 75%. If we don't we'll go back to 100.
And then China is the big question, Mark as I mentioned earlier.
We just don't know what's going to go on there with demand. So we're not going to get ahead of that and publish a China schedule for the summer that we don't know if we can fly and we don't know if the demand will be there. So we'll we'll let demand drive what we're going to we're kind of flying.
China, and then last but not least enlighten.
We are very close to fully restored in Latin right now with the.
With deep South really starting to turn on with our partners and let Tom.
And getting some really really positive early results on that so.
Other than China, we are fully restored internationally and we see.
International Restoration, where countries are open in a very similar to domestic and about 80%.
I appreciate that and just kind of a quick follow up just on the AD.
Change fees and then the revenue that Youre seeing here.
Dropping of the Tianjin, what kind of impact is that having as you kind of think about the network or the revenue.
Will it be different once things are fully restored versus places where it is today.
Our change fees accounted for almost $1 billion of revenue in the pre pandemic world.
We were on a path even absent of the pandemic to change change fees.
They had become onerous people didn't like them and trying to give customers what they want.
We're on a path to a different approach that got accelerated and I think we're very happy with where we are today, giving customers choice in how they want to fly and I'd say, we are counting on about half of that $1 billion to be replaced by people, who want flexible fully refundable at time of purchase which is an option that theyre choosing as opposed to it being.
Imposed on that and.
The rest of that is then coming from a higher share of total customer base and up sells more than more than covering.
To produce the record revenues that we expect this year.
Alright, thank you.
Yes.
Thank you. Your next question is coming from Connor Cunningham from Melius Research Your line is live.
Everyone. Thank you for the time just on the question that Scott talked about the bridge on the cost side.
I don't think you mentioned gauge our asset utilization improving throughout.
Throughout there can you just provide.
Some color around where you expect those two metrics to kind of be meaningful tailwind as you move throughout the year. The reason why I ask is that there's a lot of changes on the regional side I would think that that would be a.
A pretty big tailwind for us.
Yes, the mainline asset utilization increases about mid single digit about 5% as we progress through the year. So we get the benefit associated with that.
And as we talked about at Investor Day, we continue to get the benefit associated with gauge.
Okay.
To regional flying.
As you know we have about a third of our regional flight.
Flying that is not being flown today and that's also one of the disparities between seat restoration.
Passenger restoration, we're not expecting a significant increase of that.
The end of 'twenty three 'twenty four so we're going to be carrying that.
Carrying that Underutilization, it'll regional network, absolutely in our run rate.
Okay. Okay that makes sense and then on on the Amex targets I'm, a little surprised that those arent being revised stopped.
From six and half from five five I mean, that's basically nearing the capacity growth year over year and I would just think that there would be some outperformance just given the fact that.
Portfolio growth.
Can you just talk about like what you need to see to push those targets off or did you just see a lot of pull forward in consumer spend that kind of inflated. The 2022 number just trying to unpack that a little bit. Thank you.
Well, we're pretty excited about hitting a $6 $5 billion number.
And hopefully hopefully there's upside to that I think it's January we don't want to commit to that but.
We're ahead of our long term goals for that and we continue to find ways to accelerate our long term goals and I think next year or maybe even in June we're going to give you what's beyond the $7 billion because our first marker was how do you get the $7 billion and when we said that.
I think it was a daunting task for us it was a daunting task for the team over there and I think the question really for us and if I was investors. Okay. Youre at the 7 billion. What's next and that's what we've got to be working on showing you that we're not done here.
Other thing Connor this is Ed.
Driven by capacity as you would appreciate is driven by the spend on the portfolio. So that's a pretty sizable increase in portfolio of spend as well.
Good problem to have great. Thank you guys.
Yeah.
Thank you. Your next question is coming from Helen Becker from Cowen Your line is live.
Thanks, very much operator, hi team. Thank you.
So I have a question about telecom.
Pandemic, you guys rebuilding that business out it was going to be up more than billion dollar revenue business at some point.
Are you thinking about that coming out of the pandemic.
It sort of the middle part of this decade into the <unk>.
That something that another focus or is that being supplanted by the other revenues that you're talking about.
Hi, Helane, how where is that.
We are incredibly excited about your question and the MRO. It in fact, we made great progress during the pandemic to continue to accelerate that vision.
When we signed the deal to acquire belief as part of the Max deal. So we now have.
Basically all of the new engine technologies on our platform.
Exclusive arrangements and opportunities for third party work.
That will extend over the next 20 years.
Obviously in the short term our focus is on <unk>.
Then we have labor when we have supply challenges focusing on the delta metal and continuing to to get the airline itself back up and running so the MRO has taken a little bit of a back seat.
Over the short term, but we have we continue to make the investments that we've got the commitment from all of our partners on the engine side and this is something you're going to hear a fair bit about in June when we look at the strategic.
Discussion that we're looking to looking to create.
Yes.
In June .
That's going to be really helpful. And then Ed can I. Please ask you in June .
You will also update us on your diversity and inclusion targets.
We talked a lot about that pre pandemic and then during the pandemic, you've obviously higher 25000, new people you mentioned that in your prepared remarks.
Can you also at some point update us on how that's going.
And whether you're meeting your own internal goals, you don't have to share those with us, but if you can share with us how.
It's coming along that might be helpful.
We will certainly do that and that was already in the plan Lane to go through that in June .
Good news is that we are making great progress and we will share our targets because we shared them publicly.
That's awesome. Thanks, so much team.
Thank you.
Thank you. Your next question is coming from Andrew <unk> from Bank of America.
Your line is live.
Hi, good morning, everyone.
First question for Glenn I guess based on my math, it seems like you're assuming.
Could start to decline sort of in the high single digits year over year as you move through 2023 to kind of get to your 15% to 20% revenue outlook.
Drives that assumption, particularly given.
RASM benefit you should have from your mid continent growth strategy.
I think when we look at the.
Progression through the quarter, we had some very extenuating circumstances.
<unk> second quarter, and early third quarter with fuel running up over $120, a barrel and as we think about how we.
How we do fuel recapture on the way up.
So as inflation cools down as fuel comes down we're not going to keep all of that we're going to keep as much of it as we can and we're not anticipating that big mobile and fuel which is driving the sequential.
The sequential decrease so.
We'll see how it actually rolls out and hopefully it's better than that but.
That's how we're thinking about how the year progresses.
Absolute unit revenues.
Okay that makes sense and then just asking you kind of strategically here Glenn as you see as you've seen the revenue environment continue to show the strength pretty much since you kind of almost a year ago are.
Are you seeing any changes in behavior from any of your competitors that may show that they are acting differently today than they would have pre pandemic.
We don't really talk about how our competitors behave I think what we've seen is we've seen a very big shift in how and why people travel and trying to stay ahead of that in our own planning and make sure that we are capturing where people want to go and what products they want to buy and Thats really our continued focus.
And it's been a very interesting journey and as you look at individual market levels were very different sizes than we were pre pandemic based on where where our customers want us to take on these days.
Great. Thank you.
Thank you. Your next question is coming from Mike Lindenberg from Deutsche Bank. Your line is live.
Hey, good morning, everyone, Hey, Glenn just a quick question sort of following up on conner's on loyalty.
It feels like what the free Wi Fi this is going to be a banner year for Sky miles I think last year $8 5 million how.
How do we think about the conversion of members sky miles to ultimately those too.
Uptake on the credit card I think this last year. It was like an eight to one ratio is that kind of what it's been historically.
I think thats about right.
That's one of the we see the more engaged customers with delta the higher the satisfaction is.
So that's really part of that ecosystem that we're really trying to grow as sky miles as an entry point of course as everybody knows it's free and now they have an incentive to do that because there is an immediate benefit to join because you get the free Wi Fi and so how do we translate that ultimately into more loyal customers, who eventually will wind up getting some of our other products.
And Thats really what our flywheel is right now on how we're going to continue.
Press forward in terms of the loyalty.
Alright, very good and then second question, Dan you talked about not up to the $470 million headwind, obviously noncash pension expense, maybe there's some other items how do we think about through the year is that is that ratably.
Is it lumpy and what tax rate should we be using March quarter full year. Thank you.
Yes, one three for the year, the first quarter think of it being closer to.
If it was ratable it would be about $3 30, a quarter first quarter will be a little bit higher we would think about it as 360 to 365 associated with it.
Tax rate continues to be consistent right in that 24 to 24, 5%.
Great. Thank you.
I will now go to our final analyst question.
Certainly your next question is coming from Brandon Glinski from Barclays. Your line is live.
Okay.
Keep it to one as well Dan can you talk about your normal amortization this year, which I think is about $2 5 billion.
Relative to the $2 billion of free cash flow that you guys are anticipating and what are your options here, especially in a higher interest rate environment, how does that change your capital priorities in any way.
Normal, yes, we have normal maturities at two four we.
We had one eight this past year and we ended up we're retiring $4 5 billion of debt or Ken and the team were opportunistic in regards to that that we can take out that we think is higher cost and has good economic payback associated with it and given our liquidity position as we progress through this year, we'll continue to do to look at those.
Options are certainly a number out there that are targets for us, but we'll either do it through.
How we've done it with through tenders, but also just as you go open market repurchases and being smart and going after the higher cost debt Thats priority, we want to drive down that non op interest line over time.
And the team is good at it they've done it did it for a decade they'll continue to do it.
And I guess, Dan how does at a higher interest rate environment <unk> change your capital priorities if at all.
Oh about changing it I think it does when it may change in regards to how you look at some of your debt.
Some of them that are off of LIBOR and floating have become more attractive to retire in certain situations. So.
But we're continuing to be focused on as you know.
Reinvesting back into business, but also this path to deleveraging so continuing to strengthen the balance sheet reduce debt and drive down those leverage ratios.
Alright, thank you.
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. Thank you Julie Mad If you don't mind could we reiterate for the members of the media.
Practice for getting in the call queue and in addition to thanking each of them for their time. This morning, just remind everyone around one question and one follow up so we can get through as many of these as we could please thank you.
Absolutely at this time, we'll be conducting a Q&A session for media questions. If you have any questions or comments. Please press star then one on your phone.
Please hold while we poll for questions.
Yes.
Thank you. Your first question is coming from Claire Bushy from financial Times. Your line is live.
Hi, I was wondering.
Wow.
What needs from warm.
It will happen at the FAA, so that what happened on Wednesday, it doesn't happen again.
Hi, Claire said I missed the first part of your question. Your question is what what does the FAA you need to do in order to ensure that will repeat on Wednesday.
Correct.
If you saw my comments. This morning on CNBC I think it's very clear that there has to be a call to action amongst our political leaders with Congress and the White House to fund properly provide the FAA the resources they need to do the job.
We've long talked about the need for modernization of our air traffic control systems I think this is a.
Crystal Clear example of the challenge the FAA space when you have.
<unk> systems.
That arent as resilient as they need to be you have tools and technologies that are somewhat outdated and staffing levels.
Not where they need to be so.
I know who is doing the very best they can with what they have but we need to stand behind the FAA and we need to take them off the <unk>.
Kind of year by year funding it seems like they go through that that's caught up in political negotiations and realize the importance of having a strong aviation infrastructure and the importance of that to our economy as well as our public.
Thank you.
Thank you. Your next question is coming from Alison Sider from Wall Street Journal Your line is live.
Hey, Thanks, so much I guess sort of related question, but I guess curious how much do you think that the.
Infrastructure and aerospace issues are likely to be a constraint on growth for the industry overall, whether the vulnerability of technical systems and lack of redundancy or.
Controller staffing or what have you how impactful do you expect that to be going forward.
Well, it's a current constraint on our ability to grow as an industry.
You see the length of flight times, they're taking two to complete missions you see the some of the challenges the air traffic control controllers have when you're getting congested space in the northeast are down in Florida.
Been a lot.
Stephen during the pandemic itself, some real real challenges that we've experienced so theres no.
And that the investment in a modernized air traffic control system will drive a tremendous amount of efficiencies as well as growth, which will mean better better service for the American public.
Thanks, and I guess can you talk a little bit about sort of what sort of systems or backup are telling redundancy delta has like if there was another outage of the noted system like we saw earlier this week.
The thing that got that Kevin kind of deal with or work around or is that something you need to have or yes.
Anything you can share on that.
The no Tam system that went down as in a central system.
And no airline.
Would fly without without having that capability interestingly at Delta, we had and have a long.
It's a fairly old backup tech.
Technology that does feed that and we were able to keep some of the no Tam information flowing to delta so.
We probably had a little better opportunity to fly during this stoppage as compared to anyone else, but out of deference to the FAA and making certain that.
We gave them the ability to make the decisions we didnt, we didnt utilize that backup system, but it's a it's an important part of our.
Our resiliency and redundancy.
Thank you.
Thank you. Your next question is coming from Kelly Yamaguchi from the Atlanta Journal Constitution. Your line is live.
Kelly Yamaguchi your line is live.
Your next.
Western is coming from Mary <unk> from Bloomberg News your line is live.
Hi, Thank you I just wanted to see if I could get you to talk a little bit more about your comments about business bookings remaining steady.
It seems like the 80% recovered less.
Level in the December quarter is what you had been saying a previous to that and I wanted to see if you've got any sort of an outlook beyond the march quarter that gives you confidence.
Corporate recovery is not going to stall at some level.
We do those corporate surveys and that's why we do them to see what our corporate partners are thinking about in terms of future travel and it was actually the last one we did which is for future travel.
As the Best survey, we've had since pre pandemic in terms of their enthusiasm that more people would be flying in future months, then we're flying in current or past months.
As I said in the call we're not counting on that in our current revenue forecast because sometimes that doesn't come to fruition, but there is a sense of optimism from this pent up demand for business travel that we see could potentially offset any weakness in the general economy, and we're taking a very cautious look but.
Counting on it being stable and not growing dramatically, but it looks like people think it will grow.
Barry This is Ed.
You see in the country a lot of businesses are struggling to get their employees back into the office and I think this is tied to that.
As companies return employees returned to office Youre going to see another step up in my opinion of returned to more normal trends, including improved business travel.
Do you think of a lot of a lot of the big accounts, we serve are of Consultancies.
Legal firms accounting firms, it's tough for them to get out on the road. If they don't have the offices open up their of their clients and their customers. So I think thats the little bit of Choppiness that Glenn was referring to was that companies are intending to open and have had some.
And then some stalls.
Going on there, but I do think as we progress over the course of the year, you're going to see more and more of business being done like it used to be done than ever before.
Okay, and if I can just follow up I understand about your survey, but are there bookings that you can see at this point beyond the March quarter.
Have you any idea of whether that weakness will continue.
And then when you said you are counting on that corporate demand being stable, but not growing dramatically.
The change, though from what you had been saying is that is that correct you had been seeing growth, but now.
We're seeing it more stable.
Clearly in the early parts of the pandemic recovery, we saw some accelerated growth I think we've been pretty consistent over the.
Past couple of quarters, and we see some stability.
And the booking curve at about 80% of booked revenue so.
As you know business travel usually has the shortest events purchase windows.
And it is mostly close in so we would not have any further visibility beyond the next 60 to 90 days that would be of any significant health.
Charting that water.
Thank you.
Thank you. Your next question is coming from Edward Russell from gift Your line is live.
Yes.
Thank you for taking my question I Wonder if you could comment on if delta saw any benefit from southwest Airlines operating cost you said December was there an uptick in bookings people buying Alaska tickets adults any any color would be great.
Sure.
No we had our own weather operations during the peak Christmas holiday travel period, and we saw after that when we were fully recovered and southwest were still not back in full swing that we had.
An uptick in our bookings.
That's trended.
Highly competitive with southwest markets, a little bit into January , but we think that will resolve itself over the next year.
Thank you.
Thank you Edward Matt we have time for one final question, if we could please.
Certainly the last question is coming from Robert Silk from travel weekly.
Your line is live.
Okay.
Yes, hi.
When you talk about getting back to.
Full.
<unk>.
Pandemic capacity.
In your in your major hubs.
Are you talking about seats or slight numbers.
And then what percent of your gauge up let's say in Atlanta.
Will it be up to summer.
How do you think about managing crowds.
You increased gauge and bring your flight numbers back up to where they were or beyond.
Right.
We will not probably not for the next couple of years see the flight numbers, we did in 2019.
We will get seat capacity restoration to 100%, which means that gauge will go up significantly.
When you look at our fleet evolution that was always our plan was to continue to grow not by additional departures book by larger airplanes more efficiency less fuel burn better products and services and so that's really what we're intending on doing the pandemic accelerated that and so you've got our average gauge up by.
Double digits right now.
Partly because we keep taking larger airplanes were partly because the regional fleets are less restored.
And we think that will normalize out over the next 18 months, but we will probably not for the foreseeable future get back to the flight levels, Although we will match or exceed by the end of the year.
Historical levels in terms of seat capacity.
Is there any.
The higher gauge do you end up with more crowded banks in terms of number of passengers or is that assuaged by having less flights.
Right.
That's why we've done these generational builds across our network is that we knew we knew that bigger gauge was coming we needed to accommodate it and even for example here in Atlanta, we work closely with the city to.
Reconfigure the D concourse to be wider than any of the other concourses to accommodate that increased gauge. So we've got short medium and long term plans to accommodate those gate, but a lot of that was in our generational builds across the network.
We don't think that it's going to be more crowded than it was 19 or feel more crowded.
Okay, Great. That's helpful. Thank you Glenn.
Thank you Robert.
Wrap our call for today, we are grateful for everyone's time and participation.
Yes.
That concludes today's conference. Thank you for your participation today.