Q1 2025 Delta Air Lines Inc Earnings Call
Your conference will be recorded after the tone.
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Matthew: Good morning, everyone, and welcome to the Delta Air Lines March quarter 2025 conference call. My name is Matthew and I'll be your coordinator. At this time, all participants run a listen-only mode until we conduct a question-and-answer session following the presentation.
Matthew: 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 into the question queue at any time.
Speaker Change: I would now like to turn the conference over to Julie Stewart, Vice President of Invest Relations. Please go ahead Thank you Matthew, good morning everyone and thank you for joining us [inaudible]
Speaker Change: On today's call, we will hear from our CEO at Bastian, our president, Glen Hauenstein, and our CFO , Dan Janki. 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 and her balance sheet.
Speaker Change: After the prepared remarks, we'll take analyst questions. We please ask that you limit yourself to one question and a brief follow-up so we can get to as many of you as possible. After the analyst's Q&A, we'll move to our media questions.
Speaker Change: 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 actual results to differ materially from the forward-looking statement.
Speaker Change: Some of the factors that may cause such differences are described in Delta's SEC Finally, we'll also discuss non-GAPS financial measures and all results exclude special items unless otherwise noted
Speaker Change: You can find a reconciliation of our non-GAAP measures on the IR website at ir.delta.com And with that, I'll turn the call over to Ed Well, thank you Julie. Good morning everyone. We appreciate you joining us today . . . . . . . .
Ed Bastian: Earlier this morning, we reported our first quarter results, posting pre-tax earnings of $382 million or 46 cents per share, which is flat to last year [inaudible]
Speaker Change: Revenue was 3.3% higher than prior year, a new record for the March quarter, an operating margin was approximately 5%. We delivered free cash flow of $1.3 billion, and a double-digit return on investor capital.
Speaker Change: Despite a choppy start to the year, I'm proud of our team for delivering a solid profitability and strong returns that are expected to lead our industry.
Speaker Change: Operationally, we delivered leading on-time performance and system completion factor among our network peers
Speaker Change: I would like to thank our people for their outstanding performance and hard work during the quarter, especially with the severe weather that we experience across the country at the start of the year. The Delta people will always be our number one competitive advantage, and sharing our success is essential to our culture and our values.
Speaker Change: In February , we celebrated their well-earned, proper-charing payout of $1.4 billion, recognizing 2024's performance.
Speaker Change: Fortune Magazine recently recognized our people first culture, ranking Delta the number 15 company on their list of the hundred best companies to work for.
Speaker Change: Turning to demand and consistent with our update last month, February and March reflected a much more challenging macro environment that anyone initially planned for
Speaker Change: Coming into 2025, we are positioned for another year of strong growth. However, given broad economic uncertainty around global trade, growth has largely stalled . . . . .
Speaker Change: The impact has been most pronounced in domestic and specifically in the main cabin with thoughtness in both consumer and corporate travel
Speaker Change: While not immune in this environment, we do continue to see greater resilience in international and our diversified revenue streams, including premium and loyalty, reflecting underlying strength of our core consumer.
Speaker Change: In this uncertain environment, our focus has taken action on those areas we can control, protecting margins and free cash flow
Speaker Change: Our largest cost and lover is capacity, and we are making plans to keep our second half capacity growth flat over last year, with domestic main cavities declining as we align supply to demand.
Speaker Change: Cost Management remains an important tool to protect margins and we are aggressively managing our cost space to reflect the lower levels of wine and deliver on our commitment of low single-digit growth in non-fuel unit cost.
Speaker Change: and as always, the best way to ensure efficient and effective cost management is to deliver Delta's world-class reliability and premium service to our customers, at which our people are the very best in the business.
Speaker Change: The start of these actions are reflected in our June quarter outbook for double digit operating margins and pretext income of $1.5 billion to $2 billion on revenue that is essentially flat to last year.
Speaker Change: Given the broad macro uncertainty, it is premature to project the full year, so we are not providing an updated full year outlook at this time
Speaker Change: However, with the actions we are taking and we're fuel prices currently set, Delta's well-position to deliver solid profitability and meaningful cash flow in 2025
Speaker Change: Over the last 15 years, we've worked to diversify our business and differentiate ourselves from the industry.
Speaker Change: During periods of heightened uncertainty, our differentiators and structural advantages become even more apparent, helping to insulate our business and create durability in our financial performance.
Speaker Change: No matter the environment, we manage our business for margins, cash flow and returns [inaudible]
Speaker Change: and with our biased action and our position of strength. I expect our financial results will continue to lead the industry and this year proved to be another validation of our strategy as we create differentiation and demonstrate financial durability. Thank you very much.
Speaker Change: Thank you again for joining us, and with that, let me turn the call over to Glen and Dan to go through the details of the quarter and outlook and the actions that we are taking [inaudible]
Thank you.
Thank you, Ed and good morning.
Speaker Change: I want to start by thanking our employees for providing the best service and reliability in the industry to our customers every single day [inaudible]
Speaker Change: Arch quarter revenue with 13 billion, 3.3% higher than last year with unit revenues declining 1%.
Speaker Change: January , unit revenue growth was solidly positive and in line with our expectations [inaudible]
Speaker Change: As consumers and business confidence moderated, unit revenue trends stepped down in February and again in March with stabilization as we exited the quarter.
Speaker Change: Through the quarter, a diverse high-margined revenue stream showed resilience, growing at mid-single digits you're on here, to reach nearly 60% of total revenue.
Speaker Change: Premium and Loyalty Revenue were both approximately 7% over prior year. [inaudible]
Speaker Change: Renumeration from American Express grew 13% to $2 billion driven by co-brand spending acquisitions.
Revenue from our travel products portfolio, group by 7%
Speaker Change: Pargo revenue increased 17% year over year on higher yield and double digit volume growing. [inaudible]
NMRO revenue grew 7% on heavier engine workscopes. [inaudible]
Speaker Change: From a geographic perspective, domestic revenue grew 1% impacted by demand softness in the main cabin
Speaker Change: International Revenue Growth with 7% on solidly positive unit revenue of a prior year.
Speaker Change: Transatlantic revenue grew 5% with unit revenue strength driven by premium products and network optimization.
Speaker Change: Pacific also performed well, up 16% year-over-year, with modestly positive unit revenue growth on double-digit capacity growth, driven by strong demand to Japan and into Seoul as our partnership with Korean Airlines matures
Light and Groove Revenue, 5% on Modestly Negative Unit Revenue
Speaker Change: And now turning to our June quarter outlook, given the recency of last week's policy changes and market moves, it's early to assess the impact on consumer and corporate travel demand.
Speaker Change: For the June quarter, we expect 2Q revenue to be down 2% to up 2% over prior year.
Speaker Change: Consumers remain cautious and corporate travel trends are choppy, with overall corporate volumes currently expected to be flatish over last year, similar to what we saw in March.
Speaker Change: Main cabin demand softness in both domestic and international is persisting, particularly in off-peak times. Premium loyalty and international are continuing to show greater resilience
Speaker Change: Internationally, approximately 80% of revenues are US point of origin with bookings remaining strong for the peak summer period
Speaker Change: The strength of our brand and quality of our offering aren't able us to drive strong load factors, attract new SkyMouse members, and continue to grow our valuable American Express Co-Grand program
Thank you.
Speaker Change: With more moderate demand growth, we are reducing expected capacity growth in the second half of the year to flat over last year to apply
Supply with demand and optimized margins in this environment. [inaudible]
Speaker Change: We are prudently using our available levers to efficiently manage where and how we fly, focusing on where we have seen the most weakness.
Speaker Change: With these changes, our main cabin seat growth will be down year over year in a second half
Speaker Change: At the same time, we are executing on our multi-year commercial priorities outlined in our November investor day that support our long-term margin expansion by continuing to make the right investments in the customer experience and diversify our revenue stream.
Speaker Change: Yesterday, we announced a significant milestone for our maintenance, repair, and overhaul business with a 10-year agreement with UPS. This is an exciting win for our MRO team and supports long-term revenue diversification and growth.
Speaker Change: In closing, while this year has started differently than we expected, we are taking action and leveraging our advantages while staying true to our long-term strategies [inaudible]
Speaker Change: And with that, I'll turn it over to Dan to talk about the financials.
Dan Janki: Thank you, Glenn, and good morning to everyone. For the March quarter, we deliver pre-tax income of $382 million with an operating margin of 4.6%.
Dan Janki: Earnings of 46 cents per share were flat to last year despite a more challenging macro environment than we anticipated as we started the year.
Non-fuel unit costs were up 2.6% over last year
Dan Janki: There's better than our initial expectations in roughly one point better sequentially display elevated winter weather early in the quarter [inaudible]
Dan Janki: The fuel prices were $2.45 per gallon, approximately 3 cents higher than our initial expectations, including break-even contribution from the refinery [inaudible]
Dan Janki: We generated free cash flow of 1.3 billion after paying 1.4 billion in profit share to our employees and investing 1.2 billion back into the business.
Dan Janki: On debt, we repaid 530 million, ending the quarter with gross leverage of 2.6 times.
Dan Janki: Recognizing the strength of our investment grade balance sheet, Moody's further upgraded delta's rating during the quarter, our third credit upgrade in eight months, representing delta's highest credit quality in decades.
Dan Janki: Moving to the outlook, for the June quarter, we expect an operating margin of 11 to 14 percent and earnings of $1.70 to $2.30 per share.
Dan Janki: Non-fuel unit cost growth in the June quarter is expected to be up low single digit year-over-year with performance similar to the March quarter
Dan Janki: As we reduce expected capacity growth this year, we are managing our cost base to deliver on our long-term target of up-low single-digit non-fuel unit cost growth
Dan Janki: On the fleet, we now expect our net aircraft additions this year to be less than 1% with ten or fewer incremental aircraft as we manage both retirement and deliveries.
Dan Janki: Lower Broats, and Accelerate Aircraft Retirements will drive incremental maintenance savings.
Dan Janki: Additionally, we are adjusting plans around our workforce and supplier base to align to lower growth levels For the four year we now expect our workforce to be below levels of last year on natural attrition [inaudible]
Dan Janki: While it's still early and there is much to play out for the year, we continue to adjust to the involving environment by aligning supply and demand and managing our costs to protect margins and cash flow.
Dan Janki: Durable cashflow is an important differentiator for Delta. It enables us to de-risk the business by further fortifying our balance sheet and growing unencumbered assets to the highest level in our history.
Dan Janki: We continue to expect to repay at least $3 billion at debt this year and will be opportunistic on our highest cost debt through repayments or refinancing.
and closing Delta's Decade Plus commitment to our consistent strategy.
Dan Janki: Investment and Execution has created a differentiated and durable business that positions us to navigate periods of uncertainty . . .
Dan Janki: Over the medium of the long term, we continue to see secular tellers wins for our industry and our confident and delivering on our three to five year financial framework.
Julie Stewart: And with that, I'll turn it back to Julie for Q&A.
Julie Stewart: Thank you, Dan. Matthew, can you please remind the analyst how to queue up for a question, and then go to our first analyst question from Conor Cunningham at Miller's Research.
Matthew: Certainly. At this time, we're conducting a question and answer session and if you have any questions or comments, please press star one on your phone at this time.
Matthew: And we do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that all Q&A participants please limit to one question and one follow-up question.
Speaker Change: Once again, your first question is coming from Conor Cunningham from Malius Research. Your line is live [inaudible]
Connor Cunningham: Hi, everyone. Thank you. I was hoping you could provide some context just to the high and the low end of the garden in the second quarter.
Connor Cunningham: Grant, you mentioned stabilizing turns exiting the quarter, but then noted the policy changes. So we're just trying to figure out how the weakness you're seeing in the price of the US domestic market. It doesn't eventually bleed over to international and premium as you guys highlighted those areas of strength. Thank you.
Connor Cunningham: Well, Conor, I think that's something we're all watching very closely. We know that approximately five trillion dollars of wealth has been wiped off the books, but we're still about 32 billion higher than we were in 2019 in terms of the affluent cohorts.
Welfth
Thanks for tuning in.
Speaker Change: So while we're watching closely, we haven't seen it yet and we continue to see strong cast sales and continue to see strong cast sales for long haul travel as well. So we are cognizant of what's going on in the marketplace and we're keeping a close eye on the man closer than we've ever looked before.
Okay, and then bigger picture, you know, you know,
Speaker Change: Does the float-on change your view just on the long-term industry structure? Just trying to understand how your conviction level has changed with demand weakening and just if your priorities are shifting at all as you look like over the next couple of years. Thank you.
Thanks, cars. I'll take that.
Speaker Change: You know, obviously in this environment, you know, there's not a lot to, you can say in the next year or two, without having some better clarity as to how to do it.
Speaker Change: and the tariff skirmishes end up. But what I can tell you is that for the last 20 years, every time.
Speaker Change: that we've had any level of economic dislocation, Delta has been advantaged. Delta has done the right things that step forward, has been opportunistic, and if you compare where Delta was 20 years ago to where Delta is today, there's no comparison. [inaudible]
Speaker Change: So I would anticipate there will be opportunities during this bump in the road. We're not quite sure how long it's going to be, but I'm confident it's not going to be elongated. And you can expect that the strong will get stronger.
. . . . . . .
Speaker Change: Thank you. Your next question is coming from Andrew Didora from Bank of America. Your line is live live.
Thank you for watching!
Andrew Jadora: Good morning, everyone. Maybe first question, just kind of a few quick ones here, just on.
Andrew Jadora: The capacity cuts that you talked about, I guess, first, you know, when we look at the 2Q schedules, are those set right now? Should we expect any changes there? And then second, just on the back half cuts.
Andrew Jadora: You know, should those start over the summer or is this something that you're thinking about kind of post-labor day and you know any color you can give geographically would be helpful as well. Thank you.
Andrew Jadora: Well, we're working through these cuts as we speak, and I think what we would say is that the 2Q is largely intact, there may be some trimming around the edges, but largely intact.
3Q, we have a very different...
disparity in terms of what is traveling post-August 15th. [inaudible]
Andrew Jadora: with the South continuing to go back to school earlier and earlier and with Florida being a big component of our network.
Andrew Jadora: August demands are much lower and August is no longer a peak month for Delta's travel. So we will be trimming, starting in August and moving through the rest of the year, not waiting for Labor Day.
Andrew Jadora: and those trims in August will be concentrated in the Southeast where the schools go back earlier.
Andrew Jadora: Other than that, I think that's all the color we're going to give right now, other than to say that we're monitoring this every day, and we're going to take out capacity that has high recapture and that will improve our profitability and our margins moving forward. Thank you.
Speaker Change: Great, that's helpful. Glad to mention, maybe as a follow-up, you know, in a recessionary environment, can you maybe talk to, you know, maybe how the different demand cohorts have performed, maybe create a corporate premium?
Andrew Jadora: Maine Cabin, International, I know every downturn is different but what have you learned from history? Thank you
Andrew Jadora: Well, I'm going to take this one as well. I don't think we've ever had premium as larger percent of our total revenues as we do right now, like the rest in our comments today.
Andrew Jadora: What I have been impressed by through everything as we continue to develop and wind the aperture on our ability to sell us tickets that it has proved more resilient, through more, more, uh, currently sitting very resilient.
Andrew Jadora: And so, you know, well, parts of our business right now are challenged and they're mostly on the main cabin lower end [inaudible]
We have not seen any cracks yet in the premium.
and we're hopeful.
Andrew Jadora: You know, again, we're going to go through this together that does save more resilience as we've offered more ways for people to get in the front cabin than ever, whether or not you're used, base fares and miles, whether you might use miles themselves. And the intent to repurchase is so high on those, we don't see people downgrading even in a recessionary environment. Thank you very much.
Thank you.
Speaker Change: Thank you. Your next question is coming from Catherine O'Brien from Goldman Sachs. Your line is live.
Morning, everyone. I'm think through the time.
Speaker Change: I think that means you'll increase capacity closer to 2% this year, so about one point below the low end of your initial guide, makes a lot of sense, giving you uncertainty, but you're maintaining your Casimax Outlook. You called out attrition and maintenance in your prepared remarks, but can you give us some examples of where you have the ability to get cost out of the system this year?
Yes, as you can go out and...
Speaker Change: You look at capacity, we always are looking where, Brandon, the commercial team want to go, where there's demands off this, but we're also looking at where our highest cost capacity is. So, immediately the first things are your direct flying costs. [inaudible]
Speaker Change: related to your crews and those items come out as you take the flying out. You also look at your maintenance cycles, where those come out, but also the timing of maintenance, which ones might be heavier, which ones may
Speaker Change: not be as it relates to airport operations both with the Delta workforce and the contracted workforce, it's about lining labor hours to that new volume level wherever that may be whether it's
within the day or within the hour of the day. Thank you very much.
You've got to adjust that appropriately.
Speaker Change: associated with it. And we'll continue, you know, we have a supplier base that you have more aggressive in this environment of lower growth, no growth.
Speaker Change: to really go after that, and all the support activity across the company. You look at how do you also continue to find that non-value added cost you manage? Yes, I do.
Speaker Change: The workforce appropriately and there's discretionary spend in there where we have options to manage it and it's line item by line item So all those will give us the confidence that as we take out the capacity, we will go after the incremental cost [inaudible]
Ed Bastian: And Katie, this is one other thing to add to Dad's comments, is that we're announcing and making this decision now so that we have several months to make sure we get ahead of scheduling.
David Vernon, David Vernon, David Vernon, David
Speaker Change: Ladies and gentlemen, please remain on the line where we connect the speaker to the conference room
Speaker Change: Once again, ladies and gentlemen, please do remain on the line where we connect the speaker to the conference room
Speaker Change: And the speaker line is now reconnected to the conference room [inaudible]
Your line is live [inaudible]
Speaker Change: Matthew, we can now go to our next analyst question. Swain's anywhere from Evercorp. Certainly.
and Duane, your line is live. . . .
Hey, thanks.
Speaker Change: Just on the capacity cuts, maybe you've touched on this but what regions, if you had to guess now, will you be most focused on and what fleet types, as we think about, maybe retirements, would you be most focused on? [inaudible]
Thank you very much.
Speaker Change: The most focused on domestic main caddon, an off peak time channels for domestic main caddon, this would be our first line of defense.
Speaker Change: And then again, accelerating retirements on the older airplanes, the older the best. Consisted to what we can do in the seven, seven fives, you'll see some of the sixes, seven sixes, and some of the older three 19, three 20s.
. . . .
Speaker Change: OK, and then on loyalty, if you can disaggregate that a little bit for us.
Speaker Change: You know, kind of on a same store sales basis, how are you seeing card spend and how much of the double digit growth is being driven by card growth versus card spend in the current environment. Thanks for taking the questions.
Glenn, most of it is driven by...
Speaker Change: Spend Growth, Acquisitions accounts for probably three to four points of the double-digaging movement, but our vast majority is two from existing card numbers spending more on our cards.
Speaker Change: And what's exciting about that is even through, you know, we have the swipes up through yesterday and they seem to be holding up. So we don't have had the revenue associated with it, but the transaction numbers are still remaining at these elevators levels. So hopefully that stays intact as well.
Thank you for watching!
Thank you [inaudible]
Thank you [inaudible]
Your next question is coming from Mike Linenberg. [inaudible]
from Doherty
Bank, your line is live.
Speaker Change: Oh, yeah, hey, good morning. I've got two here for Glenn Glenn. Can you just talk about how bookings have trended over the last week or so? Presumably they took a hit. And are you actually seeing a notable increase in cancellations? No tickets that have been booked where maybe people are backing away? Thanks.
Speaker Change: Yeah, I'd say initially we had a drop off, but it was really only for a single day or a day or a half [inaudible]
Speaker Change: We're back to, as of today, yesterday's sales were above last year's level, so I think we're seeing close-toom strength, and last year this time of year was the week after Easter, so the baseline was pretty high, so
Speaker Change: Haven't really seen the impact of cash sales yet, but again watching like an eagle on all this to see if the trends trail off.
Speaker Change: and refunds, no significant increase in refunds. Okay, good, and then just as you think about the booking curve and maybe how it could potentially shift sort of two things on that one,
Speaker Change: How much of, say, transatlantic is on the books for, say, summer? Right? Or maybe I should ask international more broadly. And...
Speaker Change: Last quarter, you know, or I'd say earlier this in the March quarter, you made some tweaks to, you know, how you priced the wrong, the booking curve, you know, given the fact that you weren't seeing strength close in.
Speaker Change: Are you seeing improvement from some of those changes that you made on the pricing side or is it still work in progress? Thanks for taking my question
Sure, well, I think those are-
Speaker Change: Those are really the same question in different ways because yes, the booking curve has changed [inaudible]
Speaker Change: and it's moved further out, which is what left us when it did that in February and March, which is what left us with empty seats at the end of the curve. So we did reposition to take more bookings earlier in the process so that we could mitigate the close and demand weakness. Thank you very much.
Speaker Change: and we effectively went into April after going into February and March, intentionally a couple of points behind, we entered April .
Speaker Change: You know, slightly ahead, we'd like to improve that as we move into May, June and July , so we're continuing to have a low factor bias right now until we get to the lowest where we want them to be. But yes, we're a process of correcting that, that yield, I mean the booking curve changes.
Okay.
Speaker Change: book. And international in the books, April's well over 90 May is in the 80s, June is in the 70s. And so international is as well book for the early part of the summer. Great. Great. Thank you.
Speaker Change: Thank you. Your next question is coming from Tom Fitzgerald from TD Cowan. Your line is live.
Speaker Change: Hi, thanks so much for the time. There's a debate about, you know, trade down in this environment and, you know, I think the low cost carriers often say that
Speaker Change: They should see a share game, but I feel like given that your evolution with revenue segmentation is going to be a huge success.
Speaker Change: and the carrot and steak that you have with the little two program and the global network. I feel like, you know, Delta and other legacy carriers are better positioned for, you know, the retain share in this environment, the Olympic at your view on, you know, trade down and the broader content of the environment into demand for that. [inaudible]
Speaker Change: We're very excited because our brand is so strong and demand for Delta is very high.
Speaker Change: And so when we have seats that become available at the lower end, I think we have what we call first call on those customers. And so, you know, as we think about that, that probably puts more pressure at the bottom and carriers than, then you would think at the. [inaudible]
Speaker Change: at the surface. So, you know, we will run full, we might run, and as we did even through the great recession, but we might run at slightly lower yields, which I think puts a lot of pressure on them.
Thank you. Bye.
Speaker Change: That's really helpful. Thanks so much. And this is the follow-up. I'd love to get your perspective on the risk that the terrorists can have in your cost structure. You know, you have a big Airbus order book, but, you know, you've called out a champagne partnership today. I'm just also curious on the food and the catering side, maybe on spare parts within tech ops, but then any color there and how investors should be thinking about how you manage that risk. Thanks again for the time. Thanks again. Thanks again. Thanks again.
Speaker Change: Thank you for that. As it relates to when you think about our procured supply base, it's about 20 billion in total and about 85% of that is service related. Only the mid teams is related to goods.
Speaker Change: and the predominant amount of those goods are actually sourced in the US directly. We are mindful of second and third-tier supply bases that we'll have to manage and the teams will actively manage those.
. . . . .
Speaker Change: Thank you. Your next question is coming from Sophie Sitt from Raymond James. Your line is live.
Sophie Sith: Hey, good morning. I wanted to get to get back and just on the revenue expectations in the guide for the second quarter. Could you talk about how you're thinking about the four entities that's reflected in that guide? Thank you very much.
Sophie Sith: Sure, I think the largest weakness, as we've talked about, is in domestic, and it's in domestic main canon.
Sophie Sith: Atlantic, and particularly the Pacific is looking very strong into June . We'll see what happens with these new tariffs to China, but that's China's a small part of our Pacific Trans-Pacific.
Sophie Sith: And Latin is looking as expected, so it fluctuates from positive to negative throughout the quarter, but it's still hanging in there quite well. So I think where we sit today international is continues to be a point of strength for us relative to domestic. Thank you.
Speaker Change: Yeah, so just to clarify, so maybe domestic getting a little weaker and the rest similar and I'm kind of curious as you talk about more expensive capacity. Does that mean you kind of see more regional capacity cuts in the second half as well, or am I kind of reading to that incorrectly? Correctly.
Speaker Change: I think we are going to eliminate unprofitable flying wherever that is.
All right, thank you
Speaker Change: Thank you. Your next question is coming from Tom Wadewitz from UBS. Your line is live.
Tom Wadewitz: Yeah, good morning. I wanted to ask you a little more on international and
Tom Wadewitz: I guess what you've seen perhaps in Canada, US. Thank you guys.
Tom Wadewitz: and if you've seen something Mexico-US that, how have those markets played out against the bad news on tariffs came a bit earlier than April 2nd with the high tariffs on the broader world?
Tom Wadewitz: Can you tell us what you've seen on that and does that inform what you think could be the risk looking forward on you know transatlantic so that's the first question.
Tom Wadewitz: Yeah, in Canada, we have seen a significant drop-off in bookings. In Mexico, it's kind of a mixed bag. Some of the markets are performing better. Some are performing worse, I think.
Tom Wadewitz: There's a lot of pressure on VFR more than business traffic to Mexico right now, so we're navigating through those waters and I think we will be looking at Canada and Mexico as places that we probably want to reduce our capacity level as we move forward.
Thank you for watching!
Tom Wadewitz: And how do you think about the risk for transatlantic, I know you skew pretty heavily towards US point of sale, if you know if, if
Tom Wadewitz: You know that that continues to be strong, but you know Europeans
Tom Wadewitz: Traveling to the US, fall off, meaningfully. So, I guess that would affect your partner or the European Airlines, but presumably that would negatively affect the market as well, just supply demand. So, how do you think about that if it's kind of one side of the equation falls off? [inaudible]
more sharply, and the U.S. point of sale is...
Tom Wadewitz: Strong, how does that affect the international? Thank you. Well, one of the reasons we've bias towards US point of origin is because the fairs that we have been getting historically out of the US are significantly higher than they are out of the rest of the world.
Tom Wadewitz: So over time we've continued to push the percentage of sales that come onshore to where we sit about 80% of our long haul international now is onshore US.
Tom Wadewitz: We have not seen yet a crack in the rest of the world to the United States, and we're mindful that that could happen, but we haven't seen it yet, but that only represents about 20% of our international point of sell revenues.
Thank you for watching!
and Daniel Janki. Thank you. Thank you.
Okay, great. Thank you
Thank you for watching!
Speaker Change: Thank you. Your next question is coming from Sheila Kahyaoglu from Jeffries, your line is live.
Speaker Change: Thank you, good morning everyone, I want to ask two questions, the first on corporate. [inaudible]
Speaker Change: Buffalo's always on top of corporate demand surveys so obviously you talked about some of that changing. Maybe can you talk about how much risk there is given or just getting back to pre pandemic levels.
Speaker Change: in the corporate and why corporate was it just the volatility or are they actually cross-cutting? And if you want to talk about industries.
Speaker Change: I'm going to let Ed talk about his perception of how US industry is dealing with this. What we have seen is that
Speaker Change: Some of the sectors that had been impacted like auto have taken a disproportionate hit [inaudible]
Speaker Change: And so when you think about the entirety of our portfolio being roughly flat year over year, there are thanking [inaudible]
Speaker Change: Tech being up, offset by some of the more industrial companies that have been impacted on the front end of these tariffs, beating down more to get you to a kind of flatish, and I'll let Adapine.
from how he thinks CEOs are thinking about this. [inaudible]
Speaker Change: Well, Sheila, in a period of maximum or potentially maximum uncertainty, you know, all companies do what they can to make sure they protect their future and Delta is doing that, as we said, whether it's reducing capacity or finding other ways to.
to save cash and protect our margins.
Speaker Change: Historically, corporate travel has been the first thing, one of the easiest things to minimize if you're a company. Interestingly, it hasn't gone negative, it's flat on a year-over-year basis, so there's about a ten point.
Speaker Change: from where we were at the beginning of the year to where we are now, which is flat. And I think a lot of companies are trying to figure out what the future is.
Speaker Change: We continue on in this elongated sense of uncertainty. No question you'll see continued reductions in corporate travel. But I think it's premature to to project too far ahead at this time.
Speaker Change: But maybe once again, Dan, what do you need to see if black capacity in the second half? What do you need to see to actually reduce your fleet and increase your retirement? [inaudible]
. . . .
Thank you for watching!
The...
Speaker Change: With slight capacity, I talked about it a little bit in the prepared remarks [inaudible]
Speaker Change: You know, we are taking down our view from where we started the year as it relates to net additions and that's both managing the retirement side of it and also being mindful of the catbacks and cash side of it as it relates to additions to the fleet.
Speaker Change: and we'll be under 10. So when you think about less than 10 editions in a fleet that's 1,300, you've got less than.
to less than 1% net addition growth. [inaudible]
Speaker Change: So when we look at that, and we look at retirements, we've always talked about we'd operate in this range of...
Speaker Change: 20-30, I think will be at 30, probably above, maybe here as it relates to retirements and we tie that back to where we're flying. The product has Glenn talked about. The profitability of that flying wears the ones that are those. [inaudible]
Speaker Change: that we can get at that are money losing that tie both to the commercial side but also have costs associated with them so that we focus on margins.
Got it. Thank you.
Speaker Change: Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live.
Hey, good afternoon and thanks for taking the time.
questions. All right.
Good morning.
Speaker Change: So Dan, when you think about the capex budget going forward, how should we be thinking about the impact of tariffs on new deliveries and what that might kind of do in terms of your appetite to maybe defer some aircraft might be coming into the network?
Speaker Change: Hey, David, this is Ed. Let me take that. Obviously, in this environment, we're going to work and we are working very closely with Airbus, which is the only airline we've got deliveries coming from.
Speaker Change: for the balance of this year. And they've been a great partner. They aren't a great partner. We'll do our very best to see what we have to do to minimize terrorists. But the one thing that you need to know we're very clear on is that we will not be paying terrorists on...
and any aircraft deliveries we take.
The, you know, these two are...
Speaker Change: Times are pretty uncertain, and if you start to put a 20% incremental cost on top of an aircraft, it gets very difficult to make that math work. So we've been clear with Airbus on that, and we'll work through and see what happens from that. [inaudible]
Speaker Change: All right, thanks, and then maybe Glen, just as a quick haul up, and when you're thinking about the buy-ups that you're seeing between the main cabin, those comforts.
Glenn Hauenstein: Is there anything you're seeing in terms of how those are holding up in relation to this downturn in the main cabin, like I mean, are these, are the vibes actually getting a little bit wider right now? Are you seeing them just going to kind of stay the same absolute level? I'm just trying to get a sense for kind of how this news ends
Agmentation Strategies, actually sort of impacting in this weaker demand period. [inaudible]
Glenn Hauenstein: Well, the premiums continue to widen the lead over main cabin, and so we're expecting the spreads and the yields to actually widen in this next quarter, as opposed to converge. So, we're going to go ahead and see what we're going to do in the next quarter.
. . . .
and you think that's sustainable? Okay.
Glenn Hauenstein: You know, I don't have a crystal ball on that. I can just report what we're seeing as of today and what we're seeing as of today is they're not converging. They're separating.
Thank you.
Thank you for watching!
Speaker Change: Thank you. Your next question is coming from Scott Group from Wolf Research. Your line is live.
Scott Gruff: Hey, thanks. Good morning. So as others expand their premium product and some make changes like back fees and things like that, how do you think about the risks and the opportunities
presents.
Scott Gruff: Well, I think it highlights all the investments we've been making over the last 20 years whether or not it's the reliability of the airline whether or not it's the club network we developed whether or not it's the stickiness of our card structure
Scott Gruff: It's one thing to be able to produce a premium seat and that's probably the easiest piece of the equation. It's another to get customer loyalty which is very very difficult.
Scott Gruff: and takes a long period of time and a lot of investments. That's what I expect, so...
Scott Gruff: I look at our competitive set in saying in a more challenging environment, will they be able to make those types of investments, whether it's free Wi-Fi, whether or not it's club networks, whether or not it's
Scott Gruff: All those investments that we've made year after year in the last 20 years, it seems to me that they're going to be more constrained and capital than they were probably just even a couple of months ago, and trying to get there is going to be more difficult for them, not less difficult, and that will widen our lead
Scott Gruff: and as people continue to change their products to try and align more with full service carriers, I think there are opportunities to go after some of their more loyal customers.
Scott Gruff: which will be taking advantage of as we move through here. We've had some very successful programs that have gotten us a lot of new members in places that other carriers are operating as the largest carrier but maybe not the one people want to align with. Thank you very much.
and then Glenn.
Speaker Change: If you look at this historically in a downturn, international can be down more than...
Scott Gruff: Domestic, and I know there's been some questions about this, but that's not happening yet. Do you think that's just the longer booking curve for an international that you talked about, and this is...
Scott Gruff: found to get worse in the second half of the year, maybe that speaks to the lack of fully uncertainty or where there's a reason why international just holds up better this time.
Scott Gruff: Well, I'm going to go out on a limb here and say that the reason I don't see it right now is that we monitor cash sales by entity every day and those cash sales that are coming in the door as of yesterday that we're recording today as cash.
Scott Gruff: are very strong for international through the summer all the way out to September , October . So we're actually up significantly in transatlantic, for example, in cash sales year over year.
Scott Gruff: So you would think that's the first line of, it's not just the booking care of its people's intent to travel in the future [inaudible]
Oh...
Scott Gruff: So, again, uncharted territories, this is kind of, I think, what many people are characterizing as a self-imposed.
Scott Gruff: issue, in terms of uncertainty. And we'll see how it resolves itself. The other thing I would say is that the cohort that is traveling right now
Scott Gruff: has an average age in Delta 1 in the 60s, which means the baby boomers are traveling and being a baby boomer, I can say this without fear of retribution. Thank you for your attention.
Scott Gruff: There's only so much time to go to Europe or almost so much time to go to Australia or Japan and so you've got this wealth effect where this cohort of retirees is wealthier than any other cohort even with the most recent rundown and they want to go do the fix. [inaudible]
Speaker Change: Couple of things to add to Glenn's comments from that Scott . . .
and Steve. Thank you.
Speaker Change: 2019, and we've used the stats several times. Our core customer is, in fact, I'd say not just core, I'd say almost exclusively, our customer has household earnings on an annual basis, $100,000 or more, which by the way represents 40% of US households, so it's not in the leadest definition by any means. [inaudible]
That group of people accumulated just since...
2019, $35 trillion.
of overall wealth. [inaudible]
Speaker Change: between their own real estate market, et cetera. So when you look at where the market has pulled back, say in the five to seven trillion dollar range in recent weeks,
Speaker Change: That's a huge number and I can understand people's concern with what that means to them individually, but on balance.
Speaker Change: What I think they're going to do is they're going to further prioritize what they're spending on.
Speaker Change: and the demand set that we've seen for the last number of years. [inaudible]
The desire to experience rather than acquire [inaudible]
Speaker Change: I think it's going to continue to stay strong and that's what you see.
Speaker Change: in our booking data, that's what you've seen in our American Express data.
Speaker Change: That's what you see in the premium product category and that's what Delta is the very best at So I appreciate we're talking our book a little bit here and it's it's early days we don't we know we're not immune we're not immune.
Speaker Change: to the concerns of the overall economy, but I think this time feels different a bit, and we're going to be very close as Gwen said, in terms of monitoring it, but I do think there is some new learnings coming through this period of time. [inaudible]
Thank you guys
Speaker Change: and God, if I could add one more thing to the very end of that. [inaudible]
Speaker Change: The other thing we should note that the market effect of the wealth effect of the market tradeoff [inaudible]
Speaker Change: The market is back to where we were a year ago. So it's not as if the market has fallen off a cliff. I mean, none of us feel good about it, but this is where the market was a year ago. And the demand set was very strong then.
Thank you for watching!
Thank you
Speaker Change: Thank you. Your next question is coming from Jamie Baker from JP Morgan. Your line is live.
Jamie Baker: Hey, good morning, everybody. I'm Glen. It's the booking curve for premium, differ, meaningfully from that of Maine Cabin.
Not significant like that. [inaudible]
Speaker Change: Okay, perfect. And look, most of my resume questions have been addressed, but I do have a question for Ed, you know, obviously there have been a lot of new hires post COVID.
Speaker Change: That's put some strain on operations in the past, and you know, so for some portion of your workforce of your workforce.
Speaker Change: This is going to be their first crisis, or downturn or bump in the road, however you want to characterize it.
Does that change how you personally add? [inaudible]
Speaker Change: Think about managing the business day today. I'm just trying to think through the implication of lower profit sharing this year relative to last year. Whether that feeds through to operations or customer service, anything like that. Any thoughts on how you might be managing the workforce differently? Certainly.
That's an interesting question, James B.
Speaker Change: I don't think so. I mean, obviously we will take action, we're not planning on any involuntary actions at all [inaudible]
Speaker Change: A lot of the new hires that you refer to that joined us on the front lines
Speaker Change: actually came from the industry, from other airlines, because they always wanted to get the Delta, so these are people that do appreciate it.
that this industry can get and bump into turbulence.
Speaker Change: I can tell you virtually every time I speak with our front-mind teams, and that's probably just about every day [inaudible] I don't know. I don't know.
Speaker Change: I always, always remind them that while we may be doing well, this is a very humbling industry and all we know is what we can see for the moment and we always have to be prepared to make change and when change happens that's the opportunity for Delta to differentiate itself. [inaudible]
Speaker Change: So, I don't look forward to this opportunity, but I'm confident that Delta Team will rise to the occasion
Ed Bastian: Thank you very much, Ed, for fielding her question with admittedly a bit from left field. I appreciate it. Thank you. I'd expect nothing different.
Speaker Change: Thank you. Your next question is coming from Brandon Oglenski from Barclays. Your line is live.
Brandon Okulinski: Hey, good morning, and thanks for taking the question. So, Ed or Glen, I mean, I know this year is different with our self-inflicted liberation terraforms here.
Speaker Change: But if I just rewind the tape for the industry, I feel like the last three years we've been talking about...
Speaker Change: Off Peak Weakness, and that's through what's been pretty much a growing economy the past few years. So I guess at what point does the industry say we really have to restructure the way we look at Off Peak, or is that just too challenging from a cost perspective for a network like yours? [inaudible]
Speaker Change: Well, as you pointed out the last few years have been about revenue growth for the industry.
Speaker Change: And one of the things we do when revenue is growing is we build up our off peak time channels.
Speaker Change: And so if you look right now where we sit versus our competitive set, we are overbuilt for example on Tuesdays and Wednesdays, where we were last year and higher than American or United in the mid to upper 90s.
Speaker Change: We try to do that so when we hit these environments or hit these air pockets, that that becomes our first line of defense because that is always the weaker time channels that are always what suffer in terms of profitability first.
Speaker Change: And so right now, you'll see us go from over indexed on Tuesdays and Wednesdays to under indexed on Tuesdays and Wednesdays as we move into the second half of the year.
to align really where we think capacity. [inaudible]
where the man is going to sit. [inaudible]
Speaker Change: The other great thing about Tuesdays and Wednesdays is they tend to have very high recapture [inaudible]
Speaker Change: So, those that come the most accretive and when you think about...
Speaker Change: What do you recapture on a Friday 5 p.m. flight versus what do you recapture on Tuesday at 11 a.m. It's a very different profile. So we're excited about the ability in this more choppy environment to go after the things that have low margins to begin with and highly capture rates. .
Speaker Change: Thank you, Glen. And Dan, maybe just one quickly on the fleet because I think you guys mentioned maybe incremental retirements is that correct? And how does that impact your maintenance planning and incremental maintenance spinning outlook? Thank you very much.
Speaker Change: Yeah, I guess two things. Yes, we have talked about incremental retirements. I think in general, last year it was in the low 2021. This year will be 30 or above. We said less than 10 net additions.
Speaker Change: and I think overall on maintenance that we've talked about is that we are in a unique period that we had a high watermark last year driven by our volume and the opportunity to bring that volume down over a multi-year basis.
Speaker Change: But also the proficiency of the workforce, the cycle times in industry, the material availability and challenges that that drove as it relates to turn times.
Speaker Change: So, when you look at retirements and other items, we'll get additional benefit when we take out incremental flying. We'll look at that high cost flying and there will be an element that has maintenance related savings associated with it.
Thank you, Dan.
Speaker Change: Matthew will now go to our final analyst's question, Ravi Shanker from Morning Family.
Certainly, and Ravi, your line is live.
Robbie Schenker: Great. Thanks for fitting in here. Maybe just a wrap up the call. I think you can take a little bit of a step back here. Can you just help us with what the anatomy of a downturn usually looks like? And if is it normal to have?
Robbie Schenker: Growth, slow to stalled growth and then flip to a decline or I just want to get a sense of should we be pleased that like it's not worse than being stalled here or is that like pretty normal for a downturn?
Robbie Schenker: Ravi, having been here for 26 years, I've lived through most of the recent history, whether it's 9-11 or for session
Um...
Robbie Schenker: The period of time we saw during COVID, and they're all different. COVID, as you can remember, was traumatic. It happened overnight, and it spread quickly. It affected every part of our business. [inaudible]
One of the things that this team is...
is quite good at managing those positions of challenge. [inaudible]
I've said it often times, somewhat ingest. [inaudible]
Robbie Schenker: That as airline managers, we're excellent at doing with diversity, managing prosperity tends to be a problem for us sometimes, but we're good when trouble hits in New York, because we know where the levers are, we know what the actions to take, we close ranks quickly and we may change.
You know, this right now, it's...
Hard to know.
Robbie Schenker: How this is going to play out, given that this is somewhat self-imposed. [inaudible]
I'm hopeful that the...
Robbie Schenker: That sanity will prevail, and we'll move through this period of time on the global trade fund relatively quickly. But we're prepared in any event to make sure that we protect Delta through this.
Speaker Change: Understood, and maybe as a follow-up, can you, sorry if I missed earlier, but can you remind us what percentage of a crowned Atlantic is European point of origin? And if you see that drop-off in the coming months for non-economic reasons, kind of, how do you consider kind of redirecting that capacity? Thank you.
Speaker Change: Sure, it's only about 20% of our total transatlantic revenues, and the rest, of course, is from rest of the world, whether or not it's through the Hobbes in London, Amsterdam or Paris.
Speaker Change: and what we've seen in the past is, we're able to resell that baby and not at the yield that we want.
Speaker Change: but there's enough demand to the US from the entire world. [inaudible]
Speaker Change: that we can mitigate most of that softness should occur to this day that hasn't occurred, so we'll keep close eye on that.
Very helpful. Thank you.
Speaker Change: Thanks, Ravi. That will wrap up the analyst's portion of the call, and I'll now turn it over to Tim Mapes to start the media classroom. Thank you.
Tim Mates: Thank you, Julie. Matthew, while we change the queue to cut a squeeze in a few members of the media questions, could you please restate just the process for queuing up and one question and one follow-up please so we get as many as we can in the few times. Few moments we have here. Thank you.
Speaker Change: Certainly, and at this time, we're conducting a Q and A session for media questions, and if you have any questions or comments, please press star then one on your phone. Please hold Wally Poe for questions.
David Vernon, Thomas Fitzgerald, Thomas Fitzgerald
Speaker Change: Thank you. Your first question is coming from Mary Schlangenstein from Bloomberg News.
Your line is live.
Mary Schlankenstein: Thank you, good morning. I wanted to see if you could be any more specific on your discussion with Airbus on not paying tariffs on new planes that you're taking this year. Is that sort of a negotiation, or is that just a flat out, you know, Delta position that you're not going to move off of? How does that play out? [inaudible]
Thank you for watching!
Speaker Change: Mary, that only went into effect that tariff this week, so obviously it's early, we'll work very closely [inaudible]
Mary Schlankenstein: with Airbus, who are great partners, and they understand our perspective. But our point is pretty clear, I'm not going to...
Mary Schlankenstein: I don't think I need to elaborate that in any great depth. We hope that this issue will be resolved through the trade discussions, as compared to actions that either Delta or Airbus have to take. One thing that I learned I didn't realize. [inaudible]
Mary Schlankenstein: is that when you think about our business in terms of export, import, balance, imbalance between US and Europe for the aerospace industry, the US export six times.
Mary Schlankenstein: It's a Europe , the amount of trade that Europe imports into the US That's a really important fact to know and I hope our leaders in Washington are paying attention to that [inaudible]
Speaker Change: Great. Thank you. And if I could quickly ask, I believe that you said earlier that you were seeing some decline in international leisure in the main cabin. Is that correct? And if that is, can you put any kind of a number of percentage on that?
Speaker Change: We would say of the international, the premium outperforming main cabin, and we have not put a number on it nor would we want to do that.
Okay, thank you.
Thank you.
Speaker Change: Thank you. Your next question is coming from Alison Sider from Wall Street Journal. Your line is live.
Allison Sider: Hi, thanks so much. I'm just to follow on Mary's question quickly. Are you looking at deferring any deliveries until there's more clarity about the tariff situation? Or just because of the growth flowdown?
Allison Sider: We will defer any of the livers that have a tariff on it.
Speaker Change: And if I ask one more, I know the investigation is still ongoing, but I'm curious if there's been anything that's sort of come out that you've learned after the Toronto incident, anything that you've re-evaluated in terms of pilot training or your regional operation? Thank you.
Speaker Change: Hey, Allison, it's Peter Carter, so that investigation is ongoing and I think you know we don't we don't comment on ongoing investigations until the final reports come on.
Thank you.
Speaker Change: Thanks, Allie. Matthew, we could get one more in, baby Leslie. We'll try to cut this right at 11 o'clock, please. Absolutely. Your last question's coming from Leslie Joseph from CNBC. Your line is live.
Leslie Joseph: Okay, thank you for the question. Back in the memory, you had said that the incoming Trump administration was likely going to be kind of breath of fresh air, compared with the prior and that was regarding some of the consumer regulations that the Biden administration put in. Have you had any response from the Trump administration on reversing any additional?
. . . .
Speaker Change: This is Peter Guntsoh. In fact, the Trump administration has...
Leslie Joseph: issued an order that, in essence, it's freezing, many of those...
Speaker Change: proposed regulations. And so we are hopeful that many of those end up being put aside for the long term.
Thank you for watching!
Leslie Joseph: Thank you Leslie. Matthew, that will conclude our session today. Thank you if you want to conclude the call. Thank you very much.
Leslie Joseph: Thank you, and that concludes today's conference call. Thank you, everyone, for your participation today.