Delta

Airlines

Delta told analysts the airline was seeing higher revenues on lower capacity, and it planned to hold capacity for the year

Delta’s CEO apologized for cancelations and delays and said the company would “hold capacity at June level for the remainder of the year.” “Ed Bastian — Chief Executive Officer: While the demand and revenue landscape is the best we’ve seen, the operational environment for the entire industry remains uniquely challenged. I’d like to sincerely apologize to those who have been impacted by cancellations, delays, and long wait times over the last two months. This quarter’s operational performance has not been up to our industry-leading standards, and restoring operational excellence is our top priority. Steps we’ve taken include the strategic direction to hold capacity at the June month level for the remainder of this year as well as additional investments to restore operational integrity, including earlier boarding procedures and operational buffers.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta’s CEO boasted that “84% of our flights arrived on time” and told analysts the company only restored “less than 85% of our capacity.” “Ed Bastian — Chief Executive Officer: We are pleased with the progress and July is off to a very good start with a 99.2% completion factor through the first 11 days of the month, which is exactly on par with the same holiday period in 2019. In fact, over the last seven days of this period, we’ve had only 25 cancellations worldwide on over 30,000 departures. Over this period, 84% of our flights have arrived on time, as measured within 14 minutes of scheduled arrival. Since the start of 2021, we’ve hired 18,000 new employees and our active headcount is at 95% of 2019 levels, despite only restoring less than 85% of our capacity. (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta’s CEO: “we’ve been profitable over the last 12 months, with margins this summer beginning to approach 2019 levels despite meaningfully lower capacity and a doubling in fuel prices.” “Ed Bastian — Chief Executive Officer: We’ve recently made major customer enhancements that will strengthen our brand for years to come, including recent openings this quarter of world-class airport facilities at LAX and New York’s LaGuardia Airport, two largest markets for travel in the country as well as new Delta Sky Clubs in key markets. We spent over a decade building our reputation as the most reliable airline globally, but we’re not only determined to deliver that same standard of excellence but are investing to bring it to an even higher level. In the face of the pandemic, financially, we’ve been profitable over the last 12 months, with margins this summer beginning to approach 2019 levels despite meaningfully lower capacity and a doubling in fuel prices. In my opinion, a pretty remarkable turn in performance. With our results in the first half of the year, we remain confident in our 2024 targets for earnings per share of over $7, more than $4 billion in free cash flow, and a return to investment-grade metrics. Now I’ll turn it over to Glen to talk about the revenue environment.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta’s President: “For the September quarter, we expect revenue versus 2019 to be up 1% to 5% on capacity that is 15% to 17% lower, with total unit revenues versus 2019 improving sequentially. For the full year, we expect capacity to be 15% lower than 2019.” “Glen Hauenstein — President: This is 20 points above the June quarter volumes and over 90% by 2023. As the leading carrier for business travel with a best-in-class product in the air and on the ground, we will benefit disproportionately as the business community continues to reconnect in person. For the September quarter, we expect revenue versus 2019 to be up 1% to 5% on capacity that is 15% to 17% lower, with total unit revenues versus 2019 improving sequentially. For the full year, we expect capacity to be 15% lower than 2019. This is a 5% reduction from our initial guidance. As we move to the back half of the year, we expect stronger corporate and international trends to offset seasonally lower customer demand. With a strong brand and diversified revenue base, Delta is positioned to consistently deliver a revenue and profitability premium to the industry. We expect more than 60% of revenue will come from premium products and non-ticket revenue sources by 2024.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta’s executives credited their discipline in reducing capacity for their financial performance

Delta’s CEO boasted that “Delta has been the most disciplined in restoring capacity and will remain nimble depending on the environment while staying true to our core competitive advantages.” “Glen Hauenstein — President: We entered the second half of the year ahead of many of our commercial goals set at the Capital Markets Day. And we’re excited about the opportunities to elevate our performance by extending our advantages and leveraging the Delta platform. Delta has been the most disciplined in restoring capacity and will remain nimble depending on the environment while staying true to our core competitive advantages. With that, I’ll turn it over to Dan to talk about the financials.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta’s CFO told analysts that their financial performance was ahead of expectations, saying the “primary drivers are slower capacity restoration and additional investments that deliver the operational excellence.” “Dan Janki — Chief Financial Officer: Our first half financial performance puts us ahead of our initial expectations at the start of the year, supporting our outlook for meaningful profitability in 2022. The exception to this outperformance is our nonfuel unit cost. At Capital Markets Day in December, we laid out a progression to return our nonfuel unit cost structure to within a few points of 2019 by 2024. The actions that Ed spoke about have changed the pace of our unit cost progression but not the destination. The primary drivers are slower capacity restoration and additional investments that deliver the operational excellence.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta’s CFO said the airline was “largely carrying the full cost of the airline with only 85% of our flying restored. As a result, we are not fully utilizing our assets.”“Dan Janki — Chief Financial Officer: The biggest impact is in the third quarter, where we expect nonfuel CASM to be up approximately 22% versus 2019 on capacity that is 15% to 17% below 2019. For the full year, we now expect nonfuel unit costs to be approximately eight points higher than we initially guided. The level of capacity restoration accounts for the majority of this increase, as we are largely carrying the full cost of the airline with only 85% of our flying restored. As a result, we are not fully utilizing our assets. For example, third-quarter aircraft utilization is about 10% lower than 2019. And while we have over 95% of the employees needed to fully restore capacity, we have thousands in some phase of hiring and training process. The remainder of the increase is driven by investments to support the operation, along with smaller items like higher maintenance and inflation.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)

Delta told analysts that that less than 20% of their capacity was for basic economy seats

Delta’s President said the company’s target was “to have less than 20% of our capacity available on basic economy” but “that’s come down to below 10% or right around 10% as the high demand through the summer has really displaced those customers.” “Glen Hauenstein — President: Well, I think you just described what’s happened is as spares came up and as inventory controls went into place, while the fares per basic economy were filed, they were not readily available as they were squeezed off by our higher-yielding customers. So our target has been, and really, these are soft targets, but to have less than 20% of our capacity available on basic economy. That’s our very soft kind of macro target that we have. And that’s come down to below 10% or right around 10% as the high demand through the summer has really displaced those customers. That’s a result, not an intent.” (Delta Air Lines Q2 2022 Earnings Call, 7/13/2022)