Operator:

Good morning everyone and welcome to the Delta Air Lines June Quarter 2024 Financial Results Conference Call. My name is Matthew and I'll be your coordinator. At this time all participants are on a listen-only mode until a question-and-answer session following the presentation. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Ed Bastian :

Well, thank you, Julie, and good morning, everyone. We appreciate you joining us today. Earlier this morning, we reported our June quarter results, posting pre-tax earnings of $2 billion or $2.36 per share, on record quarterly revenue up 5.4% over last year. These results are the second highest quarterly earnings in our history. We achieved a 15% operating margin and generated $1.3 billion of free cash during the quarter, bringing our first half free cash flow to $2.7 billion. With strong cash generation, we continued to progress our balance sheet back towards investment grade metrics and announced a 50% increase to our quarterly dividend. We delivered a return on invested capital of 13%, 5 points above our cost of capital and in the top half of the S&P 500. Delta's leadership is increasingly being recognized alongside some of the world's best companies. Just last month, Delta was ranked fourth in the Fortune 500 return on leadership by Fortune and Indigo, just behind Nvidia and Microsoft. Through the year, our teams have delivered industry-leading operational performance month in and month out, with Delta leading across all key metrics, including completion factor, on-time departures, and arrivals. This performance builds on our long-standing position as the most reliable airline in the US, and I'd like to thank all 100,000 members of our team for their exceptional work taking care of our customers each and every day. They are truly the best in the business. Recognizing the extraordinary skill and care of our people, Delta was named the 2024 Global Airline of the Year by Air Transport World at the recent IATA Annual Meeting. And for the sixth year in a row, The Points Guy ranked Delta as the best US Airline. Delta was also recently named the top-ranked carrier across all premium cabins in J.D. Power's North American Airline Satisfaction study. Sharing our success with our people is core to our culture and we are at the forefront on total rewards for our employees. We provided a 5% pay raise on the 1st of June to eligible employees and we have accrued more than $640 million in profit sharing through the first half of the year. I am confident our profit sharing payout next February will continue to lead the industry by a wide margin. Our people are the foundation that enables Delta to deliver elevated experiences to our customers. To further differentiate our service excellence, we are making high return investments that make travel more seamless and connected, including generational airport rebuilds, the most comprehensive Lounge network in the industry, expanded premium offerings, and fast free Wi-Fi on board. Just a few weeks ago, we opened our new Delta One Lounge in JFK, the first of its kind. It offers a variety of world-class amenities for our customers, from fine dining to spa treatments. And later this year, we'll open Delta One Lounges in Boston and Los Angeles and in Seattle early next year. We're also enhancing existing Delta Sky clubs with the recent expansion of the Miami and LaGuardia clubs. On board, we have upgraded service in our Delta Premium Select Cabin and will expand this popular product to select transcontinental flights this fall. We recently released the most comprehensive refresh of the Fly Delta app in the last five years. Updates to the app added new features and functionality to save customers time and manage their travel even when the unexpected happens. Since the launch a record number of customers have visited the app with self-service usage during periods of disruption up five full points, improving the customer experience. And more and more customers are joining our SkyMiles loyalty program and deepening engagement beyond flight, with about 30% of our active members carrying a Delta SkyMiles American Express credit card in their wallet. New card acquisitions are skewing younger, and the overall portfolio continues to shift to a more premium mix, positioning us well to achieve our long-term remuneration goal of $10 billion. Finally, just this week we are excited to announce an exclusive partnership with Riyadh Air, a new global carrier that will begin service in Saudi Arabia next year. Riyadh Air will be the Premier International Airline for Saudi Arabia, and its partnership will expand connectivity and premium travel options for both airlines across North America, the Kingdom of Saudi Arabia, and beyond. The agreement comes amid large-scale investments in the region that are rapidly transforming the Kingdom of Saudi Arabia into a popular destination for leisure and business travel with tremendous opportunity for growth. All of our continued investments across the travel ribbon strengthen Delta's trusted brand and build on our long-term journey to elevate the travel experience and increase our financial durability. Delta's industry leadership has never been greater, and while demand for air travel remains strong, with record TSA travel volumes up 7% from last year's levels, domestic industry [seat] (ph) growth has accelerated through the summer months, impacting yield performance in the main cabin. As the carrier of choice with a diversified revenue base, Delta is the most insulated from this dynamic. We are delivering double-digit margins and strong returns in this environment, with Delta expected to generate 50% of the industry's profitability in the first half of the year, despite only representing 20% of the market capacity. That said, we are encouraged by the actions the industry is taking. Seat growth is decelerating, and there appears to be increased focus on improving financial performance. While our returns are strong, I'm confident that we'll see an even more constructive industry backdrop through the back half of the year and into 2025. Turning to our outlook, travel remains a top purchase priority, and Delta's core customers are in a healthy position. The secular shift in consumer spend to prioritize experiences align perfectly with Delta's strategy and premium focus across our global network. Air travel demand is at record levels with this past Sunday marking Delta's highest-ever summer revenue day. For the September quarter, we expect continued demand strength, a double-digit operating margin, and a pre-tax profit of approximately $1.5 billion. Glen and Dan will provide more details on our third quarter outlook. With strong first half performance and good visibility into the second half, we remain confident in our full year guidance for earnings of $6 to $7 per share, free cash flow of $3 billion to $4 billion, and leverage of 2.5 times. In closing, as we approach our 100-year anniversary in 2025, Delta is in a stronger position than ever before. Our industry-leading performance reflects the strength of Delta's differentiated brand and returns-focused strategy. And with our clear prioritization of free cash flow and debt reduction, Delta is exceptionally well-positioned to deliver significant shareholder value. We look forward to sharing more about our long-term strategic and financial goals at our upcoming Investor Day in New York this November. Thank you again. And with that, let me hand it over to Glen for more details on our commercial performance.

Dan Janki :

Thank you, Glen, and good morning to everyone. For the June quarter, we delivered pre-tax income of $2 billion on a 15% operating margin. Earnings of $2.36 per share was in-line with our guidance and in-line with 2019 despite fuel prices that were more than 25% higher. Non-fuel CASM was up 0.6% year-over-year, more than 1 point better than guidance primarily on stronger completion factor. A great operation is the foundation of a competitive cost structure. And in the June quarter, we delivered a 99.5% system completion factor, including 13 cancel-free brand-perfect days. For the first half, Delta has delivered 39 brand perfect days, more than all of last year combined. Fuel prices average $2.64 per gallon for the quarter. This included a $0.06 benefit from a refinery profit of $60 million. Fuel efficiency was 1.1% better than last year, benefiting from the continued renewal of our fleet and running a great operation. Operating cash flow in the first half was $4.9 billion, and after reinvesting $2.3 billion back into the business, we generated free cash flow of $2.7 billion. Strong cash generation has supported debt repayment of $2.1 billion year-to-date, including $900 million of early repayments. Gross leverage ended the quarter at 2.8 times. We remain on track to repay $4 billion of debt this year and are committed to further strengthening our balance sheet with a focus on returning to full investment grade. Delta is currently investment-grade rated at Moody's and BB+ at both S&P and Fitch with all agencies with a positive outlook. With strong results and cash flow through the first half, we announced a 50% increase in our quarterly dividend. This puts our annualized dividend yield at just over 1%, in-line with the S&P 500. Now moving to the September quarter guidance. Combined with our outlook for top-line growth, we expect an operating margin of 11% to 13% with earnings of $1.70 to $2 per share. Fuel prices are expected to be $2.60 to $2.80 per gallon, including an approximately $0.05 contribution from the refinery. Refinery margins have normalized and profits are expected to be $60 million lower compared to the third quarter of last year. Non-fuel unit costs are expected to be 1% to 2% higher than last year on 5% to 6% capacity growth. With normalized growth and consistency in delivering a great operation, we are making progress in driving efficiency and growing into our resources. On maintenance, the investment in fleet health we made since last summer are paying off, with maintenance cancellations in the first half down 77% over prior years. We continue to expect full year maintenance expense to be up $350 million over 2023, as we progress through elevated volume of heavy airframe and engine checks and continue to manage industry-wide supply constraints. The majority of this increase was in the first half of the year, with second half maintenance expense expected to be similar on a year-over-year basis. Total non-fuel unit costs in the second half are expected to increase in the low single digits, as we fund investments in our people and brand and capacity growth decelerates. For the year, our fleet growth is expected to be less than 2%, including approximately 40 aircraft deliveries and 20 retirements. Our unencumbered asset base is expected to grow to $30 billion by year-end, as we continue to pay cash for our new deliveries. We remain confident in our full year outlook of earnings of $6 to $7 per share and free cash flow of $3 billion to $4 billion with full year CapEx expected to be $5 billion. With a continued focus on margin and returns to drive sustained cash flow generation, Delta is well-positioned to improve our balance sheet to investment-grade metrics and deliver shareholder value. In closing, Delta's industry-leading performance is a direct result of the hard work of our employees. I want to thank the Delta people for continuing to go above and beyond for our customers and each other every day. And with that, I'll turn it back to Ed for a final remark.

Operator:

Certainly. At this time we will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Conor Cunningham from Melius Research. Your line is live.

Glen Hauenstein:

Sure, Conor. I wouldn't say we are minimally booked. We probably have about [one-third] (ph) of September bookings domestically on hand, so we have a good base. And the base we have is substantially better than the base we had going into July and August at minus 60 days. So we see a much better base. And then of course, the core economics of the industry's capacity continuing to come down and going back into a more normalized business season where business tends to tick up from August to September. So I think when you think about one of our core strengths being business, July and August, that's not ever been peak for business. So as we move back into the business season given the trends we've seen in business demand, we think that will be another uplift. So really confident about our September numbers and really confident that not only is domestic improving substantially but international is also improving dramatically.

Glen Hauenstein:

Well, I'll comment on the capacity and then let Ed take the broader question. On capacity, I do think, listen this is an industry that's always challenging itself for how much capacity can it be in the marketplace. And I've been doing this for 40 years and I've never seen the industry react so quickly to an oversupply. So we've really only been in an oversupply situation for a couple of months here, and the industry has already reacted. And I think that's very different than it was years ago where it would stay for prolonged periods of time. So I'm really excited about how the industry is behaving at this point. And for the broader question, I'll turn it back to Ed.

Conor Cunningham :

Great. Thank you.

Savi Syth:

Hi, good morning everyone. Just I think kind of the Boeing challenges are well understood but the update from Airbus a few weeks ago was surprising. And -- I wonder if you could talk about how you are managing through the supply chain issues. And any early thoughts on how you're thinking things evolve in 2025 in terms of just managing the operation but also in terms of kind of planning for growth.

Savi Syth:

And I'm guessing then on an operational standpoint, maybe not expecting any improvements either, just having just extra buffers will continue?

Savi Syth:

That's helpful. Thanks Ed. And if I might, Glen ask about on the LATAM side, you mentioned kind of encouraged about what you are seeing there. I was kind of curious on the unit revenue pressure. Is that still coming from short-haul with long-haul still largely flattish even despite the growth? And where are you expecting the improvement as you go through?

Savi Syth:

Appreciate it. Thank you.

Jamie Baker:

Good morning everybody. So Glen, there is a concept of unbundling the front cabin is one that I've been thinking about in part because unbundling and segmenting the rear cabin has been such a success for Delta and a few others. I want to be careful about asking about future pricing on that. But I'm curious what the pros and cons are in terms of possibly going down this path? Or is one price for all how we should continue to think about the D One cabin?

Jamie Baker:

I'm confident I will work it into my schedule. And then maybe for Ed or for Glen, but at a high level, it seems that those airlines that are currently under duress, are sort of beginning to lean into premium, and maybe premium is too strong of a term, but some of the more punitive ancillary charges, change fees are disappearing. There is an option of an empty middle seat. Southwest has said they're looking at some sort of enhancement to their product. I'm just curious if this is something you and the team think about. The conventional wisdom is that premium spoils belong to Delta. But what we're seeing today is that Delta is not entirely isolated from low-end overcapacity. I'm just thinking down the road if we could find Delta isn't as isolated from, let's call it pseudo-premium overcapacity. Any thoughts there? Thanks in advance.

Jamie Baker:

That’s great, Ed. Thank you very much for that response. Take care. See you at Investor Day.

Tom Fitzgerald:

Hi everyone. Thanks very much for the time. So sticking with the premium cabin for a little bit, would you mind just unpacking just some of the trends in the first half and outlook in the second half, just among the different buckets like D One, Premium Select, domestic first class and Comfort+, paid load factors, booking, anything else notable you'd call out? Thanks.

Tom Fitzgerald:

That's really helpful. Thanks for that color Glen. And then just quickly, if I may, one for Dan. How should we think of, and this is a topic for the whole industry, I think but just how are you and the team thinking about the PSP loans resetting to a variable rate? I think it's SOFR plus 2 in 2025 and 2026 and just in the context of the broader deleveraging story. Thanks again for that time.

Operator:

Thank you. Your next question is coming from Mike Linenberg from Deutsche Bank.

Dan Janki:

Through the first half, it is up. You can see that it's up $2.4 billion. It's up a few hundred million dollars over last year where it supports our revenue forecast for third quarter. As you get into the back half of the year, certainly the elongation of the tattled season helps as it relates to balance that as you go through third quarter and into fourth quarter. And also the fact that corporate continues to outgrow consumer, that is also bringing it back into what I'd say is a more normalized curve as it relates to historical perspective. When you look at it year-over-year, you still got the oddity of last year, you had multiple years of travel cut. So this is the first year that it's much cleaner as we go through and create a better base as you think about it for '24 and '25 and start to evaluate it.

Ed Bastian:

Thanks, Mike. Listen, all I can say on that is we're always interested in serving underserved communities.

Operator:

Thank you. Your next question is coming from Scott Group from Wolfe Research. Your line is live.

Glen Hauenstein:

I think we are not going to give capacity growth for 2025 at this point. We've got a lot of runway left in this year. I’d point out one thing that I think is really important that we ought to just note is that the difference between seats and ASMs. And many of you work your models on ASMs. Others work on seats. And I would think when you're looking within an entity, it's really the seat count that is most important because we don't sell ASMs, we sell seats. And when you think about our capacity growth although it was 8%, we only grew our seats at about 5% or less. So there is a stage length difference. And our stage length is actually a little bit longer than we had in the plan because we saw some opportunities on some of the longer-haul flying as people restructure through the year. So I'd call it back to, let's not talk about ASMs. Let's talk about seats within theater. So I think that's a much better representation of what the industry is facing and one we ought to all key in on as we move forward and trying to figure out where the industry is going. So too early for '25 in terms of capacity. That will be clearly over the back half of the year, we'll reveal more about that. But secondly, try to think about seats as our measure domestically is what we're trying to sell.

Glen Hauenstein:

Still versus '19, we are the least restored in terms of seats.

Scott Group:

Okay. And then Dan, I just want to -- when I think about the guide, right, if I just take the midpoint of the Q3 guide and then the midpoint of the full year guide, it basically implies fourth quarter earnings, just absolute earnings, pretty similar with the third quarter, and that's pretty atypical, right? It's usually -- we usually see a step down. Any color on how to think about that dynamic this year might be different?

Scott Group:

Thank you guys. Appreciate the time.

Sheila Kahyaoglu:

Good morning and thank you guys. Maybe just taking the last two questions and putting it together, your Q4 guide is a bit wide. And how do you think about the industry capacity issues? Does it get better? Does it get more rational or does it get worse in '25 if Boeing gets the delivery cadence back?

Sheila Kahyaoglu:

Can you maybe comment on how you think about Boeing's delivery cadence improving next year and how that impacts the industry?

Sheila Kahyaoglu:

Okay, thank you.

Duane Pfennigwerth:

Hi, thanks good morning. Just a follow-up on corporate travel into September and beyond. Can you remind us what the headwind was in the fourth quarter of last year from strikes in the auto and entertainment industries?

Duane Pfennigwerth:

Thanks. And Glen, maybe just to stick with you. Can you talk a little bit about your outlook for transatlantic in 3Q overall, maybe overall and ex-Paris? Any bookings commentary you could point to post the Olympics? Appreciate you taking the questions.

Duane Pfennigwerth:

I didn't want to remind you of it on the call but I'm glad you brought it up.

Duane Pfennigwerth:

Thank you.

Brandon Oglenski:

Hi, good morning everyone. And thanks for taking my question. Ed or Glen, if I can come back to Scott's first question, thinking about things you can control, especially as margins aren't at your target yet. Ed, I know you talked a lot about industry capacity coming down into the fourth quarter. But maybe beyond your own capacity in the seats discussion, what are other levers you guys are pulling behind the scenes here to help drive improvement?

Brandon Oglenski:

I appreciate that response. And maybe, Dan as a follow-up, can you talk about headcount trends into next year and if you are seeing efficiencies as you restore your core hubs?

Ed Bastian:

And one other thing, Brandon this is Ed again. Don't lose sight of the free cash we're throwing off. This year, we'll throw off between $3 billion and $4 billion. I'm confident in that guide which we gave at the start of the year. I expect at least as good next year again. The compounded effect of all that cash and we'll continue to delever the balance sheet is once again going to differentiate Delta within this industry.

Operator:

Thank you. Your next question is coming from Ravi Shanker from Morgan Stanley. Your line is live.

Glen Hauenstein:

I think generally, we see the season extending as a whole group of people, whether or not it's retirees, whether or not it's people with double incomes and without children, who don't have the school concerns. It is actually a better time to go to Europe in September and October than it is potentially in July and August when the weather is so hot and everything is so packed. So we are really seeing an extension into September and October and really into through November that European demand across the Board is remaining strong. So that's very exciting for us. The same thing is happening in the leisure markets in the Pacific. Interestingly enough, Japan has turned into a US point-of-sale leisure market with the Yen hitting at JPY160. So we have really record numbers of US tourists heading to Japan, which is such a great destination. And again, that has a very strong fall season. So really looking at US origin, high-end leisure extending the season through October and into November.

Ed Bastian:

Well, I think it's both. We have and we continue to have opportunities to grow premium. Premium's growing double digit for us and we don't see that slowing down. So Delta, on its own right, continues to grow there. And what will happen is, as others, if they do choose to continue to upgrade their products, it is going to force them to also upgrade their price points, which will help our Main Cabin revenues as well.

Ravi Shanker:

Very helpful. Thank you.

Operator:

Thank you. Certainly. Your next question is coming from Andrew Didora from Bank of America. Your line is live.

Dan Janki:

Yes. I think you -- as we're taking about 40 deliveries this year, as I mentioned, give or take, one or two and how it falls out. On average, when you look forward into next year, it's around 50. We're right in that 40 to 50 range associated with that and you're going to continue to see a steady drumbeat of retirements, probably in the mid-20s as we go through 2025. We'll finalize that as we get through our final plan and tweak that regards to what it is, but it's older fleets, right, the 75s starting to see some of the 76s and the 320s. And as we've all talked about, those -- as we've been trying to grow, we haven't been able to retire it what we are used to. This is the first time we're actually meaningfully retiring aircraft over the last two years to three years. And that then benefits us, right, because that then is a material stream back into our tech-ops operation, maintenance operations that can use that material and improve efficiency, which they've been so good at through the years when you look at the last decade.

Ed Bastian:

Andrew, I think that's a perfect question for November. We'll answer that at that time.

Julie Stewart:

That will wrap up the analyst portion of the call. I'll now turn it over to Tim Mapes to start the media questions.

Operator:

Certainly. [Operator Instructions] Your first question is coming from Leslie Josephs from CNBC. Your line is live.

Ed Bastian:

You want to take the first one?

Leslie Josephs:

Yes.

Leslie Josephs:

And it's still the most profitable cabin?

Leslie Josephs:

Okay. Delta One, first class domestic and then Delta Premium Select on all routes?

Leslie Josephs:

Perfect, thank you.

Mary Schlangenstein:

Hi, thank you. I, thaI wanted to see if you could just give us a little bit more detail on the Japan situation that you mentioned. Is that just primarily leisure? Or what is your business looking like between the US and Japan as well?

Mary Schlangenstein:

And what about on the business side?

Mary Schlangenstein:

Okay. And the other question I had was you all haven't talked for some time about the refinery and whether you're still in any sort of discussions to develop a partnership or sell the refinery. Can you give us an update on that?

Mary Schlangenstein :

Great, thank you.

Operator:

Thank you. This concludes today's conference. Thank you for your participation today.

Operator:

Good morning, everyone, and welcome to the Delta Air Lines March Quarter 2024 Financial Results Conference Call. 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. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Ed Bastian:

Well, thank you, Julie, and good morning, everyone. We appreciate you joining us today. Earlier this morning, we reported our March quarter results posting pre-tax earnings of $380 million or $0.45 per share, a $0.20 improvement over last year, and revenue that was 6% higher and a new record for first quarter. Free cash flow was $1.4 billion and we delivered a return on invested capital of nearly 14%, putting Delta's returns in the top half of the S&P 500. We are delivering industry-leading operational reliability and have widened the gap to our competition. Last summer, we made forward-leaning investments in the operation. And since then, our teams have delivered operational performance that is among the best in our history, with mainline cancellations down 85%, setting new records for completion factor in both the fourth quarter and the first quarter. I'd like to sincerely thank Delta's 100,000 people for your dedication, professionalism, and hard work in delivering these outstanding results. In February, we recognized the efforts of our people with $1.4 billion in profit-sharing, more than the rest of the industry combined, and continuing Delta's longstanding philosophy to reward industry-leading performance with industry-leading compensation. Reflecting our people-first culture, Forbes ranked Delta the fifth-best large employer in America, and Delta was recently named the 2024 Global Airline of the Year by Air Transport World for our outstanding commitment to safety, operational performance, and premium customer service. While airline travel and transportation is what we do, it's the experiences on Delta that set us apart as a leading consumer brand and why Delta was recognized as number 11 on Fortune's list of the World's Most Admired Companies. Exciting customer-facing enhancements are on the near horizon, including the opening of new Delta One lounges in JFK, Los Angeles, and Boston, the continued introduction of modern and fuel-efficient aircraft, new premium cabin service offerings, upgrades to the Fly Delta app, and the international expansion of fast free Wi-Fi across our fleet. The rollout of Wi-Fi and Delta Sync continues to be a tremendous success. Since launching last year, customers have logged more than 45 million free streaming quality sessions on-board and millions have joined the SkyMiles program through this channel. Recognizing our investment to ensure the future of travel is connected, we took the number two spot in the travel category, a Fast Company's list of the Most Innovative Companies, the only airline to be recognized in the ranking. Loyalty to our brand has never been stronger. We continue to set new records with our remuneration from American Express, our most important commercial relationship and are well on our way to our long-term target of $10 billion. On February the 1, we announced enhanced and refreshed benefits for our Delta Sky Miles American Express Cards, providing more direct value and the customer response has been very positive. Turning to our outlook. With strong first-quarter performance and visibility into the strength of summer travel demand, we remain confident in our full year guidance for earnings of $6 -- $6 to $7 per share, free-cash-flow of $3 billion to $4 billion, and leverage of 2.5 times, the three main guideposts that we shared with you in January. For the June quarter, we expect to deliver the highest quarterly revenue in our history of mid-teens operating margin and earnings of $2.20 to $2.50 per share. Our forecast for pre-tax profit of approximately $2 billion is on par with 2019 and just shy of last year, due to higher fuel prices. Demand continues to be strong and we see a record spring and summer travel season with our 11 highest sales days in our history, all occurring this calendar year. Spending on services recently surpassed goods for the first time in five years and there is further runway to return to their long-term trends. Delta's core consumers are in a healthy position and travel remains a top purchase priority. Generational shifts and evolving consumer preferences are driving secular growth in premium experiences. And business travel demand has taken another meaningful step forward this year with growth accelerating into the mid-teens over last year. When you put this level of demand strength together with the industry's increased focus on improving financial returns, this may be the most constructive backdrop that I've seen in my airline career. Our industry-leading performance continues to demonstrate the strength of Delta's differentiated brand and returns-focused strategy. And with our disciplined approach to capital investment and focus on free cash flow, Delta is exceptionally well-positioned to further strengthen our balance sheet and deliver significant shareholder value. In closing, the momentum in the business continues to build. We are focused on delivering excellent reliability, elevating the customer experience, and improving efficiency across the Company to support growth in our earnings and cash flow. I am excited for Delta's opportunities ahead, and we'll talk more about that and provide new long-term financial targets at our Investor Day, which we are scheduling for November 19 and 20 in New York City. Please put that on your calendar. Thank you again. And with that, let me hand it over to Glen for more details on our commercial performance.

Dan Janki:

Great. Thank you, Glen, and good morning to everyone. For the March quarter, we delivered pre-tax income of $380 million, an improvement of $163 million over last year. Earnings of $0.45 per share was at the upper end of our guidance as great operational performance and strong demand more than offset higher-than-expected fuel prices. Operational excellence is central to Delta's brand promise, and I couldn't be prouder of how our teams are delivering record reliability for our customers. A strong completion factor drove a 1 point of higher capacity and non-fuel unit cost favorability. Non-fuel CASM was 1.5% above last year and ahead of guidance. Fuel prices averaged $2.76 per gallon, $0.16 higher than the midpoint of our guidance range. The refinery provided a $0.05 benefit, generating a profit of $49 million. This was down $173 million from last year on more normalized refining margins. Fuel efficiency was 1.9% better than last year, benefiting from the continued renewal of our fleet and running a strong operation. Operating margin of 5.1% was a 0.5 point higher year-over-year. Our pre-tax margin improved over a point, benefiting from reduced interest, pension expense, and higher earnings from our equity investments. We generated free cash flow of $1.4 billion. This was after paying $1.4 billion in profit-sharing to our employees and investing $1.1 billion into the business. Debt reduction remains a top priority. Our leverage ratio improved to 2.9 times during the quarter. We repaid $700 million of debt, including $400 million of scheduled maturities and $300 million of additional debt initiatives. We expect to repay at least $4 billion of debt this year and continue to be opportunistic in accelerating debt reduction. We are currently investment-grade rated at Moody's and BB+ at both S&P and Fitch, with all agencies now on positive outlook following updates from Fitch and Moody's during the quarter. Moving to the June quarter guidance. Combined with our outlook for top-line growth, we expect an operating margin of 14% to 15% with earnings of $2.20 to $2.50 per share. Fuel prices are expected to be $2.70 to $2.90 per gallon, including a $0.10 contribution from the refinery. At the midpoint of this range, our all-in fuel price is expected to be over 10% higher than last year. Non-fuel unit costs are expected to be approximately 2% higher than last year, consistent with our full-year outlook of low-single-digit. Growth is normalizing, and we've entered a period of optimization with a focus on restoring our most profitable core hubs and delivering efficiency gains across the enterprise. The investments we made in fleet health and reliability in the second-half of 2023 are paying off, supporting industry-leading operational performance. As we discussed with you in January, these investments are expected to continue through 2024 as we complete an elevated volume of heavy airframe and engine checks, while managing through industry-wide supply chain constraints. The intensity of hiring and training has moderated. The teams have good momentum in delivering on our efficiency goals for the year. This will help fund the investment in our people, in our operations, and the customer experience that support our revenue premium. In closing, we continue to be confident in our full-year outlook of earnings of $6 to $7 per share and free cash flow of $3 billion to $4 billion. Our industry-leading operational and financial performance is a result of the hard work and dedication of the Delta people. I'd like to thank each of them for what they do every day. With that, I'll turn it back to Julie for Q&A.

Operator:

Certainly. And at this time, we'll be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Duane Pfennigwerth from Evercore ISI. Your line is live.

Dan Janki:

Well, maintenance is -- Duane, thank you. Maintenance is on plan and performing as we expected. As we talked to you at the beginning part of the year, maintenance we expect it to be up year-over-year $350 million. We expect that for the full-year, the first quarter was on plan, and the team is executing well. And those investments, as I mentioned, that we made in fleet health will continue as we go through this year, those proactive visits along touching the aircraft. You're seeing the impact. Cancellations from a maintenance perspective year-over-year were down 80% sequentially, they improved 30%. So team is doing a good job. They're on plan and as expected.

Duane Pfennigwerth:

Appreciate those thoughts. And then maybe more of a conceptual one for my follow-up on corporate and the continued recovery in corporate you're pointing to. I assume that's generally close in. And I wonder if you could comment on if you're seeing a decrease in average trip length. So maybe more trips but fewer days on the road per trip. Any commentary on those trends?

Duane Pfennigwerth:

Thank you very much.

Mike Linenberg:

Oh, yes. Hey, good morning, everyone. Glen, I just -- I want to get back -- you talked about the normalization of travel credits and how that still represents a bit of a headwind. What -- can you quantify what that impact is on June TRASM?

Mike Linenberg:

Okay, great. And then just my second question to Ed. Ed, can you just give us an update on the status of the -- I guess it's an appeal process with the DOT on Aeromexico? How does that play out or I should say, what is the timeline of that and any milestones we should look forward with respect to that? Thanks.

Mike Linenberg:

Great. Thanks for that, Peter. Thank you.

Scott Group:

Hey, thanks. Good morning. So, Glen, when I think about the original guide for the year or three months ago, I think it was sort of flat RASM for the year. So, we're down slightly in Q1, midpoint of guide for Q2 down slightly. So, what's the -- what's your visibility to second half RASM inflection? I guess ultimately, at this point, do you see more upside or downside risk to that flat RASM? And maybe just with that like the travel credit headwind, is that bigger or smaller in second-half?

Scott Group:

Okay. And then, I just want to follow-up just on RASM a little bit. So, if you just -- last year, your absolute RASM in the second quarter just meaningfully outperformed seasonality, and then you underperformed in Q3, right? If you look this year, you're guiding again like to really outperform like pre-pandemic seasonality. I'm wondering, do you think that there is a seasonal shift from Q3 into Q2 relative to what we used to see and does that help in Q2? Does it potentially hurt Q3? I'm just curious your thoughts on that.

Scott Group:

Okay. All right. Thank you, guys.

Ravi Shanker:

Thanks. Good morning, everyone. So, it looks like your leverage is getting to be in a pretty good place. When do you think you can start flexing the balance sheet for other use of cash, kind of CapEx, cash return kind of over the next 12 months?

Ravi Shanker:

Got it. That's helpful. And maybe as a follow-up and a little bit of a nuanced detail question here, kind of obviously, with the Paris Olympics kind of being a pretty big catalyst for transatlantic travel in this summer, kind of are we thinking of that potentially bringing on some noise towards end of 2Q, early 3Q? Kind of is that something that you would caution us in terms of modeling our cadence versus seasonality?

Glen Hauenstein:

That said, we are very excited as the sponsor of Team USA for the Paris Olympics and we'll get through it.

Operator:

Thank you. Your next question is coming from Helane Becker from TD Cowen. Your line is live.

Dan Janki:

Yes. On landing fees, when you look at it year-over-year, yes, they're up, volume, one; two related to the cut-in as it relates to our generational redevelopment projects, you're picking up some of that expense. And then I would say the third item, airports across the country in 2022 and 2023 benefited from Cares. And as those have now gone away, they're adjusting their rates and you're seeing that come through.

Ed Bastian:

And on American Express global acceptance rates, we worked very hard years back with American Express on improving the domestic acceptance rates and right now they're at all-time highs in terms of the number of merchants that you can use American Express at domestically and they are also doing that internationally. So, particularly places that we're strong and we work with them on prioritizing those places that Americans like to go for vacations.

Operator:

Thank you. Your next question is coming from Andrew Didora from Bank of America. Your line is live.

Glen Hauenstein:

I think we're going to -- first of all, thanks to our operating teams who have given us such exceptional completion factors that accounted for even higher than we had planned for. So, I'd say if those continue, which I imagine they will or hope they will, that we would be at the high of the 3% to 5%. And I think it's a bit early to say, but I think that we will be right at that 5% depending on how the completion factor comes in.

Dan Janki:

Yes. I'd say two things. One is, as it relates to our third-party activity, it's just -- we're always -- we're constrained by what the industry is constrained by, which is material and ability to generate that output. And as we've talked about, our Tech Ops team, John, and the team are focused on the Delta fleet. So -- but I would say the constraint continues to be immaterial and turnaround times associated with it.

Operator:

Thank you. Your next question is coming from Jamie Baker from J.P. Morgan. Your line is live.

Glen Hauenstein:

Well, thanks for the question, Jamie. I think right now, we believe we are running international RASM premiums that are primarily been driven by higher load factors on the fleet. But as the fleet continues to evolve and we continue to put more premium seats in the mix, we believe that is one of the key drivers for us to continue to accelerate our relative performance to our industry peers. So, I think we're on a journey there and I think we are now generating premiums consistently and hopefully, we can accelerate those over the next several years as we execute on our plans to differentiate Delta.

Glen Hauenstein:

I think in the quarter, we ran a record domestic load factor in the first quarter. So, what I believe drove that was the incremental traffic that we took over historical levels. So, pretty excited about doing that in the first quarter, as you know, the first quarter is the most challenging in terms of loads. And for us to come through that quarter with the premiums that we took, I think really is a testament to the strength of our brand. And of course, as we get through the year, there'll be less and less discounted seats available as you get towards peak, but generally, we're most open in 1Q. Yes.

Operator:

Thank you. Your next question is coming from Brandon Oglenski from Barclays. Your line is live.

Glen Hauenstein:

Right. I think there -- what we've said in the past and I would like to go back to is, we kind of coming out of COVID, we had to allocate the resources that had -- we had available. And those resources went to our once-in-a-lifetime opportunities to take leading positions in places like Boston and Los Angeles at the expense of rebuilding our core hubs and we're still not done building our core hubs. And so, our ability now to go back and to put seats back into our core where our cost structure is most advantaged and where our profitability is highest is where we're focused for the rest of this year.

Brandon Oglenski:

Okay. Appreciate that. And then Glen, on the Latin differentiation, I think you were talking separately about short-haul and long-haul. Can you unpack that a little bit more for us?

Brandon Oglenski:

Okay. Thank you.

Conor Cunningham:

Hi, everyone. Thank you. Just if we play back the performance in the US domestic market in 1Q, it was pretty fantastic when you started off saying just expecting to inflect positive in March and you saw some improvement in quarter, then an outcome of plus 3%. You've highlighted corporate momentum in premium, but I think there's a disparity in just your hub performance. Can you just talk about coastal gateways versus core hub rebuild and how things are playing out there, just in general? Thank you.

Conor Cunningham:

Okay. And then, it seems like there's a potential for regulatory oversight to potentially pick up here. When you have conversations with the FAA, what are some changes that they're talking to you about just given the operating environment? And maybe what are you asking them in general? It just seems like it could be a wildcard to potential growth, maybe medium-to-long term. So, just any thoughts there would be helpful. Thank you.

Conor Cunningham:

Okay. Thank you.

Savi Syth:

Hey, good morning. Just a follow-up to Jamie's question on the premium revenue. Just kind of curious if you could share how much of that 10% is coming from volume versus yield, and I think you mentioned continuing to grow the premium offering. So just curious what the trend might be.

Savi Syth:

That's helpful. And then in terms of the volume growth in offering, how should we think about that?

Dan Janki:

Yes. Premium product while pace main cabin all the way as you look at our fleet deliveries through 2030.

Glen Hauenstein:

I think little of both. We've been very short on our regionals. We still have probably at least 50 regionals either not flying or underutilized, probably almost 100 when you include the underutilization. So, that's a lot of seats and a lot of departures that we need in our hubs and we're missing a lot of the core feed from the regional feed in the local vicinity. So, right now, some of that's being done by Mainline and those planes can gravitate out, but mostly we'll be adding frequencies back in that historically have been there from feeder markets into our core hubs.

Operator:

Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live.

Glen Hauenstein:

No, I would hope so. If we look at our wide bodies, we're now at or above where we were in '19 in terms of annual utilization. And this is going to be a game of working with our operators to improve asset utilization across the network, whatever they are, planes, airports. And that's the game we're playing, that's the long game and I think that's been a really exciting challenge for us all.

Glen Hauenstein:

Well, I think what we said is that, what really pushed us to do this journey several years back was the fact that on the premium products and experiences side, we controlled more of our destiny than we did on the commodity side. And so absolutely, that's been our journey, is to continue to play the game against ourselves as opposed to playing against the lowest common denominator. And I think we'll have a lot again on our Investor Day to talk about what we see the next evolution. But we see a lot of runway -- not to tease it out, but we see a lot of runway in taking this even further and using new tools and using things that we'll be talking about in November that I think will be very exciting for our investor base.

Glen Hauenstein:

Well, I think that that's the holy grail is, why did we wind up in a commoditized environment was because we couldn't distribute products and services. We weren't -- the industry was not geared to this. And this has been our long journey. And every day, I think we get better and better and better at it, whether or not we're working internally to improve our own internal displays where we're 65% direct-to-consumer right now or whether we're working with online booking tools to improve their display of products and services and making progress on that front as well. So, this has been a very, very long journey and every day we're working on improving it.

Operator:

Thank you. Your next question is coming from Sheila Kahyaoglu from Jefferies. Your line is live.

Glen Hauenstein:

Yes. I think we still see opportunity. We've got -- a lot of the opportunities now are in our baseline and we'll continue to work with LATAM to refine that moving forward. But I don't think you'll see this kind of dramatic growth in the out years as we'll be more focused on turning that into more of a harvest mode as opposed to an investment mode as we continue to work on bridging the two networks together.

Dan Janki:

Yes. I think the 2% is in line with the low-single-digit. I think when you think about the variables inside of that run -- it starts with running a great operation. When you run a great operation, that sets the foundation. You get those frictional costs out and it really allows the operators and you're seeing it in two quarters in a row to have the confidence and really lean in and continue to drive not only better improvement in the operation but also get after those efficiencies. And as you do that, in a lot -- we said that we're carrying headcount higher than historical for what we ran in 2019, about 10%, and we'll grow into that and that drives the efficiency associated with that. And no change to maintenance. Maintenance is as we expected and -- but we'll continue to manage the supply chain. It's going to be the one that is -- has the largest constraint still associated with it as we execute through the year.

Julie Stewart:

Matthew, we'll now go to our final analyst question before moving to the media.

Stephen Trent:

Good morning, everybody, and thanks very much for squeezing me in. Just a follow-up question to Sheila's, if I may. When we think about probably the -- across the industry fleets getting older, could you give us a high-level sense about how valuable Delta TechOps is going to be for you guys over the next 10 years, for example, and that competitive advantage you have versus your legacy competitors? Thank you.

Ed Bastian:

Stephen, if I could add on the back end of Dan's comments, two things. In the first quarter, our overall mainline reliability and completion factor was the strongest first quarter in our history. And that's quite a statement given where we've been through and the supply-chain constraints that still exist and I attribute a lot of that to the maintenance team -- the TechOps team, having the product ready every day and responding to the opportunities that we see in front of us. So that's going to continue to be a positive green arrow forward as we move forward these next couple of years, as Dan was saying. Second thing is the MRO, while we've taken, I'd say, a pause given that we've had to focus our energies on our own fleet as compared to our customer's fleets. Going forward in the next couple of years, that's going to start turning back on again. And that growth rate that we've talked about is still there. It's just waiting for us. And I'm very, very excited as to what you talk about a five to 10-year timeline on that. That business is, I think is going to be -- our ability to capture that business is going to be even stronger than we were thinking pre-pandemic given what we've all been through. So, hats off to the TechOps team, a lot more work to go, but we are absolutely on the right path.

Julie Stewart:

Thanks, Steve. That will wrap up the analyst portion of the call. I'll now turn it over to Tim Mapes to start the media questions.

Operator:

Certainly. At this time, we'll be conducting a Q&A session for media questions. [Operator Instructions] Your first question is coming from Leslie Josephs from CNBC. Your line is live.

Ed Bastian:

Hi, Leslie, it's Ed. With respect to weather, we certainly have had a nice run of weather broadly across our system, candidly, across our country. And that certainly has helped with respect to the overall operational performance. But what we like to do is neutralize for weather events and we see the performance of the airline weather-adjusted within our own system and we're outperforming our prior performance even weather-adjusted. So, the improved weather just adds nice icing to the cake, but the fundamental, the core is running at a much, much better clip. And as the communications, safety is job one at all times, every single day. We don't send out special messages around safety. We -- every day is Safety Day around here.

Operator:

Thank you. Your next question is coming from Mary Schlangenstein from Bloomberg News. Your line is live.

Peter Carter:

So, Mary, thank you. It's Peter Carter. It does traditionally include the DC area. That's the way the FAA likes to view it. And we still have a shortage of ATC controllers. So, it's still an incredibly challenging environment.

Peter Carter:

Well, we've had the waivers -- we've had the waivers in place. So of course, with those waivers, there would be improvement because there's less capacity in that marketplace. But absent the waiver, I think we'd have some -- as an industry, some real challenges in New York.

Tim Mapes:

Thank you for the question, Mary. Matthew, I believe that wraps up our time, if you want to close out the call.

Operator:

Good morning, everyone, and welcome to the Delta Air Lines December Quarter and Full Year 2023 Financial Results Conference Call. My name is Matthew, and I will be your coordinator. At this time, all participants are in a listen-only mode until we conduct a question-and-answer session following the presentation. As a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Ed Bastian:

Well, thank you, Julie, and good morning, everyone. We appreciate you joining us this morning. Earlier today, we reported our full year and December quarter results, posting fourth quarter earnings of $1.1 billion, or $1.28 per share, on record quarterly revenue that was 11% higher than 2022 and an operating margin of 10%. I want to sincerely thank the 100,000 strong Delta team for their outstanding work in delivering these results and serving our customers. Delta carried more travelers this holiday season than any other time in our history, and we delivered industry-leading operational performance with the number one system completion factor amongst our peer set throughout the December quarter. To put that in context, we carried 9 million customers, a record 9 million customers, I’d add, on 60,000 mainline flights over the holiday period, with fewer than 40 cancellations in aggregate. Our December quarter results marked a strong close to year two of our three-year plan. For the full year, we reported earnings of $6.25 per share, the second highest EPS result in our history on revenue that was 20% higher than the prior year. We delivered an 11.6% operating margin and pre-tax income of $5.2 billion, a near doubling over 2022. We generate free cash flow of $2 billion while investing $5.3 billion back into the business, and we improved our leverage by two full turns and reinstated our quarterly dividend. Return on invested capital was 13.4%, a five-point improvement from 2022, a tremendous amount of progress, especially if you consider where we sat the short three years ago, and I’m so proud of our team across the board. Sharing our financial success is a long-standing pillar of Delta’s culture, and I’m thrilled to announce that we’ll be rewarding our employees with $1.4 billion in well-earned profit sharing on Valentine’s Day. For our employees, the estimated payout will be approximately 10% of eligible 2023 compensation, about double of what last year’s payment was. I expect our profit sharing payments will be more than our three largest competitors combined. Our people consistently deliver operational excellence with a relentless focus on raising the bar at every stage of the travel journey to deliver safe, reliable, and caring service for our customers. They are the reason our brand and our customer loyalty lead the industry, why Delta was recognized as the world’s 12th most admired company by Fortune, and why Glassdoor named us yesterday as the 13th best employer in the country. In 2023, we made meaningful investments in our people, our operation, and our customers. We provided well-deserved pay increases for the Delta team, continuing our philosophy of industry-leading pay for industry-leading performance. In the operation, the investments that we made supported the best-in-class operational performance that Delta has long been known for. Our operational excellence was recognized by Cirium last week, which named us, yet again, the most on-time airline in North America. Our people and our operational reliability are the foundation of Delta’s trusted consumer brand, and we are building on that foundation as we elevate the premium flying experience and grow our SkyMiles members’ engagement with Delta. Today, we also announced an order for 20 Airbus 350-1000 aircraft, with options for 20 more, for delivery starting in 2026. These planes complement our fleet strategy and will offer a world-class customer experience for international travelers with more premium seats, higher gauge, and great customer amenities. These aircraft are over 20% more fuel-efficient than the 767s that they’ll be replacing, further supporting our long-term sustainability goals. And with the successful launch of fast, free Wi-Fi and Delta Sync, we are enhancing the in-flight entertainment experience for SkyMiles members. We expect to have these products rolled out globally by the end of this year. On the ground, we are building the airports of the future in some of the most important markets and adding new Delta Sky Clubs to provide our customers a world-class airport experience. We completed our transformation at Los Angeles 18 months ahead of schedule, including a state-of-the-art facility and a new Delta Sky Club that was named North America’s Best Airline Lounge for 2023 by Business Traveler. We opened the latest phase of our Salt Lake City expansion, and we’ll complete the generational rebuild of LaGuardia this year. Our digital investments continue as we work to increase our agility and provide employees with better tools and customers with a more seamless experience. Customers visited the Fly Delta app over 1 billion times last year, using our self-service tools almost 10x more often than 2019, with much higher overall satisfaction. As 2024 begins, our enterprise has moved from a period of restoration to optimization. We are focused on delivering excellent reliability, elevating the customer experience, and improving efficiency across the company to support continued growth in our earnings and our cash flow. We expect demand to remain strong, particularly for the premium experiences that Delta provides. Consumer spend is continuing to shift from goods to services, and our customer base is in a healthy financial position with travel remaining a top priority. And corporate travel continues to improve with demand accelerating into year-end. On supply, industry growth is normalizing after several years of network restoration. For 2024, we plan to grow Delta’s capacity 3% to 5% below the mid-single-digit range that we discussed at our June Investor Day as we’ve refined our plan. Domestically, supply and demand are coming into better balance as the industry adjusts to rising costs of production, and we are seeing a positive inflection in domestic unit revenue growth. Internationally, we expect another strong year as we optimize our network and leverage our global JV partners. With that backdrop, we are providing full-year 2024 guidance for earnings of $6 to $7 per share and free cash flow of $3 billion to $4 billion. Free cash guidance is up to $2 billion higher than 2023, driven by growth and profitability, lower CapEx, and an improved mix of cash sales. As we continue to grow earnings and reduce debt, we will further reduce leverage and advance our balance sheet towards investment grade metrics. Glen and Dan will provide more details shortly, including our outlook for the March quarter. In closing, the people of Delta delivered a remarkable 2023, leading the industry operationally and financially while providing a world-class experience for our customers. Delta is well-positioned to build on our momentum in the new year with continued growth in earnings and cash flow in 2024. I could not be more excited about what’s ahead for Delta and our customers, and I am confident that our returns-focused strategy will drive significant value creation for our owners in the years to come. Thank you again for the support you show to our company, and with that, I’ll turn it over to Glen.

Dan Janki:

Thank you, Glen. And good morning to everyone. 2023 was another meaningful milestone in restoring our financial foundation. We delivered earnings of $6.25 per share and pretax income of $5.2 billion, nearly double our performance of last year. Operating margins of 11.6% was up four points from last year and expected to lead the industry. We generated operating cash flow of $7.2 billion, enabling reinvestment in our people, our fleet and technology. After gross CapEx of $5.3 billion, we generated free cash flow of $2 billion. During the year, we paid more than $4 billion of gross debt. This included accelerated repayment of $1.7 billion of higher cost debt. We ended the year with liquidity of $6.8 billion and grew our unencumbered assets to $26 billion. Our leverage ratio improved two turns to finish the year at three times. Return on invested capital improved to 13.4%, up five points over 2022. S&P upgraded our credit rating in the second half of last year. We are investment grade rated at Moody’s and we are now only one notch away from investment grade with outlooks improving at both S&P and Fitch during the year. With this progress, we reinstated our dividend last summer, broadening our appeal to yield focused investors. We closed out the year strong, reporting a December quarter pretax profit of $1.1 billion, on operating margins of 9.7%, resulting in earnings of $2.28 per share. Non-fuel unit costs were up 1.1% year-over-year in line with our guidance. Now moving to our outlook, for the March quarter, we expect earnings of $0.25 to $0.50 per share on approximately 5% operating margin. We expect March quarter fuel price to be $2.50 to $2.70 per gallon, with a $0.05 to $0.10 refinery benefit. The refinery profit is expected to be down more than $130 million from last year due to elevated crack spreads in early 2023. For the full year, we expect to deliver earnings of $6 to $7 per share. With our reduced outlook for capacity growth, we expect full year non-fuel unit costs to be up low single digit over 2023, with the March quarter unit costs up approximately 3%. The last two years were a period of intense restoration with unnatural high growth to rebuild our network. Growth is normalizing and we’ve entered a period of optimization with a focus on restoring our most profitable core hubs and delivering efficiency gains across the enterprise. The intensity of hiring and training has moderated and investments in reliability are beginning to pay off with continued improvement in operational performance. We expect to deliver efficiencies through the year that will help fund investments in our people, the customer experiences that Ed spoke to earlier. On maintenance we have a higher number of heavy airframe and engine checks this year resulting from the timing of new aircraft deliveries over the last decade and the reactivation of our flex fleets. At the same time, industry-wide supply chain constraints are continuing, driving higher costs and extended turnaround times. For the full year, we expect maintenance expense to be up $350 million over 2023, as we prioritize continued improvement in operational reliability and readying our fleet for the peak summer period. We expect the majority of this increase to be in the early part of the year. Unit cost growth is expected to improve for the March quarter levels as we deliver efficiency and lap investments we made in the second half of 2023. Now, onto cash flow. We expect cash flow of $3 billion to $4 billion of free cash flow, including CapEx of $5 billion. The improvement in free cash flow is driven by growth and profitability, lower CapEx and a higher mix of cash sales. As cash sales are expected to compose a larger percentage of overall bookings as travel credit utilization normalizes. We plan to pay cash for $3 billion of 2024 debt maturities and for approximately 45 aircraft deliveries, growing our unencumbered asset base to $30 billion. We expect to reduce leverage to under three times, returning the balance sheet to investment grade metrics, while continued invest in the business remains our focus for capital allocation, we’ll continue to evaluate shareholder returns with a focus on dividend growth as we reach our targeted leverage. In closing, Delta is well positioned as we enter the final year of our three-year plan to restore our financial foundation. We are continuing to prioritize the objectives we laid out at Investor Day with an emphasis on earnings durability, free cash flow and capital efficiency. Our industry-leading operational and financial performance is a result of the hard work and dedication of the Delta people. I’d like to thank each of them for what they do every day. With that, I’d like to turn it back to Julie for Q&A.

Operator:

Certainly. At this time we’ll be conducting the analyst question-and-answer session. [Operator Instructions] Your first question is coming from Michael Linenberg from Deutsche Bank. Your line is live.

Glen Hauenstein:

As we move through 2025, 2024 through the back half of the decade, we expect to retire the 767-300s through that period of time on a pretty consistent basis as you step through while continuing to fly the 400s.

Glen Hauenstein:

Yes.

Glen Hauenstein:

[Indiscernible] in 2025.

Glen Hauenstein:

2030, yes.

Glen Hauenstein:

So, Mike, the initial hit was clearly the greatest because as we moved through the quarter, we redeployed the assets to other markets. So, I would say it was about a point of revenue in 4Q, and that really goes to very little impact in 1Q and beyond. And, of course, we’re assessing the issues in Israel. Our current intent we have loaded for sale April, we’ll see how that manifests as we move through. But our priority is always safety first, safety of our customers and our crews, and that’s going to be our priority.

Operator:

Thank you. Your next question is coming from Helane Becker from TD Cowen. Your line is live.

Ed Bastian:

Well, I’ll start and Glen can add his color as well. We are seeing continued improvement in the corporate sector, and we had a number of laggards, tech being by far the largest in terms of that had essentially not returned to travel. And we’re finally starting to see tech companies traveling again and again I think a lot of it is the return to office that is driving some of that. The consultancies as well, which have also been laggards again, given their clients have had their offices somewhat reduced, office hours opening is helping there, and we’ve seen it across the board. The other thing I mentioned this morning also is the auto and entertainment sectors have rebounded nicely. Entertainment clearly and the auto is starting to rebound following the strikes in the fourth quarter.

Ed Bastian:

Absolutely. I think we’ve disclosed this previously, is that we’ve seen the seasons elongate for leisure travel to Europe really March through October now is pretty strong. Of course, the shoulder is still not as strong as the peak summer. But in response to that, and again, this is part of our optimization of how we fly is tailoring our capacity to when demand actually exists.

Ed Bastian:

Thank you.

Helane Becker:

Of course.

Jamie Baker:

Good morning, everybody. Glen, on the pending inflection in domestic RASM, I appreciate we’re seeing capacity plans tighten up across the industry. My question is whether you’re seeing any revisions in how the growth year airlines are behaving outside of nearly cutting capacity. Anything else interesting we should be focused on, or is it simply a supply exercise that’s driving the improvement?

Jamie Baker:

Okay. I appreciate that. And then a second question for Ed, during your interview with Phil this morning, you mentioned you’re still holding out hope for the $7 earnings outcome this year. If we fast forward to a year from today, give or take, and that indeed has been the outcome, what do you think the primary driver will have been? I guess the better way to ask is, do you think there’s upside based on what Delta can control, or do you think it’ll simply be exogenous factors like, hey, fuel cooperated, or, I don’t know, maybe the consumer leaned even further into premium, that that sort of thing?

Jamie Baker:

Glen and Ed, thank you very much for taking my questions. Take care.

Operator:

Thank you. Your next question is coming from Conor Cunningham from Melius Research. Your line is live.

Ed Bastian:

Well, I think we’re expecting domestic to continue to improve, the comps gets easier as we move through the year. So we should see some nice momentum there. We had a fantastic year in the Transatlantic. We’re hoping to beat that, but there’s a really high bar as we move through the year. What we have on the books today is really pretty exciting for the month of April, where we have about 40% of our Transatlantic bookings in place. We have unit revenue sitting at high-single digits up, which I think most people wouldn’t expect. Of course, we have a lot of booking to go there, but the early returns for spring and summer are very favorable as we sit today. Pacific, where we have an incredible amount of capacity, it’s being absorbed nicely, and we expect that to inflect into a positive territory as those growth rates come down, we move through the year. And last but not least, Latin, and our ambitious build of South America with our partners LATAM is paying very good strong dividends. We’re improving our profitability, albeit, at lower unit revenue. So I think we’re very excited about where South America sits. And the beaches this winter seem a little oversaturated that will rationalize itself out as we move through the year.

Dan Janki:

Yes. As said maintenance was up $350 million for the year with a focus on the first part of the year. The other piece of it is you think about efficiencies, efficiencies just build as you progress through the year. One example is we’re down on – we’re fully staffed. One place we’re hiring is pilots that will be down 50% – over 50% from last year, but again, front half centric with training associated with it as you get ready for the summer. And that really normalizes the historical levels in the back half of the year. So just a good steady drum beat of efficiencies as we pace through the year.

Operator:

Thank you. Your next question is coming from Stephen Trent from Citi. Your line is live.

Ed Bastian:

Thanks, Stephen. This is Ed. I hope there’s no more surprises, but I’d be lying to you if I thought that’s the case. I mean I think we’re continuing to work through the – in this post-pandemic world, the implications of the supply chain issues that we saw. And while the MAX 9 issue is a one off, separate issue, I’m not referring to that. I am referring principally to the engine side of the business. And there’s a lot of work on Pratt. We have a lot of reliance on Pratt. And their challenges that they’re facing have been well chronicled. One of the things that we see on the engine side is as a lot of the incremental resources that our engine providers and suppliers have put their resources against it also strips away resources from maintenance work on their existing business with us. So we’re working through as efficient a manner with Pratt. They were in this week and spent a lot of time with them. Roles and gee, everybody in the engine world has challenges, not just on the original build, but more importantly on the parts and the repair side of the business. And a lot of it’s an experience factor level. All the suppliers in our industry lost a tremendous amount of experience due to the pandemic. And it’s taking time to get that back, to get the turn times, down to where they need to be. And when you have higher turn times, that not only delays the entry into service, it also causes costs to go up.

Glen Hauenstein:

Yes. I think you described it perfectly. There’s a little pressure on the short haul LATAM, particularly on the resorts, where a lot of capacity was added by the industry year-over-year. But we’re having really incredible performance into deep South America as we continue our coordination of launching the JV with LATAM. And we’re very excited about the short-term and the long-term prospects there.

Operator:

Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live.

Dan Janki:

Yes, predominantly, yes, David, certainly, two drivers. First, we flew less capacity and kept the cost into invest back into the business. That was one. And the second piece was what we talked a lot in the second half of the year was the investment in maintenance and the cost associated with maintenance. And those were really, when you look at where we were, from what we got it to where we ended up just over plus two, those were the single two biggest drivers associated with that. When you think about that as we go into New Year, four here, a lot different backdrop as we’re in a more normalized growth environment. When you’re thinking and planning and the teams are executing the 3% to 5% growth versus 17% to 20% growth, the focus really less on this training and hiring and the restoration of the airline and our operating teams are focused on the operational performance and fine tuning that. And as you do that, that sets the stage to drive the efficiency. And things that we actions that we took in if we are paying off, if you look at the maintenance doing a lot of work and there’s a lot to still go. But the fourth quarter performance aircraft out of service down 30%, maintenance cancels down over 80%. So that those actions that they’re taking around, proactive reliability, getting the touch time on the aircraft, paying dividends, but that’s really what allows us when you’re in that normalized environment, you can really stay after that consistently day in and day out. That sets the stage for the execution around efficiency.

David Vernon:

Thanks for that added color. Just to maybe kind of follow-up on that point a little bit, as you think about the optimization efficiency gains that are ahead of you. I appreciate that it’s hard to quantify it all, but can you give us a sense for what the driver of some of these things are kind of big picture wise? Is it about utilization of aircraft? Is it about getting the staffing optimized? Or is it more about just working some of the friction costs in the business out and sort of continuously improving, chasing down a bunch of little dogs and cats across the business? I’m just trying to get a sense for kind of what are we looking at here? Are we looking at a large set of projects or are there one or two things that are going to be super pivotal around the optimization side of this?

David Vernon:

Excellent. Thanks a lot for the added color.

Ravi Shanker:

Thanks. Good morning and happy New Year, everyone. I know your commentary on demand sounds pretty good, but can you unpack a little bit more detail on what you’re seeing in the forward booking curve through spring break and maybe even the activity through the Paris Olympics over the summer? What kind of forward indicator do you have that people might be traveling more?

Ravi Shanker:

Got it. And apologies if I missed this earlier, but do you – I mean, some of your peers are having issues with the potential extended grounding of some aircraft for inspections. Do you see any kind of spillover benefit for that in the short-term? And kind of – is any of that in your 1Q guidance?

Ravi Shanker:

Understood. Thank you.

Duane Pfennigwerth:

Hey, good morning. Maybe just on the cadence of the non-op savings and the component drivers of that. Is it spread pretty evenly throughout the year or is it more kind of second half weighted?

Duane Pfennigwerth:

Thanks. And then just a follow-up for Glen. You’ve done a nice job taking some active steps to – on the capacity sequentially 4Q to 1Q. But could you just speak to seasonality and maybe by entity? Where is seasonality a lot different than it used to be? Where is it kind of normalized? So any sort of key trends you’d highlight in change in the underlying seasonal patterns here into the first quarter?

Duane Pfennigwerth:

Thank you

Brandon Oglenski:

Hey, good morning, everyone, and thanks for taking my question. I guess, Ed or Dan, I mean, looking back from your prior 2021 targets, you guys are guiding at the top end here to effectively reach that. And I think not a lot of people gave you credit. So that’s the context of my question. But that said, valuation in your stock is still pretty low. I think investors are just concerned that we’ve seen peak airline profitability, and your guidance would effectively say about flat profitability this year in 2024 versus 2023. So maybe coming back to some of these prior questions, what is in your control that can get profitability higher? Maybe looking beyond this year, that can give investors comfort that this business should be earning mid-teens.

Brandon Oglenski:

Thank you for that, Ed. And then, Dan, the maintenance issues have been present now for probably over a year, if not longer, I guess, what are you doing longer term planning to maybe mitigate that? And is there any favorable offset longer term here in your MRO business? Thank you.

Brandon Oglenski:

Thank you.

Andrew Didora:

Hi. Good morning, everyone. So, question for Glen. I think you started ramping up your core hub growth in the middle of 2023. Is there any way you can quantify what the benefits of this build out were to your revenue performance over the back half? And what share of your capacity growth this year will be growth in these hubs?

Andrew Didora:

Got it. That’s helpful. And then just Dan, in the $3 billion to $4 billion of free cash flow, are you assuming any sort of cash taxes this year or when do you expect to become a cash taxpayer? I thought it was a number of years out, but just curious if there’s any update there? Thank you.

Andrew Didora:

Thank you.

Operator:

Certainly. Your next question is coming from Savi Syth from Raymond James. Your line is live.

Ed Bastian:

So thanks for that question, and I think that plays well into some of the other themes that we’ve talked about. Or what are the potential upsides to our plan that could get you towards the $7. We have planned for stability in the regionals after 2.5 years of really instability, where we didn’t know how many hours we had really three to four months ahead of time. And what we’ve seen is that there is a lot more stability. What we haven’t accounted for is the full utilization of our fleet. So we still have 50 to 100 airplanes and less of utilization than we have on the ground in our fleet. So should that lower hiring at the main line translate into more availability in the back half of the year? That would be potential upside to our P&L.

Julie Stewart:

All right. That will wrap up the analyst portion of the call. I’ll now turn it over to Tim Mapes to start the media questions.

Operator:

[Operator Instructions] Your first question is coming from Ted Reed from Forbes. Your line is live.

Glen Hauenstein:

Well, I mean, this is all an opinion, right, as that, revenge travel, I think has years to go, particularly in long haul international. When you look at the aging of the demographics that people in their retirement years want to travel, and they were robbed of the ability to travel for three years, and we weren’t able to accommodate last year. I think as we continued accommodation of that for the next several years until that revenge travel catch up. I think domestically we’ve done that. Revenge travel was early in the process, and we’re kind of at our new equilibrium, and that gives us the opportunity to optimize as we move forward. And do they look different? They always look different.

Glen Hauenstein:

I think it’s more the traditional Italy, Spain; those are two of the Italy, Spain, Greece are such hot spots. Portugal is a hot spot, and I think during the peak summer we’re really excited about the prospect of bringing SAS along with us and now having hubs in Copenhagen and Stockholm that will allow us to have even more destinations in Europe than we serve today.

Operator:

Thank you. Your next question is coming from Kelly Yamanouchi from Atlanta Journal-Constitution. Your line is live.

Ed Bastian:

Hi, Kelly. No there’s no plans just to cut staffing levels at all. This is about our people being able to garner more experience because a lot of the new employees that we’ve added over the last few years are adding to that 10% and continuing to be a bit more efficient in productivity and the staffing levels. But no, we have no intention to make any reductions in people.

Operator:

Thank you. Your next question is coming from Leslie Josephs from CNBC. Your line is live.

Glen Hauenstein:

Well, I’ll take the second question first, is, we made some serious changes to our programs that were designed to really put the right people in the right categories so that we could deliver industry leading premium experiences. And as you know, while they were announced in the fall, most of them don’t take into effect until 2025. And I think what we’ve estimated is that should – we should be done without those kinds of major changes to our programs. Of course, those programs are always changing, but I think the changes moving forward will be much more minimal. So I think that’s behind us. We’ll see how that plays out by the end of this year and into 2025. And your other question was on the Max...

Glen Hauenstein:

We’ve seen a small uptick specifically in Seattle, but Seattle is a small portion of our entire system. So it’s kind of minimal in the grander scheme of things, but it’s relevant in Seattle.

Operator:

Thank you. Your next question is coming from Mary Schlangenstein from Bloomberg News. Your line is live.

Operator:

Thank you. Your next question is coming from Alison Sider from Wall Street Journal. Your line is live.

Ed Bastian:

Hi, Allie, this is Ed. The one thing that we’ve seen over the last couple of years which has been great for customers is that the overall reliability in the industry has improved and carriers increasingly are competing over operational performance rather than some other things in the past that people may have been focused against. And I think that’s great and I think it pushes us to be even better, and I think it’s a great outcome for the industry as a whole. So, yes, the competition is definitely more focused on reliability than ever before. And I still expect Delta to maintain its premium lead in that sector.

Ed Bastian:

We are not experiencing any issues around labor shortages. Maybe in very small isolated places we still have some additional people we’d like to bring in, but we are at where we need to be. And for us it’s less about the shortages, it’s more about the new people that we brought on continuing to gain experience, and that’s a big deal, particularly in the maintenance area.

Ed Bastian:

Thank you, Ali. Matthew, we have time for one final question, please.

Robert Silk:

Oh yeah. Good morning. Glen, you mentioned that you all had gained corporate share this year. I’m wondering if you could elaborate on what caused that. You think how you gained it and there was any impact. Some of it might have come from the removing of bears from the traditional GDS channels by your main competitors?

Robert Silk:

Okay. Thanks. And what about seeing any sort of share shift based upon your strategy of leaving all your fares available in the traditional EDIFACT GDS?

Robert Silk:

Okay. Thank you.

Operator:

Certainly, that concludes today’s conference. Thank you for your participation today.

Operator:

Good morning, everyone, and welcome to the Delta Air Lines September Quarter 2023 Financial Results Conference Call. My name is Matthew, and I'll be your coordinator. At this time, all participants are on a listen-only mode until we conduct a question-and-answer session following the presentation. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Ed Bastian:

Well, thank you, Julie, and good morning, everyone. We appreciate you joining us. Before we start, I want to acknowledge the unfolding war in Israel and the tragic loss of life that has ensued. Delta is donating $1 million to the American Red Cross for the International Committee of the Red Cross to help fund humanitarian efforts in the conflict. This includes emergency assistance such as health services, emergency care, ambulance services, and other critical needs. Our inbound and outbound flights to Tel Aviv have been suspended through October 31st to ensure the safety and security of our customers and employees. We're also offering a customer waiver for travel to Tel Aviv for those who need to change their travel plans. Our hearts with everyone impacted by these tragic and horrific events. Turning to our news for the day. This morning, Delta reported September quarter results, posting earnings of $2.03 per share, a 35% increase over last year. Revenue grew 13%, and we achieved a 13.5% operating margin. This resulted in operating income of $2 billion, bringing our operating profit over the last 12 months to over $6 billion. The Delta people delivered for our customers throughout the very busy summer season. And I'm grateful to our teams for all they do for our customers and each other every day. Our people are the foundation of Delta and are our most important competitive strength. Sharing our financial success with our people is a long-standing pillar of Delta's culture. With this quarter's financial performance, we accrued another $420 million towards next February's profit sharing. This brings our profit sharing accrual to over $1 billion year-to-date, marking an important and exciting milestone for the Delta team. The great work of our 100,000 people was recently recognized as Delta ranked number 12 overall on Time Magazine's list of The World's Best Companies. We were the only airline to make the top 100 of this prestigious list. And USA Today readers just selected Delta as the Best Airline in the World. Our operational fundamentals remain strong, underscored by Delta's industry-leading position in on-time arrivals and blue sky operational performance that is reliably back to pre-COVID levels. Following a high number of irregular operations days early in the quarter, driven by weather and ATC constraints, we have seen consistent improvement in our operating metrics. In October, we are running a near-perfect completion factor across the mainline system, and we remain number one in on-time arrivals year-to-date. As we're now in the final phase of our recovery, we are making important forward-leaning investments in the health and reliability of our fleet. These maintenance investments will position us to consistently deliver the operational excellence that underpins Delta's brand. Running a high-quality operation is critical to being the airline of choice for our customers and driving a competitive cost structure. Dan will speak more to this shortly. During the quarter, we also made a $150 million strategic investment in Wheels Up, co-investing alongside Certares Management, Knighthead Capital and others. This new investment structure combines the number one premium commercial airline with the travel and tourism expertise of Certares and the turnaround expertise of Knighthead. Delta's relationship with Wheels Up creates a new premium product line for our customers, and I look forward to working with our co-investors and the new management team to unlock the full value of this uniquely positioned business. Turning to our outlook. Travel remains a top purchase priority and our core customer base is in a healthy financial position. We continue to see strength in bookings across Delta's global network, driven by our consumers. Demand for premium experiences, international travel, and increasing business travel further differentiate the trends that Delta is seeing within the industry. We expect our December quarter revenues to be 10% higher than 2022, with a 10% operating margin and earnings of over $1 per share. This brings our expectation for full year earnings to over $6 per share on a double-digit operating margin and free cash flow of $2 billion. Since raising full year guidance over the summer, our revenue outlook has improved, though earnings and cash flow have been impacted by higher fuel and maintenance costs. Revenue for the full year is expected to increase 20% over last year, which was the high-end of our expectations on steady domestic demand and continued strength in international. With strong top line growth and margin expansion, we expect to double earnings year-over-year and deliver a 13% return on invested capital. Our outlook for 2023 keeps revenue, earnings, cash flow and debt reduction on track with our three-year plan, which we issued in December of '21. As we progress through the recovery, we have made meaningful investments in operational reliability and our people. Delta has led the industry in setting the bar for wages, including a new pilot deal and profit sharing. We are seeing the structural step-up in operating costs amid increasing fuel prices, creating some near-term pressure on industry margins. However, I fully expect that the market will adjust to higher costs as it has historically and reestablish equilibrium. With Delta's differentiated premium revenue strategy and strong global network, we will continue to deliver industry-leading profitability and generate robust free cash flow. In closing, the strategy that we shared at Investor Day positions us well for the future. And while the operate -- the environment we operate in continues to evolve in this post-COVID world, our objectives are unchanged as we move into 2024. With our network rebuilt and growth now moderating, optimizing the airline and driving efficiency are significant opportunities. Thank you, again, for your support of our company. And with that, let me hand it over to Glen and to Dan to go through the details of the quarter.

Dan Janki:

Thank you, Glen, and good morning to everyone. For the September quarter, we delivered earnings of $2.03 per share and operating margin of 13.5%. Non-fuel unit costs were up 1.3% year-over-year, and fuel prices averaged $2.78 a gallon, including a refinery benefit of $0.11. We generated operating cash flow of $1.1 billion, and we invested -- reinvested $1.4 billion into the business. Liquidity ended the quarter at $7.8 billion and adjusted net debt of $20.2 billion. Year-to-date, we've repaid $3.7 billion of gross debt. This is including $1.7 billion of accelerated repayment on our higher cost debt. Our leverage ratio improved to 3 times on a trailing 12-month basis. During the quarter, S&P upgraded our credit rating to BB+, one notch away from investment grade, a recognition of our improving financial foundation. Our capital allocation priorities are reinvesting in the business and improving our balance sheet to investment-grade metrics, with a modest cash return to shareholders through our dividend. Now moving to guidance. For the December quarter, we expect non-fuel unit costs to be flat to up 2% on a year-over-year basis. With the exception of maintenance costs, our second-half unit costs are progressing as expected. As we discussed in September, there are three drivers to higher maintenance

Operator:

Certainly. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Jamie Baker from JPMorgan. Your line is live.

Dan Janki:

Maybe I'll first start with the geared turbofan as it relates more directly to our fleet both. On the neo, we took our deliveries later, so the impact will be modest to minimal. If there are any inspections or things off-wing, it will be in the latter half of 2024 based on the analysis that we've gotten so far from Pratt. We're still waiting on the full analysis related to the 220 fleet, that should be coming later this month, and we will assess that impact appropriately. As it relates to MRO, Pratt is certainly a close partner of ours and an important one as it relates to that third-party capability and we will certainly support their efforts. We're working closely with them on that. We have capacity. It ultimately comes down to the allocation of capacity and availability of material to do the work, but we'll be working with them through the fall and into next year on that.

Glen Hauenstein:

Sure. I think what we're really excited about is the lengthening of the European travel season. And that has really gone from primarily ending in the summer IATA season, which would be October, now through November, through the holidays, through the New Year. And really now we're only talking about a six to eight-week period that are the doldrums for Europe. So, the bookings, which most people wouldn't have expected, of course, we reduced our schedule in the fall and the winter IATA season. But our year-over-year comps are actually accelerating into the winter as we look into November, December and January. So, I think we're seeing that continuing into the fall and early parts of winter, and we're very excited about that. And we've also, of course, expanded into a lot more Latin leisure this winter than we did last winter, and the advanced demand for that seems very, very robust. So, leisure is still very strong, and even through shoulder and off-peak periods.

Operator:

Thank you. Your next question is coming from Savi Syth from Raymond James. Your line is live.

Glen Hauenstein:

It's really a reshaping of the demand patterns that we saw last year. And no shock, January and February are not in the northern tier, transcon, east-west markets, barnburner markets, so reallocating those to warmer and sunnier places. So, our total capacity will be up. Domestic capacity will be down slightly. Core hubs will actually be up with more emphasis on warm and sunny places in Latin America and South Pacific. So that's kind of how we're profiling and really optimization of the demand patterns we saw last year going into this winter.

Glen Hauenstein:

Right. I think what domestic strength is really coming from are the premium products domestically. And I'm not going to speak for the other carriers. They all have coming in the next few weeks. But it really hasn't been on domestic portion of international journey, which is de minimis in terms of the variance to what it was last year. Our employments in the Transatlantic are up low double digits, but that only represents 13% of our total travel, so really a de minimis impact to domestic. So, it's really coming from the premium products, and they're doing quite well. As I mentioned, domestic paid first-class load factors are reaching new heights every month. So, very excited about those demand trends and I think that reinforces the strategy we've been working on for the last 10 years to have a differentiated product.

Operator:

Thank you. Your next question is coming from Conor Cunningham from Melius Research. Your line is live.

Ed Bastian:

Well, obviously, fuel moved an awful lot within just the last couple of months. And it's the volatility of fuel that really hits us hard as compared to the ability to recapture it. I think traditionally, we've seen over a two to three-quarter rise. We have a pretty good success rate at recapturing it. When you think about the strength of the demand environment and the fact that across the board, everyone has -- not just fuel costs are up, but labor rates are increasing and other inflationary pressure, supply chain and maintenance costs are up. Everyone has a similar incentive to continue to be able to recalibrate those pricing -- those market pressures into pricing. So, my outlook is I'm optimistic as we're going into '24. Glen can add his own color there.

Conor Cunningham:

Okay, appreciate that. And then, Dan, just back to the maintenance costs and operational investments, just trying to understand, I know you touched on it in Jamie's question, but just trying to understand how it plays out. Are you basically assuming that maintenance and operational investments will be elevated in the first half? And then, how does that roll off? And then, when do the productivity gains that you've talked about in the past kind of kick in? I'm just trying to understand how the moving parts are changing a little bit right now. Thank you.

Conor Cunningham:

Thank you.

Duane Pfennigwerth:

Hey, good morning. Just on the maintenance investment, I'll follow up to maybe Jamie's question there, is this at all a reflection of your thoughts on future aircraft delivery constraints? In other words, were you always thinking about using those 75s next year? And then just generally, how do you think about and measure returns on capital for investing in something like a 757 versus going out and buying new?

Glen Hauenstein:

Nothing to add other than, yeah, we took a lot of late deliveries. I think our last 75 was produced -- we had the last one ever built. So, some of these planes are not that old and we have them in our fleet and we have -- but as you said, as we get to the end of life of these, towards the end of this decade, we'll be able to really start harvesting the engines, which will really improve the maintenance profile of the fleet.

Duane Pfennigwerth:

Appreciate those thoughts. And maybe just for my follow-up on Pacific, and Glen, can you just remind us where we are in China reopen? I think there's another round of expansion here in November. And then just broadly in Pacific, what are the markets away from China that you're excited about?

Duane Pfennigwerth:

I appreciate the detailed thoughts.

Duane Pfennigwerth:

Thank you.

Andrew Didora:

Hi. Good morning, everyone. Ed, a couple of questions just kind of want to bring it back to some things discussed at Investor Day. I guess maybe first just on capacity growth. I know you gave us a little color about how you're thinking about 1Q, kind of domestic versus international. But the mid-single digit growth that you talked about in 2024, I guess, in this fuel environment, would you consider that growth rate as reasonable or aspirational at this point in time?

Glen Hauenstein:

And I would just add a comment. About half of that is run rate of what's in there as we enter the first quarter of next year. So, the real number is half of low-single digits, which is very low-single digits.

Dan Janki:

As I mentioned earlier, we're still in the middle of our planning process. So, all these pieces are coming together, right, capacity, along with all the things that we've talked about. Regarding the maintenance, we're spending certainly a lot more time on that, given all the moving pieces in the industry and elements that we talked about.

Andrew Didora:

Understood. Thank you.

Catherine O'Brien:

Good morning everyone. Thanks for the time. Ed, on CNBC this morning you called out a pick-up in corporate bookings. Could we just dig into that a little bit more? What have you seen since Labor Day on volumes or revenue from corporate? Any industries or regions that are bigger drivers or it's really across the board? And anything on maybe just corporate booking windows today versus maybe a couple of months ago, and they're still longer than pre-COVID? Appreciate it.

Catherine O'Brien:

Makes a lot of sense. Thanks so much. And then one, maybe this is for Dan. Can you just speak to how the air traffic liability is trending year-to-date and into the fourth quarter versus your expectations at the start of the year? I know we kicked off the year with really strong first quarter performance on that ETL build. Should you be aware of any impact from normalization of booking windows versus last year, just given the pick-up in corporate volume you're seeing? Thanks a lot.

Catherine O'Brien:

Great. Thank you so much.

Mike Linenberg:

Oh, yeah. Hey, good morning everyone. Glen, you called out a couple of sectors that were underperforming from a corporate perspective. I mean, I think of any carrier probably the most indexed to the automotive sector and then sort of the media sector with the writers' and actors' strike. What sort of drag do you actually think that had on your corporates, at least in the month of September and maybe what you're seeing right now?

Mike Linenberg:

Great. And then just a quick one to Dan or Ed. I didn't see in the release a reiteration of the $7-plus for 2024. I know you're still mid-budget, but just based on the trajectory and everything you're seeing now, that number is still fine?

Mike Linenberg:

Very good. Thank you.

Ravi Shanker:

Thanks. Good morning, everyone. Glen, I'm probably going to ask Jamie's initial SkyMiles data mining question in a different way. And based on data that you have, do you have any evidence that traditional domestic travelers have been flying internationally more often in 2023, maybe people taking their first or kind of rare international trips? Just trying to see if there's any truth or data to back up the thesis that there has been substitution of domestic with people flying internationally this year.

Ravi Shanker:

Got it. That's really helpful. And maybe as a follow-up, kind of feels like Trans-Pacific has not quite been the explosion of pent-up demand that we saw in domestic and Transatlantic when they initially opened, but it looks like 2024 might be a better year for that. Is there any way you think that the historical profitability in that region, which has not been great to say the least, can be better when that initial kind of flow-through of demand comes through with pricing the way it might potentially be?

Ravi Shanker:

Very helpful. Thanks, Glen.

Brandon Oglenski:

Yeah, good morning, and thanks for taking my question. Glen, I know you've called out your corporate travel here being up in coastal hub strength, but can you talk to maybe any areas of weakness domestically? And is there like diverging trends with your main cabin revenue?

Brandon Oglenski:

Okay. And then on the outlook for next year, growing with your JVs on the international side, how does the changes in Mexico impact as they move to a Category 1 with the FAA?

Brandon Oglenski:

Thank you.

Helane Becker:

Thanks very much, operator. Hi, everybody, and thank you very much for the question. Just on -- with respect to as you think about travel next summer on the North Atlantic, especially where U.S. citizens are going to need visas, how are you thinking about communicating that to people as they book trips? Is that going to be in the reservation process or follow-ups? Or how do you avoid surprises?

Helane Becker:

Yeah. I think it's like Australia, right, where it's pretty quick unless it's not, I think. Okay, that's helpful. Thank you. And then the other question I had was just on the changes to Israel. How big actually is that in your total -- in the total market? It's a lot of ASMs, but it can't be that big in terms of, I guess, exposure.

Helane Becker:

Got it. Okay. Thanks very much.

Operator:

Certainly. Your last question is coming Sheila Kahyaoglu from Jefferies. Your line is live.

Ed Bastian:

Sheila, you should look at our '24 guide that we gave you with our three-year plan. The good news at Delta is that we have all of our labor costs at the new market across the board today in posting those double-digit margins. So, to the extent other carriers need to be increasing their labor cost in future negotiations, they're just going to be chasing the Delta cost. And I think that conversion of industry rates is something we've talked about as kind of another opportunity as we look at trying to make sure we're all running a better business here, and we're not -- we have the same incentives to make sure that our costs are finding their way into our pricing.

Dan Janki:

Yes. Talk about it at baseline this year, TechOps for geared turbofan engine overhauls would be in the 150, 160 range. We have built capacity to take that to -- up to 350 and continue to discuss long-term -- medium- and longer-term capacity needs with Pratt related to that. So, we talked about it at Investor Day. Very optimistic about our position, not only the heritage that we have and the great expertise that we have in the Delta TechOps team, but our positioning as it relates to being on all the key next-generation platforms, whether that's geared turbofan, whether that's Rolls and also the LEAP engine create a real set of opportunities for us as we think about this business and multiples of what it can be today over the medium- and long-term.

Julie Stewart:

That will wrap the analyst portion of the call. I'll now turn it over to Tim Mapes to start the media questions.

Operator:

Certainly. At this time, we'll be conducting a Q&A session for media questions. [Operator Instructions] Your first question is coming from Dawn Gilbertson from Wall Street Journal. Your line is live.

Ed Bastian:

Hi, Dawn. I've mentioned publicly over the last couple of weeks that we're certainly receiving good feedback from our customers with respect to the changes. I have indicated that we had too many changes rolled out at the same time, and we needed to go back and reassess the planned rollout for the new qualification levels. I mentioned this morning on the CNBC interview, there's two things, though, that are common throughout all of the feedback. One is there is the intense loyalty to Delta, which is really heartwarming to see. The loyalty to this brand is great. We've worked hard to build it and we maintain that. We will continue to maintain that. There should be no question about that. And secondly, that most everyone also agrees that something has to be done, because everyone sees that the premium number of customers that we continue to build are in excess of the premium assets that we have to offer. And so figuring out how to better rationalize and make certain that the service levels for our premium customers are where they need to be is -- there's various ways to get it. We've received a lot of ideas as to different ways to think about it, and you'll be hearing from us in the coming days.

Ed Bastian:

Well, it's the feedback. It's not -- no, we're not seeing any change in trajectory rather on acquisitions or changes in spend levels. Everything continues to stay intact, as Glen, I think mentioned during some of his comments. This is good feedback that we're seeing and candidly, with some of it, I agree with them.

Operator:

Thank you. Your next question is coming from Alison Sider from Wall Street Journal. Your line is live.

Ed Bastian:

No, we don't, Ali.

Ed Bastian:

There are discussions, as I've indicated. Right now, we're looking at providing some additional lift to Europe to get people out of Europe. But no, we don't have any plans to be flying into Israel. It's considered unsafe for a U.S. carrier to operate in that airspace currently.

Operator:

Thank you. Your next question is coming from Mary Schlangenstein from Bloomberg News. Your line is live.

Ed Bastian:

Well, thanks for that question. Yes, we're planning on using the entirety of the slot waiver which is, I believe, 10% of our flights into and out of Kennedy and LaGuardia in order to help with the airspace congestion issues that are surrounding those airports right now. So, what we're trying to do is have minimal impact. We will not withdraw from any individual markets. We will thin out some frequencies. We'll put some larger gauge in. And any of the assets that are freed up from New York will get redeployed into other parts of our network for now. But it shouldn't really be very different than the summer. As you know, that's rolled forward from the summer, which we had 10% out, and that's just extending it through the winter. So, you won't see really, I think, any dramatic changes to our schedule versus where we're sitting today.

Ed Bastian:

I think the broader problem is not being able to operate in the New York airspace. And so I think we're working very closely with the government to see what we can do to improve the situation there. It was very difficult on our customers this summer, and certainly, we're all hoping for some relief by next summer.

Mary Schlangenstein:

Okay. Thank you.

Leslie Josephs:

Hi, good morning. We keep seeing air fares fall, and I was wondering if you could talk a little bit about what kind of discounting you're having to do in the fall. And then have you made any capacity changes on days when people might have traveled in the off-peak and maybe they're going back to more traditional bookings, if that's the case? Thanks.

Leslie Josephs:

And the fares that you're discounting to, is that like on par with 2019 or is that -- like is there a kind of a reference point for...

Leslie Josephs:

Thank.

Operator:

Certainly. Your last question is coming from David Slotnick from TPG. Your line is live.

Ed Bastian:

We were certainly expecting some feedback. And by the way, some of the feedback we've received is very positive and encourages us not to make any changes. So, there wasn't any one cohort that was silent on the matter. We heard all of the -- a full 360 view of the perspective. But it gave us a chance to sit back, reflect on it. And there were points about the program that I thought that we could make some modifications to. There still will be changes to the program. I've been very clear about that, but we're going to make modifications to what we announced.

Glen Hauenstein:

American Express, we, of course, did this with full back-and-forth knowledge, so we did this together with American Express. And if anything, since we've announced it, we've seen a shift to higher premium card acquisitions. So, I think we're well within from that perspective where we thought we'd be.

Tim Mapes:

Thank you, David. And Matthew, I think that will conclude our call.

Operator:

Good morning, everyone, and welcome to the Delta Air Lines June Quarter 2023 Financial Results Conference Call. 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. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Ed Bastian :

Thanks, Julie. Good morning, everyone. We appreciate you joining us. Today, thanks to the great work of our team, we announced record revenue and earnings, reflecting the strength of demand for and momentum of Delta's differentiated brand. During the June quarter, we generated earnings of $2.68 per share, a 90% increase over last year. This marks the highest quarterly earnings result in our history, an achievement that moves Delta beyond recovery and firmly on a great path forward. Revenue was 19% above last year, and we achieved a 17% operating margin. This resulted in operating income of $2.5 billion bringing our operating profit over the last 12 months to $6 billion. We generated over $1 billion of free cash during the quarter, bringing our first half free cash flow to $3 billion. We continue to repay debt and we've reinstated the quarterly dividend, signifying strong execution on our three-year plan and creating value for our owners. At Delta, transportation is what we do, but experiences are what we deliver, and that's made possible by the exceptional service provided by the industry's best employees. The 90,000 Delta people continue to deliver for our customers during this busy summer season. Over the 4th of July weekend, our people delivered a great operation, completing over 21,000 flights with a 99.5% completion factor and industry-leading on-time performance. The Delta people continue to be recognized. During the quarter, The Points Guy ranked Delta as the best U.S. airline for the fifth year in a row with consistently high scores for reliability, customer experience, network and loyalty. Sharing our success with our team is core to Delta's culture, and we continue to maintain a position of industry leadership on pay. During the quarter, eligible employees received a 5% pay increase on the 1st of April. And year-to-date, we have accrued over $660 million in profit sharing, in fact more than the total profit sharing paid out for full year 2022. We expect our profit sharing payout next February will continue to lead the industry by a wide margin. We will always be guided by our values of putting our people and our customers first. They are the driving force of our success. I want to thank our entire team for all they do for Delta and our customers. As I've recently noted, the industry backdrop remains constructive. Air travel demand is strong and the consumer is in good financial shape, particularly the premium consumer base that we target. After years of spending on goods, consumers want to travel. It's their #1 big-ticket purchase priority and they desire premium experiences. No one provides this better than Delta. At the same time, aviation infrastructure is still fragile, and the industry continues to face multiple constraints across the supply chain, aircraft delivery delays and training needs. As a result, we see a significant gap between the supply that is in place and what demand could sustain. And we expect this gap will remain for an extended period of time. Turning to our outlook. With our first half performance and visibility into the back half of the year, we are raising our full year outlook and now expect earnings of $6 to $7 per share. For the September quarter, demand momentum continues. We expect to deliver double-digit revenue growth of mid-teens operating margin and earnings of $2.20 to $2.50 per share. Glen and Dan will provide more details on the components of our outlook. As we move to 2024 and beyond, our path forward is clear. The strategy that we shared at our Investor Day just a few weeks ago positions Delta incredibly well for the future. Our long-term priorities are to run the world's best airline, unlock the power of our brand, transform through digital and deliver long-term shareholder value. Our strategy is underpinned by a commitment to financial performance, with a focus on free cash flow, return on invested capital and earnings durability. We are currently executing ahead of our three-year financial plan and are well positioned to achieve our 2024 earnings target of over $7 per share. On free cash flow, we introduced a new goal to generate over $10 billion of free cash flow from 2023 to 2025. The strong cash generation will enable us to return our balance sheet to investment-grade metrics, while consistently reinvesting in the business. In closing, thanks to the outstanding work of our people, Delta continues to set itself apart. We have unique opportunities to grow earnings by leveraging our powerful brand, extending our durable competitive advantages and accelerating our digital transformation. One other point I'd like to add. While our team has been hard at work returning the level of excellence to the skies that our customers deserve, we have not let go of our commitments to our community. Our team was recently recognized as the #1 corporate blood drive donor with the American Red Cross for the sixth consecutive year with the record units of blood collected. To me, these types of achievements are as rewarding as the great financial and operational results that we are publishing today and what makes this company truly great. Thank you again. And with that, let me turn the call over to Glen and Dan to go through the details of the quarter.

Dan Janki :

Great. Thank you, Glen, and good morning to everyone. In the June quarter, we delivered earnings of $2.68 per share and operating margin of 17%, ahead of our guidance and a significant improvement over last year. Our nonfuel unit costs were down -- were up 2.4% year-over-year. Fuel prices for the quarter averaged $2.52 per gallon, including a refinery benefit of $0.04. We generated operating cash flow of $2.6 billion. And after reinvesting $1.6 billion into the business, free cash flow was $1.1 billion. Liquidity ended the quarter at $8.8 billion, with adjusted net debt of $19.8 billion. During the first half of 2023, we repaid $3 billion of debt, including $1.4 billion of early repayments with a focus on our high-cost debt. For the year, we expect to repay over $4 billion of gross debt resulting in interest costs over $100 million lower than our initial expectations. Our leverage ratio improved to 3.2x on a trailing 12-month basis and this is down from 5x at the end of the year. During the quarter, we announced the reinstatement of a quarterly dividend, opening the shareholder base to yield focused investors. Now moving on to guidance for the September quarter and full year. We expect mid-teen operating margins and earnings of $2.20 to $2.50 per share in the September quarter. Nonfuel unit costs have reached an important inflection point. We expect nonfuel unit costs to decline 1% to 3% year-over-year in the September quarter. This is consistent with our expectations for a low single-digit decline in the second half of 2023. Rebuild costs are substantially behind us and capacity is returning through our most efficient core hubs. July marks our peak ASM production for the year and capacity seasonally declining in the fall and winter. As our capacity growth normalizes, it enables our operating teams to drive efficiency. We have over $1 billion opportunity from initiatives across the enterprise as hiring and training slow and our workforce gains experience. Improving our nonfuel unit cost is an enterprise-wide priority, and remains within our control. On fuel, we expect the September quarter fuel price to be between $2.50 to $2.70 per gallon. This includes a $0.04 refinery benefit. As part of our routine maintenance done once every five years, the refinery will undergo a turnaround in mid-September that will continue through November. With production offline during this period, we expect the refinery to breakeven during the second half of the year. With our second quarter performance and our third quarter outlook, we now the full year earnings to be $6 to $7 per share and an operating margin greater than 12% and free cash flow of $3 billion. Delivering these financial results also positions us to reduce our leverage ratio to 3x by the end of the year and significantly improve our return on invested capital. For the full year, we expect our return on invested capital to be approximately 14%, a 6-point improvement versus last year. In closing, we're ahead of plan in 2023. And in 2024, we remain confident in delivering earnings per share of over $7 a share while generating over $4 billion of free cash flow and achieving our investment-grade metrics. As we shared at Investor Day, we see significant opportunities beyond 2024 as we build on the strength of the core airline, leverage our existing capital base to grow high-margin revenue streams and delivered durable earnings through a full economic cycle. We couldn't do this without the hard work of our employees who are delivering for our customers every day. I'd like to thank the Delta people for all they do. Now with that, I'd like to turn it back to Julie for Q&A.

Operator:

[Operator Instructions] Your first question is coming from Helane Becker from TD Cowen.

Dan Janki :

I'll start with the first one. And as it relates to free cash flow for this year, 2023, at Investor Day, we raised our guidance from $2 billion to $3 billion. $3 billion is the number for this year. And we expect as part of our three-year plan, we said that we'd be at $4 billion or greater in 2024. And Ed talked about the three-year collective plan that we're working towards, which is over $10 billion for the cumulative period of '23 through '25.

Operator:

Your next question is coming from Ravi Shanker from Stanley.

Glen Hauenstein :

Right. We see strong demand both domestically and internationally as far as we can see. And we can see internationally, probably to the end of summer, IATA in October and see very, very strong results there. And domestically, we've seen some very positive trends. I think that was one of our increases in the June quarter, we’ve talked about in the earnings, and we've seen some inflection in terms of closing build, where it's starting to look better as we move later in the summer, and we're very encouraged with those trends as well.

Ed Bastian :

Hi, Ravi. We're going to -- we need to get to $7 first before we talk about what's next. And…

Ed Bastian:

Yes. We've already just increased the current year guide. We will most likely some point next year, hopefully the first half of the year, have our updated long-term plan conversation where we can talk about where we see the long-term financial targets for the company going. But right now, we want to focus on -- we're in a very busy part of the year. We want to deliver a great operation for our customers. And we'll talk more over the course of the next 12 months as to how far the EPS can get.

Catherine O'Brien :

So yesterday we had a pretty sizable month-over-month step-down in airfare CPI. I did some quick analysis that shows that, that data isn't very correlated to the industry's RASM or yield historically, but it doesn't feel quite right to fully ignore a data point like that. I guess did you see anything similar to that step down in your own data, maybe on domestic or lower end of the field - fare spectrum? I know you're guiding to a decel in 3Q versus 2Q better than what myself and the Street was forecasting but a deceleration, is it as simple as that? Or are there flaws on how that CPI data is calculated where it's relevant to Delta?

Ed Bastian :

Yes. One thing for the call because I know a lot of people have this question. Just think about where we were last May and June, demand had just turned on in a crazy hot way. Supply was really low. People didn't care where they were going or how much they spent, they just wanted to go somewhere. And we're seeing fares up 30%, 40%, 50%, particularly in a lot of the domestic markets where they could travel to. That's obviously not sustainable. And that's the comp set that you -- it's in the data that's being compared to as well. So we're now at a much more normalized level of stability in the fare environment, particularly domestically. And I think it's a really poor comparison to try to draw what that one CPI print was off of a survey of the survey and how that relates to Delta for the future.

Dan Janki :

Certainly. Any -- as we've talked about paying down debt is a priority here, generating cash, paying down debt, those two are head-to-head. Any additional cash that we generate, we certainly would pay down debt with it. I think you'll see us -- even in the back half of this year, we will be over that $4 billion that I talked about of gross debt paydown. And our team has been Ken and the team out there have been really good about doing what we've done year-to-date. We've done actually through open market repurchase and other activities, and we're just going to continue to work down the debt.

Michael Linenberg :

Yes. Can I -- I just want to touch back on, I think, Ed, you talked about summer being strong, maybe Glen also added to it, for international, not summer but international being strong extending into the fall. And I did note that for many of your seasonal European markets, it does look like you have extended the season into November, December instead of restarting in April and May. It seems like they are coming back in early March, maybe even February. What is -- is there a secular shift that is going on here where you're just picking up more and more international, it's a longer season. Maybe these markets are becoming more mature on one hand? And my follow-up would be, when you look at your domestic, what's the load factor points that are being driven by international? Is it 5 points of load, 8 points of load factor that are on a connecting itinerary?

Operator:

Your next question is coming from Sheila Kahyaoglu from Jefferies.

Dan Janki :

Yes. When you think about it, first half to second half, a couple of things to think about, certainly nonfuel is the biggest driver there. We were up in the first half, going to be down low single digits in the back half. That's your real benefit related to that on that basis. The other benefit you have is when you think about the halves, you really have a second quarter, pretty similar when you have a fourth quarter versus a first quarter performance in that half performance. And when you put all that together, that also drives that margin performance first half versus second half.

Dan Janki :

Yes. We've held our -- even as we updated our free cash flow for the year from 2 to 3, we've held our CapEx at 5.5. We're still holding right around that 42, 43 aircrafts for the year, that can always move around as it has the year by a view.

Scott Group :

Glen, you said that the third quarter RASM would have been in line with seasonality if you make a few adjustments. Can you just maybe give a little bit color on the adjustments you're sort of thinking about? And then just -- I don't know if I heard it yet. So maybe just share domestic versus international RASM expectations for the third quarter?

Scott Group :

Okay. Helpful. And then, Dan, I don't know if I'm getting a little ahead of myself, but when I think about the inflection in CASM in the back half of this year, that's still with a pilot deal. So as we look ahead to next year -- I know you've already said down low single digits, but strong in thinking that the first half is going to be better than that?

Operator:

Your next question is coming from Jamie Baker from JPMorgan.

Glen Hauenstein :

There's two questions in there. And the first question is, I think our third quarter is based on what we see in the second quarter and moving forward, and there haven't been any changes to distribution strategies in the quarter. So I'd tell you, it's what we see today just moving forward from there. And on the cessation of the NEA, listen, we compete well in New York. We've had a long history of competing well in New York, and we're really confident how that -- as it evolves, that we'll be able to continue to win in New York, which has been our long-term strategy for 10 years and we are not deviating from that. So…

Glen Hauenstein :

I think we pointed out that the laggards are the ones that are most encouraged as you get to the fall. And I think Ed has always said, and I agree with him 100%, that your propensity to travel is directly related to whether or not you're in the office. And as we see more and more offices trying to reopen or reopening and people are trying to get back into the -- corporations trying to get people back in the office, I think that's a great constructive backdrop for us as we head into the fall and the post Labor Day period.

Operator:

Your next question is coming from Conor Cunningham from Melius Research.

Glen Hauenstein :

We have a continued slow and steady build in our guide. If it was to accelerate beyond what it's been doing, that would be upside.

Glen Hauenstein :

Well, I think we said that it's been continuing to be led by premium products and services. And our domestic rebuild has as we've spoken about earlier, initially focused on the coastal gateways and now -- right now moving back into the core. And so we have the lapping of the investments we've made in the coastal gateways coming out of COVID now producing very good returns for us as well as the investments in the core, which, of course, come in at higher unit revenues. So I think it's a combination of those two factors moving together.

Savi Syth:

Just curious on the international capacity. It's been growing at a faster pace in domestic given that that's where the restoration has been to a greater degree. I was curious how long you expect international capacity growth to kind of continue to outpace domestic here?

Savi Syth:

Got it. And if I might just ask on the Latin entity, Glen, just could you provide a little bit more color on what you're seeing, especially broken out between kind of near international, which recovered first in kind of the South America markets?

Operator:

Your next question is coming from Duane Pfennigwerth from Evercore ISI.

Glen Hauenstein :

We have a great TransAtlantic joint venture. It was the first one and the most integrated and one that we think has huge customer benefits. And it's always evolving. And that's the great -- and we have great partners that want it to evolve. So we're continuing evaluating how we approach the marketplace together. You've seen some swaps in the fall from things that we have flown to the things that our partners are now going to fly. And so I don't think there are any huge headline changes, but it's always evolving.

Glen Hauenstein :

No, absolutely. It's more normal seasonality. Of course, in the South, you have the schools going back earlier and earlier. This year, for example, schools go back in Georgia, the 1st of August. And so we're through the summer travel period in the South where the North tends to go back after Labor Day. So if you look more granularly, you'd see the Southern, the Atlanta hub and the South trends down in the second half of August, and we keep the Northern tier operating a little bit longer and then pull that down after Labor Day. So we are actually getting much more back to where we want to be as we say we come out of restoration to a much more normal seasonality.

Operator:

Your next question is coming from Brandon Oglenski from Barclays.

Glen Hauenstein :

I just think we know the least about 4Q right now. And so as we get towards the end of this quarter, I think we'll have a much better view that we could share with you on the October call.

Glen Hauenstein :

Well, I think what we have left to go in the year is we have to get through Labor Day, of course, and I think we have good visibility through Labor Day. Then we have October, which is historically a very strong travel month for business. So we'll see how that unfolds. And then we have the holidays, which are the peak holidays. That's all that's really left in the year, and we have good bookings for the holidays. We have good visibility on that. So it's really going to depend on -- and I think it's potential upside, as you said earlier, it does business travel more, return more than we expect. And if so, then we have some good upside for the back half of the year. If not, we're going to trend where we see today.

Tim Mapes :

Thank you, Julie. Matthew, if you would please just remind the members of the media about queuing up for the call? And we'll jump in with members of the media.

Alison Sider :

I wanted to ask about -- Viasat yesterday reported it had a deployment issue with its recently launched satellite. Just curious if that causes any potential problems for Delta's free WiFi plans, either for the current -- what's currently in place or the future rollouts and if you have to consider any kind of alternatives?

Alison Sider :

And I also wanted to see if Delta has any view on some of the proposals that Congress is considering around simulator training counting towards pilot experience hours? Is that something you do favorably or if Delta would have any plans to offer a training program of its own if the Senate proposal goes through or how you're thinking about that?

Operator:

Your next question is coming from Leslie Josephs from CNBC.

Ed Bastian :

Leslie, I'll take the first. No, we don't have a point of view on that. I think that's something that within the pilot community, there's a lot of different opinions around. So we'll stand by and observe and watch how that discussion unfolds. Peter will touch on the affirmative action.

Operator:

Your next question is coming from Mary Schlangenstein from Bloomberg News.

Glen Hauenstein :

Well, I'll just give you a view of what we do see because domestic demands, of course, come a little bit later on. But for international travel post Labor Day, we see very robust leisure demand continuing through the October period. So combine that with -- hopefully, we'll get some upside surprise on the increase in business, but we're not really counting on anything more than what we see today.

David Slotnick:

I wondered if Delta has any contingency planning or views surrounding the legislation, potentially effect in credit card fees and charges. I know that would probably have a significant impact on your MX revenue? Are you planning for if that works, it plays through? Or having a couple of that or anything else?

Tim Mapes :

Thank you, David. Matthew, I think that will wrap it up for questions from members of the media.

Operator:

Thank you. That concludes today's conference. Thank you for your participation today.

Operator:

Good morning, everyone. And welcome to the Delta Air Lines March Quarter 2023 Financial Results Conference Call. My name is Matthew, and I will be your coordinator. At this time, all participants are in a listen-only mode, until we conduct a question-and-answer session following the presentation. As a reminder, today’s call is being recorded. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Ed Bastian:

Thanks, Julie. Good morning, everyone. We appreciate you joining us today. 2023 is off to a strong start for Delta with record advance summer bookings, the launch of free Wi-Fi and continued recognition as the industry leader, not only by our customers but by Fortune, Cirium and the Wall Street Journal. During the March quarter, we generated earnings of $0.25 per share on revenue that was 45% above last year and a record for the March quarter. Delta’s operating income was $550 million, a more than $1 billion improvement year-over-year, bringing our trailing 12-month operating profit to nearly $5 billion. We generated close to $2 billion of free cash flow in the quarter, reflecting robust demand for summer travel. Better-than-expected cash generation enabled us to accelerate that reduction, moving us closer to our goal of returning to investment-grade metrics. All-in, a very solid performance by our team in the seasonally weakest quarter of the year. Delivering safe and reliable service remains our top priority, and no airline does this better than Delta. I’d like to thank our teams for all they do for our customers each and every day. The dedication, professionalism and hard work of Delta’s 90,000 people worldwide are the foundation of our company. Sharing our financial success with our people has always been an important part of our DNA. Our industry-leading profitability in 2022 enabled us to pay out more than $550 million in profit sharing in February. More profit sharing than the rest of the industry combined. And we’re looking forward to larger payouts next year as we expect to deliver significant earnings improvement. We also rewarded eligible employees with a 5% pay increase on the 1st of April, and received strong ratification from our pilots on the new four-year contract, providing well-deserved increases for all of our people. The performance of our people and the momentum of our brand was recognized when Delta was ranked number 12 overall of Fortune’s World’s Most Admired Company list, a remarkable statement about the resiliency of our company, given the pandemic challenges of the last few years. Our brand is built on a foundation of service and operational reliability, and we are committed to delivering the level of service our customers expect as we ramp operations for the coming summer season. The operating teams have done a great job getting ready and we are planning to grow June quarter capacity 17% over last year to meet strong customer demand. This growth is, though, a couple of points below our initial plan to fully restore capacity this summer, as we focus on delivering the best operation in the industry and remain prudent in our capacity restoration. As I mentioned at last December’s Capital Markets Day, aviation infrastructure is still fragile. But collectively, we’re working to ensure resiliency as we manage constraints around the supply chain, aircraft delivery delays and training needs. I want to commend the FAA for collaborating with the industry to help improve the customer experience in New York by temporarily relaxing minimum flight requirements given ATC staffing challenges. Turning to our outlook. With solid first quarter performance and visibility into the strength of summer travel demand, we are confident in our full year 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, the three main guideposts we shared with you last December. For the June quarter, we expect to deliver the highest quarterly revenue in our history, a 15% operating margin and EPS of $2 to $2.25 a share. Our forecast operating profit of $2 billion matches Q2 of 2019, demonstrating that the earnings power of this franchise is intact. Glen and Dan will provide more details on the components of our outlook. As we look to our upcoming Investor Day in June, we will outline the long-term opportunities that we’ve cultivated through years of investment, building on our industry leadership position and further enhancing our long-term financial profile. One focus area will be innovation and digital technology, where we continue to grow our leadership position. Increasingly, it’s one of the reasons customers are choosing Delta with significant growth in direct bookings and higher engagement through our digital channels. We have reached an important step in our digital transformation with the rollout of fast, free, high-quality Wi-Fi, which has been a tremendous success. We began this effort several years before the pandemic, and it has required significant investment and resources to achieve. In addition, this month, we began rolling out Delta Sync for SkyMiles members, which will unlock a more personalized customer experience in the air and on the ground. When customers join the SkyMiles loyalty program, it enables us to deepen our trusted relationship and create stronger brand preference. As we’ve rolled out fast, free Wi-Fi as well as other benefits, new SkyMiles memberships have accelerated at a record pace. Growth has been particularly strong among younger customers with a record 3 million total enrollments during the quarter. Thanks to the size and growth of our loyalty program, the value of our Amex co-brand card portfolio continues to reach new highs and leading brands are joining our consumer ecosystem, creating further opportunities. I look forward to discussing this and more about how Delta is transforming the customer experience on June 27th in Atlanta. Hope you all can join us that day. In closing, the industry backdrop remains constructive, and we are well positioned to grow earnings and cash flow in 2023, 2024 and beyond. Delta continues to set itself apart. We are on our way to transcend the industry with our leading consumer brand and deliver financial outcomes that create significant long-term value for our owners. Thank you again. And with that, let me hand it over to Glen for more details on our commercial performance.

Dan Janki:

Thank you, Glen, and good morning to everyone. For the March quarter, we delivered earnings of $0.25 per share and a 4.6% operating margin in line with our guidance. Our nonfuel costs were 4.7% higher than the first quarter of 2022. It is including a 1-point impact from lower capacity, primarily due to winter storms. Fuel price for the quarter averaged $3.06 per gallon, this including a $0.25 benefit from our refinery, which continues to provide a unique hedge to fuel volatility. Our operating cash flow was $2.9 billion. That was the highest March quarter result in Delta’s history. After investing $1.1 billion back into the business, we generated $1.9 billion of free cash flow. Strong cash generation enabled $1.2 billion of debt reduction. This including accelerated debt repayment of $700 million with an average interest rate of 7%. Liquidity ended the quarter at $9.5 billion and adjusted net debt of $21 billion. Our leverage ratio improved from 5 times at year-end to 3.9 times at the end of March on a trailing 12-month basis. We now expect to complete our full year planned debt reduction in the first half of the year, and we’ll continue to evaluate opportunistic debt repayment. Over the last year, we accelerated more than $3 billion in debt reduction, targeting our highest cost debt and reducing our interest expense. Recognizing this progress we are making, S&P and Fitch both upgraded their outlook for our ratings. Returning to investment-grade metrics is a key priority. We remain focused on reducing net debt and achieving our targeted 2 to 3 times leverage ratio in 2024, while continuing to consistently reinvest in the business. Now, moving to guidance for the June quarter. On fuel, we expect our fuel price per gallon to be $2.55 to $2.80, including a $0.10 to $0.15 contribution from the refinery. While lower than that last year, I’d note that fuel prices remain volatile and are still approximately 30% higher than in 2019. On nonfuel, we expect unit cost to be 1% to 3% higher than prior year. For the first half, we expect to grow capacity 17%, approximately 2 points less than our initial expectations, with a similar 2-point impact expected on our unit cost. More than three months into the year, our absolute costs are tracking as expected. Higher labor rates are fully incorporated across the mainline and regionals. Inflation is stabilizing and we are in the final stages of our rebuild. By the end of June, aircraft reactivations will largely be complete and training is starting to step down with a third of our pilots moving into production. As I outlined on our call in January, core maintenance is higher year-over-year in the first half of the year. We expect it to decline in the second half, resulting in a 5-point year-over-year progression in our unit cost from the beginning of the year to the end. Secondly, achieving scale while restoring efficiency are Delta’s largest CASM levers. The pace of capacity restoration remains the primary level. In summary, we are confident in our year-over-year decline in the second half and expect a 10-point improvement in our unit cost progression as we progress through the year. Running the most reliable operation in the industry is key to delivering a competitive cost structure and underpins our industry-leading margins. Combined with our outlook for revenue, we expect the June quarter operating margin to be 14% to 16% and earnings to be between $2 and $2.25 per share. With a quarter behind us and the visibility we have in the summer, we have higher confidence in our full year guidance for significant improvement in earnings and free cash flow. We are reaffirming our full year guidance for operating margins of 10% to 12%, earnings of $5 to $6 per share and more than $2 billion of free cash flow. And we remain on track to earn over $7 per share in 2024 with more than $4 billion of free cash flow. So in closing, I’d like to thank the Delta people for the elevated service they provide to our customers every day. Our people will always be the delta difference. Now with that, I’d like to turn it back to Julie for Q&A.

Operator:

Certainly. [Operator Instructions] Your first question is coming from Mike Linenberg from Deutsche Bank.

Glen Hauenstein:

Sure, Mike. Let me try and answer the first one. And I’d like to just mention that on Tuesday, we had our second highest cash sales day ever. Seasonality that’s starting to decline, usually those occur earlier in the year. So I think that just points to the strength of the core demand for our products and services, be it domestic or international, just at a combined level, the number two sales day in our total history occurring this week. And so, behind that backdrop of really strong consumer demand across the board, I think what we’ve seen is travel patterns changing and shifting a little bit more than they did pre-pandemic. We had a lot of stability, pre-pandemic, and we’re adjusting here into what I would call a new normal, and we’ll figure out exactly where that lands over time. What that meant in the quarter was materialization rates actually went down a bit throughout the quarter and materialization rates to us is book to flown ratios. Normally just a couple of points, accelerating a couple of points more than usual, probably attributing that to the flexibility without change fees that we’re seeing in the marketplace. And so, that’s really easy to accommodate as we just turn up slightly our overbooking levels to make sure that we capture the higher load factors. And then secondly is the booking trends inside of 30 days. And we were knowing that inside of 30 days was declining, and the strong demand was just outside of 30 days. And so the demand is very strong, and it’s a matter of how many you let through the gate at what point in time. And we had, for example, wanted to go into month 3 to 4 points ahead. We’re tiling that up a little bit to be more like 5 to 6 points ahead, given that the combination of materialization rates, which has some impact on that, of course, but also where consumers are booking. I think those are just RM tactics that we’re using to adjust to this new demand set. And I don’t think that it indicates that there is any softness in core demand strength. So I think we feel really confident in the summer and what we have on the books and what we’re seeing real time in terms of demand. And so, I feel very good about that. Relating to industrial recession, we don’t really see that. As a matter of fact, if you look at Minneapolis and Detroit, they’re actually ahead. Now they’re the least restored of our hubs right now, particularly in Detroit is one tick below the rest of the system. But you’ve also had rationalization in competing hubs in the region. And so, they’re willing to say, okay, well, maybe some of the industrials. These hubs are not point-to-point like Boston or New York, they’re really the connecting flow within the U.S. So, there’s opportunity as we continue to restore those networks to put more flow on the network. Not 100% resilient -- reliant, of course, on Detroit, mostly relying on the flow traffic that flows over to Detroit. So I think what we’re seeing, we see strength in all of our core hubs. Our core hubs are less restored than our coastal gateways, and that’s one of the upsides that we have for the rest of the year as we move through the year. And they’re producing incredible returns and incredibly strong demand sets.

Jamie Baker:

Glen, as we think about the swing year-on-year in the second quarter from domestic strength last year to international momentum this year. Do you recall what the domestic portion of the international journey contributed to last year’s second quarter domestic revenue, what it’s likely to contribute this year and what the normal second quarter contribution used to be?

Jamie Baker:

Okay. Helpful. And as we assess the, I guess, achievability of the second quarter revenue guide, could you disclose what percent of revenue is already booked by entity? International tends to book further in advance. So, I’m assuming that’s your highest confidence. Are we 70% booked internationally and 40% domestically, 60-30?

Operator:

Your next question is coming from David Vernon from Bernstein.

Glen Hauenstein:

Clearly, I think we talked a little bit about the two components. One was we had 1 point less of capacity, driven by some weather events and recovering from those weather events. The second is the fact that the lower materialization rates in the RM systems adapting to those that we couldn’t do it real time because you have to see if they’re stable before you adjust for them. So I think that’s what we’re looking at in the second quarter. And as we mentioned in the -- versus ‘19, we have positive momentum in 1Q to 2Q, both domestically and internationally. So, I think we’re feeling -- I know there’s a lot of anxiety about domestic demand for the summer, but we don’t share that anxiety.

Glen Hauenstein:

Right. Our corporate travelers are telling us they expect that to continue to accelerate. The -- we are not counting that in our -- we’re counting a stable 85% revenue, 75% of traffic.

Glen Hauenstein:

Yes.

Savi Syth:

Maybe switching gears a little bit. It looks like capacity in 2Q is a couple of points lower than you were thinking back in December. Where is that? Is that mostly coming out of the domestic market? And along those lines, as you go into the summer months, how do you kind of think about the four entities? I know you gave a little color on international and domestic for 2Q, but just a little bit further in.

Savi Syth:

Understood. And then maybe a question for Dan. There seems to be less kind of cost of prices this year. Could you talk a little bit about what’s leading to that better predictability?

Operator:

Your next question is coming from Duane Pfennigwerth from Evercore ISI.

Glen Hauenstein:

Sure. Technology is one of the least recovered. Financial services is actually showing some momentum, surprisingly. And so, I think as we think about our geographic pull, one of the things we’re excited about is New York was really not back last year. And of course, we have a lot of exposure to New York, and we’re seeing really good -- New York not only as an origin market improvement, but New York is a destination market improvements as well. So, that should bode well for us for the summer. And again, I think what’s really interesting is more of the forward lines between the yields of corporate and high-yield leisure that didn’t exist back pre-pandemic 5 years ago. And so where we’re not selling those premium seats to corporates, we are selling them at near corporate rates to high-end leisure customers, and that’s really providing a very nice insulation for us.

Duane Pfennigwerth:

And then just on -- for my follow-up, with respect to the core hub restoration and maybe getting back some of your RASM premium to the extent that you see that as a driver. Where are we on core hub restoration and sort of what part of the calendar as we think about the balance of 2023, would you expect that to really contribute? And thanks for taking the questions.

Dan Janki:

Yes, revenue and costs. Yes.

Conor Cunningham:

So, the range of outcomes on revenue is still pretty wide for the full year. I was just curious if you could unpack the high and low assumptions. Presumably, you have pretty good visibility on the first half. Just curious on the swing factors as you think about the second half for your revenue.

Conor Cunningham:

Okay. And then maybe following up on Savi’s earlier question. Dan, I think you mentioned that you have 2 points lower capacity in the first half, which is certain CASM ex. And I don’t think you changed your 2023 capacity and cost guidance. So, just curious like what the offsets might be, or is the first half impact just going to impact the full year from that level? Thank you.

Operator:

Your next question is coming from Catherine O’Brien from Goldman Sachs.

Dan Janki:

Yes. That’s right. You think about the 10-point progression from beginning to end, and that would be down mid-single digits from that perspective. The maintenance is the 5 points -- 4 to 5 points related to first half being up to back half being down. The other drivers there is rebuild, those transition rebuild costs. We incur about 80%, 85% of them in the first half of the year, really aircraft reactivations, it’s training, it’s hiring components. Those step down and I mentioned that in the prepared remarks, pilots being one and the crews being one of them. We’re putting 600 pilots into production. So, it’s really the first time over the last 18 months that are actually -- school house will step down here during the second quarter. And then the other components are the efficiency, scale and efficiency that starts to step in as you get the core rebuild, about 5 points of aircraft utilization, and we just get a better use of our facilities and our people as we progress through the back half.

Glen Hauenstein:

Great question. Most of the business travel internationally is in the front cabin. So, I’d say 75% to 80% is in the front cabin. So, that’s fueling front cabin strength. I’d say all of our premium products in the long-haul international markets are doing incredibly well. This is really the first year we have premium economy at scale. About 85% of our flights long-haul now have -- that will be 100% by next year. But -- so we’re flying this for the first time with ubiquity in the international arena, and we’re seeing amazing results on the premium economy count at the Premium Select. So, very excited about the rebound in international travel, both leisure as well as business. Now, what was the second part of your question? I’m sorry.

Glen Hauenstein:

We are seeing the length of trip change and Road Warriors are not staying one day, day trips are down. And that’s really what we’re trying to harness here as we move forward is normally, we would use AP, advanced purchase as one of the big key drivers for separating our business versus leisure. Now it’s really stay. And even with stay, it’s not as defined as it used to be. So, those are the fences we’re trying to rearrange how we think about our pricing systems and fencing. We don’t want to get too much into how we think about that. But clearly, AP is one that we’re leading out of.

Scott Group:

I got just a couple of near-term follow-ups and then a longer-term question. So, the 70% booked for Europe and significantly less domestically, how does that compare with pre-pandemic sort of levels entering Q2? And then, the overall unit revenue flat to down slightly, is there a difference domestically, internationally on the year-over-year trend?

Scott Group:

There was just like the RASM for the unit revenue flat to down slightly for Q2, is there a difference domestic, international?

Scott Group:

And then, Ed, you -- on the prepared comments, you said you expect strong earnings growth again in 2024. Is that a market macro comment, or are there company-specific tailwinds that you have that you can share? Just like when I look at the second half guide, right, it’s sort of flattish year-over-year. So, what changes in ‘24 to get back to strong earnings growth, anything company-specific?

Operator:

Your next question is coming from Andrew Didora from Bank of America.

Dan Janki:

Yes, let me -- a few things. One, I think the level of it is what gives us confidence in the second quarter and the second quarter revenue and revenue through this summer, the strength that we’re seeing both internationally and domestic. You get the benefit of the people more comfortable booking longer elongation of the curve. You certainly have fares that are up. But I also think with the policies that we’ve taken during this period of time being customer-focused, customer-friendly, people have gotten comfortable with no change fees and booking out, and that’s driven the elongation of the curve. And we’ve seen the behavior within that to be very consistent in regards to how it’s been performing. So yes, it’s a step up, but I think it’s a sign of strength, and in regards to the customers feeling comfortable with the policies and changes that we’ve made.

Dan Janki:

The teams have -- well, we spent a lot of time in regards to just ensuring that we have the right resources in the right places with the right level of training. So, a lot of effort’s gone into this over the past, month after month after month across the operating teams, everything from the crew activity and ensuring that we’re aligned network to crewing all the way down into tech operations in regards to the staffing that we have in place as it relates to line maintenance, they’re continuing to focus on turnaround time regarding aircraft out of service and the associated items. So, we continue to be ensuring that we’re putting those types of capabilities, buffers in place for the readiness and then the proactive actions that we talked about with adjusting June capacity based on -- Glen mentioned it, the resiliency and the ability to recover from storms. We know that they will happen in the summer, and we’re targeting that around areas that we want to ensure that we have deeper resilience around, and the teams are focused on that.

Operator:

Your next question is coming from Brandon Oglenski from Barclays.

Glen Hauenstein:

I think, really, there’s two things I talk about in that realm. One I just want to mention, even though it wasn’t in the question was there’s two things we need to do better next year. One is harness the demand set better that is the new norm and post-pandemic world. And I think we’re getting that real time now, and we’ll make those adjustments. And so materialization rate is relatively easy to combat because it just relates to your overbooking model. So, if you were at 103% on average, and you have two extra points, you just go to 105 in terms of what your ability to take is. There’s a little bit of risk in that. And so we probably won’t go to 105 right away. We go to 104, see how that works, 4.5. [Ph] And that’s why you have to retrain yourself and see what the actual events happen. Because these are changing in relatively condensed time periods, we don’t want to overshoot and cause a disruption. So we’re going to be a little bit more careful on getting that real time. But the other piece is doing the whole network over better next year, right, is that we saw travel patterns of all that are very different than pre-pandemic and where people are flying. And so, as we get to -- one of the things that gives us real confidence about improving next year over this year is when we look at what we did in January, being able to do that better in terms of where we have our capacity placed. And that’s the part I think I’m really excited about is we now have the real post-pandemic travel patterns, which are very different in terms of cities that fly to in places they want to go. If you take New York to Florida, which has never been bigger, there’s a reason why, right, as people have decided that they can live in Florida and work in New York. And those are the things that we’re now incorporating into our analysis as we move forward and things I think we’re really excited about in the future.

Dan Janki:

Free cash flow, the -- as we mentioned in December and on first quarter, the one-time ratification payment that was made was not a special item. You see it this quarter, it’s not in the free cash flow. And certainly, going back to the ATL, the cash performance in total, as it relates to the operating cash and where we are in free cash flow gives us confidence in being greater than $2 billion for the year -- first quarter and through the half. Thank you.

Helane Becker:

Ed, you talked about something I had a question about actually, and that was productivity improvements, which you mentioned that so many people have a year or more worth of experience. Can you -- is there any way you or Dan can put any numbers around that and just say, it’s like X percent of CASM improvement or cost improvement?

Ed Bastian:

Helane, couple of added points. We mentioned in past calls, the amount of incremental training that we’re doing is in the hundreds of millions of dollars a year. Obviously, a lot of that’s going to dissipate, now that we get into a more normalized pattern. We’re going to get the employees not just the cost of the training, but the instructors are doing the training back into the operation and providing that leadership. The other thing is that, as Glen mentioned, the network is continuing to evolve. And what we’ve seen is the staffing has been a bit lumpy during this recovery from the pandemic and getting your employees and your shifts to the schedule and understanding what the schedule looks like. There’s a lot of opportunity in there at the airport level and efficiency across the board. So, I think efficiency is certainly a big part of the reason why we expect in the second half of this year to bend the trajectory on nonfuel CASM and start taking it down relative to prior year versus the continued upward push we’ve been seeing.

Peter Carter:

Hi. It’s Peter Carter. Thanks for the question. Good to hear from you. So that release is until September 15th. So, it does not get into the fourth quarter. But what I would say is that it is hopefully going to be only something we would need to do this summer because we are engaged in ongoing discussions with the FAA precisely on the topic of ensuring that they have the appropriate staffing for that New York -- and frankly, it’s beyond New York, but for our national air system. And I think the one thing you’ve probably seen from them in their granting this waiver is that they are acknowledging that they have an issue that they need to solve, which is really an important, I think, acknowledgment because it allows us to work together to try to solve it, help them solve it together. So, we’re -- it is the most efficient and safest air traffic control system in the world, and we need to continue to invest in it.

Julie Stewart:

Thanks, Helane. Now, we’ll go to our final analyst question.

Sheila Kahyaoglu:

Just to switch gears a little bit, maybe talking about the loyalty program, it continues to be pretty successful. Revenue is up 27% year-over-year in the quarter. And I know you’ve laid out 2024 targets. But generally, how are you thinking about growth runway from here, what levers are there to pull? And how do you think about the correlation to the broader economy and the broader macro? And if there’s any metrics you watch more carefully with that.

Julie Stewart:

That will wrap up the analyst portion of the call. I’ll now turn it over to Trebor Banstetter from our Corporate Communications department to start the media questions.

Operator:

Certainly. [Operator Instructions] Your first question is coming from Alison Sider from Wall Street Journal.

Ed Bastian:

Hi Ali, it’s Ed. We talked about this several weeks ago around the time of the summit that the FAA convened. We thought it was a very positive step to bring all the stakeholders together to talk about what we’re seeing and what we can do to continue to improve upon the very best safety aviation system in the world. Yes, there’s no question that we’ve had some additional incidents than you would see that are a bit out of the norm in terms of timing. Fortunately, the safety systems caught those incidents, but we’ve got to be vigilant at all times and continue to find ways to get better in that environment. So, nothing that gives us pause. It is, by far, the safest form of travel period -- of any form of travel. But we want to make certain the stakeholders are all focused as this industry works through, the infrastructure rebuild that FAA is seeing as well as the airlines are seeing.

Ed Bastian:

There’s no evidence that that is necessarily the case. Listen, we have the world’s foremost safety management systems and risk mitigation focus in the aviation community. And we knew that we have younger people. And so, we get out ahead of that. We don’t wait for something to happen. We are on the front end of that with training and added procedures, added buffers, added focus in the operations. So no, I would not lay it necessarily at the hands of experience.

Mary Schlangenstein:

I wanted to get one quick clarification, and then I have a quick question. When you were talking about corporate recovery, and you were saying you’ve recovered 85% of revenue, 75% of traffic in the second quarter, is that like total overall domestic and international corporate, or was that a segment of that?