Delta 2Q15 Earnings Call Notes

22% y/y EPS growth

“We maintained our revenue base despite an 18% decline in fuel prices, which allowed us to expand our pre-tax margin by 200 basis points, improving earnings per share by 22% year-on-year and generated free cash flow of $1.6 billion in the quarter.”

Business conditions remain pretty stable

“Regarding the current environment, business conditions generally remain favorable, currency volatility continues to impact our international business while domestic yields have been under pretty significant pressure”

Revenues softer than expected thanks to yield weakness

“Despite these improvements the strong dollar and lower fuel surcharges remained headwinds for international business while softer yields in certain domestic markets resulted in revenues that fell short of our initial expectations.

For the June quarter, passenger unit revenues declined 4.6% with 2.5 points attributable to currency and lower surcharges and the remainder attributable to lower domestic yields.

This yield weakness domestically was limited to a small group of markets. In fact, three markets accounted for 50% of the overall domestic yield weakness. ”

28% Fuel savings

“With the recent sharp drop in fuel prices, we currently expect our September quarter fuel expense will be $1 billion lower year-over-year, net of roughly $200 million of hedge losses.

At $1.90 to $1.95 per gallon, our second half fuel price will be 28% lower than what we paid in the first half of 2015 according to the current curve. We expect this price will be in line with the industry average for the balance of the year.”

Fuel prices should be a $2B benefit this year

“Overall, we continue to expect fuel cost to be an enormous tailwind and provide a net benefit of more than $2 billion for Delta this year. We’re also well positioned to benefit if fuel remains at these levels for 2016.”

Has Spirit match type of pricing now

“Well, our three really branded fares that we’re talking about today, one is basic economy, which is our spirit match fare if you will or ultra low cost carrier which is a de-comp dented product. We have Comfort Plus, which we re-launched in the quarter with a few additional amenities and we saw a huge uptick now. We believe this is all incremental because the transaction is actually a post purchase transaction. So you have to go in and buy the additional service upgrade after you purchased your ticket and so we view that as fully incremental.”

Corporate demand is very very strong but there is yield impact

“I think as you look at where the weakness is, it is not in corporate demand. It is in the yield that we’re obtaining from corporate demand. And so as we continue to move forward, we don’t talk about future pricing initiatives we never have and so — but I would say is I think that corporate demand remains very, very strong and very, very strong even out of the cities that have had this yield impact and how the industry reacts will determine how those three cities do.”

We have not experienced demand deterioration, just yield deterioration

“I did want to clarify that because I have read it in several reports where people were talking about close in demand deterioration, which is not what Delta has experienced, but we have experienced closing yield deterioration in several key business markets.”

Most people are opting to take the higher fare, non spirit match

“So if and let’s just give an example of this, if the lowest fare from Detroit to Orlando is $59 and that was match of an existing spirit fare from it was presented on the $59 gets you a product that is without a seat assignment most people are opting not to take that fare, but to take the next higher fare, which is essentially an added on price.”