Delta Air Lines 2Q16 Earnings Call Notes

Delta Air Lines’ (DAL) CEO Ed Bastian on Q2 2016 Results

Taking out capacity to fight unit revenue headwinds

“Despite our strong results, we continue to face persistent headwinds on our unit revenues on a number of fronts that we are working hard to combat. Capacity is one of the biggest levers we have to move the needle on our unit revenue performance. In May, we announced that we plan to take one point of capacity out of the fourth quarter. That brought our second half capacity growth plan to below 2%. Now, with the foreign currency pressure from the steep drop in the pound, the economic uncertainty from Brexit and continuing yield pressures in the North Atlantic, we have decided to take an additional 6 points of capacity out of the UK for the winter IATA season. ”

The large fuel savings are now behind us

” the reality is that the large year-on-year savings driven by lower fuel are now behind us, market prices are essentially flat for the third quarter and look to be higher year-over-year in the fourth quarter for the first time since 2012.”

Third quarter is the peak of the year

” I think the third quarter is the peak of the year. Candidly, it’s this June, July and August, right? So, that continues to be our – that’s our sweet spot.”

Currency putting pressure on purchases to the US from Britain

“The currency certainly has impacted the booking point of sale. And we have seen some strength in the U.S. point of sale to the UK as the talent has deteriorated. Likewise, we have seen some reduction in our UK point of sale coming to the U.S. And that’s why we are making certain of the capacity adjustments combined with overall high levels of capacity in the North Atlantic, which is putting pressure on yields even before Brexit.”

Paul Jacobson

Potentially is some impact on pension from low rates

“Well, I think it’s a little bit too soon to tell. Obviously, our balance sheet liability is impacted by rates. We have talked about that in the past. So, assuming rates don’t revert back higher, we could see a higher balance sheet liability, but keep in mind that, that has little impact on expense and little impact – no impact at all on our minimum funding requirements for our strategy going forward, which is much longer term based.

Glen Hauenstein

We are not trying to forecast any turn in the cycle, we’re just saying where we are

“Jamie, you asked a lot in that question and I have not gone back to check to 2008. 2008 to me is a blur going back in time. Listen, our guide is our best estimate to where we sit now. We do not think that we are at a – trying to forecast any type of inflection on the cycle or the margins if that’s your question. It’s really where we are. Fuel prices have bounced around a fair bit and fuel prices are up a bit in Q3 versus Q2, hedge aside. And we realized that we do have unit revenue weakness, particularly in the first half of Q3 that we are recognizing. So, I think that if you look at Q3 year-on-year, I think we are about flat, 20% pre-tax margin and I think that’s a – that’s about all I can draw from that.”

Strength in Mexico

“I think we have mentioned in the prepared remarks that the Latin unit revenues were up in the month of June for the first time in 26 months. So those green shoots that we saw last quarter are actually coming in and again being driven by strength in Mexico and a lot of that strength may be related to the presence of Delta and Aeromexico together because it seems that we are getting a much higher share of some of the corporate travel to and from Mexico.

London represents 35% of total business between the US and Europe

“London has – is the biggest market in the UK. But London has a very, very high business component. As a matter of fact, London represents about 35% of the total business to and from the U.S. between U.S. and Europe. So what we are doing is we are taking potentially down frequencies in off peak days. We are down-gauging equipment into the regional cities. Manchester tends to be a perfect example of much higher UK point of origin market and that one because there is a lot of leisure travel coming out of Manchester. And those would be the types of markets that we would look at to reduce.”