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.”

Delta Airlines 1Q15 Earnings Call Notes

We run the best operation in the industry

“We continue to run by far the industry’s best operation. In the March quarter we delivered 98.6 completion factor that had a lot of tough weather days in it but we did have 25 days with zero mainline cancellations.

Our mainline on-time rate improved 3.1 points to 83.4%. This operational performance is contributing to solid increases in customer satisfaction, we have achieved all time highs in our Net Promoter scores and our customer complain rate has decreased by 23% so far this year.”

Business is performing well, while strong dollar is creating a headwind

“Looking forward the business on the whole is performing quite well, while the strong dollar is creating a $600 million headwind for our international revenues, it is also a factor in keeping fuel prices down which will contribute over $2 billion in gross savings year-on-year in 2015.”

Corporate travel managers optimistic about travel

“Our recent survey shows corporate travel managers continue to be optimistic about the remainder of the year with roughly 85% of respondents anticipating they will maintain or increase spending over the balance of this year.”

Toughest revenue environment is asia, driven by forex

“We face our toughest revenue environment in the Pacific where unit revenues declined 9% with roughly seven points of the decline driven by foreign exchange’

Softer demand trends in Brazil Russia, Middle East and Africa

In addition to currency, we’re also continuing to experience softer demand trends in certain markets including Brazil, Russia, the Middle East and Africa. ”

Supply is outstripping demand in China

“Yes Mike we are seeing good flows, but candidly the industry capacity between China and the U.S. I think the number in Q1 was about 20% of an increase. So either the supply is certainly outstripping demand but demand is strong and our early indications on our — the new flight we were launching between LA and Shanghai are very positive. So we’re not the predominant player in China at this point, so we’re still building strength as we go.”

Better to assume a high oil price than a low one

” our long term philosophy and this is how we’ve always run the airline is to assume a high fuel price, and to assume a much higher fuel price than the forward curve.

And that does a lot of good things for you. I mean we put it this way, having tried different ways to budget airlines over a really long period of time the only rational way that we found is to assume a high fuel price over the long term, because you are never disappointed when its lower. But if you assume – if you assume a low fuel price then the fuel price ends up being high then you are put in a situation where you’ve got to go tear apart the company in order to get your cost down.”

Net promoter score is the best measure of brand performance

“Well, our net promoter score is, we believe, the best measure of brand performance and it’s across multiple consumer industries, not just the airline industry. And we’ve seen a very tight correlation between improvements in our unit revenue performance and outperformance that’s directly attributable to customer satisfaction and net promoter score.”

Delta Airlines 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Generated a lot of cash last year

“We generated $5.8 billion of operating cash flow and $3.7 billion of free cash flow and returned $1.35 billion of cash to our owners. Delta was the sixth best performing stock in the S&P 500 with a 79% gain. In two years we have increased our market cap by $30 billion. Our $3.7 billion of free cash flow was better than 90% of the S&P industrial and Delta has the third highest free cash flow yield of the S&P industrials.”

Can generate another 2B in 2015 from fuel savings

“There’s a tremendous opportunity in front of us from lower fuel prices. We will drive these savings to the bottom line with strong revenue growth and yield preservation regardless of fuel prices. At current fuel prices, we expect to capture over $2 billion in fuel savings benefit in 2015 net of our hedges. If fuel remains at these levels we are set up to fully participate in recent fuel declines in 2016. In addition, our hedge book provides excellent protection should fuel rise from current levels.”

Continuing to build a durable industrial company

“As we discussed at our investor day last month, our work lies in continuing to build a durable industrial company with strong financial performance throughout the cycle. We’re making great progress. We’ve got the right people and the right strategies to continue to do so.”

Plan with a very high fuel price

“We actually use pretty high fuel prices in all of our planning and this was a shared experience with Ed and I, we’ve learned this over the years that planning with a low fuel price will only disappoint and planning with a high fuel price if you end up being wrong and the fuel price is lower, you’ll be pleased. But it’s really important when you’re planning an airline over the long term, or making a 30 year NPV decision on buying an airplane to use a very high fuel price otherwise, you’re not going to get an ROIC and a free cash flow number that you’re going to like.”

We’ve seen this movie many times

“We’ve seen this movie many times in the industry and so you’ve got to run the company conservatively and we’re trimming capacity as we speak as we get close into the beginning of the second quarter.”

Delta has the highest net promotor score of major carriers

“As you know Delta has by far the best industry record for on time performance for baggage and the highest net promotor score of any of the major three carriers”

You can’t hedge in the 40s in 2016

“We have to keep in mind that there is some steepness in the curves so you can’t hedge in the 40s in 2016 and we have to take that into account.”

Lower fuel prices bring competition to market

“there’s no question there’s a correlation as fuel prices come down there’s an industry supply macro that you need to think about so we weren’t talking about any specific headwinds other than the fact that as fuel prices come down you can expect to see some pricing pressure broadly.”

Delta 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Delta’s thoughts on Ebola

” first, I’d just point out this isn’t the first communicable disease that we faced as an airline or an industry. And we are well versed at managing these type of events and ensuring the safety of our customers and crews. We’ve got a corporate safety and security staff that’s in continuous dialogue with the CDC and the World Health Organization and we adhere to all their recommendations. I’d just point out, the virus I’m sure you know is extremely difficult to transmit. A person has to have symptoms to be contagious. As Richard pointed out, there are CDC screening protocols in place in and out of the West African countries as well as into the U.S. and the EU to prevent a person with symptoms from flying. We’ve also got well established hygienic cleaning procedures and use disinfectants part of every flight and then the CDC – and I continue to point out that there’s virtually no risk to all air travelers no matter where you’re traveling.”