Delta Air Lines Inc (DAL) — Q4 2019 Earnings Call Transcript

Thanks Shannon. Good morning everyone and thanks for joining us on our December quarter end full year call. Joining us from Atlanta today are our CEO, Ed Bastian; our President, Glen Hauenstein; and our CFO, Paul Jacobson. Our entire leadership team is here in the room with us for the Q&A. Ed will open the call and give an overview of Delta's financial performance, Glen will then address the revenue environment, and Paul will conclude with a review of our cost performance and cash flow. Today's discussion does contain forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in our SEC filings. We'll also discuss non-GAAP financial measures. All results exclude special items unless otherwise noted and you can find a reconciliation of our non-GAAP measures on the Investor Relations page at ir.delta.com. And with that, Ed?

Thanks, Jill. Good morning, everyone. We appreciate you joining us today. Earlier Delta reported our full year results including a December quarter pretax profit of $1.4 billion, which is up $240 million compared to last year. Our EPS in the quarter increased 31% to $1.70 with pretax margins expanding 140 basis points to 12.4%. The December quarter performance was a great finish to what was truly an outstanding year on all fronts. Strategically, with the American Express renewal and the announcement of LATAM and Wheels Up partnerships, operationally with best-in-class completion factor and on-time performance, and financially with industry-leading revenue profits and cash flow, 2019 was the best year in our history. The top line grew 7.5% to $47 billion, positioning Delta as the largest carrier by revenue in the world. We delivered $6.2 billion in pretax income, an improvement of more than $1 billion over 2018, setting a new record for Delta and the U.S. airline industry. Full year earnings per share improved 30% over the prior year and we generated $4.2 billion of free cash flow with $3 billion returned to owners. These results simply would not be possible without the incredible work of our Delta team. I am pleased we'll recognize our employees' performance in 2019 with $1.6 billion in profit sharing. This marks the highest profit sharing in Delta's history and is the sixth consecutive year of $1 billion or more in profit sharing. We could not be happier for our people. For our customers, we continue to run the world's most reliable airline. We ended the year with 165 cancel-free days across the entire Delta branded system with 281 zero canceled days on our mainline operations, representing an entire month's worth of improvement over the record performance that we set in 2018. Recently, Delta was named 2019's Most On-Time North American airline by Flightglobal for the third year in a row. Exceptional operational performance along with unmatched customer service is why more people than ever are choosing to fly Delta. In 2019, we flew 204 million customers, a 6% increase over 2018. And over the last decade, we've significantly improved the quality and reliability of Delta's operations. As a result, our customer satisfaction scores have more than tripled. Domestic Net Promoter Score is now regularly in the 50s, with nearly five point improvements over the course of 2019. Delta's continued investment in our operations, products, service, airports and technology are reshaping customers' perception of our brand and our journey to improve continues daily, and we plan to keep climbing by powering our culture of service through technology. Last week, I had the honor of delivering the opening keynote address at the Consumer Electronics Show, where we outlined Delta's vision for the future of travel, unveiling innovative technologies to better serve customers and give our employees the best tools to use in the world. Delta is leading the industry in every dimension. In five short years, Delta will celebrate its 100th anniversary. It's amazing to think how far we've come, but even more exciting to look ahead. 2020 is off to a good start. The U.S. consumer and travel demand remain healthy, our brand has strong momentum, and we have a pipeline of commercial initiatives that support another year of revenue growth in excess of GDP. Consistent with our plan that we outlined at Investor Day last month, we expect to grow 2020 revenue by 4% to 6%. This is on top of the 15% growth that we've delivered over the last two years. Our full year earnings outlook of $6.75 to $7.75 per share positions Delta for the sixth straight year of pre-tax profits in excess of $5 billion. Free cash flow is also expected to remain strong at $4 billion in 2020. This would bring Delta's three-year cumulative free cash flow to over $10 billion by the end of this year. By leveraging a solid financial foundation with increasingly diverse revenue streams and building brand momentum, we are demonstrating an unprecedented level of earnings and free cash flow consistency for this industry. This is enabling us to reinvest in our business at a level that others cannot match. This reinvestment is extending our competitive advantages and when combined with a great brand powered by the very best people in the business, we have the engine to drive meaningful long-term value for our customers, our employees and our owners. With that, I'd like to turn the call over to Glen and Paul to go through the details of the quarter.

Thanks, Ed, and good morning. First, I'd like to thank the entire Delta team for delivering a record year in 2019. It's their hard work that enabled $47 billion in revenue, an increase of more than $3 billion over the prior year. The 7.5% growth was broad-based with strength in both business and leisure, improvements in domestic and international, and double-digit growth in loyalty and MRO. Total unit revenues improved 2.8% sustaining our revenue premium to the industry of more than 110% and outpacing non-fuel unit cost growth of 2%. We continue to diversify the top line with 53% of our revenue generated by premium products, loyalty and other non-ticket revenue sources. Premium product revenue grew 9% in the year to $15 billion. We've continued to improve and invest in the premium experience, and we are seeing increasing product affinity. On average 70% of customers that fly in premium products purchase an equal or better product on a future trip. We are providing SkyMiles Members more options to use miles anywhere they can use cash with Delta. Since launching upsell with miles a little over a year ago, 1.2 million customers have redeemed miles, contributing $135 million of incremental revenue, and we continue to expand capabilities, most recently with the ability to pay for bag fees using miles. Brand preference for Delta is stronger than ever. We are seeing momentum in customer satisfaction scores and in 2019 Business Travel News named Delta the world's best airline for business travel for the ninth year in a row. More customers are choosing to interact directly with us with 52% of trips purchased directly from Delta during the year. Digital is our fastest-growing distribution channel. Mobile revenues grew by 35%, driven by an active user base of over 24 million customers. Total loyalty revenues grew 18%. We added the highest number of SkyMiles Members in our history with over 6 million new enrollments. We also acquired 1.1 million new co-brand cards setting a new record and marking the third consecutive year of more than 1 million co-brand acquisitions. We deepened our customer engagement to drive 12% growth in mileage redemptions in co-brand spend. This is the fifth year of double-digit growth for portfolio spend. In 2019, our renewed contract with American Express benefited revenue by approximately $500 million. Delta's close relationship with American Express is a strategic advantage that is truly unique. In 2019, the total contributions grew by 20% to $4.1 billion. We expect this to reach $4.4 billion in 2020 and grow to nearly $7 billion by 2023 on a combination of improved rates, continued acquisition momentum, and spend growth. Enhancing customer loyalty and building trust is at the heart of our business. Together with American Express, we are finding new and innovative ways to reward customers for their loyalty. Later this month we will be launching our new portfolio of card offerings. The redesigned cards deliver new and richer rewards that will continue to increase customer benefits and drive future card acquisitions. Turning to the December quarter. We delivered a strong close to the year with top line revenue growth of 7.2%. Total unit revenue growth of 2.4% beat guidance and marked our 11th consecutive quarter of improvement over the prior year. Passenger unit revenue was up 1.4% over the prior year led by strength in domestic and LATAM. Holiday travel came in ahead of expectations driven by strong consumer sentiment and a condensed booking period between Thanksgiving and Christmas. Domestically we saw strength in business and leisure demand with solid yield gains on peak travel days. Premium product revenue outpaced our expectations, growing 9% in the December quarter on top of last year's 10% growth. Domestically, revenue was up 7.7% on a 1.6% improvement in unit revenues. Corporate demand was strong at up 6% and premium products remain a key contributor, up 11% year-over-year. Similar to the September quarter, we saw revenue and margin improvement in every domestic hub with revenue up 10% in coastal hubs and 6% in core hubs. Internationally, revenue grew 2% on flat PRASM. LATAM was the best-performing entity with 6.3% PRASM improvement, a three point improvement sequentially. Brazil and Mexico both delivered double-digit PRASM gains. In the Atlantic, PRASM declined 1.6%, almost entirely driven by FX. Specific revenue stabilized on a three point sequential PRASM improvement. While China remains soft, trends improved in Japan and Delta Premium Select performed well as we continue our fleet and product transformation. With new and reconfigured aircraft now on 80% of our Pacific routes, we have the Delta One suite and Premium Select products in place. In the March quarter we expect total unit revenues to increase by 5% to 7% with unit revenues up flat to up 2%. The sequential change in unit revenues from the December quarter is due to lapping last year's American Express contract benefits and MRO engine volume timing. Importantly, PRASM growth remains consistent at approximately 1.5% in both 4Q 2019 and 1Q 2020. March quarter expected capacity growth includes approximately two points of leap year and the launch of service to India. In 2020, our plan of 4% to 6% revenue growth is driven by four areas: strengthening brand preference, better selling and servicing of our products, continuing to win with business and corporate travelers and driving increased loyalty with more customers. Corporate and leisure demand trends remain healthy. The overall outlook for corporate travel is positive. In our most recent survey, 80% of travel managers expect to maintain or increase their spend in 2020. While momentum in premium product revenue is continuing in 2020 with the ongoing modernization of our wide-body fleet and improvements in how we sell and distribute premium products. We also expect additional growth from American Express and MRO albeit at a more moderate rate than in 2019. In our network, we are expanding service and personal hubs, refocusing on opportunities in our core and developing our partnerships with LATAM. We expect to begin our Co-Chair relationship in the March quarter. In December we launched new service from JFK to Mumbai and revenue trends are ahead of forecast. We expect approximately a one point unit revenue pressure in the transatlantic as the route develops throughout the year. In the first half of the year, Delta will consolidate Tokyo operations at the preferred downtown Haneda Airport. We will also shift Beijing service to the new Beijing Daxing Airport. These moves are strategically important and are the final steps in our multi-year restructuring journey in the Pacific. Over the last decade, Delta has established a global scale advantage through an unprecedented network transformation and by building a leading portfolio of partnerships around the world. This evolution provides the foundation for an acceleration of returns over the next decade as we mature and grow investments in fleet, partners, facilities and technology. Delta's continued investment ensures that we extend our competitive advantages. Our culture, operational reliability, global network, customer loyalty and an investment-grade balance sheet maintain our leadership position in the industry. In closing, we delivered an outstanding 2019 and are off to a very strong start in 2020. And now I'll turn it over to Paul.

Thank you, Glen. Good morning, everyone, and thank you also for joining us. In 2019 we delivered pre-tax income of $6.2 billion, more than $1 billion improvement versus prior year and over $300 million higher than Delta's prior record. Pre-tax margin expanded by 160 basis points to 13.2%. Earnings grew 30% to $7.31 per share. Cash flow was also a key performance highlight. We generated over $4 billion in free cash flow while continuing to invest in our people, our fleet, our partners, and technology. These investments are generating strong returns with an after-tax return on invested capital of 16.2% in 2019. This represents nearly 500 basis points of improvement since 2010, all while doubling our invested capital base. In the December quarter, pretax margin expanded 140 basis points to 12.4%. This was above guidance on stronger unit revenue, lower fuel, and a net $80 million gain that resulted from selling our stake in GOL and beginning to unwind our relationship. Excluding this gain, pretax margin grew 70 basis points and earnings beat consensus by approximately $0.21. While total expense grew 6.9% in the quarter, half of that growth was due to pension expense, the markup of benefit-related balance sheet obligations, and profit sharing from the growth in profits. These cost increases were partially offset by lower fuel expense, which declined $370 million, primarily on lower market fuel prices. Non-fuel unit costs were up 4.4% in the quarter, in line with our guidance. For the full year, non-fuel unit cost came in at 2% consistent with our long-term target, despite the pressures we saw in the back half of the year. For the March quarter, we expect non-fuel unit cost to increase 2% to 3%. While fuel has been volatile over the last month, based on yesterday's price, we expect March quarter fuel price of $2 to $2.20 per gallon in line to slightly above prior year. Combined with the outlook on revenue Glen provided, we expect March quarter pretax margin to be roughly flat year-over-year. Turning to the balance sheet and cash flow, during 2019, we generated $8.4 billion of operating cash and invested $4.5 billion back into the business. Free cash flow of $4.2 billion resulted in nearly 90% of net income converted to free cash flow. As outlined at Investor Day, we are planning capital spending of $4.5 billion in 2020 as we continue to replace our fleet and invest in product and technology. These investments are transforming Delta's fleet to drive margin benefits through higher customer satisfaction, increased premium seats, and significant fuel efficiency improvements, which is helping to drive our sustainability goals. Returns on these investments are strong and the compounding benefits of reinvestments support long-term growth. Delta's investment-grade balance sheet remains an important competitive advantage. Including the debt we raised during the quarter, our leverage ratio was 1.7 times at year-end. This puts us at the low end of our targeted adjusted debt-to-EBITDA range of one and a half to two and a half times. Bad debt issuance was $1.5 billion of unsecured debt made up of five and 10-year notes. The blended unsecured rate of 3.24% is the lowest for these durations in Delta's history. The proceeds funded the majority of the acquisition of a 20% equity stake in LATAM. With LATAM tender now complete, we will begin recognizing 20% of LATAM's earnings in the non-operating line beginning in the March quarter. Moving to pension, we are actively managing our obligation through a combination of funding and asset returns. In the December quarter, we contributed an incremental $500 million of voluntary contributions into the plan, bringing elective contributions in 2019 to $1 billion. For the year, planned asset returns were about 19.5% fueled by strength in the U.S. equity markets which will drive favorability in our 2020 pension expense. While lower discount rates impacted the liability, our funding strategy and strong returns helped improve our funded status of 75%. This is a 700 basis point improvement over the prior year and nearly double the funded status in 2012. In 2019, Delta's unfunded liability also improved by $1 billion. We plan to make $500 million of elective contributions in 2020. Under airline relief recall, we have no mandatory contributions through 2024. Strong cash generation allows us to reinvest in the business while also addressing these balance sheet obligations and simultaneously consistently returning capital to shareholders. In the December quarter, we returned $225 million in share repurchases and $259 million in dividends for a total of $3 billion in 2019. We ended 2019 with $1 billion remaining on our repurchase authorization, which we expect to complete by the middle of this year. It is our powerful brand, unmatched competitive advantages, and the collective efforts of all Delta people that allow us to continue to deliver industry-leading results and drive long-term values for our owners, our customers and for our people. I'm truly excited for the year ahead. Consistent with the guidance changes announced at Investor Day, we are no longer providing quarterly EPS, but are well on track to deliver full year earnings per share of $6.75 to $7.75 per share in 2020. We expect another strong year of free cash flow with expectations for $4 billion, again this year, bringing our three-year cumulative free cash flow total to over $10 billion by the end of 2020. And with that, I'll turn the call back over to Jill to begin the Q&A.

Thanks, Paul. Shannon, we're ready for the question-and-answer period with the analysts, if you could give some instructions on how to get into queue.

Hey, good morning, guys. Thanks for the time. So, Ed as you think about the decision to sort of accelerate the investments in technology and the experience maybe even going after some adjacent revenues in rideshare through partnership and that kind of thing is this – are these activities going to be funded kind of within the existing capital envelope? Or do you expect Delta to kind of maybe spend a little bit more over the next couple of years as you look on kind of executing the vision you laid out at CES?

Hey, David. David, thanks. Yes. The capital that we spoke of at CES and the technology that we displayed is within the envelope that we've been working with in technology. One of the things that we've done over the last several years is increased our investment in technology, and we're now on a capital level running at about $500 million a year in technology. However, for the first couple of years of that, a lot of it was focused on infrastructure and resiliency and the data sets in data architecture that's now finally starting to be able to produce the type of technology and innovation that you're seeing. It's going to be more heavily weighted going forward towards business and commercial application as compared to infrastructure. But it sits within the envelope we've been using.

And maybe just as a quick follow-up as you think about the return on this incremental investment is this going to be sort of a gradual enhancement to the revenue premium that you earn? Or do you see some sort of step change in opportunity along the way whether it's material cost out or revenue opportunities kind of within the next three to five years?

I think it's both, David. Certainly the revenue opportunities are significant. In this past year, we looked at what we thought our digital investments and new product offerings generated and we estimate about $200 million of incremental revenue from using SkyMiles as a currency to upsell, as well as the new-generation shopping and booking tools that we have. Opportunities also sit on the cost front with better decision support in irregular operations and optimizing the fleet to make certain that we're able to ensure that our crew are best utilized and any downtimes are minimized. I could go on; there's a long list of opportunities that we have. So I think it's going to be both a cost opportunity as well as a strong enhancement to the brand as we build closer digital connections with our customers, 204 million customers a year. The only way you can build that connection with them at the personal level that they choose is digital, and we're off to a great start.

Thanks very much operator. Hi, everybody and thank you very much for your time. Glen, I know you said that you're seeing strong demand on the corporate side and I'm sure that's true. But I'm starting to hear from some companies that they're thinking about cutting expenses and asking their employees to rethink some travel, and I'm wondering if you're seeing any signs of that among your top corporates? Or if you could just mention maybe where you're seeing the strength, if it's a particular industry group?

No, I think we're seeing strength across the board. We've heard this from time to time that people are worried about corporate spend and travel, but it seems to be in a very good position as we head into 2020. As a matter of fact, last year we did see a little bit of weakness in manufacturing, but we're starting to see some positive momentum coming out of that sector. So generally, we're seeing some very good signs from our corporate.

Yes, I think the only thing I'd add to that, Helane, this is Ed, is we're certainly seeing some weakness as Glenn touched on in Asia with China issues and some of the tariff discussions that's bled over into Korea and a few of the other Asian economies. But fundamentally Glenn's right, the health of our businesses in the U.S. and the U.S. corporate is doing quite well.

Okay, okay. Thank you. And then just as a follow-up to that. Would you rather see faster growth in leisure traffic or faster growth in corporate traffic?

We've experienced both. I think we like them both equally. I think what in leisure is really – what we're seeing in leisure really is an interesting separation of people who are looking for quality and are willing to pay higher fares or upsell into better products and services at the highest quality airline in the U.S. So we see an increase in yields in leisure which is very good for the industry.

Right. So what you're seeing is leisure travelers buying up and fewer people in that basic economy bucket, is that a way to interpret your comment?

That's a way to look at it.

Okay. All right. Great. Well, okay, thanks very much for your help. I appreciate it.

Hey, good morning. Thanks. Helane, just segued nicely into my question actually. You mentioned leisure seeking quality. Glen, is there a point where you view basic economy as being brand dilutive to the point where maybe it doesn't really fit the Delta concept anymore as you guys try to focus on that higher quality?

I think from the beginning we've been really clear that we want to have the best-in-class products and services no matter what your travel needs are. I think we would always see for entry-level customers who are only sensitive to price that we would have best-in-class there. As a matter of fact, you might think that our over-investment is highest in basic economy, but that's the entry point. Once they see the quality of service the Delta people provide I think they stay with us throughout their entire life cycle. That's an important product for us to continue and maintain.

Okay. And then if you think big picture take a step back for a second, think over the next five to 10 years, would you ever get so comfortable with your loyalty and value proposition to intentionally drive down your load factors just a few points with an eye on driving RASM pretty much entirely through driving the yield premium, to really truly differentiate yourself as a premium brand and feel airline?

I think we're always looking at what that is. We've taken steps really structurally. Let's say we invented comfort plus in the domestic arena. I think what we would see is maybe the continued adoption and demand for that product builds over time that we might create more of that on existing fleets, which would take the density out. I can't see us ever wanting to fly with empty seats. I can't see us wanting to sell a plane that is meeting the demands of our customer base that might include more premium even than we have today.

Hi, good morning everyone. I actually had a follow-up question on the tech investments. I guess the $500 million you're spending on tech CapEx, how do you think about the ROI needed on that spend relative to say on a new plane order or plane refresh?

We need to focus on both technology and our fleet. We are not choosing between technology and planes. Continued enhancement of our fleet is essential, which is where most of our capital expenditures go, including modifications to our aircraft. This year, we will be adding 80 new airplanes to our fleet. These investments in the fleet also support the integration of new technology as we update our operations. I don't see these as separate or conflicting priorities. We manage our overall capital expenditure budget as a company, aiming to stay within a range of plus or minus 50% of our operating cash. We evaluate the return on investment for all our digital initiatives and capital projects, and I am happy to report that they are largely achieving the results we anticipated.

Thank you, Glen. I noticed in the press release that you've been providing details on the domestic results by both core hubs and coastal hubs. As you plan for network growth over the next one to two years, which segment do you see having the most capacity opportunities? Additionally, I assume the core hubs are Atlanta, Detroit, Minneapolis, and Salt Lake, but do you anticipate any of the coastal markets being included in the core category soon? Thank you.

Well, I think they're core; they're just not geographically centered. Your ability to connect traffic when you're in Seattle is a lot less than when you're in Salt Lake City or Atlanta or the other ones you named. We've really used our first-mover advantage post-merger to take advantage of having the opportunity to consolidate positions in some of the key coastal markets like Seattle, Boston, Los Angeles, and New York. But we did that a little bit at the expense of growing connectivity in our interior hubs. Over the next several years, we'll be working on continuing to improve the products and services we offer at the coastal hubs, but really refocusing a little bit on growing the interior hubs to improve the connectivity of the airline.

Hey, good morning everyone. I guess just two quick ones here. Paul, I just want to make sure I heard you right: the LATAM running that through the P&L. I know it closed late in the fourth quarter, but I guess nothing really shows up in the fourth quarter. Is it beginning in the March quarter, did I hear you right on that?

That's correct, Mike. Beginning in the March quarter.

Okay. And then with respect to getting to the 20%, as I recall, I don't know if there was a sort of the conversation about whether it was going to be one or two board seats. Do you have a better sense? Do you know whether or not you have two board seats at LATAM as a result of that? Has that been figured out?

Yes. We have two board seats, Mike.

Okay, great. Great quarter. Thank you.

Thank you. Thanks, Mike.

Hey good morning everybody. First question for Glen and it's a follow-up to a topic that we discussed last quarter regarding the potential to generate an international RASM premium at some point. I'm curious if the fourth quarter results or the first quarter outlook shows any progress in this regard. Secondly, does the full year guide have any specific assumptions? Or should we treat any potential evidence of an international RASM premium as upside to the guide?

I think we're continually working to improve our international unit revenues, and I believe this fourth quarter indicates that we're moving in the right direction. We anticipate those trends will carry into the first quarter. While we don't yet have visibility on our competitors' actions, I see an opportunity to enhance both our relative and absolute performance as we progress through 2020 and hopefully beyond our current plan.

Okay. Second for Ed. It's related to ESG. I know you spoke about the topic at Investor Day; you gave some examples of Delta's environmental consciousness. I'm not sure if you saw Larry Fink's letter this morning. What I keep struggling with on this topic is fleet. We've commended your fleet strategy for some time now, specifically running a higher average age than your competitors. I just have to wonder if we're on the cusp of that possibly coming back to haunt you and whether ESG compliance necessitates bringing the fleet age down which in turn has CapEx implications. I'm not quite sure how to phrase the question, but how would you respond to somebody telling you that your fleet strategy is incompatible with growing ESG mandates? How about that?

It's an interesting way to put it, Jamie. Listen, we take our ESG and very specifically our environmental and sustainability requirements and goals to heart. Hopefully you heard me not only at the Investor Day but also at CES. I closed on that topic specifically. It's something that fleet plays a big part of candidly being somewhat of having an older fleet actually has given us opportunities to move faster in that space maybe than others. Every plane we put in — and we're putting in 80 new planes — are 25% more fuel-efficient than the planes that we're retiring. We at Delta were the only airline back in 2012 that voluntarily capped our carbon footprint at 2012 levels. No other airline has done anything like that. We're looking at ways by which we can go even more aggressively. Fleet is only – fleet is an important part of the solution, but there are many more things to this in terms of how we engage. I think you're going to be hearing us talk more and more about that over the course of the year. I didn't get a chance to see Larry's letter though I did hear a little bit about it this morning. I think his message is right.

That's helpful. I really appreciate it. And I know it's been a busy morning. I wasn't calling you up for not having seen the letter yet. You got bigger things to deal with. Thanks again, great quarter. Bye-bye.

Thanks, Jamie.

Hey. Thanks for taking the questions. Can you clarify your revenue growth guidance versus your RASM guidance into the first quarter? It feels like based on what schedules are showing, the implied RASM guidance is flattish, whereas your explicit RASM guidance is up one. Is that just a lower refinery year-over-year? What accounts for that difference?

Hey, Duane, it's Jill. The refinery sales are slightly lower year-over-year, but we exclude those from TRASM anyways. I think you're just – they're scheduled. There's a completion factor adjustment you have to make to schedule, but the revenue growth that we're looking at is a solid 5% to 7% in the first quarter, total revenue growth.

Okay. Great. And then just on the pension, I understand you expect a tailwind this year. But can you just talk explicitly about what pension expense was in 2019 and what you expect it to be in 2020? Thanks for taking the questions.

Yeah. So, thanks Duane. We had mentioned going in that we had about $250 million of pressure year-over-year in 2019 as a result of the pension returns in 2018. While we haven't given specific guidance, we – if you look at year-over-year, we were up about I think 16% in 2017. So, you can look back and see the sensitivity around that.

Hey. Thanks very much. Good morning, everyone. My first question just on the LATAM partnership, apologies if I missed it and Glen, you may have talked about it, but I think the codeshare with some of the affiliates is slated to begin here in Q1. Can you just give us an update on where you are with those government approvals and when in Q1 you think you can launch that? And just as a quick follow-up to that, is there a rough estimate that you could share with us on expected 2020 revenue contribution from LATAM?

I'll start with the first one, which is easier. No, we're not going to share that today. The second issue is it's by country. I believe this week we received the ability to code in Colombia. We expect Peru and Ecuador to follow shortly. The longer – a little bit longer tent pole. Those should all be up and running in 1Q, and a little bit longer pole in the tent is Brazil and Chile, which we expect later this year.

Got it. Thank you for that. And then just a quick one for Paul on CASM-Ex, your Q1 guidance is right in line with the full year. Should we expect that to be fairly level loaded through the year? Or are there any big sort of moving pieces that you expect in the year that could drive some quarterly swings in that 2% to 3% trajectory?

Yes, Joe, what I would say is we're obviously not going to give quarterly guidance on CASM for the rest of the year. But as a general rule, if you look at our CASM trajectory in past years it's been pretty skewed with a lot of volatility. We've taken a conscious effort in 2020 to try to balance that across to make that cost performance more disciplined throughout the year and that's very intentional.

Okay. I appreciate that. Thanks, everyone.

Hey, good morning everyone and congratulations on a pretty impressive quarter. So Paul, you guys have had really strong cash flow here. Not to be too much of a cheerleader, but it is a differentiated experience on your carrier. Is there any positive momentum here in CapEx, where you'd say, 'Hey actually we want to spend a little bit more'? Does it reprioritize fleet over the airport trends over technology or maybe strategic? Or do you want to stay with this very balanced capital allocation strategy?

Well, first of all, thank you for the comments Brandon. I think the balanced approach has worked very, very well for us in an effort to balance multiple constituencies, whether it's cash flow performance into the enterprise but driving return on invested capital. We obviously have a lot of demands on capital when you look across the space and the things that we want to do. Prioritization and pace of implementation is an important piece of that. It's not always just capital. It's having the resources to deploy that capital and make sure that it's delivering the benefits and the results. While I'd say we do have some room around the edges, you've seen us do that over time, take advantage of opportunities that are out there. We want to hold roughly to that balanced allocation over time.

Brandon, I could weigh in also it's Ed. I'd say, if there was any area that we'd look if we had opportunities to accelerate somewhat, it's in the airport infrastructure and construction. We're in the midst of a very significant buildout. The sooner we can get that done the better. Not suggesting that we're going to change any CapEx assumptions, but to the extent we had any capital that was available to be allocated that would be one place I'd look for using it.

Okay, everyone. Thank you.

Hey, Glen. Good morning, everybody. Glen I just wanted to ask a little bit more on the regional trends. At LATAM, you had a tougher comp versus 3Q but the performance is still pretty good. I'm just wondering as you look forward, generally what are you seeing from a trend perspective? Is there any kind of region where we start to come on tough comp?

We're seeing continued strength in the domestic U.S. arena. That's great news for us. We're seeing really good green shoots in the transatlantic. We've had currency issues over the last couple of years since 2018. Now that we're going to be lapping them as we move through this year, I think we're poised really well for a nice run in the transatlantic. We've seen in the trans-Pacific after a multi-year restructuring that this is the last piece and there are some uncertainties maybe around the airport moves that we are going to have. Those are two major airport moves for us closing Tokyo and Narita after being there for almost 50 years. That's a big move. Uncertainty over how many people will prefer Haneda. I think ultimately we are very, very confident that Haneda is a better airport to serve Tokyo than Narita. There may be some ripples there that would be unique to us as we have the largest footprint in Haneda. The Pacific I think we're encouraged at the signs. Today's signing or the signing of the agreement phase one agreement with China is going to be a good thing for us. If there is an upside to the Chinese, there's been really no capacity to bring capacity reductions in the U.S. to China for the first time in years. Traffic continues to build into China and capacity is being reduced. That's always a good thing for the airline industry. In LATAM, we've seen really good strength in both Mexico and Brazil and we expect that to continue and then accelerate as we can begin to code with LATAM throughout the year. We've got a really good base for international, which is encouraging. The sequential trends and the improvements are all moving in the right direction for us.

That's very helpful. Thank you. And Paul if I could quickly ask just on trainer, generally what you're expecting especially now that IMO 2020 has come and gone. Just some quick thoughts on what your expectations are for Trainer and steel in general?

Sure Savi. 2019 saw Trainer produced a profit at $75 million free cash flow positive and a strong contribution to our overall relative fuel story. In 2020, we've seen at least where we sit today significant improvement in crack spreads at the refinery over last year. We expect about breakeven performance compared to about a $35 million loss last year. We're looking forward to another sizable contribution overall both in terms of the performance of the refinery as well as the contribution across the commercial space and our fuel procurement.

Thank you.

Thanks. Good morning. A lot has changed in the month since the Analyst Day on the MAX continued push out there, shut down the line likely a slower delivery rates. So I'm curious as you look at your place in the ecosystem, are you taking a lot of active decisions to capture some of that? Or is this more of a view to benefit through pretty much passive behavior and let it come to you? I'm just curious how much active management you're thinking about versus simply having the premium revenue come your way. Thanks.

Myles this is Ed. We've all been watching the MAX story for the last year and none of us have a very good crystal ball. We're operating our plan. We're not deviating on the plan based on news flow. We have a strong plan for 2020. To the extent we pick up some marginal revenue, which we clearly have this year, that's great. Again, I would caution everyone; I would not suggest that's premium revenues that we're picking up because I think the other airlines have done a very nice job of covering their most important revenue pools. But on the margin, we've clearly been a beneficiary and as long as the MAX stays out of the sky, I guess, we'll continue to be one.

And a follow-up on the MRO benefit you might get from further aftermarket work running hot what's the growth rate? I know you said deceleration what's the growth rate you've got baked in for 2020?

Growth rate in 2020? I don't think we disclosed that. What we've talked about really as longer-term is that there is some growth, but the big growth story in the MRO is a couple of years out. The gear turbofan platform and the roles platforms start to enter more service and start to mature; that's where we do expect the MRO revenues to double over the next two to three years from today's level.

Shannon, we're going to have time for one more question from the analyst community.

Good morning everybody and thanks very much for taking my time. Just first you mentioned your Amex credit card growth through 2023. To what degree should the revenue growth be driven by the new brands you're introducing?

We don't disclose the makeup of the construction of the increases. But what we have said is that we expect it to grow from $4.1 billion this year to $7 billion by 2023. We have a very good component plan. I think we outlined the three pieces that include card spend growth, that include new acquisitions, and any changes in the core contract. Those three make up those components.

Okay, very helpful. And just one quick follow-up as a follow-up to Mike Linenberg's question a while back. When you think about LATAM airlines, are there any things that you see in the business that perhaps at this very early stage are a little stronger than you expected or maybe a little bit more challenging than you expected? I appreciate you might not be able to give us much color, but I just thought I'd ask.

No, these are the very early days and we are very, very excited about that partnership, and we think it's going to have great long-term benefits. We can only see a little bit as the relationship is just starting and we're just starting to put some of the key components in place with interline agreements. What we have seen has exceeded our expectations in the early days and we're very optimistic that this is going to be a game changer for us in Latin America.

If I could echo Glen's comments, we're very impressed with the leadership team at LATAM. Cuetos, Roberto, the entire team is a first-class group. I think we're going to find as we start to build out the JV with the appropriate regulatory approvals you're going to see this spool up faster than probably any of our other JVs. There's really good alignment. There's focus and there's a lot of growth opportunity for both carriers throughout the Americas. So we're very, very pleased.

Okay. Thanks very helpful. I'll leave it there. And thank you again.

Thank you.

That's going to wrap-up the analyst portion of the call. I will now turn it over to Tim Mapes, our Chief Marketing and Communications Officer.

So we have a few more minutes with the team, I'd reiterate Jill's comments earlier to please just hold your questions to one maybe a short brief follow-up then we'll try to get through as many of these as we can. Thank you.

Hi. Good morning. Thanks for taking the question. On the investments on tech, do you guys see Delta becoming sort of a travel platform for corporate travelers sort of like an AmEx or a Concur something like that? And then my second question, if you just have any update on what's going on with the pilots and mediation. Thank you.

Leslie, on your first question we absolutely do see ourselves as becoming an extended travel platform. We're not going to be looking to get in the TMC space or compete with outfits like Concur. What we are doing is from a consumer standpoint, looking to continue to extend the brand using the Fly Delta app as more of a digital concierge bringing partners such as Lyft closer into the application, making it easier for our customers to have an end-to-end experience through travel on the Delta app and all the way through hotel partners and other ways by which we can take stress out of the consumer's experience. That was the message at CES, and I think it was received well and that's where we're going. We're not going to comment on pilot negotiations. So I'll pass on your second question.

Okay. And just on the apps that's more for individual consumers not corporate platforms, correct?

This is very much focused on individual consumers. There is clearly some corporate benefits, but right now we're really focused on serving all customers.

Hi. I just wanted to try again on the pilots. Would you at least confirm whether or not you're seeking intervention by the National Mediation Board in the negotiations?

We are not going to comment on the state of any negotiations with the pilots on any questions. Sorry, Mary.

Okay. Thank you.

We think just to clarify. We think it's not appropriate to be talking publicly about it. It's obviously a great opportunity for us and our Delta pilots to work together to make sure that they're best compensated and rewarded for what they do.

Thank you. My question is for Glen. I imagine that the 10% coastal growth in hubs includes Boston and I'd like to know, if you anticipated that American would start to grow so fast in Boston, they're growing very rapidly there and added three new routes this morning.

Yeah. I think we've had incredible success in Boston, and Boston customers are choosing us. As a matter of fact, the third quarter data from the government just came out and we were in a virtual dead heat with Jet Blue as the largest revenue carrier in Boston. We think we've made great progress and customers will stick with us. We'll see who ultimately are the winners and losers in Boston. I know we'll be a winner.

Do you anticipate that American might start to grow there?

I don't know what anybody else is going to do. This is a very competitive industry and people grow and shrink. I think that in the long term, the better products, what we've consistently said is as long as we think we can provide the best products and services, we're ultimately going to win.

Hey, everybody. Thanks for taking my question. I was just wondering if you're starting to think about the 757 replacement. Are you waiting on Boeing's offering for the NMA? Or are you starting to consider the 321 XLR?

David, we have spoken many times on that topic. We are looking at the NMA. Certainly we're looking at Airbus offerings. We're not close to any decisions on that yet.

Okay. Do you have a timeline or anything that you're anticipating having to replace those planes?

We have not commented on timelines even.

Yes. Ed, you shared a lot at CES about some really exciting technology. I wanted to ask about some other aspects that aren't as thrilling. Can you update me on how you're progressing with improvements in distribution technology? Additionally, are there any updates regarding your core system in Atlanta and your PSS?

I'm sorry. Your question broke up. Could you simplify maybe? You had a lot in there. We had a hard time hearing?

Yes, can you hear me now?

Yes.

Your distributions technology PSS and also just improvements to the core – your core systems, how much are you investing in that? And how is that coming along?

We've been investing a significant amount of money on trying to continue to improve the digital experience and the distribution system and giving customers more choices and more ways to interact with us, more optionality. We've continued to release the new updates of delta.com. I believe we are now at 7 million downloads just this past year on the app. We continue to evolve in that space and we continue to work with all of our partners and continue to work on making sure that the distribution systems are capable of describing the products that we're trying to sell to our customers, which really can't be done any longer in green screens. That's been a continual evolution and we've been working with all the partners, the GDSs and all the distributors of our products and services to try and highlight what the differentiated products are that we're bringing to market.

Okay. Thanks. And anything else related to the core systems or the PSS improvement?

This is Rahul Samant. I'm the CIO here. We do, I mean that is our core engine the PSS Deltamatic, which we own. We have an advantage because we own it. We control the entire experience. To Glen's point, it allows us then to do better with the customer experience and channel improvement because we own the end-to-end technology.

Okay. Thank you all.

Yes. We have time for one final question.

Glen, you guys obviously are gaining share in the above average yield, the premium segment. Where can we look to see data that actually shows competitive data or competitive metrics where you guys are gaining the premium share? It's hard to put a finger on that number.

There's a lot of data points out there. There's no shortage of data in this industry. Most recently the U.S. government data came out for the third quarter. That's always about 180 days in arrears here or 90 days in arrears. We did really well. You could look at GDSs, you could look at corporate shares. There's plenty of data. If you'd like we could have somebody follow up as you run places you can go find that.

Please clarify what you mean. Are you asking if the increase in quality sales is due to the premium share gain?

I think the Delta brand is really about providing the best quality airline service in the world, and we continue to emphasize that and focus on that. We have 80,000 of the world's best people delivering it every day.

Okay, thank you.

With that, I will wrap up this call. Thank you, operator. Just to remind everybody we'll see and look forward to being with everyone on the next call on April 9th. Thank you again for your time today.