Delta Air Lines Inc (DAL) — Q2 2021 Earnings Call Transcript

Thank you, Katie and good morning everyone. Thanks for joining us for our June quarter 2021 earnings call. Joining us today from Atlanta are our CEO, Ed Bastian; our President, Glen Hauenstein; and our Interim Co-CFO, Gary Chase, and our entire leadership team will be available for Q&A. Ed will open the call with an overview of Delta's performance and strategy, Glen will provide an update on the revenue environment and our brand momentum, and Gary will discuss cost, fleet, and our balance sheet. I would also like to welcome our incoming CFO, Dan Janki who is with us in the room today but will not be participating in Q&A. Similar to last quarter's call, we scheduled today's call for 90 minutes to make sure that we have time for plenty of questions. For analysts, we ask that you please limit yourself to one question and a brief follow-up, so that we can get to as many of you as possible. After the analyst's Q&A, we will move to our media questions, after which, Ed will provide a brief closing statement. Today's discussion contains 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 Delta's SEC filings. We'll also discuss non-GAAP financial measures and all results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the Investor Relations page at ir.delta.com. And with that, I'll turn the call to Ed.

Well thank you Julie and good morning everyone. I appreciate you joining us this morning. As we speak we are well into the summer travel season. And if you have been to the airport in recent weeks you have seen first-hand how travelers are reclaiming their lives and returning to the skies. This increase in demand drove a better than expected revenue outcome for us in the June quarter with revenues down 49% versus 2019 resulting in a 6.3 billion total revenue. This was an impressive 76% sequential improvement from the March quarter. More encouragingly momentum is continuing as we exited June with a demand environment that's accelerating. Domestic leisure demand and yields are above June quarter 2019 levels and we see clear signs of business in international demand recovery heading into the fall. Through the crisis we've earned an unprecedented level of brand loyalty and trust, thanks to the world-class service, operational reliability, and innovation that drives the Delta difference, and our commitment to safety, cleanliness, and wellness is as strong as ever. The people at Delta are our strongest competitive advantage, powering our resurgence and running the best operation in the industry. It is because of our people's incredible work that Delta was honored as the number one airline for 2021 by JD Power. I want to thank every member of the Delta family for the professionalism, spirit of service, and warmth you show to our customers every single day. I'd also like to thank our crews and operations teams for continuing to put our customers and their safety first as we restore our business. We are now in active recovery of our business and the challenges of getting our airline fully back to the service level our customers expect and deserve is daunting in light of the huge surge in demand that we are experiencing. But we're taking all the right steps, primarily through increased staffing levels about Delta and our contract service providers to service this demand without compromising on the standard of care and cleanliness that our customers have become accustomed to on Delta throughout the pandemic. And even with these challenges our team continues to run the very best airline in the industry leading on all key operating metrics for the month of June and year-to-date. For the June quarter we narrowed our pretax loss to $881 million. This was meaningfully better than initial expectations driven by demand strength. Importantly we achieved significant financial milestones during the quarter, these include returning to profitability in the month of June with a pretax margin in the high single-digits despite still missing 40% of our prior revenue from June of 2019 generating 1.5 billion of free cash flow and nearly 200 million of adjusted free cash flow in the June quarter. Achieving solid profitability and generating meaningful free cash flow a little over a year from the start of the worst crisis in this industry's history is an impressive statement about the resilience of our business and the great work of our people. In showcasing the value of the commercial partnerships that we have developed leveraging the Delta brand, we have created almost $1 billion in investment value this year through our partnerships with Wheels Up and CLEAR and I want to point out that $1 billion is against a zero cost base. I want to give a big shout out to Kenny Dichter and the Wheels Up team as their listing on the New York Stock Exchange goes live today. We are proud to be Wheels Up's exclusive commercial airline partners and largest shareholder with a stake valued at over $500 million. Also congratulations to Caryn Seidman Becker and the CLEAR team on their successful IPO. Our investment in CLEAR is worth approximately $340 million. And finally, I want to congratulate Sir Richard Branson and our team at Virgin Galactic for making history last weekend and completing their first fully crewed spaceflight. It was exciting to watch Richard break new barriers once again, this time commercial space travel. I take the time to mention these relationships because of the much larger ecosystem that Delta operates and attracts. And these opportunities to create value will continue to be nurtured as we extend our brand beyond traditional airline boundaries. With June profitability in the books we're now in the restoration phase of recovery and focused on harnessing the power of our differentiated brand and our resilient competitive advantages to drive sustainable profitability in the second half of 2021 and enable long-term value creation. Specifically, for the September quarter we expect a mid-single-digit pretax margin as demand continues to improve with the return of corporate travel and gradual reopening of international markets. We are starting to see signs of a resurgence of business in international travel both of which are supporting the next leg of the revenue recovery. And we're well positioned to take advantage of both with leading domestic corporate share and a strong global network. Around the country more and more offices are opening and people are reconnecting to their businesses and to each other. With 72% of our employees vaccinated, we officially reopened our own offices last month in June. And as I interact with other CEOs I'm encouraged to hear about their own plans to accelerate their return to office. That sentiment is coming through loud and clear in our most recent corporate survey with almost 95% of our accounts indicating they'll be returning to their offices by the end of this year. Domestic corporate volume grew from 20% base in March of this year, the March month that is, to 40% recovered in the June month and we expect it to be close to 60% recovered by September based largely on these reopenings. I'm also encouraged by the strength that we're seeing in international. While we know international demand recovery will be very choppy and uneven, we're seeing strong bookings to Europe when countries open their borders. From our experience in the U.S. we're seeing the impact that widespread vaccinations have on reopening the economy. We know the same will be true for the rest of the world over time but are mindful of the risks that new variants posed to the pace of recovery and our team will stay very disciplined in restoring international capacity. As the recovery builds steam, we are making the required investments including hiring frontline and reservations employees, in investing ahead of the full recovery of the airline in places like maintenance and training. This will allow us to continue to provide industry-leading service levels and prepare the airline for success in a stronger than previously expected demand environment. These investments are key to the execution of our strategy to win which is defined by providing best in class service to our customers and leveraging the brand while creating a simpler, more efficient airline. The power of our brand has come through the crisis stronger than ever and we're seeing evidence of this across the business. The resilience of our American Express co-brand credit card program is a great testament to the increasing brand affinity that we have. Cards spend on the Delta American Express portfolio in the month of June was 115% recovered to 2019 levels for the same month despite travel purchases still being off by 25% in that same period. We're continuing to renew and simplify our fleet and yesterday we announced that we're opportunistically adding seven Airbus 350s and twenty-nine 737-900ers that will enter service over the next 12 to 24 months. These are current vintage to the aircraft that we operate in our existing fleet and we are adding these pre-owned aircraft for substantially less than the cost of new planes. These aircraft align with our fleet strategy that’s focused on simplification, scale, size, and sustainability and create optionality for future growth or replacement in a capital disciplined manner. These transactions accelerate our recovery plans which also began with the exercise of 25 Airbus A321neo options in April. The A321neos which will start to deliver in 2022, offer the lowest seat cost in our fleet and will strengthen Delta's gauge advantage relative to our competitors. Our recent actions on fleet enhanced efficiency throughout the cost structure. Gary will talk more about this shortly and we'll highlight the progress that we're making on our balance sheet and journey back to investment grade metrics. As our recovery path becomes clear so does our future as a carbon neutral airline. In 2020, we committed to our airline’s carbon neutrality and we're taking actions today that are critical to our future. This includes a reduction in emissions that we're achieving with our fleet renewal, investments in sustainable aviation fuel together with many corporate partners, and the evaluation of long-term investments in carbon reduction and removal technologies. During the quarter we released our inaugural 2020 ESG report, which expands on the corporate responsibility reports that we have issued in the past. You'll be able to hear more about our ESG commitments as well, importantly as our multi-year financial targets and vision moving forward at Delta's Capital Markets Day, which we will be holding in person in New York on December the 16th. This event will give everyone an opportunity to hear from our management team, which over the past year we've strengthened by bringing in outside perspectives and promoting our deep bench. That includes Allison Ausband, who during the quarter pleased to announce, was named our Executive Vice President and Chief Customer Experience Officer. In addition, John Laughter, who I'm also pleased we announced as our new Executive President and Chief of Operations. Alison and John are Delta veterans who bring deep experience and unmatched expertise to their roles. In addition, our incoming CFO, Dan Janki brings extensive business and financial skills to his role, as well as a broad global perspective and operational experience that will serve us well in the recovery and beyond. Dan's background makes him the ideal leader to advance our efforts to restore Delta to our pre-pandemic financial position. You'll hear from him briefly before Gary delivers the financial update. With this great team of serving leaders, we're building an airline that's positioned to drive long-term value for all of our stakeholders. Our people and customers are owners in our communities where we live, work and serve. I could not be more excited about our future. And now I'd like to turn it over to Glen.

Thanks Ed and good morning, everyone. Sixteen months after the start of the pandemic, I'm pleased with the pace of recovery and optimistic about our future. Delta is in a strong position with a powerful brand, competitive advantages, and a unique customer experience, all of which are enhancing customer engagement. During the quarter, we observed a swift rebound in consumer demand for travel as pent-up demand spurred an increase in air travel. As customers return to flying, Delta has become their preferred airline due to our industry-leading service provided by our exceptional employees. This led to an improvement of over $2.7 billion in revenue from the March quarter. Compared to 2019, revenues were 49% lower, exceeding our initial estimate of a 39% decrease in available capacity. Bookings in domestic and short-haul Latin leisure markets have nearly reached 90% of 2019 levels, and we began to see increased demand for specific European countries as they reopened. Domestic business travel is on an upward trend, with corporate volumes recovering to 40% in June, doubling from the 20% recovery rate in March. Small and medium-sized enterprises have outperformed corporate volumes by 10 percentage points and are now at 50% recovery. I will discuss the positive trends we see in corporate travel shortly. From April to June, passenger unit revenues increased by 25 points, with both load factors and yields strengthening throughout the quarter. This is a significant achievement considering we had the middle seat block in effect during April. Lifting this restriction on May 1 resulted in a 45% increase in available capacity with minimal additional costs. Kudos to the Delta team for navigating this transition period and achieving these remarkable results. I also want to congratulate our cargo team for a strong quarter, with cargo revenues up 35% compared to June 2019, despite operating a smaller operation. We are witnessing positive momentum in daily bookings and net cash sales, with our average net cash coming in 20% higher than forecast and doubling compared to the March quarter. Importantly, in June, our average net cash sales reached 70% of 2019 levels, which is about 10 percentage points ahead of revenue recovery as customers plan ahead for their travel. As Ed mentioned, we concluded June with a stronger demand environment than just three months prior. Since the beginning of the year, our revenue recovery improved sequentially from 35% of 2019 levels in the first quarter to 51% in the second quarter. This positive trajectory is ongoing, and we anticipate that our total revenue for the September quarter will recover between 65% to 70% on a capacity basis of 70% to 72% relative to the same quarter in 2019. This puts us on track for another substantial sequential increase in unit revenues. At the midpoint of our guidance, this indicates an additional $2 billion increase in revenue with approximately 10% higher capacity. We expect robust leisure demand to continue through the fall and winter, and we are beginning to see the next phase of recovery with improving trends in business and international travel. Delta is well positioned to capitalize on this with a leading domestic corporate share and a strong global network. Corporate travel volumes accelerated in May and June, with nearly 95% of our accounts booking travel in June. We are also starting to see a resurgence in consulting and sales-related travel, as well as higher volumes in traditionally business-heavy markets such as New York City and Boston. Our recent corporate survey indicates that over 90% of our corporate accounts expect travel volumes to rise in the September quarter, up from just 33% in March. Alongside these survey findings, our close engagement with customers gives us greater confidence in the resurgence of business travel as we move toward the post Labor Day period with schools and offices reopening. We expect domestic corporate volumes to recover to between 55% and 60% of 2019 levels by the end of the September quarter, up from 40% at the end of June. Despite fluctuations in global COVID recovery trends, international travel is picking up, with increasing capacity and load factors as we head into the fall. Last quarter, only two European countries had reopened for U.S. citizens; today, more than 15 European countries are open, leading to strong bookings as border restrictions are lifted. We are also hopeful that inbound travel restrictions to the U.S. will be significantly relaxed in the September quarter. Recovery in short-haul Latin travel has exceeded 2019 levels, but long-haul Latin demand remains low due to many countries still being closed. Pacific demand remains subdued and will likely be the last region to rebound. Delta possesses a strong international platform due to structural changes in the market and unique strengths. Firstly, we will maintain the top joint ventures in each sector, and our international partners will emerge from their restructuring efforts in a more competitive position. We look forward to maintaining our valuable strategic relationships with our global partners as they navigate the challenges from the COVID-19 crisis and position themselves for post-restructuring growth. Secondly, our hubs are robust, providing extensive and efficient global coverage, akin to our strong domestic hubs with good local presence and efficient traffic connections. Thirdly, our wide-body fleet renewal is crucial for our recovery and for achieving higher margins. Adding the seven A350s announced recently complements our long-term fleet improvement strategy. Our wide-body fleet renewal enhances our product offerings, boosts cargo capabilities, lowers unit costs, and contributes to fuel efficiency, driving us towards a more sustainable future. As we rebuild the airline, we are optimizing our network for the return of business and international travel while strengthening our core and coastal hubs, improving our local share by three points from pre-pandemic figures. We continue to focus on our customers, creating an enhanced premium experience that differentiates Delta in the market. This has shown to de-commoditize air travel on Delta, offering customers the products and flexibility they seek. Our premium products are demonstrating resilience, with domestic and short-haul Latin premium revenues surpassing main cabin revenues by 5 to 10 points. We anticipate this trend will also reflect at the system level as premium revenue improves alongside the recovery of business and international travel. We're witnessing increased customer engagement and brand momentum. This is evident in our SkyMiles acquisitions, which reached an all-time high in June, surpassing the previous record set in July 2019. These acquisitions allow us to engage new customers within the Delta ecosystem. Customer engagement is also reflected in our co-brand credit card program's performance as customers recognize the value proposition and continue to aspire for travel and premium experiences. For the quarter, program spending was 110% of 2019 levels fueled by rising travel and entertainment expenses, demonstrating customers’ eagerness to explore and connect with friends and family. We ended the quarter with program spending at approximately 115% recovered for June. Brand account acquisitions improved more than 75% sequentially and were around 90% of 2019 levels for the quarter. Additionally, more customers are transitioning to premium co-branded cards due to their appealing value proposition. This positive trend resulted in cash remuneration from American Express in June exceeding 2019 levels. We expect remuneration to remain at or above 2019 levels through the second half, with significant growth opportunities ahead. In closing, the foundational elements for our long-term success are in place. With the best domestic and global networks, a renewed and efficient fleet, a de-commoditized product, and a highly valued brand backed by our exceptional employees, we are positioned to enhance our commercial and financial leadership. Coupled with our efficient cost structure, we are on a path to surpass our pre-pandemic margins and generate sustainable free cash flows, allowing for reinvestment in the business and strengthening our balance sheet. Delta's future is exceedingly bright. I would now like to take this moment to welcome our incoming CFO to Delta. Dan, I look forward to working with you, and now I'll turn the call over to you for a few minutes.

Thank you Ed and Glen for the warm welcome. Certainly pleased to be here and begin working closely with Ed, Glen, and the entire executive leadership team. To ensure that we continue to establish clear priorities, deliver on our commitment, and build a more resilient valuable Delta there's no doubt it is an interesting time to join. What really drew me to this opportunity at Delta is the unique culture, industry leadership, and growing brand strength with customers. It's a combination like no other in the industry. It's really clear that there's a great deal of talent in the finance organization. I'm humbled and honored to lead this organization forward through this pivotal time. The key guiding principle for me will be open and transparent communication with the financial community. I look forward to speaking to all of you and getting to know the key stakeholders in the coming weeks and months including many of you on the call. Now I'll turn it over to Gary for the financial update.

Thank you Dan and on behalf of the entire finance team welcome to Delta. Good morning everyone on the call and thanks for joining us. Delta people shined and carried our brand to new heights during the crisis. Those efforts combined with the strong demand recovery Glen described and the benefits of operating a simpler and more efficient fleet are enabling us to cross a number of key milestones on our journey to return to and exceed 2019 performance. Let me quickly review the second quarter and then provide color on our second half cost outlook. I will wrap with a discussion of our capital outlook and balance sheet. Starting with highlights from the quarter, we reported an adjusted pretax loss of 881 million, more than $2 billion sequential improvement and generated a solid June month profit despite revenues for the month of June still 40% below 2019. Non-fuel costs rose 6% sequentially on 21% higher capacity as the teams continued to rebuild our network efficiently. Non-fuel CASM was 9% higher than 2019. We realize savings from tax credits and third party rate reductions that were offset by rebuild expenses and maintenance and pilot training and a non-cash expense for employee flight passes awarded to our employees in recognition of winning the JD Power award. Adjusted fuel price per gallon of $2.12 was 11% higher than the first quarter, including a $0.23 per gallon impact from refinery losses. We realized a 7.1% fuel efficiency gain versus the June quarter of 2019 with the majority driven by fleet renewal. Demand momentum field cast sales across the booking curve driving $1.5 billion of growth in our air traffic liability to nearly $7 billion, now $300 million higher than the same period in 2019. With the strength we see in the demand environment we expect our air traffic liability to remain above 2019 levels into next year. Daily cash generation was substantially positive for the full quarter. More importantly, we generated nearly $200 million of free cash flow excluding our $1.5 billion pension contribution and $2.5 billion in PSP grant proceeds. We are transitioning now away from daily metrics to focus on regular free cash flow, the best measure of value creation as we turn the corner on profitability and look to restore our financial strength. As we head into the second half we are excited to shift our focus to return into profitability generating cash and restoring and exceeding our pre-COVID results and financial position. With continued recovery and limited cost growth, we expect to be profitable in both the September and December quarters at current fuel prices. Regarding the cost outlook, I'm very happy with the team's performance in the first half as we continue to rebuild the network efficiently. We remain on a path to achieve non-fuel CASM below 2019 levels by fourth quarter though the strength of demand recovery is creating some welcome cost pressure in the form of higher rebuild and selling related expense. We have also experienced inflationary pressure from vendors and our operating teams have accelerated hiring of frontline employees to ensure we maintain excellence in operations in service levels as we rescale. Despite these pressures we will see continued leverage in key areas. For example, we expect an approximate 8% headcount growth through the end of the year on a nearly 15% increase in ASM production. We'll see our fleet utilization rise from 2Q levels approximately 15% below 2019 to approximately 5% in the fourth quarter. Our airports will also see better utilization particularly our coastal hubs as they move from 70% to more than 90% restored. As we accelerate maintenance and training in the higher potential capacity in 2022, rebuild expenses are stepping up in both the third and fourth quarters to 5 to 6 point cost headwind versus 3 to 4 points in the first half. September quarter will see non-fuel costs grow sequentially at roughly the same rate as capacity due to the higher rebuild and revenue related expenses I mentioned. With these factors September quarter non-fuel CASM is expected to be 11% to 14% higher than 2019. We expect to close the gap to 2019 non-fuel CASM in the fourth quarter through continued volume leverage as capacity remains essentially flat from the third to fourth quarters instead of the more normal seasonal decline of approximately 15%. Adjusted fuel price per gallon for the third quarter is expected at $2.05 to $2.15. The fuel efficiency for the quarter is expected to remain better than the September quarter 2019 period by approximately 5%. On the capital outlook, we now expect gross CAPEX of approximately $3.2 billion in 2021 up from our original guidance of $2.5 billion driven by our aircraft announcements. Hats off to our fleet and technical supply chain teams for landing these compelling opportunities that meet three key criteria. These transactions are opportunistic and take advantage of attractive economics in the used market. These aircraft types are currently active in our fleet and entirely consistent with our fleet simplification strategy. In addition, these aircraft along with the 321neo options we exercised in April will support the potential for up to 7 points of additional capacity restoration at compelling marginal economics by 2023. We have a lot of additional optionality in our fleet plan to flex capacity up or down at low cost depending on the shape of the recovery. Our 717 and 767 fleets are our largest levers. We're still flying these fleets at scale today and could retire additional units or reactivate parked aircrafts to meet higher demand scenarios. Let me now move to the balance sheet. With improving financial performance and a strong liquidity position, we're using cash to reduce leverage and non-operating expense while rebuilding on encumbered assets and managing our debt maturity profile. During the quarter we pre-paid $450 million in aircraft-related debt in addition to normal amortization of $875 million and contributed $1.5 billion to the pension plans. Additionally, we paid cash for all but three aircraft deliveries. Since October, our debt reduction initiatives have totaled $11 billion and freed up $6 billion in collateral. With the additional funding this quarter, we do not foresee the need to make any material pension contributions in the future. By year-end, we expect the plans to be fully funded on a Pension Protection Act basis and 90% funded on a GAAP basis. With this level of funding and the plans frozen to new participants, we are now reducing the investment risk of the portfolio to protect our funded status. The great work of our Pension and Treasury teams over the last decade in funding this obligation frees up roughly $1 billion in annual free cash flow that can be used in the future to further delever or otherwise create value. Adjusted net debt is expected to be approximately $19 billion at the end of the September quarter, modestly increasing from where we ended June as we paid cash for aircraft deliveries. As we turn the corner on profitability and look to the future, we're excited to shift our focus to restoring our business and delivering long-term value for our owners. Restoring our financial foundation remains a top priority as we position for the future, and we look forward to sharing more of our long-term vision with you in December. Let me conclude by congratulating the 75,000 people who make the Delta difference a reality every day. These excellent results are your scorecard and a reflection of all you do to delight our customers. With that, I will turn the call back over to Julie to begin the Q&A.

Katie, can you please remind the analysts how to queue up for questions?

Thanks very much, operator. Hi everybody and thanks for your time. Welcome, Dan. My first question is about how you expect the non-U.S. recovery to look by the different regions over the next 6 to 12 months. Also, Glenn, have you noticed that people are booking further out? Can you provide any insights on bookings after Labor Day or for the holidays, particularly how they compare to previous levels?

So, Helane, regarding the entities, we are noticing a recovery in U.S. demand for travel to open countries in the Transatlantic region, and we anticipate our load factors to reach historical levels, likely in the low to mid-80s by August, September, and October. The 212F restriction prevents Europeans from entering this country, so our focus is on regions that typically show high outbound demand to the U.S. We plan to add a bit of capacity while maintaining flat levels where we would usually see a decline during September and October, concentrating on our European hubs for traffic distribution. I feel optimistic about the potential outcomes in the Transatlantic market; we are still missing 35% to 40% of our travel from European origins, which is not yet open for booking, and business travel has not rebounded at the same rate as leisure travel. I am hopeful about our recovery in this area, but we have much more ahead in the Transatlantic. In Latin America, the situation is quite different, exhibiting two distinct markets. The U.S. leisure travel originating points and Mexico's business travel are actually surpassing 2019 levels, indicating that short-haul Latin is performing well, and we expect this trend to continue as we approach the traditional leisure season in late fall. On the other hand, the Pacific region is lagging due to low vaccination rates and ongoing outbreaks and restrictions, with no signs of a quick recovery. We are looking at 2022 for any significant improvements in the Pacific sector. The Atlantic market is advancing further than the others, which is beneficial since 65% of our international revenue comes from the Transatlantic route, and we are excited about the U.S. demand there. Domestically, after Labor Day, we observe decreasing bookings as we transition from August to September and October. Currently, we have about a third of our September bookings confirmed, and while we anticipate some decline, all sectors are showing positive yield. We are also seeing sequential improvements in RASM, which indicates strong demand trends for the post-Labor Day period. However, these signals are preliminary, and there is still time before those departure dates.

Got you, that's very helpful. Thank you.

Good morning, everyone. And thank you for the time. Maybe just on cost-related question, on CASM they're expected to remain fairly elevated in Q3. How do you think about Delta in driving CASM from up 11% to 14% in Q3 versus 2019 levels to flat in Q4? I get about half of that is rebuild cost but maybe what's the bridge and the moving pieces and more broadly, how do you think about cost headwinds and inflationary pressures?

Well, we talked about the major drivers. The key is really leveraging the continued build on the network. And as I was describing in prepared remarks, generally, when we move from the third into the fourth quarter, we have a pretty big reduction in our activity levels. This year we expect that to be relatively flat. That gives us the opportunity to leverage the things that I was describing to get some good incremental leverage on our people, some good incremental leverage on our asset utilization, and it's just a natural outcome of the way the capacity progression is moving. In terms of how we see the bigger pieces, they don't change that much between the third and the fourth quarter. We expect that rebuild expenses will still be at elevated levels in that five to six-point range in both quarters. And one of the things I mentioned on the last call, from a mixed point of view, both the second and third quarters, we've got about a five-point drag from not having anywhere near as much of our long haul international flying, which is just structurally very low CASM, long stage length flying. As we move into the fourth quarter, it's still a headwind. It's not quite as much. It's about three points. So that's the color that I would add.

Hey, everyone. Thank you. It's great to hear that corporate continues to improve as people return to the office. I do have to ask, like your competitors are now pushing to replicate some of your success that you've had with large corporates. So I was curious if you could talk to the moats that you have built around that franchise and how you anticipate strengthening that segment in the face of potential competition?

Well, thanks, Connor. It's a very important segment for us, and we have one, as I think you know, business travel news, Airline of the Year for 10 straight years and we expect to hopefully win it again this fall as well. Our team does a magnificent job of servicing the accounts, providing the technology, the access, the insights to make their job, travel on Delta as easy as possible. And that's supplemented by the great product and service that our people put forward every single day. We're the leading operational airline in the industry. So when you marry up the investments we've been making, particularly in the premium product sector, which our corporates are a main consumer of, with the great service ourselves and commercial team provide and the product and operational integrity of the business, it's a very, very strong moat. We have gained share over the pandemic, a meaningful amount of share that we have gained. And the one thing that we have seen is when customers come to Delta, they don't leave. And so we're going to continue to expand upon that.

Hey, thanks. Good morning. I got two questions for you. The first one is for you, Ed. How do you feel about deleveraging the balance sheet if it hurts your ability to maintain market share?

Good morning Hunter, I would like to ask you first you're sitting on a rocking chair estimate or no.

Actually I am.

I will rock back in my chair as I answer to you. That's good. Deleveraging is important to us. It's something that, first of all, we're the same team that's been here for over the last 15 years. We believe in derisking our balance sheet and our then paying down debt. And we also know that we can do that while also driving a premium product and service offering in the markets that we see as being critical to Delta. We were able to do both those things over the last decade and we'll continue to do that. The level of debt that we took on over the pandemic, candidly, it's a meaningful amount but it's not an overwhelming amount. It was about $8 billion of net debt that we took on during the pandemic. And when you think about, as Gary mentioned, we're basically done funding our pension plan with no more pension contributions required. As I think you also know that we've been averaging over the last several years, close to $3 billion, $2 billion to $3 billion a year in stock repurchases, which clearly we won't be doing in the next two to three years until we get our investment grade metrics back. And another billion on top of that of dividend distributions that we've been making. There's a substantial amount of free cash that is available to us as we reclaim investment grade for Delta. And we'll be sharing our longer-term metrics at the Investor Day in December and showing you the path forward. But we can do all this and have plenty of headroom to compete hard and effectively in the marketplace.

Okay, that's super helpful. Thank you. And then Gary, if you would just clarify, I think you said something about 7% capacity. Are you saying that the current plan for 23 system capacities to be 7% above 2019 but you can take that higher or lower if you need to, am I interpreting that correctly?

No Hunter, that's not what I was saying. What I'm saying is that the fleet actions we've taken give us the potential to add seven points to our capacity profile by 2023. But I was also noting the flexibility that we continue to have with some of the flex fleets to go up or down, depending on how we see the demand environment.

Hey, good morning everybody. And just apologies off the bat that my colleague Mark isn’t joining us, but he is on one of your aircraft on a J.P. Morgan sponsored business trip. So I guess we're all better off. Glen, is there a way to tell what portion of summer domestic revenue is driven by reallocated international demand, for example, could you look at SkyMile behavior this summer, identify what portion of those travelers would have historically been in Europe or Asia instead?

I think domestically we see redistribution towards domestic from long haul international. That's a natural occurrence. I think people are ready to get out. The exact quantification I think would be difficult. But we do see that if those leisure destinations are open, there's significant demand for that and that includes the transatlantic where it is open. And if you think about running load factors in the mid to high 80s in the shoulder season, as we head to the end of the summer here just on U.S. origin travel, pretty strong demand trends that we're seeing. So if it is open people would want to get there.

Yeah, definitely. Thank you. And Gary, just a follow up on the ATL, and I haven't historically obsessed about the air traffic liability until we all sort of had to. Ordinarily, the second or third quarter sequential decline for Delta would be somewhere around $750 million to $800 million. If we continue to get the international reopening particularly for inbound U.S. could we model for something closer to a flat outcome next quarter, so staying in the $6.5 billion range, that sort of thing or would that just be too ambitious, I know you said it would be above last year's levels, but that still leaves a lot of room?

Yeah, Jamie obviously, there's still a lot of uncertainty around that in our thinking right now and that's embedded in how we're thinking about net debt is for a slight decline in that, but we don't expect that you're going to see the normal seasonal pattern as we move through the remainder of this year for all the reasons you just highlighted.

Hello everybody and thanks very much for taking my question. Just a quick one from me. When we think about in certain pockets in the United States that we are seeing some difficulty with new variants and low vaccination rates, do you see any scenario in which Delta could trim capacity to some of these regions or reinstate on some routes, blocking off middle seats?

Good morning Steve, I don't. As we've been monitoring our bookings and clearly we're mindful of the risks around COVID and the new variants and the continued information that the CDC provides us with, we have not seen any reduction or drop in demand, looking out over the next 60 to 90 days, which is about as far as our crystal ball can go right now. We know our customers are largely vaccinated. Our people are largely vaccinated, we have over 72% of Delta people are vaccinated and the vaccines work. And they are giving people the ability to get back to their lives. So no, we do not anticipate any changes at this time.

Thanks. Good morning. Ed, I think at the beginning you mentioned commercial partnerships and creating $1 billion of value from Wheels Up and CLEAR from zero cost base. I'm curious of your view on the competition given the news by American as well as United on that front and where that fits in your portfolio of investments and operations over the medium term?

Thanks Myles. As you can appreciate every one of the proposed manufacturers has been after Delta. We've heard from many of them. We're studying this space and we will continue to get good smartness space. I think it's at a very, very early stage right now and I think a lot of the plans that we see are a bit premature, candidly. But it's not anything that we are unaware of and I guarantee every one of those manufacturers would love to have Delta colors on their plane. So hard to predict timing but we're in the marketplace having lots of conversations.

Okay, and then maybe Gary just a clarification to CASM, next questions. I'm just looking in absolute dollars, it looks like sequentially 3Q. You're looking for the same unit cost, X and fourth quarter the same. And the improvement was really just about comps in 2019. Is that right and then for 2022 how much of these rebuilding costs go away and we get the tail end of those six points? Thanks.

Yeah, I'm not sure I would characterize it exactly that way. But it is about having more scale relative to 2019. So, sequentially I think that what you outlined is roughly accurate and that is what we expect. As we go into 2022, your question was about the sustainability of the rebuild.

Yeah, we definitely expect those to moderate. A lot of that is going to depend candidly on how the demand environment develops. What I would say is, what we've articulated is driving to levels below 19. We're not excluding rebuild expenses. This year they happen to be particularly high. As we get into 2022 we expect those to be more normal, and it's part of the thought process on what we've got to accomplish.

At Delta, our top priority is to safely restore our services to the levels our customers expect. The entire industry is facing challenges due to the significant increase in demand we've experienced over the past 90 days, and this is not unique to Delta. We are committed to addressing these challenges, which includes increasing staffing levels, supporting our service providers and contractors, and focusing on training and maintenance. We understand that this is crucial for protecting our brand and maintaining our long-term customer relationships rather than just managing costs for a single quarter. We will meet the cost targets we've set. One key takeaway from the pandemic is our unique ability to manage labor costs in this industry; we have more tools and flexibility than we previously realized. Labor, which is a significant component of our rebuilding costs, should not be viewed as a fixed expense. We will focus on productivity, efficiency, and collaboration with our teams to ensure we are in a strong position for the next year while also safeguarding our customer experience and revenue base, which are our top priorities.

Good morning. Competing product is kind of good for the consumer and the industry but one of your competitors plans to grow like first-class like room seats by about 10% a year through 2026. And just kind of curious if that level of growth is something we'll see at Delta because it's part of some kind of a structural trend or if that has an implication to Delta's premium kind of revenue leadership or how Delta is set up to kind of compete against that?

Sure. Well, I first like to say we're proud that we started the decommoditization process many, many years back and we're well along. And I think we're objectively maybe the furthest along in terms of exploiting that opportunity. There's probably more space out there for other carriers, given the appetite we've seen for these products that have been sustained through the pandemic. So I'm not going to articulate on anybody else's plan. But we think that there's continued growth in our fleet evolution, as we continue to update the airline over the next several years, our percentage of seats that are in the premium cabins continues to increase. And we think given the fact that we are still in the early stages of being able to distribute those products and services, to all of our customers through all of our channels, that there's plenty of opportunity for us to continue to grow that space in the next years, next several years.

Hey, good morning. I guess two projection-related questions for Glen. On AMEX over the last year, you sort of had backpedaled on when you would get to the $7 billion of contribution, obviously, because of the pandemic. The fact that I guess, the month of June or the June quarter we were 110% and 115%, in the month of June. Glen, can you update us, are we now not on just track but maybe at a pace that we'll get to that AMEX bogey prior than the previous forecast?

Yeah well, I think that's something you'll have to come to our December. See I don't think we're ready to disclose the exact date yet but it suffices to say that we're feeling much better about making up some ground that we lost during the pandemic today than we sat six or nine months ago.

I would like to add that we are very pleased with our partnership with American Express. Our teams have been collaborating effectively, and during my recent meeting with Steve Squery, I learned that we had the top-performing card in their entire portfolio. Delta is not only generating significant value, but we are also excelling in performance. This has been a fantastic relationship, especially considering that we are still waiting for a substantial amount of international and business travel spend to return on the card. We are looking forward to what lies ahead.

Thanks. Good morning. Ed, in response to Mike's question, you said, I think based on your time with Steve, that the Delta card with Amex is highest value, like what do you mean by that, are you trying to say that it's a very profitable card for Amex as well as their most profitable card?

No, I don't know if it's the most profitable. I hope we are. You'd have to ask Steve that. But what I can tell you is it creates the highest overall level of spend and growth in the portfolio. And it's been that way for some time and it continues, and we both continue to invest to keep it that way.

Yeah, Joe we'll talk more about that and what our long-term capital needs will be in December with you. What I was pointing out was the portfolio decisions that we've made gives us seven points of additional capacity that we can bring in that timeframe. And, just continue to point out that the team has positioned us with a tremendous amount of flexibility to go either up or down, depending on how we see the demand environment. But we'll have more color on that with a bigger picture about how some of the other components play into it as well.

Good morning, thanks for taking my question. So your marginal cost per mile in Q3 was just under $0.04 and it's picking up sequentially, significantly. And I realized that, as you said, you're spooling up capacity here but I was wondering at what point whether it's in ASM or revenue where we can expect to see this operating leverage for the costs that you've taken out over the last year or so more clearly show up in results? Normalizing for the change in your marginal cost per mile, from the second to the third quarter as you spool up here, what are kind of a more accurate run rate looks like and that would also assuming corporate does return as you expect by the end of the year?

Chris, on a underlying basis we still have and are experiencing a lot of leverage, even as we move into the third quarter. That will be the case for a good bit here. The guidance we have in the third quarter, we're still operating 28% to 30%, below where we were in 2019. So there are parts of the system where we were under pressure as Ed described, and we're absolutely meeting the needs there. But there are also lots of opportunities for us to drive that leverage. Some of what you're seeing in terms of the moving pieces are at least I think unrelated to that. A big cost pressure as we've moved from the second to the third quarter, at least a couple points which is selling related expense, so obviously thrilled to be seen. And it's just a function of the demand recovery that we're experiencing. Normally when we're in a typical year, we work very hard to not be maintaining aircraft during the peak summer months for obvious reasons, we want them flying and generating contributions. This year we've got a maintenance step up as we move from the second to the third quarter. In fact, I think when you look at third quarter maintenance, it'll be comparable to if not even slightly ahead of where we were in 2019 instead of the down 30ish% that you've been seeing over the last few quarters. So, it's a year with a lot of unique features in terms of how they play out on the cost side, but the fundamental leverage that we've been describing is there.

Great. Good morning, everyone. Just kind of wanted to go back to costs. Obviously, the labor market is very tight right now. And I think your last base pay increase was in October of 2019. To Gary, is there anything in your Q3 or Q4 CASM expectations for a wage increase? And I guess Ed, how are you thinking about the need for one right now?

Thanks Andrew, we don't preannounce what we're doing on our labor strategy and cost. And obviously, our people are working really hard and delivering great value. We're still losing money. We need to get the company stabilized first before we start talking about wage increases.

It's interesting Dave, we've looked at potentially hiring bonuses and other incentives. And largely we haven't needed to resort to that. People look at the Delta brand as a place they want to be long term and they see this as an opportunity to get inside Delta. So no, we haven't had to make any changes to scale. We always watch it, we're very competitive in the market, we pay well, our people, we take great care of them. But no, we haven't had to adjust our salary scales in any meaningful way.

While planning for the rest of the year if you can talk about the numbers versus that percentage, increase that will be and then also if you'll comment on whether you're having any trouble finding enough people to hire?

Mary, this is Ed. We missed the first part of your question. Could you repeat that?

Yes, I wondered if you could say how many employees you're going to add the number versus that percentage increase?

Over the course of this year, we're in the process of hiring between 4000 and 5000.

And are you having any trouble finding applicants for those jobs?

We are not experiencing issues. The Delta brand is very attractive for hiring, and we are seeing great success. The challenge, as I mentioned earlier, is with training and the time required to get people ready for their roles, whether on the phones in reservations or at the airports. It takes a few months, and the demand has returned so rapidly that it has taken us some time to adjust. However, we will fully recover in the next couple of months. While we've been providing excellent service, the service levels that customers expect and deserve will be back from Delta soon.

Hi, good morning. I was wondering if you have any updates on your plans for the trainer refinery, and particularly on the outstanding liability on the biofuel credits?

Tracy, we don't have any news on that front. We continue to operate and the team is doing a great job. We have mentioned before that we are open to bringing in another strategic partner. Regarding the question about RINs, we are fully accrued. I know there has been some discussion about whether we have moved away from acquiring RINs, but the current pricing is not market-based. We are not going to spend cash on a market that lacks transparency. We have accounted for the costs, and we have time to make decisions as we address those obligations over the next couple of years.

Oh, hi. Well, Mary asked my question but if I could kind of follow up, I know, Ed, you said that it's too early to raise wages but what about starting pay, are you having to raise starting pay to attract people or do anything else out of the ordinary to find those 4000 to 5000?

It's interesting Dave, we've looked at potentially hiring bonuses and other incentives. And largely we haven't needed to resort to that. People look at the Delta brand as a place they want to be long term and they see this as an opportunity to get inside Delta. So no, we haven't had to make any changes to scale. We always watch it, we're very competitive in the market, we pay well, our people, we take great care of them. But no, we haven't had to adjust our salary scales in any meaningful way.

Hi, good morning. My questions are about the customer service wait times. They still are as long as six hours at least as recently as yesterday. So I'm wondering from a travelers perspective, is there any end in sight? I've also noticed that you guys have temporarily suspended help through Twitter DM which is a frequent recommendation I and other travel reporters give. So is there any end in sight, and what's your best advice for people to reaching Delta, especially with last minute travel questions? Thank you.

Dawn, this is Ed we are hiring a couple 1000 people into reservations. We've already hired at least half that number. We've got more to go every single week with more and more people are getting on the phones. We've reached out to many of the people at reservations who have retired as we had separation packages and voluntary departure packages over the last year. We have a fair number of them that returned, they are on the phones. We have people working from home. It's not a question of not providing the staff and we are doing everything we can the volumes are beyond anything we've ever seen there beyond the high point of 2019. And the handling times are substantially longer as people have more questions, as travel has changed, it is the first time back. So we're incredibly sensitive to it. The number you mentioned is not the average number at all. Yes, there are still rare occurrences of that. We have the callback features in place. We manage every one of the Qs, whether it's the General SkyMiles Q, the premium Qs, the non-member Qs. And we're all at the longest the average we're seeing is in the one-hour time frame. Which, by the way, which is, by the way too long, and by September we expect to get that back down to normal levels.

Hi, good morning. Thanks for taking my question. For the employees that are coming in now that you're hiring, are they on average at lower wages than some of the people that left with a lot of senior people took retirement? And then also for the 20% of employees that are not vaccinated or there are certain work groups that's concentrated in, are you doing anything to increase vaccination rates across the company?

Your first question, Leslie, yes the starting rates of people join the company are clearly lower than the then the rates that people retired at as they left the company after 25, 30, 40 years of service. So we are getting a junior benefit in the scale. We're giving a lot of people, a lot of our particularly our young managers who are having opportunities to take on more responsibility and growth in their careers. And that's all very, very healthy. Your question around vaccinations the 28%, could you repeat that?

Hi. Thank you so much. I'm just curious what you are hearing about the math command on planes if you think it will be lifted in September. And I guess how you feel about that if you are hoping it will be lifted earlier or if you like to get extended?

Hi, Ali. I don't know what's going to happen. It's up to the FAA. It's not really up to the Airlines to make that decision. We will be in conversations clearly with the FAA. I think it's important that medical experts make those decisions, not airline professionals as we've learned through the pandemic. They're the ones that have all the insight and the information, and keeping people safe. I appreciate people not wanting to wear the mask. I don't like wearing the mask when I'm on board either, but it's something that we need to do to keep each other safe. And I think the other question about what's going to happen in September. It really depends on where we are in the recovery phase. If the variants are continuing, I think people are going to be a little more careful about lifting the masks. If international borders are not yet opened, I'm not sure lifting the mask is going to help opening up those borders. So there's a lot that goes into that and I think as many pros to take the mask requirement as there are to keeping it on at the present time.

Hi, good morning. Thanks for taking my question. I'm wondering if you can talk a little bit about what you've seen in the last few weeks with unruly passengers. Has there been any upward or downward trending in incidents of that, and do you have any thoughts on just what's been causing this sort of search this spring and early summer?

You know, David, we haven't seen any meaningful shifts. It's been something we've been dealing with over the course of the Pandemic. Some people want to relate it to having to wear masks. I'm sure that's a piece of it. I don't know that's the main piece. I think the bigger challenge is that we've got a lot of individuals that have been impacted. Their emotional wellbeing has been impacted during the pandemic. It has people are coming back out into society. You see challenges in all walks of life, not just our industry. You see it happening in other places as well in society. So obviously, social media amplifies that and puts it on a stage that's not our experience. That's not our normal experience by any means. Their crews are trained and they're incredibly professional in managing the conditions when we have someone who doesn't want to follow instructions of the crew. And unfortunately, something we've become good at. And I look forward to the return of our business and patterns of normalcy so that we can start to manage our business without having to worry about these effects.

Well good morning to all the members of the media. Thank you for your time this morning. We're grateful for that. And Katie, if you wouldn't mind reiterating for the members of the media the rules of asking a question with one follow up, please.

Well, I thank you all for joining us. It's been an hour and a half. We spent a fair bit of time with you, but hopefully, you've learned a lot as to why we're encouraged. And as we power our plan for the post-pandemic future, why that I'm and our team is as optimistic as ever for the journey that we're on. U.S. Travelers are returning and it's really a tribute to the incredible work of our scientific community in developing effective vaccines. And that's going to be key to opening the world or return to profitability in the month of June is a major milestone. Solid profitability close to 10% speaks to the strength of our brand and the great work of our team worldwide. As we move past this inflection point from crisis into restoration, the people of Delta will be front and center, serving our customers and our communities. Our mission of connecting the people of the globe is a noble one. It's an important one. It's got great purpose and the social good that's generated by travel will be essential in the months and years ahead as our world heals. So I thank you all for your time today for joining us. And one more time, I want to say a special thanks to all the Delta people worldwide for their great work over the course of this last 16 months in getting our business to a point where we're looking to bright skies ahead. So thank you all.