Delta Air Lines Inc (DAL) — Q1 2022 Earnings Call Transcript

Thank you, April, and good morning, everyone. Thank you for joining us for our March quarter 2022 earnings call. Joining us from Atlanta today are our CEO, Ed Bastian; our President, Glen Hauenstein; our CFO, Dan Janki. Ed will open the call with an overview of Delta's performance and strategy. Glen will provide an update on the revenue environment. And Dan will discuss cost, fleet, and our balance sheet. After the prepared remarks, we will take analyst questions and we ask – please limit yourself to one question and a brief follow-up so we can get to as many of you as possible. And after the analyst Q&A, we will move to our media questions. 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 over to Ed.

Well, thank you, Julie. Good morning, everyone. We appreciate you joining us today. Before we begin, I want to acknowledge the humanitarian crisis in Ukraine. We are proud to have raised the Ukrainian flag at our global headquarters in Atlanta in solidarity with the people of Ukraine. At Delta, we've provided meaningful financial and operational support to assist the people of the region in connection with our partnership through the International Red Cross. This morning, we reported March quarter results, marking another important step forward in our recovery. We generated $200 million of free cash flow in the quarter and a 10% operating margin in the month of March. Our revenue recovery in the March quarter reached 79% of 2019 levels, five points ahead of the midpoint of our initial guidance. As expected, January and February generated operating losses. As Omicron receded, we saw a surge in demand, supporting an inflection to a solid profit in the month of March. Delta continues to provide best-in-class operational, customer, and financial results in a dynamic environment. This results from the dedication, professionalism, and hard work of Delta's more than 75,000 people worldwide. Restoring capacity during a period of rapid demand recovery has proven challenging for all of us in the industry but Delta people continued to lead the way, I want to thank our customers for their patience and understanding as we navigate the challenges of ramping up operations into the peak travel period. And I know our teams have been working incredibly hard, and I want to thank all of them for what they're doing for our customers and for each other. We rewarded our people with a special profit sharing payout in February based on the second half of 2021 profitability and announced a 4% pay increase effective May 1. These actions align with Delta's long-standing values of shared success with our people. With the rebound in demand, the month of March was the best cash sales month in Delta's history, outpacing our prior record from spring of 2019 despite offering 10% fewer seats. In March, we had our first month in two years of positive unit revenue compared to 2019, and we achieved record co-brand acquisitions, co-brand spend, and cargo revenue. Domestic consumer revenues are exceeding 2019 levels and the recovery in business travel revenue has accelerated as offices reopen and business travelers rebuild face-to-face relationships. Demand for long-haul international is growing, as travel restrictions lift, led by the Transatlantic. To date, we have not seen an impact on travel demand from the conflict in Ukraine, but we, of course, are monitoring this closely. Nearly all European countries have now removed entry testing requirements for vaccinated customers. We continue to join the rest of the US travel industry in urging the US government to lift pre-departure testing requirements. As we prepare for the peak summer season, we continue to be very focused on operational readiness. With 4,000 new members joining the Delta team already this year, we feel good about our staffing and our ability to meet demand as we continue to restore the airline. Our customers are seeing the benefits of our ongoing investments to improve the travel experience. This spring, we are opening new, modernized terminals in Los Angeles, LaGuardia, and Seattle. These generational investments enhance Delta's already leading positions in key hubs and provide an elevated ground experience for our customers. We continue to upgrade our fleet, recently taking delivery of our first Airbus 321neo. The state-of-the-art aircraft is scheduled to begin service May 20 from Boston to San Francisco and features our new domestic first-class seat design, with nearly one-third of the seats in premium cabins and improved fuel efficiency. This will be the best aircraft we fly for our customers and generate the highest returns for our owners. Our strategic decision to accelerate investments in our airports, our fleet, and our technology during the pandemic will benefit Delta and our customers for years to come. As COVID shifts from a pandemic to a manageable seasonal virus, there are clear signs of pent-up demand for travel and experiences as consumers' spending shifts from goods to services and experiences, travel restrictions lift and business travelers continue to return to the skies. Against this improving backdrop, we are building momentum in the June quarter, with expectations for a 12% to 14% operating margin and strong free cash flow despite higher fuel prices. Our revenue recovery is expected to reach 93% to 97% of the 2019 levels, with double-digit unit revenue improvement. We are successfully recapturing a significant portion of the run-up in fuel. This is occurring almost in real-time, given the strong demand environment as well as Delta's growing brand preference, our premium product focus, and measured approach to capacity. While we are confident in summer demand and the capacity plans that we have in place, given macro uncertainty, we will remain nimble on capacity for the second half of the year and continue to prioritize sustained profitability. I'd like to pause and put that Q2 guidance into perspective. At 12% to 14% operating profit, we are only four points behind our June 2019 quarterly operating margin, and that's despite fuel prices being up 50% from that time period and our capacity only 85% restored. So we are greatly encouraged by the momentum we are seeing, and we remain confident in our outlook for meaningful full year profit for 2022. As we take note of these achievements, I'm pleased with the progress we're making across the three core priorities we laid out at Capital Markets Day last December. First, we continue to fortify our trusted consumer brand, demonstrated by loyalty and record engagement with our customers. The strength of our brand has never been greater and has been recognized by the Wall Street Journal, Fortune, Business Travel News, and many others. And our customers are taking note that our Net Promoter Scores consistently above 2019 coming out of the pandemic. We intend to build on the momentum we gained over the last two years. Second, we are restoring our financial performance. As revenue improves and we regain a competitive cost structure, we're returning to profitability, generating strong free cash flow, and making progress on debt repayment. And our third priority is building a better future for our people and our planet, including our ongoing commitment to creating a sustainable future for aviation. We are continuing to invest in the physical, emotional, and financial well-being of our people while prioritizing diversity, equity, and inclusion at all levels of the company. Our mission of connecting the world has never been more important than it is today, and I'm as confident as ever that we'll achieve our ambition for a leading consumer brand to transcend the industry and deliver financial outcomes that create significant and resilient long-term value for all of our stakeholders. It's been an encouraging period of recovery, and it's exciting to see our customers returning to the skies. Thank you again. And with that, I'll turn it over to Glen to update the revenue environment.

Thank you, Ed and good morning, everyone. With strong demand, an increasing preference for the Delta brand, and swift actions to manage higher fuel prices, we achieved important milestones in March and are gaining momentum as we approach summer. This success is a testament to our team, and I am extremely proud of the Delta workforce and the results they are delivering. A heartfelt thank you to all. During the March quarter, we generated $8.2 billion in revenue, which was around $500 million more than our initial expectations in January, leading to a revenue recovery of 79% compared to 2019. We are maintaining a disciplined approach to aligning capacity with demand. For the quarter, our capacity was restored to 83% of 2019 levels, remaining at the lower end of our initial guidance and below the industry average. The quarter unfolded in two distinct parts. Omicron had a negative effect on demand in January and early February, but we saw an exceptional recovery in demand starting from Presidents Day. Our revenue recovery compared to 2019 improved from 70% in January to around 80% in February and 85% in March, with further momentum building into April. March marked our first month in two years with positive unit revenue compared to 2019, with PRASM up 1% and TRASM up 3%. Premium products once again drove the recovery, with domestic premium revenue nearly fully restored to March 2019 levels. We also recorded our highest monthly cash sales, as well as our highest direct sales, highest co-brand acquisitions, highest co-brand spending, and highest cargo revenue in March. Business travel volumes reached their highest post-pandemic levels, and importantly, in March, corporate fares were notably better compared to 2019 for the first time. This trend fueled a faster recovery of business revenues, improving for both corporate contracted clients and small and medium-sized businesses. As we concluded the quarter, domestic corporate sales improved to about 70% of 2019 levels. Recent survey results show that 90% of our corporate accounts expect travel volumes to rise in the June quarter as offices continue to reopen. Additionally, many corporations are updating their travel policies, such as removing domestic travel restrictions for our top corporate accounts and allowing upgrades to premium seating and refundable products. The strength in cash sales and seasonal factors contributed to a $2.8 billion sequential increase in our air traffic liability. The rise in advanced ticket sales has exceeded typical seasonal patterns, resulting in an air traffic liability balance of $9.1 billion at the end of March, up from $6.6 billion in March 2019. We anticipate that this liability will continue to grow in the June quarter, although at a slower pace than observed in March. For the June quarter, we expect revenue recovery compared to 2019 to improve to 93% to 97% with 84% capacity restoration. This reflects low double-digit TRASM growth compared to 2019, with all segments anticipated to show positive unit revenues except for the Pacific. We expect April yields to increase by double digits compared to 2019, with further gains as we move toward June, positioning us to recover a significant part of the higher fuel prices in the upcoming quarter. Domestic and Latin revenues continue to lead the recovery, and decreased restrictions in major international markets are allowing for increased long-haul travel demand. We foresee a very strong summer in the Transatlantic market based on current demand trends, and we are optimistic about the reopening of Australia, South Korea, and other Southeast Asian countries. When borders reopen, we observe a quick return of demand; for instance, after South Korea reopened its borders on April 1, we expect load factors to rise from the low 50s in March to the low 90s by June. We believe that heavily restricted regions, like China and Japan, will continue to exert pressure on overall Pacific unit revenues until they fully reopen. A few months ago at Capital Markets Day, we outlined three pillars of our commercial strategy, and we have made significant progress on each of them this year. First, our premium products are leading the recovery, and the launch of Delta Premium Select in the Transatlantic market has exceeded our expectations, with early results showing strong reception. By this summer, Delta Premium Select will be available on 80% of our Transatlantic flights. Over the coming years, we anticipate that growth in premium seating will outpace Main Cabin, and we are confident that the trend toward higher-quality products will persist. So far, the premium recovery has been driven by consumer demand, and we see additional growth potential as more business travelers return. Next, our loyalty programs are showing growth across multiple metrics. Our Net Promoter Score remains above 2019 levels even as volumes have increased. During the quarter, we welcomed a record number of new SkyMiles members, and spending on our co-brand card has surged, up 39% in March compared to 2019. Loyalty plays a key role in our third pillar of increasing revenue diversification. Other revenue sources returned fully to 2019 levels in the March quarter, primarily driven by loyalty and cargo. Our remuneration from American Express during the quarter reached $1.2 billion, 25% higher than 2019, setting a new quarterly record that supports our full-year goal of over $5 billion. Cargo had an outstanding quarter, growing 51% compared to 2019, with March marking our best-ever month for cargo revenue. MRO revenues were down 22% compared to 2019 due to supply chain challenges affecting engine throughput. However, MRO margins remain strong, and we are eager to expand this segment as the installed base of next-generation engines grows. By leveraging the Delta platform, we continue to diversify our revenue mix. In the March quarter, premium products and non-ticket revenue streams accounted for 58% of total revenue, an increase of three percentage points compared to the same period in 2019. This progress gives us a high level of confidence in reaching our target of more than 60% by 2024, as we announced during Capital Markets Day. In conclusion, Delta has emerged in a stronger position by staying true to our core strengths and our dedication to our customers and employees. As demand recovery accelerates and preference for our brand continues to rise, I am optimistic about Delta's trajectory to surpass 2019 financial performance by 2024. Now, I would like to turn it over to Dan to discuss the financials further.

Thank you, Glen, and good morning to everyone. Starting with the highlights of the March quarter. Our operating loss was $793 million, which was better than our expectation. As anticipated, we saw losses in January and February due to Omicron and seasonal weakness. And we inflected to a solid profit in March, with a 9.4% adjusted operating margin. Fuel expense was $2.1 billion. It increased 32% sequentially from the December quarter. Fuel price per gallon averaged $2.79 for the quarter. This included a $0.07 per gallon benefit from the refinery. Non-fuel costs rose 6% sequentially, with non-fuel CASM up 15% compared to 2019 on 17% less capacity. We generated operating cash flow of $1.8 billion. We reinvested $1.6 billion into the business, resulting in free cash flow of $200 million. Delivering a profit in the month of March and positive cash flow for the quarter were important achievements, especially considering the impact of Omicron and higher fuel prices. We ended the quarter with adjusted net debt of $20.9 billion. This was more than $1 billion better than our initial expectations due to strength in cash receipts that Ed and Glen spoke to. We repaid $1.4 billion of gross debt, ending March with nearly $13 billion of liquidity. Now turning to the outlook. We expect the June quarter non-fuel CASM to be up 17% compared to 2019. The two-point increase from the March quarter is driven by higher selling-related costs, an expected 45% sequential increase in revenue, and our anticipated step-up in maintenance costs on a similar level of capacity restoration. With the first half non-fuel CASM in the mid-teens, which is two points higher than planned on lower capacity, we expect to be closer to the high end of the full range of up 7% to 10%, implying the second half will improve up to the mid-single digits. This improvement is driven by continued capacity restoration from the low to mid-80s in the first half to the mid-90s by the end of the year. The resulting scale and efficiency will drive the step function change in our non-fuel CASM. Now let me give you a little context on how we get this improvement. The recovery in international travel enables us to shift our wide-bodies from our domestic to our international, where we get better efficiency from gauge and stage and improved staffing. Narrow-body utilization will improve, with a 10-point increase expected by the end of the year, giving us a combined benefit of higher capacity and more efficient allocation of our fleet. Further, as we fill out our schedules, we create greater stability in our operations with more consistency and depth in both the domestic and the international network, this is enabling efficiency gains in our facilities and productivity of our workforce. We remain confident in our multiyear cost framework laid out at Capital Markets Day. Regaining a competitive cost structure is critical to our success. At the same time, we will continue to remain nimble on capacity as we manage for profitability in this higher fuel price environment. On fuel for the June quarter, we expect an adjusted fuel price per gallon of $3.20 to $3.35. This includes a $0.20 benefit from the refinery, and these are based on the forward curves as of last Friday. Our Monroe refinery provides a unique benefit, acting as a partial hedge to elevated cracks. This is especially true with New York Harbor Jet cracks, where our production at Monroe provides a 100% offset. Based on our June quarter outlook for revenue and costs, we expect operating margins to be between 12% and 14%. With the expectations for solid profitability and further build in our air traffic liability, we expect to generate another quarter of positive free cash flow after investing $1.2 billion in the business and expect to end the June quarter with adjusted net debt of approximately $20 billion. As we achieve sustained cash generation, we will continue to opportunistically manage our balance sheet, reducing debt to return to investment-grade metrics and making progress towards our $15 billion adjusted net debt target by the end of 2024. For the year, our CapEx outlook of $6 billion is unchanged, with our reinvestment primarily driven by the continued renewal of our fleet. We expect to take delivery of approximately 70 new and gently used aircraft this year, including 26 A321neos. This large grade gauge aircraft fits well with our upgauging strategy and will be our most fuel-efficient aircraft in our fleet with the lowest seat cost. We also continue to accept delivery of new 220s, three 3900s, and three 5900s. These aircraft are expected to contribute to the full restoration of our capacity and to our goal of using 7% less fuel per ASM in 2022 when compared to 2019. In addition to the financial benefits, improved efficiency is an important step in our journey to a more sustainable future. During the quarter, we announced actions to scale and advance sustainable fuels. We signed an offtake agreement with Gevo for approximately 75 million gallons of SAF annually over seven years. We anticipate to start in mid-2026 progressing us towards our 2030 10% SAF commitment. We also announced a collaboration with Airbus on the research and development of hydrogen-powered aircraft and the infrastructure it requires. So in closing, we are executing against our priorities laid out at Capital Markets Day, and I'm encouraged by the momentum in our financial recovery. I would sincerely like to thank the Delta people for everything they do every day. Our people will always be our most important competitive advantage. So with that, I’ll turn it back to Julie for Q&A.

Thanks, Dan. April, can you please remind the analysts how to queue up for a question and then go to our first question.

Good morning everyone. It's a great outlook. My question is for Glen regarding capacity. You operated at 83% of 2019 levels in the March quarter, and things have clearly improved for the June quarter. Considering the significant impact of Omicron in January and February, I find it interesting that we're only seeing a one-point increase from 83% to 84%. Glen, is this mainly about ensuring operational reliability and executing the best schedule possible, which would not only boost revenue but also reduce re-accommodation costs? Additionally, are you keeping an eye on the situation in Europe where some carriers are having to cancel flights due to the spread of another variant, ensuring that you're well-prepared and adequately reserved?

I think it's all of the above. I think you asked and answered your own question there. You did a great job of articulating our viewpoint; the priority is to operate reliably and the other priorities do not get ahead of demand. So this is a very recent demand increase that we've seen. The uptick just started about six to eight weeks ago, in late February and March. As we get through the year, if these demand trends continue, we have the opportunity to take another tick-up or we could pivot in a different direction if warranted. But I think, it has made it very clear to us that being nimble until we get to the very end of this is the key to our success. I think we've done a very good job as a company being nimble in our offerings throughout the pandemic and really been closest to actual demand if you look back at what demand was.

Great. We and investors love the discipline. Thanks.

Hey, good morning everyone. Thanks so much for the time. So maybe a bit of a follow-up to Mike's question. I've been hearing from some of your peers and other industry folks that labor supply is continuing to weigh down on the ability to ramp up capacity. And as we enter 2Q, labor might actually be a bit tighter than we thought at the beginning of the year, just given Omicron-driven training delays and higher attrition rates. I guess, first, are you seeing the theme at Delta? And if so, did that impact your 2Q capacity plans versus your plans back Investor Day at all? Thanks.

Hi, Catie, this is Ed; I'll take that. We've been at this for the better part of the last 18 months getting ahead of it. And we hired over 10,000 people last year. We hired another 4,000 people already this year. So we've hired 15,000 people. We are largely where we need to be on staffing. Yes, pilots have a training pipeline and it will take some time before pilots are fully in category and where we want them positioned. It'll probably take another year or two. Flight attendants, likewise, we're hiring flight attendants and there's a queue as to how many people we can put through the training pipeline. But that's not where the real congestion is. It's in the airport; it's on the ground experience; it's making sure we have our suppliers ready and positioned. One thing we did last year, really almost two years ago now, is we took over a lot of the functions at the airport that had been outsourced, catering, cleaning, wheelchair pushing. And we have Delta people in position; we've hired Delta people to do it to make certain that we get the best experience for our customers. And you know what? Not only are people doing a much better job at it, we're also doing it much more efficiently and effectively, and customers are appreciating it. So the labor situation, you're right, has changed pretty dramatically over the course of the last two years. We've been out ahead, and that’s why you look at our operational stats over that time frame, we've led the industry consistently.

That's great. And maybe just a quick one for Glen. The AmEx remuneration is a bright spot again this quarter. But would I be correct to think maybe Omicron created some noise at the start of the quarter and maybe we see that accelerate even further as we move through the year? I know you just reiterated your goal that you said at Investor Day for $5 billion plus contribution this year. But if we do see an acceleration from Q1, might there still be some upside to that? And thanks again for all the time. Congrats.

Yes, I think we're always hopeful for upside. I think what we're excited about when we dissect the spend is that you can really see the spend moving from goods to services and particularly increases in the airline spend on the card. So those are very encouraging statistics for us to continue to monitor as we move through the year. But I think you’ve really seen that as the moving away from goods and the movement towards experiences and services.

Anything further, Catherine?

No. That was it from me. Thank you so much for the time.

Hi. Good morning and thanks for taking questions. Glen, you provided an update. I think you said domestic corporate travel 70% recovered and international 50% in March. Can you just give us some insight on how those bookings are shaping up here early in 2Q? And then second to this question, how much do you think the international testing requirement is holding back trips across the Atlantic right now?

First, I'll answer the second first. I think that is the next leg up that we see in the demand set, and we think we have quite robust demand. But there certainly is, in the minds of some consumers, some hesitancy to go abroad and risk being caught, not being able to get back because of catching COVID. So hopefully, we can see that roll back in the next few weeks here. I think we are hearing good signs from Washington. We'll see, hopefully, that comes out here. And that would be one of the final things that we would need in place for us to really say that COVID is in our rearview mirror. So hopefully, that happens. And then your second question was what, I'm sorry?

I think – when you were talking about, I think, domestic corporate travel at about 70%, international at about 50% in March, can you give us any insights into how that's improving in 2Q?

Absolutely. And I think the one that we're really excited about right now is Transatlantic business, which for the first time last week crossed domestic restoration in terms of volume. And so that was a big improvement from where we had been just six or eight weeks ago. So it does look like Transatlantic business is returning robustly, and that's very exciting for us. I think what we're also excited about is this survey that we just got back that said 90% expect to travel more in 2Q than they did in 1Q. So I think when we report to you next quarter, we'll see both of those numbers continuing to move up. And of course, the big question mark is when will Japan and China reopen? And that's probably not in this next quarter and hopefully some time this fall, but that's a little bit further out. What I would say is when these countries are open, business returns quickly. So to Korea, to Australia, we’ve seen very rapid increases in business demand as those countries have opened.

Thank you.

Thanks very much, operator. Thank you for the time, everybody. So just a couple of questions on the cost side of the equation, I know there's not a lot you can do about fuel. But on the labor cost side, to attract people, I mean, I think, Ed, you said you're not going to have to hire that many more people this year. But to retain people, are you finding that you have to raise salaries more than the 4% that you've already slated for May first?

Hi, Helane, no, we're not. One of the great things about our brand is throughout this period we've been able to attract and bring in the 15,000 people I talked about without fundamentally having to change the scales we've used in select high-priced markets, some sign-on bonuses, very judiciously. Fundamentally, no, our scales are intact, and the 4% increase May 1st helps.

That's very helpful. Thank you. And then my other question is like kind of unrelated, but I think – I feel like, it was Glen who mentioned that you saw a record cargo number in March, I want to say. So I'm thinking about what you're carrying and what you're seeing in air freight rates and why you think it was so strong and whether that can continue into the second quarter, and if it's meaningful. Like 18 questions in there, Glen.

Right. Well, clearly, we know about supply chains trying to catch up. And clearly, airfreight has been one of the ways to relieve that pressure. And so we've seen airfreight rates continue to move in a favorable direction. I'd say the one caution I have right now is the closure of China. And China has been, of course, a very strong market for us in the cargo area. And with Shanghai closed, we’re literally not flying to China right now until Shanghai reopens. So that's going to weigh a little bit on cargo revenues as we move forward. But as that does reopen, then you can see that pent-up demand for goods that need to get shipped out of China and potentially even another leg up. So I'd say we’re in a temporary pause right now because of the issues in China, but I expect as China comes back online, and I don't know the exact date, I don't think anybody does, but we could see an even stronger demand coming out of that.

Off a good year last year.

Yes, off a great year last year.

That’s very helpful. Thanks. Thanks team. Very helpful.

Hi everyone. Thanks for the time. You've really invested in the operation over the years and just the customer experience in general. And maybe this is a follow-up to what Mike was getting to. Just, there's been a lot of meltdowns around you. And I'm just curious on how you, as Delta, go after those customers that have maybe been displaced by another airline. I think about like Boston this past week and just curious on how you attract them and make them permanent Delta passengers.

Well, thanks, Conor. I think, again, throughout the pandemic, we have, as Glen said, been the most disciplined in the return of supply and have probably had a better match to demand than anyone else. It's been interesting to watch because a lot of airlines have taken different approaches over the course of the last two years. Fundamentally, our commitment and our promise to our customers is to give them a great, safe, on-time, reliable experience, and we continue to invest more and more in the premium categories of our aircraft, of our service elements, and the quality of our service that our people drive, and it speaks for itself. We take, very humbly, the various awards we've won over the course of the last couple of years. I think we've expanded our leadership during COVID. We had the most to lose, and I think we gained the most over that time frame. Candidly, we have some really nice momentum as we're bringing and opening new airports. We've got the new LaGuardia opening in June, which will all be very pleased to be the new LAX that we cut the ribbon on with the mayor a couple of weeks ago and the new international facility in Seattle and continued expansions in Salt Lake and improvements in Minneapolis, among many other places. So we're going after the customer experience on the ground as well as in the air with a heightened focus on premium. That's about all we can say.

Thanks. Good morning. There are some concerns about looking forward potential consumer softening through the course of the year. And obviously, you're not seeing that in 2Q. But I was wondering, Ed, if you're looking for signals of softening in your business, do you think it would sort of start to show up first in a lower uptake of premium products? Show up first in maybe leisure road demand drying up there or somewhere else? Maybe you can just talk to what you'd look for in your watch tower.

You're correct, Myles, we're not observing any signs of softening at this time. However, we recognize that our forecasts are based on conditions over the next 60 to 90 days and the current state of our bookings. The outlook for the next couple of months appears positive, as reflected in our guidance, suggesting a very strong summer ahead. We spend considerable time monitoring the health of the consumer, and we see other factors influencing consumer behavior. Many consumers have not traveled in the last two years, making travel a priority as they consider their spending. This trend is evident in credit card data and is observed across the industry, including hotels and rental car companies. There's a notable shift from purchasing goods to seeking experiences and services. Additionally, consumers have managed to save money, resulting in a build-up of cash and discretionary income from their activities over the past couple of years. We believe that the strong demand will persist beyond the typical summer peak into the fall. We are monitoring for any signs of pricing resistance, particularly as high input costs like fuel may affect our demand and supply expectations. For now, we remain cautiously optimistic about the summer.

Thanks. Great. Thank you.

Hey, thanks. Good morning. Glen, if I could, on your commentary on yields improving sequentially through the balance of 2Q, I assume that is based on what you're seeing in advanced book yields. Can you just comment on, like when you add it all up, not just advanced book yields but also bookings, how would you characterize kind of your visibility into May, June versus a normal time? Is it also running ahead? I mean it's not as snarky as a question as it sounds. I guess my question is, as you offer higher fares out into the future, do you see any pushback or are you seeing any hesitancy?

Well, I'd say absolutely not. As a matter of fact, we've been trying to catch up to this robust demand. And our quest in the revenue management team, who I think has done an excellent job in managing this surge, is to not run out of seats as we get towards the peak summer travel season. So we want to have reasonably priced offers in market right up to day of departure and we don't want to be running out of seats. Having said that, we are running ahead in terms of absolute bookings domestically in the rest of the quarter. And so we're actively managing that down a little bit so that we don't run out as we get very close to departure date. So I hope that gives you some color as to what we're looking at right now. But we're, right now, in the mode of trading traffic for yield.

That's helpful. And then I don't know if we've seen enough of kind of an off-peak environment yet here in 2Q, but can you contrast for us how are you seeing sort of peak yield improvement relative to 2019 versus off-peak yield improvement? Are you starting to see any, I guess, torque on off-peak? Thank you.

No. As a matter of fact, when you look at where we're booked ahead, we have had the offers slightly ahead in peak days and peak travel periods versus off-peak. And we've seen the consumer demand that you would expect, travelers moving into the off-peak period, but at higher yields. So really, really encouraged by what we see as we head into late spring and summer and we'll see how it actually materializes. But everything we see right now points to a very, very robust travel through the remainder of spring and summer.

Yes. Good morning. Glen, a question on premium revenue. What percent is sold at the initial time of ticketing as opposed to during the window between ticketing and departure? And how has that changed over time?

We have moved more and more to ticketing, time of ticketing. So I'd say, and I don't have these numbers, I can follow-up with you, but my guess is that they're around 70% is done at time of ticketing and about 30% post-purchase.

Hi. Can you hear me?

Glen, I know it's really early on in the corporate travel recovery, but we've been hearing from some hotel companies that the corporate booking curve has just shortened tremendously. I think they've been mentioning under two weeks versus normally 30 days to 45 days. Are you seeing a similar shortening in the corporate booking curve? And I guess, are you beginning to see any other changes to the way corporates behave here as the recovery unfolds? Thanks.

Yes. I would not say that we're seeing that same phenomenon. Our corporate bookings, even when looking beyond 21 days, seem to be trending similarly to 2021. I think we're observing very normal booking patterns for business travel. What we are noticing, although this is more anecdotal, is that the reasons people are traveling for business have changed slightly. There is an increase in meetings and group travel, and this could be why hotels are experiencing more advanced bookings, as it is becoming more difficult to secure large blocks of rooms.

Hey. Good morning. Hello, everyone. Just a quick follow-up to, I think, Brandon's question earlier. So just if you look at the 2Q guide, what's the level of demand recovery that's reflected in that guide? Business demand.

The business demand is in the low 70s.

Okay. Got it. And then just switching a little bit to the regional airline segment. You started a transition in that segment getting back to, I think, 2012. And kind of accelerated here during COVID. I was just curious if you kind of view the pilot supply issues of the regional industry are facing; are those kind of transitory, or is there a need to revisit the regional airline strategy at Delta?

Thanks, Savi. Yes, there is certainly a challenge to the business model that the regionals are experiencing. And you're right, we've moved pretty aggressively to transition out of the lower category, the 50-seat regional jet, over the last 10 years. As a result of that, we have less lift coming out of the regional in terms of aggregate shelves and pilot requirements and staffing obligations than some of our other competitors in the industry. They were down to less than 150-seat regionals, probably meaningfully less, at the present time and we don't intend to grow that. It's going to continue to drop. It's a reset period. I think everyone is dealing with their partners in a certain way. Certainly, it's driving up costs on the pilot side, to keep the pilots in the regional category until we're ready to bring them up to the main lines. But fundamentally, it's still a good business for us. We've got a considerable investment in it, and we're going to do our best to continue to grow it, but not at the lower category. We're happy with our 76-seat product. And to the extent we can get more of those, we would.

Hey, good afternoon – or good morning. Dan, I appreciate the color on the incremental cost guidance; I think we can back into what that number looks like in absolute dollar terms. Could you give us some sense of what are the risks and upside, downside risks achieving that cost guidance? Do we need international to really kind of reopen on some set schedule, or do you feel pretty good about where we're going to be?

When considering the biggest risk related to the expected changes, it ultimately comes down to capacity, specifically the aircraft seat miles we operate. As we mentioned earlier, our capacity is two points lower than anticipated for the first half of the year, which means we are performing better than we originally thought. This capacity aspect accounts for about two-thirds to three-quarters of the issue, while the remaining quarter involves improving efficiency in our aircraft, airports, facilities, and personnel. However, the primary focus remains on restoring aircraft seat miles. Our goal is to fully restore this capacity over time. Looking back at our multiyear framework from the capital markets, we projected an increase of 7% to 10% this year. For 2023, we expect to be in the low to mid-single digits and very low single digits in 2024, ultimately reaching the full restoration of our capacity within that timeframe. At that point, all the transition expenses we discussed will cease, allowing us to truly benefit from operating at full capacity.

Thanks. Good morning, everyone. Just a follow-up on the previous commentary on the 1Q to 2Q transition. I mean, obviously, your 2Q guidance is pretty strong. Is it fair to say that the kind of extreme peaks that we saw in the back half of 2021 juxtaposed by extreme troughs between it, kind of that is in the past? So when you think of a spring break to summer travel transition, you're not going to see as much of a trough in between those peaks? Is that because of corporate? And kind of what does that mean for your network reliability and your abilities around the airline?

One of the issues we face as we move out of COVID is that we likely won't experience the same extreme peaks as we had in the past. This will help us create more efficiency in our network throughout the year. We have implemented a number of plans aimed at reducing the peakiness of our operational schedules. For instance, historically, before COVID, we operated about 20% more widebody aircraft in the summer compared to the winter. This meant our pilots and flight attendants had very light schedules during off-peak times but faced intense schedules during peak periods. During COVID, we have been working towards developing a more stable network that improves asset utilization, smoothens the peaks, and builds up during the lows. We have dedicated significant time to this effort, and as we approach the fall and winter schedules, you will see how we have addressed these challenges. I don't want to go into detail right now, but these are the key areas we are focusing on.

Hi. Good morning guys and thank you for the time. It's Sheila Kahyaoglu from Jefferies. Can you maybe talk about your pricing strategy in this inflationary environment? How you've managed it, how that's changed. And then how you've seen the impact on load factors? I think you said in an earlier question, demand hasn't changed. But obviously, for Q2, the guidance for capacity is still 16% below 2019 level. So maybe can you talk about how you're managing all that in?

Yes. I mean, we don't talk about future pricing as a rule, so we'll stay away from that subject. And I'd just say that when you have stronger demand, you clearly have opportunities on the margin to improve the offer in the marketplace and see if consumers respond to that. That's really what we've been doing as fuel prices have continued to run up and demand continues to remain strong. So those levers alone have gotten us to where we feel very comfortable about the 2Q revenue environment.

Great. Thank you.

Good morning, everybody. April, if you wouldn't mind reminding everybody about how to ask a question. We have a lot of energy in the room, if we want to keep the pace of these moving, we'll try to knock out as many of these as possible.

Hi. Good morning everybody. I was wondering if you could talk a little bit about the union drive of your flight attendants. There's been a lot of attention on other companies like Amazon and Starbucks. Do you expect your flight attendants to be unionized this year? And what is the impact on Delta? Do you think it helps or hurts your recruiting? And then my second question, are you still charging $200 a month additional for unvaccinated employees' health insurance? Thank you.

Leslie, regarding the question about labor and unions, this situation is not new for Delta. We have worked with unions for many years while actively seeking support from our employees. We fully support our employees in making decisions that serve their best interests. Historically, Delta employees have benefited from a direct relationship with our leadership. Therefore, what’s happening at Amazon or Starbucks isn’t applicable to Delta, as our circumstances are quite different. Additionally, we have eliminated the extra insurance surcharge this month because we believe the pandemic has evolved into a seasonal virus, and employees who remain unvaccinated will not incur extra insurance costs moving forward.

Thank you.

Hi. Thanks so much. Just curious what your take is on all the discussions of consolidation among some of the midsized airlines without asking you to comment any specific deal that may or may not happen. Just how would that sort of change the competitive landscape if you did start to see more consolidation among some of these carriers?

Ali, that's a really good try, but we're not going to bite on that either.

Hey, good morning. Glen, you said you were hearing good signs, as you put it about Washington perhaps rolling back the pre-departure test requirement. What exactly are you hearing and from whom? And I guess I'd ask the same question about the mask mandate.

Maybe I'll turn that over to Peter, our Chief Legal Officer.

We were obviously engaged throughout the administration, and I will tell you that we are getting a strong indication that the testing, the pre-departure testing will be phased out in the near future which is, of course, quite encouraging.

Hi. Good morning. I have two questions. First for Glen. There are many inquiries regarding pricing resistance. A quick check of your fares for a July trip showed $1,500 round trip from Atlanta to Maui and $750 from LAX to Orlando. Are many Americans going to be priced out of vacations this summer? And do you anticipate any backlash? My second question is for Ed. You mentioned earlier about travelers' patience. Where are you still noticing issues? How long do you think travelers will tolerate long waits on the phone and other contact methods? Thank you very much.

Sure. We haven't seen a lot of resistance to the price points that we have in the market, and our goal is to have reasonable price points in market up to day of departure. As we head to the peak, there are going to be constraints on peak days. And so as you shop around, if you're looking for lower fares, you have to be flexible in terms of which days you'd be willing to fly. But as we sit today, we have a load factor cushion versus where we sat in 2019. We have a higher percentage of our total seats already booked, which is, of course, putting a little bit of pressure on the ones we have remaining to sell in terms of increasing the offers on the margin. So look, my advice to travelers is to book early and be flexible if fares are your most important attribute. What we're seeing more and more is that that is not the only attribute. The quality of service and that level of service counts more and more. So I hope that answered your question.

In response to your question about reservations, we have been actively hiring in our reservations team, with over 50% of our current employees in that area brought on board in the past couple of years, and we are continuing to expand. As our staff gains more experience, our service levels are improving. We have also made significant investments in our digital self-service options. A few years ago, only about 20% of reasons for customer calls could be managed through self-service channels, but now over 60% can be handled this way, and the growth in self-service adoption is notable. With the surge in demand, our phone lines are under more pressure, especially as international travel resumes. However, we manage our response times based on service levels, and on average, the wait time for phone support is under 30 minutes.

The number of transactions that can be completed digitally is in the low 80s, while the adoption rate is in the low 60s. It's important to keep encouraging people to seek digital solutions first instead of calling and waiting on the line, as only very complicated transactions cannot be handled digitally.

With that, April, we have time for one final question before we turn it back over to Ed, please.

Hi. Thank you. I just had two questions on fuel. First, I was wondering if you could speak to the effect of the higher cost of fuel could have on fares. And the other is, if there's anything more you could add about sort of the role that refinery playing and helping to offset that?

I'll take the first question, and Dan can talk to the refinery. It's really a function of demand. To the extent we continue to see very, very strong demand for our product, our ability to push on not just the increased cost of fuel, but all of our cost inputs, we're shortening the time lag between when we experience that cost and when it's in the pricing structure. But it's really a function of demand more so than any decisions that we take on our own.

And then related to the role of the refinery as it relates to managing the fuel, 20% of the refinery production is jet, and that jet fuel goes to our New York operations. So it is a direct hedge as it relates to the spreads associated with that. It's really 100% hedged as it relates to how we run our operations and what it provides. The rest of the 80% production is diesel and gasoline as you go through that process. That provides a partial hedge related to diesel and gas to jet. By and large, the refinery, when you think about in aggregate as it relates to spreads, it's about a 40% to 50% hedge as it relates to our fuel costs.

Thanks. And just on fares, last month at the JPMorgan Conference, Glen had given an estimate that Delta would need to recover, I think it was 15% to 20% each way on a $400 round trip average. Are you able to kind of provide any update on that kind of figure given the higher fuel costs now?

This is Ed again. We – fares are all over the place; they move every day and fuel prices move every day, so we're not going to track to any specific comment. I think you heard in our remarks that we're actually seeing in pricing today real-time coverage for where fuel costs are.

Well, I want to thank you all for joining us. We are thrilled with the performance of our team, the progress we've made in terms of serving the demand that is returning. We've been waiting for two years to see this, and we're ready to go; customers are ready to go, and we look forward to a very, very strong spring and summer season and look forward to speaking to you all in July when we can report on the second quarter results. Everybody have a good day. Thanks for joining us today.