Delta Air Lines Inc (DAL) — Q3 2023 Earnings Call Transcript

Thank you, Matthew. Good morning, everyone, and thanks for joining us. Today, in Atlanta, we are joined by CEO, Ed Bastian; our President, Glen Hauenstein; and 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 costs and our balance sheet. After the prepared remarks, we'll take analyst questions, and then we'll 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, and good morning, everyone. We appreciate you joining us. Before we start, I want to acknowledge the unfolding war in Israel and the tragic loss of life that has ensued. Delta is donating $1 million to the American Red Cross for the International Committee of the Red Cross to help fund humanitarian efforts in the conflict. This includes emergency assistance such as health services, emergency care, ambulance services, and other critical needs. Our inbound and outbound flights to Tel Aviv have been suspended through October 31st to ensure the safety and security of our customers and employees. We're also offering a customer waiver for travel to Tel Aviv for those who need to change their travel plans. Our hearts are with everyone impacted by these tragic and horrific events. Turning to our news for the day. This morning, Delta reported September quarter results, posting earnings of $2.03 per share, a 35% increase over last year. Revenue grew 13%, and we achieved a 13.5% operating margin. This resulted in operating income of $2 billion, bringing our operating profit over the last 12 months to over $6 billion. The Delta people delivered for our customers throughout the very busy summer season. And I'm grateful to our teams for all they do for our customers and each other every day. Our people are the foundation of Delta and are our most important competitive strength. Sharing our financial success with our people is a long-standing pillar of Delta's culture. With this quarter's financial performance, we accrued another $420 million towards next February's profit sharing. This brings our profit sharing accrual to over $1 billion year-to-date, marking an important and exciting milestone for the Delta team. The great work of our 100,000 people was recently recognized as Delta ranked number 12 overall on Time Magazine's list of The World's Best Companies. We were the only airline to make the top 100 of this prestigious list. And USA Today readers just selected Delta as the Best Airline in the World. Our operational fundamentals remain strong, underscored by Delta's industry-leading position in on-time arrivals and blue sky operational performance that is reliably back to pre-COVID levels. Following a high number of irregular operations days early in the quarter, driven by weather and ATC constraints, we have seen consistent improvement in our operating metrics. In October, we are running a near-perfect completion factor across the mainline system, and we remain number one in on-time arrivals year-to-date. As we're now in the final phase of our recovery, we are making important forward-leaning investments in the health and reliability of our fleet. These maintenance investments will position us to consistently deliver the operational excellence that underpins Delta's brand. Running a high-quality operation is critical to being the airline of choice for our customers and driving a competitive cost structure. Dan will speak more to this shortly. During the quarter, we also made a $150 million strategic investment in Wheels Up, co-investing alongside Certares Management, Knighthead Capital and others. This new investment structure combines the number one premium commercial airline with the travel and tourism expertise of Certares and the turnaround expertise of Knighthead. Delta's relationship with Wheels Up creates a new premium product line for our customers, and I look forward to working with our co-investors and the new management team to unlock the full value of this uniquely positioned business. Turning to our outlook. Travel remains a top purchase priority and our core customer base is in a healthy financial position. We continue to see strength in bookings across Delta's global network, driven by our consumers. Demand for premium experiences, international travel, and increasing business travel further differentiate the trends that Delta is seeing within the industry. We expect our December quarter revenues to be 10% higher than 2022, with a 10% operating margin and earnings of over $1 per share. This brings our expectation for full year earnings to over $6 per share on a double-digit operating margin and free cash flow of $2 billion. Since raising full year guidance over the summer, our revenue outlook has improved, though earnings and cash flow have been impacted by higher fuel and maintenance costs. Revenue for the full year is expected to increase 20% over last year, which was the high end of our expectations on steady domestic demand and continued strength in international. With strong top-line growth and margin expansion, we expect to double earnings year-over-year and deliver a 13% return on invested capital. Our outlook for 2023 keeps revenue, earnings, cash flow and debt reduction on track with our three-year plan, which we issued in December of '21. As we progress through the recovery, we have made meaningful investments in operational reliability and our people. Delta has led the industry in setting the bar for wages, including a new pilot deal and profit sharing. We are seeing the structural step-up in operating costs amid increasing fuel prices, creating some near-term pressure on industry margins. However, I fully expect that the market will adjust to higher costs as it has historically and reestablish equilibrium. With Delta's differentiated premium revenue strategy and strong global network, we will continue to deliver industry-leading profitability and generate robust free cash flow. In closing, the strategy that we shared at Investor Day positions us well for the future. And while the environment we operate in continues to evolve in this post-COVID world, our objectives are unchanged as we move into 2024. With our network rebuilt and growth now moderating, optimizing the airline and driving efficiency are significant opportunities. Thank you, again, for your support of our company. And with that, let me hand it over to Glen and Dan to go through the details of the quarter.

Thank you, Ed, and good morning. I want to start by thanking all of our employees for their hard work and dedication during the busy summer travel season. In the September quarter, Delta generated revenue of $14.6 billion, up 13% over the prior year. Total unit revenues were down 2.5%, including 1 point of pressure from cargo and MRO. With these results, I expect Delta to deliver a record September quarter unit revenue premium versus the industry, reflecting the continued success of our commercial strategy. Domestic passenger revenue was up 6% over the prior year. Performance was steady through the quarter with strength in our coastal hubs, where we are leveraging our leading positions in generational airport bills. International passenger revenue grew 35%, with the Transatlantic and Pacific outperforming our already high expectations. We delivered record margins across all international entities this summer and strength is continuing through the fall. Demand for our premium products is very strong with revenue up 17% over the prior year, outperforming main cabin by 5 points. Domestic paid load factor in our first-class cabins was a record as we continue to advance our premium merchandising and upsell capabilities. Delta Premium Select has now been rolled out to over 85% of long-haul flights, and the revenue generation from this product has been above expectations and a key contributor to our record international margins. Business travel continues to steadily improve as corporates continue with return-to-office initiatives. Less recovered sectors like technology and financial services saw double-digit growth during the quarter. Our recent corporate survey indicates continued growth in business demand with a significant majority of companies expecting their travel to stay the same or increase as we move into 4Q and into '24. SME and hybrid travelers are producing margins in line with corporate travelers and demand from these travel remains well above 2019 levels. Total loyalty revenue was up 17% over the prior year, with continued strength in our American Express co-brand portfolio. Amex remuneration of $1.7 billion grew approximately 20% over the prior year. We expect full year remuneration of close to $7 billion and are focused on reaching our long-term goal of $10 billion. Diversified revenue streams, including premium and loyalty, have generated 55% of revenue year-to-date, reflecting Delta's differentiated positioning to the industry. Turning to the December quarter, we expect total unit revenue to grow 9% to 12% over the prior year, bringing our full-year revenues to up 20% over the prior year. This is at the high end of our guidance even with a few points less capacity than we had planned for the year, reflecting robust demand for the Delta product. Capacity in the fourth quarter is expected to be up 14% to 15%, implying total unit revenues down 2.5% to 4.5% versus the prior year. Domestic and Transatlantic trends are expected to be consistent with the third quarter. Pacific and Latin America unit revenue trends are expected to be modestly decelerate given capacity growth related to China reopening and investment in our LATAM JV. Domestic demand remains steady and initial bookings for the peak holiday periods are strong. The ongoing UAW and actor strikes are having a modest impact and we have incorporated those into our outlook. As we move through the fourth quarter, our Domestic capacity growth moderates and, in the first quarter of 2024, we expect domestic capacity to be flat to slightly down year-over-year. We have reallocated capacity to international leisure where we are expecting strong returns and remain focused on fully restoring our higher-margin core hubs. On international, we are seeing continued demand strength through the winter. The Transatlantic remains very strong, driven by partner hubs and southern European leisure traffic performance. We're closely monitoring the situation in Israel as we will evaluate restarting the flights as the situation stabilizes. In the Pacific, we expect to grow December quarter capacity 40% to 50% as we continue restoring the network. While this level of growth will impact unit revenue, we expect the new flying will be profit accretive. For the year, we remain confident in finishing strong with record profitability across all three international entities. In closing, I'm proud of the revenue performance our teams have delivered, and I'm confident that our integrated commercial strategy will continue to drive industry-leading profitability. And with that, I'll turn it over to Dan to talk about the financials.

Thank you, Glen, and good morning to everyone. For the September quarter, we reported earnings of $2.03 per share and an operating margin of 13.5%. Non-fuel unit costs increased by 1.3% year-over-year, and fuel prices averaged $2.78 per gallon, including a refinery benefit of $0.11. We generated operating cash flow of $1.1 billion and reinvested $1.4 billion into the business. Liquidity at the end of the quarter stood at $7.8 billion, with adjusted net debt at $20.2 billion. So far this year, we have repaid $3.7 billion of gross debt, which includes $1.7 billion in accelerated repayments on our higher-cost debt. Our leverage ratio has improved to 3 times on a trailing 12-month basis. During the quarter, S&P upgraded our credit rating to BB+, just one notch away from investment grade, reflecting our strengthening financial foundation. Our priorities for capital allocation are reinvesting in the business and enhancing our balance sheet to meet investment-grade standards, alongside a modest cash return to shareholders through dividends. Looking ahead to guidance for the December quarter, we expect non-fuel unit costs to remain flat or increase by up to 2% year-over-year. Apart from maintenance costs, our unit costs for the second half are progressing as expected. As mentioned in September, there are three factors contributing to increased maintenance: investment in fleet health, expanded work scope on our 757 engine fleet, and challenges in the supply chain. Our investments in fleet health and reliability are beginning to yield better operational performance, with September metrics surpassing those of August, and October showing improvement over September. The 757 engine, which plays a key role in our fleet, is currently undergoing a wave of overhauls. The engines removed from service over the summer require more extensive work and a higher ratio of new parts. Looking ahead, we are anticipating increased new material consumption rates. The industry is also continuing to navigate supply chain challenges that will take time to resolve, with engine and airframe turnaround times remaining high, leading to inefficiencies and impacting productivity. We are collaborating closely with our partners and utilizing our deep expertise in TechOps to address these supply chain issues. Delta has a longstanding reputation for operational excellence, supported by top-notch TechOps capabilities, which are crucial for driving out inefficiencies. Regarding fuel, prices have risen since July, adding about $400 million in expenses to our forecast for the latter half of the year. We anticipate December fuel prices to be between $2.90 and $3.20 per gallon, with the refinery expected to break even for the quarter. The refinery turnaround is on track, with production set to resume in mid-November. Based on our outlook for December revenue and costs, we expect earnings to be between $1.05 and $1.30 per share, with an operating margin of 9% to 11%. This revises our full-year earnings outlook to between $6.00 and $6.25 per share, coupled with a double-digit operating margin and free cash flow of $2 billion. We are committed to closing out the year strongly, focused on achieving industry-leading margin performance, earnings growth, and robust cash generation. As we move through the planning process for 2024, our focus is shifting from restoration to optimization. Over the last two years, we have experienced extraordinary growth for an airline of our size to rebuild our network. We expect growth to normalize next year, with continued improvements in operational reliability. This will enable us to optimize our airline operations, decreasing operational buffers and eliminating inefficiencies arising from the intensive rebuilding process. Our capacity growth for 2024 will emphasize Delta’s strengths. Domestically, we are focusing on our core high-margin hubs to enhance connectivity and gauge. Internationally, we will leverage our leading joint ventures and increase the share of flights with next-generation aircraft. We are executing our strategy and financial objectives from our Investor Day with a focus on free cash flow, robust earnings, and capital efficiency. In summary, Delta is strategically positioned to uphold operational and financial leadership in the industry. I want to express my sincere gratitude to the Delta team for their hard work every day. Now, I'll turn it back to Julie for the Q&A session.

Thanks, Dan. Matthew, can you please remind the analysts how to queue up for a question?

Hey, good morning, everybody. So, Dan, expanding on some of your engine comments, we're obviously focused on the GTF situation. I realize you're not or at least I don't believe you're directly impacted with any groundings right now. I'm just trying to square the situation against your MRO and your GTF in-house expertise. I mean, is there a scenario where the Pratt mess ends up benefiting Delta? Or should we think more about simply reducing the downside relative to some of your peers? Also how does this impact the maintenance cost guide embedded in your 2024 CASM expectations? Thanks.

Maybe I'll first start with the geared turbofan as it relates more directly to our fleet both. On the neo, we took our deliveries later, so the impact will be modest to minimal. If there are any inspections or things off-wing, it will be in the latter half of 2024 based on the analysis that we've gotten so far from Pratt. We're still waiting on the full analysis related to the 220 fleet, that should be coming later this month, and we will assess that impact appropriately. As it relates to MRO, Pratt is certainly a close partner of ours and an important one as it relates to that third-party capability and we will certainly support their efforts. We're working closely with them on that. We have capacity. It ultimately comes down to the allocation of capacity and availability of material to do the work, but we'll be working with them through the fall and into next year on that.

Okay, that's helpful. And then for Glen, I've asked about this before, a lot of Delta customers obviously took fairly lavish European vacations this year. You have SkyMiles data on these folks. What's the correlation between big summer spenders and big winter spenders? What's that, I don't know, sort of SkyMiles Venn diagram look like? Because what I'm wondering about is the potential for people scaling back on their winter trips because they've spent lavishly on their summer holidays. Any actual data you can share on that? Thanks again, guys.

Sure. I think what we're really excited about is the lengthening of the European travel season. And that has really gone from primarily ending in the summer IATA season, which would be October, now through November, through the holidays, through the New Year. And really now we're only talking about a six to eight-week period that are the doldrums for Europe. So, the bookings, which most people wouldn't have expected, of course, we reduced our schedule in the fall and the winter IATA season. But our year-over-year comps are actually accelerating into the winter as we look into November, December and January. So, I think we're seeing that continuing into the fall and early parts of winter, and we're very excited about that. And we've also, of course, expanded into a lot more Latin leisure this winter than we did last winter, and the advanced demand for that seems very, very robust. So, leisure is still very strong, and even through shoulder and off-peak periods.

Okay. Thanks, Glen. Thanks, everybody. Take care.

Hey, good morning. If I may, Glen, just your comment about domestic capacity being flat to down in the first quarter. I was just wondering if that was a decent trend for the full year or was it related to also, in the last year, the way first quarter kind of turned out wasn't what you expected and you were going to make some capacity changes. So, is that related to that as well, or is it more kind of weakness that you're seeing recently, or maybe strength in international on a relative basis?

It's really a reshaping of the demand patterns that we saw last year. And no shock, January and February are not in the northern tier, transcon, east-west markets, barnburner markets, so reallocating those to warmer and sunnier places. So, our total capacity will be up. Domestic capacity will be down slightly. Core hubs will actually be up with more emphasis on warm and sunny places in Latin America and South Pacific. So that's kind of how we're profiling and really optimization of the demand patterns we saw last year going into this winter.

That makes sense. And if I may also just on domestic revenue. It's been stable at Delta since kind of June. I was wondering how much of a contribution you're getting from restoring your hubs and separately perhaps the domestic portion of international trips, given what you've talked about the strength kind of continuing in Transatlantic longer than kind of historic. The reason I ask is it seems that stable comment is a little bit different than maybe what we're hearing from kind of the purely domestic airlines.

Right. I think what domestic strength is really coming from are the premium products domestically. And I'm not going to speak for the other carriers. They all have coming in the next few weeks. But it really hasn't been on the domestic portion of international journey, which is de minimis in terms of the variance to what it was last year. Our employments in the Transatlantic are up low double digits, but that only represents 13% of our total travel, so really a de minimis impact to domestic. So, it's really coming from the premium products, and they're doing quite well. As I mentioned, domestic paid first-class load factors are reaching new heights every month. So, very excited about those demand trends, and I think that reinforces the strategy we've been working on for the last 10 years to have a differentiated product.

Helpful. Thank you.

Hey, everyone, thank you. Ed, in the prepared remarks, I think you touched on fuel recapture. Right now, there doesn't seem to be much of an adjustment on the capacity side from some of your index participants, despite the erratic fuel. So, just trying to understand if there's a new calculus to how you're approaching fuel recapture right now in the current market. Thank you.

Fuel prices have fluctuated significantly in the past few months, and this volatility affects us more than our ability to recover costs. Historically, we have managed to recapture costs successfully within two to three quarters. Considering the strong demand environment and the fact that overall costs, including labor and inflationary pressures, are rising, everyone is incentivized to adjust pricing accordingly. I feel optimistic as we move into 2024. Glen can provide additional insights on this.

No, I think you mentioned it really well. It takes time, and when we have rapid fuel price run-ups, it usually takes a few quarters for that to roll into the industry realized fares. But historically, it's always worked. So, we're looking at history to predict the future, but that's what the history would tell you.

Okay, appreciate that. And then, Dan, just back to the maintenance costs and operational investments, just trying to understand, I know you touched on it in Jamie's question, but just trying to understand how it plays out. Are you basically assuming that maintenance and operational investments will be elevated in the first half? And then, how does that roll off? And then, when do the productivity gains that you've talked about in the past kind of kick in? I'm just trying to understand how the moving parts are changing a little bit right now. Thank you.

We discussed this, and we're currently in the midst of planning for 2024. Maintenance is a key aspect of our operational reliability, and the investments we're making in fleet health and engine work will continue at least into the first half of next year. Our focus is on driving that operational reliability. As we enhance our operational reliability, it lays the groundwork for optimizing costs, investments, and addressing inefficiencies we mentioned at Investor Day, which amounts to over $1 billion. As we see further improvements in operational reliability, our teams will be better positioned to eliminate investment buffers and inefficiencies across our operations. They are actively addressing this while developing their operating and financial plans for 2024.

Thank you.

Hey, good morning. Just on the maintenance investment, I'll follow up to maybe Jamie's question there, is this at all a reflection of your thoughts on future aircraft delivery constraints? In other words, were you always thinking about using those 75s next year? And then just generally, how do you think about and measure returns on capital for investing in something like a 757 versus going out and buying new?

Glen can add to this as well. The 757 has been a fleet that we've labeled as flexible during our restoration process. It is definitely a reliable option. The returns related to how we use and operate it within our network are quite strong. We have relied on it significantly. Looking back 18 to 24 months, we've increased the number of aircraft we are flying and have reactivated more as we adjust to new delivery schedules year by year. It is a fleet we will continue to adapt as we plan for the next several years regarding how we utilize it. The overhaul wave we began last year will continue this year and into next year, which helps us manage a heavy maintenance cycle and ensures we have highly functional engines. The Delta team has traditionally excelled at managing the end-of-life phase of assets, as we demonstrated with the 90s and 88s, by maximizing their usage, whether as whole units or in parts that can be redeployed effectively. We work closely with fleet management and maintenance to ensure optimal deployment and returns from these aircraft. Overall, the 757 is an excellent workhorse for our fleet with strong returns.

I don’t have anything to add except that we experienced a lot of late deliveries. The last 75 planes were produced with the final one ever built. Some of these planes are relatively young and are part of our fleet. As we approach the end of their life by the end of this decade, we will be able to start harvesting the engines, which will significantly enhance the maintenance profile of the fleet.

And Duane, this is Ed. Your point is accurate and it fundamentally relates to the OEMs. They are struggling to produce engines and parts on time due to their own supply chain challenges. One of Delta's core strengths at TechOps has been our ability to access the used/repair market to acquire and repurpose assets for our needs. However, that market has mostly dried up due to the significant rebound in flight activity coinciding with the OEMs' difficulties in producing new engines. This issue is something we will witness across the industry, not just at Delta. It’s one of the constraints we discussed at Investor Day, which will limit our capacity to produce. Nevertheless, I have confidence in the Delta TechOps team because they are the best in the business, and I'm sure we will find a solution. While this may impact our expenses, we recognize that this is a long-term asset that will yield benefits for many years.

Appreciate those thoughts. And maybe just for my follow-up on Pacific, and Glen, can you just remind us where we are in China reopening? I think there's another round of expansion here in November. And then just broadly in Pacific, what are the markets away from China that you're excited about?

Well, I think what we're very excited about is the success of our Incheon hub with Korean. And that has really even exceeded our expectations. We think it's the best place to connect to get to Southeast Asia from any one of our hubs or as a double connect. So really trying to leverage that, and we'll have some announcements on continuing to work to increase our capacity next year. But that's really been a lynchpin. South Pacific has been a really great surprise for us, the demand there, really in tune with that same high demand for leisure destinations. So that's been doing very well, as well as Japan. As you know, Japan was closed for a couple of years and our Japanese franchise is doing quite well. So, you put the Pacific together, and if you recall, for years, we were telling our investors to hold on. We've got this restructuring coming. We had the wrong airplanes. We were at the wrong airports. And it took us many years to get to where we wanted to be, but we're finally there and we're producing great returns in the Pacific and we're excited about our opportunities moving forward.

I appreciate the detailed thoughts.

Hi. Good morning, everyone. Ed, a couple of questions just kind of want to bring it back to some things discussed at Investor Day. I guess maybe first just on capacity growth. I know you gave us a little color about how you're thinking about 1Q, kind of domestic versus international. But the mid-single digit growth that you talked about in 2024, I guess, in this fuel environment, would you consider that growth rate as reasonable or aspirational at this point in time?

It's likely more appropriate for Glen to address this. However, from my perspective, any capacity updates we share should be viewed as somewhat aspirational due to significant challenges in the marketplace affecting growth. Provided everything proceeds smoothly—such as receiving parts on schedule, having the labor ready, avoiding air traffic control issues, and maintaining reasonable fuel prices—that is our goal. However, over the past two to three years, our projections have continued to evolve. Therefore, these are just estimates of our potential capabilities. In reality, I believe we may end up falling slightly short of those expectations across the board.

And I would just add a comment. About half of that is run rate of what's in there as we enter the first quarter of next year. So, the real number is half of low-single digits, which is very low-single digits.

Yeah. Got it. Makes sense. And then I guess, Dan, just on costs and CASM next year. Obviously, with capacity moving around, obviously, the maintenance costs continuing into next year, can you just give us a sense of your level of confidence in 2024 CASM-Ex being able to be down kind of low-single digits, or should we think about that differently as well? Thank you.

As I mentioned earlier, we're still in the middle of our planning process. So all these pieces are coming together, right, capacity, along with all the things that we've talked about. Regarding the maintenance, we're spending certainly a lot more time on that, given all the moving pieces in the industry and elements that we talked about.

Dan's earlier comments about the shift towards optimization are significant, and maintenance plays a crucial role in that. It allows us to enhance efficiencies across the company. We are currently in the planning phase, so we are not avoiding the question. We will provide our projections at the usual time at the beginning of the year.

Good morning everyone. Thanks for the time. Ed, on CNBC this morning you called out a pick-up in corporate bookings. Could we just dig into that a little bit more? What have you seen since Labor Day on volumes or revenue from corporate? Any industries or regions that are bigger drivers or it's really across the board? And anything on maybe corporate booking windows today versus maybe a couple of months ago, and they're still longer than pre-COVID? Appreciate it.

Well, we said on the last call that we anticipated post-Labor Day that we'd see volumes of corporate travel pick up. And indeed, we're seeing that. I think Glen mentioned a couple of sectors, the tech sector and the financial services sector are areas that we're seeing double-digit growth. We have, I'd say, across the board, we're seeing increases. The corporate travel has come back, it comes back and then plateaus, comes back and plateaus. And I think you'll see another wave of return. I think a lot of it's being driven by the return to office and getting into the new normal work patterns, which many companies are still sorting out for themselves. But it's healthy to see, and it's one of the distinguishing factors between us and some of the carriers that are on the other end of the fare spectrum. So, one of the many differentiating factors that is enabling us to grow revenue at the pace we are.

Makes a lot of sense. Thanks so much. And then one, maybe this is for Dan. Can you just speak to how the air traffic liability is trending year-to-date and into the fourth quarter versus your expectations at the start of the year? I know we kicked off the year with really strong first quarter performance on that ETL build. Should you be aware of any impact from normalization of booking windows versus last year, just given the pick-up in corporate volume you're seeing? Thanks a lot.

No, I would say it's performing as we expected. We're starting to return to a more traditional seasonality. When we were restoring, it was somewhat different. Historically, you see a decline in the mid-teens as you approach the fourth quarter, and that’s what we observed as we finished the third quarter. Additionally, we have had very favorable policies regarding credits, and customers have become accustomed to using them. We believe this builds long-term confidence for people to book and travel, as well as consume when they do not travel. We have noticed consistent issuance and usage rates of these credits.

Great. Thank you so much.

Oh, yeah. Hey, good morning everyone. Glen, you called out a couple of sectors that were underperforming from a corporate perspective. I mean, I think of any carrier probably the most indexed to the automotive sector and then sort of the media sector with the writers' and actors' strike. What sort of drag do you actually think that had on your corporates, at least in the month of September and maybe what you're seeing right now?

Well, clearly, I'll start with Los Angeles and the entertainment production strikes that are ongoing. That has had a not insignificant change in the business travel to and from Los Angeles, as well as now the UAW strike, which has curtailed a significant amount of the business in Detroit. As you pointed out, we're very big in both of those sectors. And what I'm really encouraged about is despite those two kind of being things that we should look forward to as positives next year, that our total corporate revenues are still accelerating. So despite those two being a drag on them, and I think hopefully, those are both resolves fairly quickly here and we can get back to a normal business level. But you are right, spot on, that we are probably the most impacted by those two sectors.

Great. And then just a quick one to Dan or Ed. I didn't see in the release a reiteration of the $7-plus for 2024. I know you're still mid-budget, but just based on the trajectory and everything you're seeing now, that number is still fine?

That's our plan, Mike. I mentioned that we gave that guide in December of 2021, as long as free cash and others and we're on track.

Thanks. Good morning, everyone. Glen, I'm probably going to ask Jamie's initial SkyMiles data mining question in a different way. And based on data that you have, do you have any evidence that traditional domestic travelers have been flying internationally more often in 2023, maybe people taking their first or kind of rare international trips? Just trying to see if there's any truth or data to back up the thesis that there has been substitution of domestic with people flying internationally this year.

Well, I'd say that's a very broad question, and clearly, there's been an expansion of international. But if you think about domestic and the volume differential between the number of seats we have every day domestically and the number of seats we have every day to Europe, it would be very hard to track those incremental visits back to people who did not fly domestically, because it's such a small piece of domestic travel in terms of total volumes. And so, while clearly, the spend has been very robust for long-haul in general, we have not seen a diminishing of short-haul either.

Got it. That's really helpful. And maybe as a follow-up, kind of feels like Trans-Pacific has not quite been the explosion of pent-up demand that we saw in domestic and Transatlantic when they initially opened, but it looks like 2024 might be a better year for that. Is there any way you think that the historical profitability in that region, which has not been great to say the least, can be better when that initial kind of flow-through of demand comes through with pricing the way it might potentially be?

I would disagree with your assumption that Pacific has been underperforming. In fact, Pacific has shown strong performance, as we have reported record profits in both margins and overall profitability. If you consider the Pacific region excluding China, it has been fully restored. We are very satisfied with the demand in the Pacific, and currently, that is where our capacity is highest for the fourth quarter and will continue to be so into the first quarter and throughout next year. We are very optimistic about the outcomes we are experiencing there.

Very helpful. Thanks, Glen.

Yeah, good morning, and thanks for taking my question. Glen, I know you've called out your corporate travel here being up in coastal hub strength, but can you talk to maybe any areas of weakness domestically? And is there like diverging trends with your main cabin revenue?

Well, I think we've called out diverging trends with main cabin. Those have been pretty consistent, though, throughout the recovery is it's been led by premium products and services. So that's not inconsistent between quarters. I think it's actually relatively flat in terms of how much premium is driving there. And geographically, I think what we're really excited about is the coastal hub investments we've made and particularly New York, that's something we're looking for in '24. We see a lot of momentum in the Northeast and New York in particular, as things to look forward to in '24.

Okay. And then on the outlook for next year, growing with your JVs on the international side, how does the changes in Mexico impact as they move to a Category 1 with the FAA?

Right. Mexico has been a great source of strength for us through the last year, and we see continued strength in those Mexican business. And I think when you think about what we read in the press and what you all see and the onshoring and moving factories from Asia down into Mexico, we've seen really an incredible strength in demand from the business sector in Mexico, and that's looking really robust into 2024. And working with Aeromexico now, we really couldn't do much with them. These are things we wanted to do in the past. You see us coordinating with them. We have an ATI joint venture. So, we've been working very closely with them to continue to work on where we see strength and being able to serve those markets better, including the auto sector in Detroit and including Atlanta as a primary gateway to Mexico primary and secondary airports.

Thank you very much, operator. Hello everyone, and I appreciate the question. Regarding travel next summer on the North Atlantic, particularly for U.S. citizens needing visas, how do you plan to communicate this to travelers during the booking process? Will it be included in reservations or follow-ups, or how will you prevent any surprises?

Helane, hi. It's Peter Carter. Say, we will make sure our customers are aware of the visa requirement at various points along the purchasing path and the journey. And I will tell you that the nice thing about the new visa requirement is it is an e-visa, so it's a fairly straightforward process that we think will take about 24 hours.

I think it's similar to Australia, where the process is usually quick, although there can be exceptions. That's helpful, thank you. Regarding the changes in Israel, how significant is that in your overall market? There are a lot of ASMs, but it seems like the exposure might not be that substantial.

It's just over 1 point of ASMs. We won’t provide an exact figure, but the revenue impact is reflected in our fourth quarter guidance. We've extended at least through October and will evaluate how things progress. The reason we aren't specifying the extent of our exposure is that we don't yet know how this situation will develop, so we're keeping our options open. However, we are confident that we can remain within our guidance ranges, even considering Israel as a worst-case scenario.

Matthew, we'll now go to our final analyst question.

Thank you. Good morning, guys. Ed, I wanted to ask you a question. You made a comment about you're leaning into the cost curve and really leading the industry here with pilot pay and the like. So, the question comes, how do we think about your double-digit margins today versus low-cost carriers and what they'll report in Q3 and margin moving pieces maybe into 2024, if you want to provide that or maybe the Delta versus Delta and other carriers?

Sheila, refer to our 2024 guidance that outlines our three-year plan. The positive aspect at Delta is that we currently have all our labor costs aligned with the new market, allowing us to achieve double-digit margins. While other carriers may need to raise their labor costs in future negotiations, they will only be trying to catch up to Delta's expenses. We have discussed the conversion of industry rates as another opportunity to ensure we operate more efficiently, with shared incentives to align our costs with our pricing.

Yes. To begin with, this year in TechOps, the expectation for geared turbofan engine overhauls is in the range of 150 to 160. We have expanded our capacity to accommodate up to 350 and are continuing discussions with Pratt regarding medium- and long-term capacity requirements. We expressed this at Investor Day and are very optimistic about our standing. Not only do we have a rich heritage and significant expertise within the Delta TechOps team, but our involvement with all major next-generation platforms, including the geared turbofan, Rolls, and the LEAP engine, presents substantial opportunities for growth in this business over the medium to long term.

Thank you so much.

That will wrap the analyst portion of the call. I'll now turn it over to Tim Mapes to start the media questions.

Thank you, Julie. Matthew, if we could, as we transition from the analyst questions to those from the members of the media, maybe repeat the instructions for everyone, please.

Hi, good morning. Ed, I wonder if you could give us any more color, Ed or Glen, on the reaction to the SkyMiles changes and when you expect to announce the things you might be rolling back or changing?

Hi, Dawn. I've shared publicly in recent weeks that we're receiving positive feedback from our customers regarding the changes. I have noted that we introduced too many changes at once and need to reassess the rollout plan for the new qualification levels. During my CNBC interview this morning, I highlighted two consistent themes in the feedback. First, there is a strong loyalty to Delta, which is truly heartening. We've invested significantly in building this loyalty, and we will continue to do so without question. Second, there is a consensus that action is necessary, as many see that the number of premium customers is outpacing the premium services we can offer. Therefore, we need to find better ways to ensure our premium customers receive the service they deserve. There have been numerous suggestions on how to approach this, and we will be sharing more details with you in the coming days.

If I could have a quick follow-up on that, what is driving the reaction? Are you receiving feedback or seeing an impact on credit card sign-ups or cancellations? What is causing this rapid change to your initial plans?

We are receiving feedback, but we are not observing any changes in our strategy regarding acquisitions or spending levels. Everything remains stable, as Glen mentioned in his remarks. This feedback is valuable, and I find myself agreeing with some of it.

Hey, thanks so much. So, there's been some analysis recently about sort of the potential impact of cost savings if people really started taking weight loss drugs like Ozempic in big numbers. Is that something you look at, at all? Do you factor that into your fuel projections or anything like that?

No, we don't, Ali.

And then if I could follow up. I was also curious about potential Israel evacuation flights. I know there's ongoing discussions with the government on this. But would Delta be open to flying Israel under a charter if the government asks or if there was a craft activation? Or would you rather just fly to points outside of Israel? Is there any openness, I guess, to flying kind of under those circumstances?

There are discussions, as I've indicated. Right now, we're looking at providing some additional lift to Europe to get people out of Europe. But no, we don't have any plans to be flying into Israel. It's considered unsafe for a U.S. carrier to operate in that airspace currently.

Hi, good morning. I wanted to ask real quickly, with the ongoing slot waiver situation in New York where the airlines were asked to reduce capacity because of the congestion in the air traffic controller shortage, can you talk about how much of that Delta is taking advantage of? And whether you expect that if it continues long term to start to have some significant impact? Also, whether you're redeploying that capacity into other markets?

Well, thanks for that question. Yes, we're planning on using the entirety of the slot waiver, which is, I believe, 10% of our flights into and out of Kennedy and LaGuardia in order to help with the airspace congestion issues that are surrounding those airports right now. So, what we're trying to do is have minimal impact. We will not withdraw from any individual markets. We will thin out some frequencies. We'll put some larger gauge in. And any of the assets that are freed up from New York will get redeployed into other parts of our network for now. But it shouldn't really be very different than the summer. As you know, that's rolled forward from the summer, which we had 10% out, and that's just extending it through the winter. So, you won't see really, I think, any dramatic changes to our schedule versus where we're sitting today.

Does that become a broader problem for you if that continues to be extended?

I think the broader problem is not being able to operate in the New York airspace. And so I think we're working very closely with the government to see what we can do to improve the situation there. It was very difficult on our customers this summer, and certainly, we're all hoping for some relief by next summer.

And Mary, this is Peter Carter. We really appreciate the FAA providing that relief and recognizing the staffing constraint with air traffic controllers in the northeast. Frankly, that's the issue we need to address as an industry.

Hi, good morning. We keep seeing airfares fall, and I was wondering if you could talk a little bit about what kind of discounting you're having to do in the fall. And then have you made any capacity changes on days when people might have traveled in the off-peak and maybe they're going back to more traditional bookings, if that's the case? Thanks.

Sure. The latest data released this morning showed that prices have remained mostly flat or increased slightly month-over-month, which I don't believe reflects the overall industry trend. We've observed that June marked our lowest point for year-over-year average fares, and those fares have been increasing since then. This improvement is primarily due to our success in selling more premium products and the fares associated with them. While there is some discounting at the lower end and initiatives to adjust fares, the situation remains quite dynamic. Currently, we see stability between the third and fourth quarters.

Are the fares you're discounting comparable to 2019, or is there a reference point for that?

Yes, some markets are performing better than others. The market basket is generally stable, although at the lower end, it might be slightly below 2019 levels. There are always instances of lower fares in certain markets, but overall, the trend does not suggest a significant decline.

Thank you, Leslie. Matthew, we have time for one final question, please.

Good morning, and thank you for taking the question. Coming back to the loyalty program, were you surprised by the customer reaction and I suppose the degree of it? And what were you sort of expecting instead of that effect?

We anticipated receiving some feedback. A portion of that feedback has been very positive and suggests we should maintain the current approach. All groups provided input, giving us a comprehensive view on the issue. This allowed us to reflect, and I identified areas within the program that could benefit from adjustments. Changes will be made to the program, as I've previously stated, but we will revise our initial announcements.

Thank you. And just a follow-up. Was American Express expecting any changes to the premium card demand just with the lounge access? Do they think that, that's potentially going to fall? And if so, will that impact your loyalty revenue?

American Express, we, of course, did this with full back-and-forth knowledge, so we did this together with American Express. And if anything, since we've announced it, we've seen a shift to higher premium card acquisitions. So, I think we're well within from that perspective where we thought we'd be.

That will wrap the analyst portion of the call. I'll now turn it over to Tim Mapes to start the media questions.