Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2019)
22 slides from Delta Air Lines's investor day presentation, Dec 12, 2019
Slide 1: Finance Insights
Finance Insights Jill Greer Vice President, Investor Relations Julie Stewart Managing Director, Investor Relations
Slide 2: Safe Harbor
Safe Harbor Statements in this presentation that are not historical facts, including statements regarding our estimates, expectations, be lie fs, intentions, projections or strategies for the future, may be "forward - looking statements" as defined in the Private Securities Litigation Re form Act of
Slide 3: Agenda
Agenda 3 Commonly Asked Modeling Questions - Revenue disclosures - Pension update - Tax update - Joint Ventures & equity investment accounting - Profit sharing calculation - Airport investments Investor Relations Update - Perception study feedback - Update on approach to financial guidance
Slide 4: Perception Study: We Asked – You Told Us
PERCEPTION STUDY We Asked – You Told Us 4 Strengths • A clear strategic vision • Competitive positioning • Strong management • Building brand loyalty • Leading financial performance Opportunities • Demonstrate ability to sustain success over a cycle • Maintain margin premium • Cost management • Targ
Slide 5: Evolving Our Guidance Approach
UPDATE ON APPROACH TO FINANCIAL GUIDANCE Evolving Our Guidance Approach 5 Focus on the metrics that inform our business decisions Reduce number of adjustments in key performance measures Reduce near - term updates and provide better information for long - term investment Streamline annual guidance R
Slide 6: Reducing Adjustments to Improve Transparency
UPDATE ON APPROACH TO FINANCIAL GUIDANCE R educing Adjustments to Improve Transparency 6 Revised Definition (starting in 2020) Prior Definition Non - fuel unit cost Excluding fuel and profit sharing Excluding fuel, profit sharing and ancillary businesses Free Cash Flow Operating Cash Flow less net P
Slide 7: 2020 Guidance Metrics
UPDATE ON APPROACH TO FINANCIAL GUIDANCE 2020 Guidance Metrics 7 • Total revenue growth • Earnings per share • Free cash flow • Pre - tax margin • Total revenue growth • Unit revenue (TRASM) • Unit cost (CASM - ex) • Fuel price • Pre - tax margin Annual Focusing on metrics that create shareholder va
Slide 8: Evolving Our Approach
Reducing near - term noise and providing a more long - term perspective • Ending quarter - end guidance updates • Eliminating monthly traffic • Moving Investor Day to June • Establishing multi - year targets • Evaluating enhanced loyalty disclosure • Increased insight into portfolio businesses 8 UPD
Slide 9: Agenda
Agenda 9 Commonly Asked Modeling Questions - Revenue disclosures - Pension update - Tax update - Joint Ventures & equity investment accounting - Profit sharing calculation - Airport investments Investor Relations Update - Perception study feedback - Update on approach to financial guidance
Slide 10: Building Durability through Healthy and Diverse Revenue Streams
6% 8% 5% 18% 63% Ancillary and Cargo Travel Related Services Loyalty Program Premium Products Main Cabin REVENUE DISCLOSURES Building Durability through Healthy and Diverse Revenue Streams 10 Industry 2019E ~$47B Geography Loyalty Corporate Revenue Mix by Sector Top Sectors 1. Financial Services (15
Slide 11: Revenue Components of Disclosed Categories
REVENUE DISCLOSURES Revenue Components of Disclosed Categories Note: Premium revenue based on cabin flown Total Revenue Passenger Revenue (~90% of Total Revenue) Other Revenue ( ~8% of Total Revenue ) Travel - Related Services Loyalty Travel Awards Ancillary and Refinery Miscellaneous Loyalty Ticket
Slide 12: Methodology for Revenue Allocation
REVENUE DISCLOSURES Methodology for Revenue Allocation • Premium revenue growth driven by fleet transformation, branded fares, and improved upsell capabilities • Classification of ticket revenue determined by cabin flown ‒ Use of miles as payment allocates portion to loyalty - related revenue ‒ Post
Slide 13: Mileage Sales and Recognition in the Financial Statements
REVENUE DISCLOSURES Mileage Sales and Recognition in the Financial Statements Cash from Mileage Sales Agreements Remainder to Balance Sheet as Deferred Revenue Recognized in Revenue When Miles are Redeemed 13 Income Statement Recognition: Category Subcategory Companion Certificates Passenger Revenue
Slide 14: Proactively Addressing Pension Obligation
Delta Delivers Again in 2017 PENSION UPDATE Proactively Addressing Pension Obligation • Impact of lower interest rates on liability mitigated by elective contributions and strong returns • Expect unfunded liability ~$6 billion at the end of 2019 • Elective contribution of $1 billion in 2019 with $50
Slide 15: Cash Taxes Expected To Begin in 2021
Book Tax Rate Estimated Cash Tax Rate 23 - 24% 10 - 12% TAX UPDATE Cash Taxes Expected To Begin in 2021 • Cash tax rate is expected to remain below the book tax rate for next several years • Lower cash tax rate reflects: ─ Immediate expensing of asset additions allowed by Tax Cuts and Jobs Act of 20
Slide 16: Delta's Joint Ventures and Equity Investments
16 ~$3B Joint Venture 10% equity stake in Hanjin - KAL ~$1B Joint Venture ~$11B Joint Venture 9% Equity stake ~$3B Joint Venture 49% Equity stake Pending ~$1B Joint Venture Equity Joint Venture ~$1B Joint Venture 47% Voting Interest 3% Equity stake Expanded JV of ~$13B (Launching January 1, 2020) No
Slide 17: JVs and Equity Investments Create Strong Commercial Cooperation
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING JVs and Equity Investments Create Strong Commercial Cooperation • Allow close cooperation and provide more choice for customers • Sharing of economic benefits drives customer - focused partner alignment • Antitrust immunity allows for legal coordination,
Slide 18: Driving Value Through Joint Ventures and Equity Investments
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING Driving Value Through Joint Ventures and Equity Investments Benefits from improved revenues, cost efficiencies and percentage of partner earnings 18 Revenue for Delta - operated flights in JV flow through passenger revenue JV settlements flow through othe
Slide 19: Joint Venture Settlements Balance Profits
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING Joint Venture Settlements Balance Profits ($M) Delta Partner Total Baseline Year Profit (A) 100 60 160 Total Year 2 Profit (B) 250 220 470 Incremental Value (C = B-A) 150 160 310 50/50 Split of Value (D) 155 155 310 Settlement (E = D - C) 5 (5) 0 JV Settl
Slide 20: Understanding Delta's Employee Profit Sharing Program
PROFIT SHARING CALCULATION Understanding Delta’s Employee Profit Sharing Program • Rewarding employees through profit sharing is a unifying force • Eligible profit sharing pool is determined by Delta’s adjusted pre - tax profits ─ Employees receive 10% of first $2.5 billion of eligible profits and 2
Slide 21: Impact of Profit Sharing on the Income Statement – Illustrative Example
Blended Average Profit Sharing Rate Pre - Tax Income Revenue $ 44.0B Expenses (excluding profit sharing) $ 37.8B Profit Sharing $ 1.2B Pre - Tax Income $ 5.0B Profit Sharing Total $2.5B threshold = $2.5B x ~12.5% $0.3B Above threshold = $3.7B x ~23.5% $0.9B Profit Sharing Pool = $6.2B $1.2B Profit S
Slide 22: Delta's Financial Approach to Airport Investments
• Delta maintains control over project cost and timeline • Provides greater control of customer service and operational disruption • Costs paid up front or reimbursed by airport • Airport usually issues bonds to fund construction • Airport recovers costs through rents/fees over lease term • Examples