Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2017)
56 slides from Delta Air Lines's investor day presentation, Dec 14, 2017
Slide 1: Investor Day 2017
INVESTOR DAY 2017 KEEP CLIMBING A DELTA 4
Slide 2: Safe Harbor
Safe Harbor Statements in this presentation that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995
Slide 3: Built to Last
Built to Last Ed Bastian Chief Executive Officer
Slide 4: Delta Delivers Again in 2017
Delta Delivers Again in 2017 OUR PEOPLE • Strong culture and employee engagement with over 88% of employees “proud to work for Delta” • Earned $1 billion+ in profit sharing for 4th consecutive year for delivering great results for our customers and owners OUR CUSTOMERS • Industry-leading operational
Slide 5: Investing For Delta's Future
Investing For Delta’s Future AIRPORTS FLEET • More than $12 billion in facility projects • Ordering 100 A321neo for delivery in planned over next decade including 2020-23 – aircraft are a win on all fronts – ATL, LGA, LAX, SEA and SLC - improved customer experience, higher focused on improving custo
Slide 6: A Solid Finish to Delta's Transition Year
A Solid Finish to Delta’s Transition Year December Quarter 2017 Forecast Passenger unit revenue change year over year Up ~4% Fuel price $1.92 - $1.97 CASM-Ex including Profit Sharing, change year over year, Normalized Up 5.0 - 5.5% Operating margin ~11% Note: Adjusted for special items; non-GAAP fin
Slide 7: Setting Up Well For 2018
• Revenue-driven earnings growth ‒ 2018 EPS: $5.35-$5.70 ‒ 10-15% higher than 2017 on 4-6% top-line increase • Prudent capacity profile ‒ 2-3% system capacity growth • Addressing non-fuel costs – Non-fuel unit costs up 0-2% ex. profit sharing • Investing for the future ‒ Benefitting from previous in
Slide 8: The Right Combination Of Strategic Advantages
The Right Combination Of Strategic Advantages Culture Domestic Network Investment Grade At the core of Delta – Best connecting hub Balance Sheet passionate and determined complex – including the Solid foundation with lower professionals with an innate world’s most efficient hub interest expense, mor
Slide 9: Culture is Delta's Foundation
Culture is Delta’s Foundation Joanne Smith Chief Human Resources Officer
Slide 10: The Top 15 Most Relevant Brands
The Top 15 Most Relevant Brands 11 9
Slide 11: Engaged Employees Drive Greater Customer Loyalty
Engaged Employees Drive Greater Customer Loyalty “When you take care of your employees, they will take great care of your customers, who then reward you with their business and loyalty. Every major business decision we make at Delta is based on that philosophy, and it has been very successful for us
Slide 12: Perpetuating Our Unique Culture
Perpetuating Our Unique Culture 11
Slide 13: Power of a Strong Brand
Power of a Strong Brand Tim Mapes Chief Marketing Officer
Slide 14: The Power of a Strong Brand
The Power of a Strong Brand • Powers growth that transcends the broader market • Conveys values, attributes that lead customers to choose Delta • Measure of customer loyalty via willingness to buy more and pay more • Central to increased top-line revenue 13
Slide 15: Focusing on Tomorrow's High Value Customers Today
Focusing on Tomorrow’s High Value Customers Today Delta U.S. eHVC Preference YTD • Given rapidly evolving customer expectations, we benchmark Delta experiences relative to world’s other strongest brands +7 YoY 48% 41% • Strategies transcend the airline industry ― Transforming mobile, digital and soc
Slide 16: Enhancing Mobile, Digital & Social Capabilities
Enhancing Mobile, Digital & Social Capabilities • “Best Global Airline App” in Global Traveler’s Reader Survey Awards • Record iPhone App Store rating (4.8 out of 5) • Industry-leading Auto Check-In on Fly Delta app • Airport wayfinding across major domestic and international hubs • Launched delta.c
Slide 17: Increasingly, A Brand With Purpose
Increasingly, A Brand With Purpose • 1% of net profits donated to key nonprofits in education, wellness and military/veterans causes • +$3.7 million contributed to hurricane and earthquake relief efforts • Partnered with Aeromexico to build Habitat for Humanity homes in Mexico in 2017 and working wi
Slide 18: Growing Loyalty Enables a Durable, Increasing Revenue Stream
Growing Loyalty Enables a Durable, Increasing Revenue Stream Ascending brand, leading partnership with Amex driving growth in high-margin revenue Delta-Amex Co-Brand Spend • Delta’s brand and product initiatives have stimulated additional demand for SkyMiles as a currency 12% CAGR $80.9B $72.5B • Am
Slide 19: Delta's Approach is Working
Delta’s Approach is Working Delta Domestic Net Promoter Score • Delta’s ascending brand is reflected in consistently increasing net promoter score over the past several years 40.1% 41.5% 37.8% • Year-to-date 2017 domestic net 33.5% 31.1% promoter score at 41.5%, a new record 27.2% • Operational reli
Slide 20: Positioned to Win: Now & Over Time
Positioned to Win: Now & Over Time • Strong brand, founded on operational reliability and service excellence • Delta benefitting from return on prior product investments as we target new areas of emphasis in 2018 • Delivering superior experiences customers value and are willing to pay for central to
Slide 21: Driving Top-Line Growth
Driving Top-Line Growth Glen Hauenstein President
Slide 22: The Elephant in the Room
The Elephant in the Room • For the first time in five years, all geographic entities are growing unit revenue in the December quarter • Demand and pricing remain robust, and we are raising our 4Q unit revenue guidance to ~4% • Entering 2018 with best revenue momentum we have seen in years – expect t
Slide 23: Driving Top-Line Growth
Driving Top-Line Growth Delta’s leadership in segmentation, uniquely positioned domestic network and a world-leading franchise of global airline partners combine for a sustainable competitive advantage Unrivaled Network • Revenue growth fueled by higher yields and modest capacity growth • Upgauging
Slide 24: An Unrivaled Domestic Network
An Unrivaled Domestic Network Delta’s network combines a focus on the most desirable markets with interior scale to leverage increasing fleet gauge • Network is optimally structured to capture Delta Seat Departures by Hub premium revenue • Balanced footprint between East and West SEA BOS DTW coasts
Slide 25: Upgauging: A Proven Strategy for Delta
Upgauging: A Proven Strategy for Delta Upgauging can raise already strong domestic margins while improving customer satisfaction Upgauging Impact • Delta’s network restructuring and product investments have already produced domestic margins among the best in the industry MD88 A321ceo (149 seats) (19
Slide 26: Taking Upgauging into the Next Decade
Taking Upgauging into the Next Decade • 100 A321neo aircraft to be delivered from 2020-2023, building on Delta’s large narrowbody advantage Domestic Seat Departures by Aircraft Type well into the next decade 23% 24% 45% • New engine technology and larger 28% 35% gauge results in 40% 15% fuel savings
Slide 27: Leading the Industry in Offering a Tailored Travel Experience
Leading the Industry in Offering our Customers a Tailored Travel Experience Continuing to execute on the five-cabin strategy • On track for $2.7 billion in segmentation revenue by 2019 ― $400 million of incremental benefit in 2018 Branded Fares Revenue: 2014 - 2019 • Expect First Class and Comfort+
Slide 28: Taking Segmentation to the Next Level
Taking Segmentation to the Next Level Premium Select gives Delta more flexibility and capital efficiency Previous Current The same seat is now marketed as First Class domestically and Premium Select internationally, enabling greater fleet flexibility 27
Slide 29: Building a World-Leading Network of Carriers
Building a World-Leading Network of Carriers Delta has the best partner network in the top U.S. international markets, giving our brand greater relevance and our customers more choice • Makes Delta the #1 or #2 carrier in 8 of the top 10 international markets from the U.S. Top 10 Markets from U.S. b
Slide 30: Leveraging the Power of Commercial Relationships: An Example
Leveraging the Power of Commercial Relationships: An Example Through our joint venture with Korean Air, Delta will gain greater Asia coverage than ever before, using fewer aircraft than six years ago • Profit sharing joint ventures align 2012 economic incentives across carriers 10 Asia Destinations
Slide 31: Delta's Partnerships Create Tangible Value
Delta’s Partnerships Create Tangible Value Leveraging our global relationships to create value for all stakeholders • Delta expanded its international franchise in 2017 ― Implemented a joint venture and completed the purchase of 49% of Aeromexico Alliance Benefits (vs. 2016) ― Signed a JV agreement
Slide 32: Sustainable Competitive Advantage
Driving Top-Line Growth Building 200M Customers Customer Loyalty Investing In Product and Service Sustainable Competitive Better Customer Segmentation + Culture of Service Advantage and Revenue Superior Premium Domestic Network Leading Partners Around the World 31
Slide 33: America's Best Run Airline
America’s Best Run Airline Gil West Chief Operating Officer
Slide 34: Delivering Top Tier Performance and Continuous Improvement
Delivering Top Tier Performance and Continuous Improvement November YTD Performance1 DOT Completion Factor DOT Missed Bag Ratio2 On-Time (A0) Delta 99.2% Delta 1.83 Delta 73.2% United 98.9% United 2.38 United 70.3% Southwest 98.6% American 2.81 American 63.9% American 98.6% Southwest 2.83 Southwest
Slide 35: Continuing to Set the Bar
Continuing to Set the Bar • Achieved new records in 2017 for consecutive cancellation-free days for both mainline system (50 days) and maintenance (84 days) • Managing complexity through investments in innovation and reliability – IROP recovery / constraint management – GA Tech development center –
Slide 36: Raising the Bar for Delta Connection
Raising the Bar for Delta Connection • Leveraging innovation to drive improved performance for Delta Connection – Enhance technology to support predictive maintenance – TechOps spare parts inventory management – Tactical use of crew rest and duty period buffers – Expanded IT infrastructure audits to
Slide 37: Investments in Customer Experience Driving Results
Investments in Customer Experience Driving Results Domestic Net Promoter Score1 40.1% 41.5% Customer-centric culture driven by the Delta difference, 33.5% 37.8% 31.1% delivering industry-leading performance through people, 27.2% 20.0% operational reliability and continuous improvement 15.3% 2010 201
Slide 38: Driving Continuous Improvement Through Innovation
Driving Continuous Improvement Through Innovation People • Maintaining a culture of safety • Investing in core customer curriculum focused on customer-centric view, based on behavioral approach • Transitioning from rules based to values based culture • Giving back to the communities we serve Process
Slide 39: Generating Leading Shareholder Returns
Generating Leading Shareholder Returns Paul Jacobson Chief Financial Officer
Slide 40: Generating Leading Shareholder Returns
Generating Leading Shareholder Returns Disciplined cost structure and balanced capital deployment are the foundation for long-term, sustainable financial results Disciplined Cost Approach • Investments pressured costs in 2017, expected to drive benefits in 2018 and beyond • Non-fuel unit cost growth
Slide 41: Addressing Non-Fuel Costs Should Bring 2018 Growth Below 2%
Addressing Non-Fuel Costs Should Bring 2018 Growth Below 2% Targeted investments, capacity actions put heightened pressure on 2017 costs • 2017 unit cost growth driven by targeted investments, but unsustainable long term – Pressures from employee investment (1.5 pts), fleet initiatives 2017 versus 2
Slide 42: Fleet Transformation Will Drive Substantial Efficiency Gains
Fleet Transformation Will Drive Substantial Efficiency Gains Delivery of ~60 new aircraft in 2018 enables significant savings Average Aircraft Gauge • Efficient capacity production drives margin 5% expansion and unit cost productivity 5% 144 – Average seats per departure increasing by 5% 137 131 bet
Slide 43: Driving Enterprise-Level Efficiency
Driving Enterprise-Level Efficiency • Opportunity to drive greater efficiency across $26 billion non-fuel cost base • Cross-divisional initiative will reduce complexity and create better experience for customers at a lower total cost for Delta – Effort expected to reduce expenses by $200 million in
Slide 44: Fuel Prices Driving 2018 Pressure But Remain Relatively Stable
Fuel Prices Driving 2018 Pressure But Remain Relatively Stable Leveraging refinery and inventory management strategies to drive relative fuel price advantage Jet Fuel Prices • Market jet fuel prices expect to remain range bound between $50-$65 per barrel with $2.23 $1.91 forward curve flat into 2018
Slide 45: Continuing Balanced Capital Allocation in 2018
Continuing Balanced Capital Allocation in 2018 Balancing cash flows between investment in business, balance sheet and shareholders Reinvest In Strengthen The Return Cash To The Business Balance Sheet Shareholders • Capital spending targeted ~50% • Investment grade rating from all • Expect to return
Slide 46: Investing in the Business for the Long Term
Investing in the Business for the Long Term Core capital spending targeted at ~50% of operating cash flows • Capital investments in 2018 will focus on refleeting, product upgrades and seat density Capital Spending • Continued investments to build world-class airport ~$4.0B facilities $3.7B $0.4B ‒ P
Slide 47: Harnessing the Power of an Investment Grade Balance Sheet
Harnessing the Power of an Investment Grade Balance Sheet Stronger balance sheet provides access to lower cost financing, more business flexibility Total Adjusted Net Debt • Provided path to $2 billion earnings-accretive accelerated pension funding ‒ Issued unsecured debt in March at 3.3% blended ra
Slide 48: Balance Sheet Strategy Precursor to Resuming Cash Taxes
Balance Sheet Strategy Precursor to Resuming Cash Taxes Debt and pension flexibility allows for resumption of cash taxes while preserving shareholder returns • Remain committed to debt reduction and maintaining investment grade Debt Target balance sheet • Pension expected to be greater than 80% fund
Slide 49: Implications of Tax Reform
Implications of Tax Reform Both House and Senate proposals would have a significant positive impact on Delta • Current proposals are expected to result in the following: ― Delta’s all-in book tax rate would reduce to 22-24% including state tax • Potential to increase 2018 EPS by $1.00 - $1.25 ― NOLs
Slide 50: Built to Last
• Right Combination of Strategic Advantages • America’s Best Run Airline • Revenue-Driven Earnings Growth in 2018 • Consistent Financial Performance BUILT TO LAST 49
Slide 51: Non-GAAP Reconciliations
Non-GAAP Reconciliations 50
Slide 52: Non-GAAP Reconciliations
Non-GAAP Reconciliations Non-GAAP Financial Measures Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). Under the U.S.
Slide 53: Non-GAAP Reconciliations
Non-GAAP Reconciliations Operating Margin, Adjusted We adjust for the following items to determine operating margin, adjusted, as described below. Adjusting for these items allows investors to understand and analyze our core operational performance in the periods shown. MTM adjustments and settlemen
Slide 54: Non-GAAP Reconciliations
Non-GAAP Reconciliations Average Fuel Price Per Gallon, Adjusted We adjust for MTM adjustments and settlements to determine average fuel price per gallon, adjusted for the same reason described above under the heading Pre-Tax Income, adjusted. (Projected) Three Months Ended December 31, 2017 Average
Slide 55: Non-GAAP Reconciliations
Non-GAAP Reconciliations Non-Fuel Unit Cost or Cost per Available Seat Mile (“CASM-Ex”) We adjust CASM for the following items to determine CASM-Ex, for the reasons described below: Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial p
Slide 56: Non-GAAP Reconciliations
Non-GAAP Reconciliations Capital Spending, Adjusted Delta presents capital spending, adjusted, which in 2016 includes the proceeds for sale of E190 aircraft because management believes investors should be informed that these proceeds effectively offset the cash paid for these aircraft earlier in the