Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2014)
49 slides from Delta Air Lines's investor day presentation, Dec 11, 2014
Slide 1: Investor Day 2014
INVESTOR DAY 2014 cee N 3 fe ADELTA®
Slide 2: Safe Harbor
2 This presentation contains various projections and other forward - looking statements which represent Delta’s estimates or expectations regarding future events. All forward - looking statements involve a number of assumptions, risks and uncertainties, many of which are beyond Delta’s control, that
Slide 3: Delta: A High-Quality Company
Delta: A High - Quality Company Richard Anderson Chief Executive Officer
Slide 4: A High-Quality Company
A High - Quality Company America’s Best Run Airline Producing Top Line Growth That Increases Margins, Provides Superior Returns On Capital And Generates The Highest Free Cash Flow In The Industry Lowering Business Risk To Drive Sustainable Results By Strengthening The Balance Sheet To Investment Gra
Slide 5: A High-Quality Company: Long-Term Goals
A High - Quality Company • 11 - 14% operating margins • 2014: 13% Operating Margin • Annual EPS growth of 10% - 15% after 2014 • 2014: 70% on pre - tax basis EPS Growth • 15 - 18% return on invested capital • 2014: 20% ROIC • $6 billion annual operating cash flow and $3 billion free cash flow • 2014
Slide 6: The Path To Value Creation
The Path To Value Creation Delta S&P Industrials Free Cash Flow Delta S&P Industrials EPS Growth Note: S&P Industrials are 2014 - 16 consensus estimates obtained from FactSet. Delta P/E reflects benefit of NOLs. Delta S&P Industrials Forward Price/Earnings Delta S&P Industrials Free Cash Flow Yield
Slide 7: Delivering Growing Value
Delivering Growing Value Ed Bastian President
Slide 8: Delivering Growing Value
Delivering Growing Value 2014: Another Successful Year 2015: Building On Our Momentum Delivering Growing Value Building on our strengths to expand margins and cash flow in order to reduce debt, return capital to shareholders and invest in the future • Record profitability with 7% top line growth, fo
Slide 9: 2014: Another Record Year
2014: Another Record Year …Leads To Record Financial Results • Industry - leading operational performance • Strong improvements in customer satisfaction with increasing net promoter scores • Named “Airline of the Year” by Air Transport World, one of Fortune’s “Most Admired Companies”, “Best Airline”
Slide 10: Taking Momentum Into 2015
Taking Momentum Into 2015 December quarter caps a successful year of top line growth, margin expansion and free cash flow generation Operating margin 11.5% - 12.5% PRASM change year over year Up 1.0 – 1.5 % Fuel price $2.63 - $2.68 CASM – Ex Fuel change year over year Up ~1% System capacity change y
Slide 11: The Backdrop For 2015
The Backdrop For 2015 Improving on all aspects of our financial performance in 2015 as a solid revenue environment, lower fuel prices and Delta - specific initiatives produce another record year Across The Industry At Delta • Modest economic growth globally, with best economies in North America driv
Slide 12: Fuel Declines Provide Earnings Tailwind
$1.50 $2.00 $2.50 $3.00 $3.50 Jan Mar May Jul Sept Nov Fuel Declines Provide Earnings Tailwind At current market prices, fuel declines provide net $1.7 billion benefit to Delta • At current forward curve, Delta’s 2015 all - in fuel price is forecasted at $2.40 – $2.50 per gallon, including hedge and
Slide 13: A High-Quality Company: Long-Term Goals
A High - Quality Company • 11 - 14% operating margins • 2014: 13% Operating Margin • Annual EPS growth of 10% - 15% after 2014 • 2014: 70% on pre - tax basis EPS Growth • 15 - 18% return on invested capital • 2014: 20% ROIC • $6 billion annual operating cash flow and $3 billion free cash flow • 2014
Slide 14: Continuing To Drive Margin Expansion
Continuing To Drive Margin Expansion Disciplined Capacity Growth • Drive capacity growth through better utilization of assets, producing more seat departures and higher capacity on a smaller fleet • Focus capacity growth on high - revenue, restricted/constrained markets Pricing Improvements • Invest
Slide 15: Top Line Growth Enhances Returns
Top Line Growth Enhances Returns 15 Disciplined approach to growing the business drives higher earnings, cash flow and returns on capital for our shareholders • Capacity additions must be margin accretive, cash flow positive and not add incremental debt to the balance sheet • Producing higher capaci
Slide 16: Domestic Refleeting Improves Asset Utilization
Domestic Refleeting Improves Asset Utilization Higher domestic capacity levels on a lower capital base produce improvements in ROIC • 2015 domestic capacity growth driven by higher gauge and better asset utilization – 3% higher capacity on flat departures and 11 fewer aircraft • Increasing average s
Slide 17: Corporate Customers Are Choosing Delta
Corporate Customers Are Choosing Delta 7% 11% 6% 7% 9% 11% 11% 14% Total Other Business Services Technology Banking Automotive Media Financial Services Running a high - quality, customer - focused airline… …Produces strong gains in corporate revenues Momentum continues as corporate revenues have inc
Slide 18: Enhanced Agreement With American Express
Enhanced Agreement With American Express Partnering with American Express since 1996 to create the world’s most valuable airline co - brand portfolio • New, multi - year contract with American Express continues growth momentum of Delta’s $2 billion co - brand revenue stream • Significantly improved
Slide 19: Strong Position In Heathrow Through Virgin Atlantic
Strong Position In Heathrow Through Virgin Atlantic Virgin Atlantic partnership and equity stake expected to generate over $ 200 million in benefit for Delta in 2015 Glasgow Manchester London Heathrow London Gatwick Belfast DTW ORD MSP LAS LAX SFO SEA CUN MCO IAD JFK & EWR BOS ATL MIA PHL Additional
Slide 20: Restructuring The Pacific Network
Restructuring The Pacific Network Restructuring our approach to serving the Pacific is largest margin improvement opportunity in the network • Continue to build domestic feed into Seattle hub, increasing to 120 peak daily departures in 2015 • Network offers one - stop service to 95% of West Coast to
Slide 21: Delivering Growing Value
Delivering Growing Value 2014: Another Successful Year 2015: Building On Our Momentum Delivering Growing Value Building on our strengths to expand margins and cash flow in order to reduce debt, return capital to shareholders and invest in the future • Record profitability with 7% top line growth, fo
Slide 22: Running A Reliable, Customer-Focused Operation
Running A Reliable, Customer - Focused Operation Gil West Chief Operating Officer
Slide 23: Delta Wins Best Airline
Delta Wins Best Airline 1 st Place Virgin America 2 nd Place Alaska 3 rd Place jetBlue 4 th Place Frontier 5 th Place Southwest 6 th Place American 7 th Place United 8 th Place Top Airlines For Overall Performance Note: Rankings determined by combining the airlines’ score in all categories. Southwes
Slide 24: Delivering Top Tier Operational Results
Delivering Top Tier Operational Results Top Of Industry Operational Performance 96.9% 98.1% 98.3% 98.5% 99.1% 94% 96% 98% 100% jetBlue American United Southwest Delta DOT Completion Factor 72.1% 73.4% 75.7% 77.7% 82.4% 65% 70% 75% 80% 85% 90% Southwest jetBlue United American Delta DOT On - Time 4.3
Slide 25: Driving Core Reliability Performance
40 102 146 2012 2013 2014 14 67 79 2012 2013 2014 5,647 3,134 1,244 792 472 2010 2011 2012 2013 2014 Driving Core Reliability Performance • Lowest fleet capital cost • Lower inventory ownership • Best reliability • Lowest maintenance CASM TechOps Leverage TechOps YTD Performance - 92% 464% 265% • 40
Slide 26: Improving The Customer Experience
4.02 4.14 4.28 4.33 2011 2012 2013 2014 Improving The Customer Experience • Extensive customer surveys • Driving record performance • Testing service concepts Customer Surveys Product • Interior upgrades • Food and beverage improvements • Entertainment on demand • International Wi - Fi • Airport inv
Slide 27: Investing In Our Fleet For A Better Customer Experience
Investing In Our Fleet For A Better Customer Experience • 757 - 200 (“E” subfleet) – New interior / flat - bed seats in Delta One cabin – 18 aircraft • 757 - 200 – New interior and standardization at 199 passengers – 56 aircraft • 757 - 300 – New interior, AVOD & satellite TV – 16 aircraft • A319 –
Slide 28: Driving Our Revenue Momentum
Driving Our Revenue Momentum Glen Hauenstein Chief Revenue Officer
Slide 29: The Path To Further Revenue Gains
The Path To Further Revenue Gains Leveraging our strengths to produce further revenue gains Give Customers What They Value Sell An Experience Build A Strong Brand • Optimize hub network to more efficiently serve domestic markets • Make investments to increase the range and quality of products availa
Slide 30: Giving Customers What They Value Drives Revenue Growth
Giving Customers What They Value Drives Revenue Growth Investments in network, product and service have already produced solid, sustainable revenue gains with more room for growth Network Product Service • Optimizing capacity to leverage hub strengths and serve high revenue markets efficiently • Ref
Slide 31: Investments In The Network To Improve Margin
Investments In The Network To Improve Margin Optimize capacity to leverage hub strengths and serve high - revenue markets West Coast • Achieved the leading position in the world’s largest aviation market • Initiatives to date have created scale in key business markets and access to London Heathrow,
Slide 32: Higher Revenue Through Better Customer Segmentation
Higher Revenue Through Better Customer Segmentation Industry - leading consumer products in each of four Branded F are categories, allowing customers to tailor their travel experience Delta One / First Class Delta Comfort+ Main Cabin Basic Economy Delta One / First Class Main Cabin / Basic Economy D
Slide 33: Seat-Related Revenue Gains
Seat - Related Revenue Gains Branded Fares will continue momentum for seat - related revenues, including First C lass upsell and Delta Comfort+ • First Class revenue is expected to benefit from the continued annualization and expansion of post - purchase upsell • As Delta continues to upgauge its fl
Slide 34: Thoughtfully Rewarding Our Most Valuable Customers
Thoughtfully Rewarding Our Most Valuable Customers Changes to the SkyMiles program help to maintain our revenue premium and reduce seasonal revenue volatility • Earning miles for award travel based on spend aligns incentives to ensure that largest rewards, both in mileage and benefits, are offered t
Slide 35: Powerful Brand Drives Sustainable Revenue Premium
Powerful Brand Drives Sustainable Revenue Premium Building a brand that embodies what customers value improves customer loyalty, enables customer segmentation and drives a sustainable revenue premium Innovative Thoughtful Reliable • Contemporary, progressive products so that customers trust that the
Slide 36: Delivering On Our Financial Goals
Delivering On Our Financial Goals Paul Jacobson Chief Financial Officer
Slide 37: Delivering On Our Financial Goals
• Strong operating cash flow funds $2 - $3 billion reinvestment in the business annually while generating over $3 billion of free cash flow • Disciplined capital process to ensure return and payback targets are met • Solid cost performance with 2014 non - fuel unit costs increasing less than 1% on 3
Slide 38: Maintaining Our Cost Performance
Maintaining Our Cost Performance Pipeline of initiatives in place to maintain non - fuel unit cost growth below 2% annually 4.6% 2.4% 0.3% 2012 2013 2014E 2015E 0 - 2% Non - Fuel Unit Cost Growth Excludes special items Solid financial plan in place to deliver second consecutive year of sub - 2% unit
Slide 39: Actively Managing Delta's Largest Expense
Actively Managing Delta’s Largest Expense Multi - faceted approach to managing Delta’s $11 billion fuel bill involves hedging, the refinery and logistics expertise • Goal is to generate an 8 - 10 ¢ advantage to industry average • Hedging program sacrifices some downside participation to protect agai
Slide 40: NOLs Are Valuable Asset
NOLs Are Valuable Asset • Net operating loss carryforwards are applied against taxable income, which is usually lower than reported book income – Equates to a longer runout period of the net operating loss carryforwards • Working to minimize tax exposure and preserve net operating loss carryforwards
Slide 41: Disciplined Reinvestment In The Business
Disciplined Reinvestment In The Business Strong operating cash flow funds appropriate level of reinvestment while allowing for significant free cash flow generation 2015E 2016E 2017E 2018E 2019E Other Fleet/Mods Capital Expenditures • Disciplined capital process with senior management approval for c
Slide 42: Generating Solid Cash Flows From The Business
Generating Solid Cash Flows From The Business $2.6 $3.8 $4.1 $4.8 $4.1 $2.9 $1.8 $1.3 $1.2 $0.9 $2.1 $2.6 $1.2 $1.3 $1.3 $2.0 $2.9 $2.2 $(2.0) $(1.0) $- $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E CapEx Operating Cash Flow
Slide 43: Balanced Capital Deployment Drives Value
Balanced Capital Deployment Drives Value Reinvest In The Business • ~50% of operating cash flow reinvested in the business • Plan to invest $2 - $3 billion annually into fleet, products, facilities and technology Strengthen The Balance Sheet • Over $4 billion in debt reduction in last two years • Ad
Slide 44: Paying Down Debt Remains A Priority
Paying Down Debt Remains A Priority Clear path to achieve $5 billion debt target in 2016, resulting in $1 billion of run - rate interest savings versus 2009 $ 17.0B $ 15.0B $ 12.9B $ 11.7B $ 9.4B $ 7.2B < $6.0B 2009 2010 2011 2012 2013 2014E 2015E Adjusted Net Debt Interest $1.3B $1.2B $1.1B $1.0B $
Slide 45: Proactively Managing Our Pension Obligations
2013 2014 2015E Proactively Managing Our Pension Obligations • Pension funding remains manageable, with required funding levels at ~$700 million per year – Expect to contribute incremental $250 million in 2015, which will bring total incremental contributions to $750 million since 2013 • Incremental
Slide 46: Continuing To Strengthen The Balance Sheet
Continuing To Strengthen The Balance Sheet Significant progress toward achieving investment grade metrics 12% 20% 29% 2012 2013 2014E 2015E 34% - 36% S&P Industrial Average Median BBB 34% BB 25% S&P Industrial Average Median BBB 8.2x BB 4.8x S&P Industrial Average Median BBB 2.3x BB 3.2x FFO / Debt
Slide 47: Strong Commitment To Returning Cash To Shareholders
…is now competing on capital returns Will return more than 40% of free cash flow to shareholders in 2014 17% 42% 2013 2014 Strong Commitment To Returning Cash To Shareholders Capital Returns As A Percentage Of Free Cash Flow Cash Returned To Shareholders $ 100M $ 250M $ 250M $ 1,100M 2013 2014 Divid
Slide 48: Continuing To De-Risk The Business
Continuing T o De - Risk The Business Lower Business Risk • Better revenue generation through capacity discipline, top line diversification and international joint ventures • Lower fixed cost structure Lower Labor Risk • Industry - leading labor relations with a strong pay - for - performance cultur
Slide 49: The Path to Value Creation
The Path to Value Creation Delta S&P Industrials Free Cash Flow Delta S&P Industrials EPS Growth Note: S&P Industrials are 2014 - 16 consensus estimates obtained from FactSet. Delta P/E reflects benefit of NOLs. Delta S&P Industrials Forward Price/Earnings Delta S&P Industrials Free Cash Flow Yield