Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2009)
60 slides from Delta Air Lines's investor day presentation, Dec 15, 2009
Slide 1: Delta: A Solid Flight Plan 2009 Investor Day
Delta: A Solid Flight Plan 2009 Investor Day
Slide 2: Safe Harbor
Safe Harbor 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
Slide 3: Delta: A Solid Flight Plan
Delta: A Solid Flight Plan Richard Anderson Chief Executive Officer
Slide 4: Delta: Moving Forward
Delta: Moving Forward Ed Bastian President
Slide 5: Delta: Moving Forward
Delta: Moving Forward Uniquely positioned to benefit from economic recovery in 2010 Creating a financially successful airline for the long term Strong financial foundation has weathered economic volatility Financial performance has been solid despite 20% decline in revenue Strong financial foundatio
Slide 6: Delta's Financial Performance Has Been Solid
5 Delta’s Financial Performance Has Been Solid At market fuel prices, Delta would have generated a net profit in the midst of the worst economic environment in our history Operating Revenue $28.1 Operating Expense ($28.0) Operating Income $0.1 Non-op Expense ($1.2) Net Loss ($1.1) Operating Revenue
Slide 7: Delta's Performance Is Distinguished From Its Peers
6 Delta’s Performance Is Distinguished From Its Peers 1,309 545 355 257 253 166 101 90 YTD September 2009 Operating Income, at Market Fuel Prices ($M) Note: All results exclude special items. Operating income adjusted to a common fuel price of $1.71 per gallon. EBITDAR adjusted to a common fuel pric
Slide 8: Weathering the Economic Storm
Weathering the Economic Storm Unrestricted Liquidity December 2008 vs. December 2009 ($B) $1.4 $0.2 $5.3 $5.0 ($1.3) Unrestricted Operating Net Investing Net Debt Unrestricted Liquidity Balance Cash Flow Issuance Liquidity Balance 12/31/08 12/31/09 7 Note: Liquidity balance includes cash, short term
Slide 9: Moving Forward in 2010
Moving Forward in 2010 Commercial Initiatives Economic Recovery Strong Cash Generation Delivering on Merger Benefits Beginning stages of recovery under way Integration on track and will be complete by spring 2010 Goal is industry-leading revenue from superior network and product $6 billion in free c
Slide 10: Unit Revenue Decline Has Abated
Unit Revenue Decline Has Abated Improvement driven by prior year comparisons, incremental capacity reductions and start of economic recovery Passenger Unit Revenue – 2009 vs. 2008 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0% (1%) -5% -10% -15% -20% -25% (23%) 9
Slide 11: Sequential RASM Improvement
Sequential RASM Improvement Based on normal seasonal trends, December PRASM has experienced 16% sequential improvement 2009 Passenger RASM (cents) 10.88 10.80 10.80 10.61 10.58 16% 10.21 10.14 9.29 June July August September October November December Historical Forecast December Relationship 1 1 Bas
Slide 12: Corporate Sales Trends Improving
Corporate Sales Trends Improving 2009 Delta Corporate Revenue Trends % Change versus Prior Year -50% -40% -30% -20% -10% 0% 10% 20% Ticket Volume Revenue Mar Apr May Jun Jul Aug Sep Oct Nov Dec 14.9% 5.0% 11
Slide 13: Revenue Strength Driving Improved December Quarter Expectations
Revenue Strength Driving Improved December Quarter Expectations December quarter 2009 Current projection Operating margin1 1 – 2% Total liquidity $5.3 billion December quarter 2009 vs. December quarter 2008 Consolidated passenger unit revenue Down 5 – 6% 1 Excludes special items. Including special i
Slide 14: Expecting Solid Revenue Growth For 2010
13 Expecting Solid Revenue Growth For 2010 •4th quarter trends translate to baseline revenue momentum in the 7% range • Expecting modest economic recovery – Breadth and depth of recession will temper recovery – GDP growth in the 2% range Merger synergies and commercial initiatives build on revenue m
Slide 15: Merger Producing Tangible Benefits
14 Merger Producing Tangible Benefits Revenue -$400 million Cost -$300 million Network and Revenue Management • Initial widebody fleet reallocations in international markets Alliances and joint venture • Expanded Air France/KLM joint venture Loyalty card and frequent flyer program • Co-branded card
Slide 16: Targeting $600 Million in New 2010 Synergies
15 Targeting $600 Million in New 2010 Synergies Revenue -$350 million Cost -$250 million Network and Revenue Management • Expand widebody fleet movements in international markets • Implement domestic fleet reallocation with A320 and MD90 fleets • S-curve benefits • Improved revenue management techno
Slide 17: Key Commercial Priorities
Key Commercial Priorities Provide superior network and products Optimize the Pacific Right Plane, Right Market High Value Customers Win in New York Ancillary Revenues Reallocate fleet throughout the Delta network Become the global airline of choice in New York Enhance profitability of the Pacific ne
Slide 18: Free Cash Flow Will Drive Balance Sheet Delevering
Free Cash Flow Will Drive Balance Sheet Delevering Strong operating cash flow, coupled with minimal capital requirements Total Three Year Projection 2010 – 2012 Adjusted Net Debt ($B) Operating Cash Flow $9 -$10 billion $16 $18 $16.3 Capital Expenditures $3 -$4 billion $12 $14 Free Cash Flow ~$6 bil
Slide 19: Progress Being Made … More Work To Do
18 Progress Being Made … More Work To Do Encouraged with ability to withstand economic headwinds, but improvements remain to achieve our shareholder return goals 10 – 12% operating margin $2.5 – $3.0 billion in operating cash flows Minimize capital reinvestment requirements Delever the balance sheet
Slide 20: Delta: Generating A Revenue Premium
Delta: Generating A Revenue Premium Glen Hauenstein Executive Vice President – Network and Revenue Management
Slide 21: Delta: Generating A Revenue Premium
Delta: Generating A Revenue Premium Network initiatives provide additional revenue growth opportunities Aggressive capture of merger synergies Expanding global alliances to build out the network footprint S-curve benefits, ability to maximize fleet allocations and better revenue management technolog
Slide 22: Combined Airline Unlocks S-Curve Benefits
Combined Airline Unlocks S-Curve Benefits Targeting $200 million in 2010 benefits Revenue Management Sales and Distribution Marketing, Brand and Loyalty • Single inventory management system • Simplify customer booking process through single technology system and code • Pricing system integration • C
Slide 23: Realigning Delta's Fleet Drives Network Synergies
22 Realigning Delta’s Fleet Drives Network Synergies SLC MSP A320 M90 Ability to maximize fleet allocations drives incremental value A320s moved to SLC hub, will allow access to East Coast markets M90s moved to MSP hub, where missions do not require longer range aircraft International cross fleeting
Slide 24: Implementing Industry-Leading Revenue Management Technology
Implementing Industry-Leading Revenue Management Technology Single revenue management system provides the ability to optimize pricing and revenue management strategies -Core forecasting system provides more accurate inventory seat allocations -Improved decision support optimization using the combine
Slide 25: Committed To Winning In New York
24 Committed To Winning In New York • Upgraded Heathrow to 767-400 with flat-bed seats and coach in-seat entertainment • Upgraded LAX/SFO to BusinessElite-equipped 757s Enhancing The Network • More than 130 destinations from New York with new service to Stockholm; Copenhagen; Abuja, Nigeria; and Mon
Slide 26: LGA & JFK Combine to Produce Success in New York
LGA & JFK Combine to Produce Success in New York LGA hub focus will be NYC O&D Inside-perimeter flights that do not feed the LGA passengers and providing Northeast-to-JFK international network will shift from JFK to Midwest / mid-Atlantic / Southeast / Florida LGA, freeing slots and facilities for n
Slide 27: Optimizing Value Of The Pacific Network
26 Optimizing Value Of The Pacific Network DTW Beijing Hong Kong Tokyo Osaka Saip Guam Seoul SEA SFO To767 • New non-stop service to Asia from Detroit and Seattle • Expand existing service to resort markets • Adjust aircraft gauge to match capacity with demand • Leverage alliance opportunities to en
Slide 28: Leveraging Trans-Atlantic Joint Venture To Maximize Profits
2727Leveraging Trans-Atlantic Joint Venture To Maximize Profits JFK ATL CDG AMS DTWMSP MEM CVG SLC • $200M annual profit opportunity at full ramp up • First fully coordinated DL/AF/KL summer schedule will enhance JV profitability in 2010 -Fully leveraged hubs & beyond network -Single pricing & inven
Slide 29: Global Alliances Enhance Network Footprint
Global Alliances Enhance Network Footprint Without Increasing Capacity 28 Strong alliances maximize global reach and enhance profitability for all partners
Slide 30: Delta: Generating A Revenue Premium
Delta: Generating A Revenue Premium Network initiatives provide additional revenue growth opportunities Aggressive capture of merger synergies Expanding global alliances to build out the network footprint S-curve benefits, ability to maximize fleet allocations and better revenue management technolog
Slide 31: Delta: Labor Integration
Delta: Labor Integration Mike Campbell Executive Vice President – HR and Labor Relations
Slide 32: Delta: Single Carrier Operations
Delta: Single Carrier Operations Steve Gorman Executive Vice President & Chief Operating Officer
Slide 33: Operations Integration On Track
32 Operations Integration On Track Airports • Single ticketing system early 1Q10 – Consolidation nearly complete • System training complete year-end • Lobby/gates fully integrated Pilots • Phased training complete by year-end • Single bid system • Co-mingled cockpit early 1Q10 • Base realignment/ tr
Slide 34: Excellent Operational Performance During Integration
Excellent Operational Performance During Integration On-Time Reliability Baggage Summer Performance Arivals within 14 minutes DOT Claims by Year Completion Factor 78.0% 99.3% 1% mae 76.9% 99.5% 99.3% ae 99.1% 78.0% 75.5% 98.9% age 75.0% Claims per 1,000 passengers & 74.0% 2008 2009 2008 2009 98.5% 2
Slide 35: Delta: Information Technology Integration
Delta: Information Technology Integration Theresa Wise Senior Vice President — Chief Information Officer ADELTA #
Slide 36: IT Integration: Approach to Optimal Synergies
IT Integration: Approach to Optimal Synergies « Comprehensive plan focuses on most critical synergies — Drives to fully integrated systems in all areas — Delivers synergy-critical systems as early as possible + Balance speed with differentiation — Speed wins: early crew bidding enables integrated wo
Slide 37: IT Integration: Delivering Expedited Results
IT Integration: Delivering Expedited Results « Cutovers completed to date include — Commercial: Call Centers, Kiosks, Alliances, Delta.com, Loyalty Programs, Revenue Management — Operations and Infrastructure: Airport, OCC, Cargo, Payroll, 80+% Pilot crew bidding 100% = | Commercial: : 84% completed
Slide 38: IT Integration: Major Cutover Events
IT Integration: Major Cutover Events Largest loyalty base in industry - merged 80+ million accounts Secured customer and financial benefits Single pilot bidding, tracking system (more than 80% complete) Phased in early to manage risk and increase benefits Transition to DL marketing code, retire NW m
Slide 39: Delta: Enhancing A Strong Financial Foundation
Delta: Enhancing A Strong Financial Foundation Hank Halter Chief Financial Officer ADELTA %
Slide 40: Delta's Strong Financial Foundation
Delta’s Strong Financial Foundation + Best-in-class unit cost structure + Right-sizing the business + Unique merger synergy opportunities + Limited aircraft capital investment * Targeted investments in customer service and operational improvements * Targeting $2.3B in operating cash flow in 2010 + E
Slide 41: Best-In-Class Cost Structure
Best-In-Class Cost Structure Cost advantage positions Delta for return to profitability * Track record of successfully removing costs associated with capacity reductions: — Parking or returning aircraft — Aligning front line staffing levels — Overhead reduction + Discontinuing dedicated freighter pr
Slide 42: Merger Synergies Contribute To Cost Leadership
Merger Synergies Con Continue to review all opportunities ribute To Cost Leadership to accelerate benefits Merger Synergy Benefit Targets $2.0+ B Cost Revenue Drivers of cost synergies: + Integrated management teams and streamlined overhead + Consolidated joint airport facilities + Integrating techn
Slide 43: Targeting Flat Unit Costs Excluding Fuel in 2010
Targeting Flat Unit Costs Excluding Fuel in 2010 Benefits from cost synergies and productivity offset cost pressures Expected cost pressures + Engine maintenance volume * Operational requirements Consolidated CASM ex Fuel (¢)! + Investments in employees + LaGuardia infrastructure 0.27 8.25 8.25 + Cu
Slide 44: Fuel Is Generating Headwind
Fuel Is Generating Headwind Despite no hedge loss impact in 2010, higher market prices pressure expense Jet Fuel Price per Gallon, including hedge impact $2.26 $2.28 $2.06 $2.13 $2.15 $2.15 Hedge impact Market price 1Q09 2Q09 3Q09 4Q09 2009 2010 Projection Each $1 change in crude oil drives $100 mil
Slide 45: Managing Fuel Price Risk Through Systematic Hedging
Managing Fuel Price Risk Through Systematic Hedging + Target 50% consumption hedged in upcoming six months; 40% the following six months; ramping down to 10% 18 months out + At least 20% of fuel consumption will be hedged using call options to allow for downside participation while protecting agains
Slide 46: Disciplined Capex Spending Plan for 2010
Disciplined Capex Spending Plan for 2010 Limited aircraft capex requirements enable targeted investments in customer and employees + Only four new aircraft deliveries in 2010 order book Capital Spending ($B -— 2777-200LR — 2737-800 $1.3 * Strategic acquisitions of cost effective used MD-90 aircraft
Slide 47: 2009 Financing Transactions Further Strengthen Liquidity Position
2009 Financing Transactions Further Strengthen Liquidity Position 2010 Debt Maturities and Secured Notes $1.35 Billion Revolver Expirations 2009-1 EETC $689 Million $3.4B 55% reduction Revolving Facility $500 Million Ah 7 5B Term Loan $250 Million Total Financing $2.8 Billion Pre-Transactions Post-T
Slide 48: Delta Continues Prudent Balance Sheet Management
Delta Continues Prudent Balance Sheet Management Operating cash flow enables strategic capital investment and delevering Unrestricted Liquidity December 2009 vs. December 2010 ($B) $2.3 oo A = sz. ($1.1) Unrestricted Operating Net Investing Net Debt Unrestricted Liquidity Balance Cash Flow Maturitie
Slide 49: Pension Expense And Funding Requirements
Pension Expense And Funding Requirements 2010 funding levels higher, yet manageable Defined Benefit (DB) Plans ($M) + DB plans for Delta non-pilots and Northwest employees are frozen + Liability will not grow due to $700 service + Pension Protection Act allows for funding obligation over 17 $450 $45
Slide 50: Delta Is Well Positioned For Long-Term Success
Delta Is Well Positioned For Long-Term Success Target sustainable double digit operating margins by 2011 Guiding Principles « Execute Merger Synergies * Optimize the Network Footprint * Drive a Revenue Premium « Right Size Operations « Maintain Cost Leadership + Preserve Free Cash Flow and Delever t
Slide 51: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations ADELTA% 50
Slide 52: Non-GAAP Financial Measures
Non-GAAP Financial Measures Delta completed its merger with Northwest Airlines on October 29, 2008. Accordingly, Delta's financial results under GAAP. include the results of Northwest Airlines for 2009. Under GAAP, Delta does not include in its financial results the results of Northwest Airlines pri
Slide 53: Revenue
Revenue (in millions) Delta total revenue Northwest total revenue for the period from January 1 to October 29, 2008 Combined 2008 total revenue 2008 $ 22,697 11,591 $ 34,288 ADELTA % 52
Slide 54: Operating Expense
Operating Expense (in billions) Operating expense Ttem excluded Restructuring and merger-related items Operating expense excluding special items Adjustment Fuel adjustment for gallons consumed at market prices Operating expense excluding special items and fuel expense adjustment Full Year 2009 Proje
Slide 55: Non-Operating Expense
Non-Operating Expense (in billions) Other expense, net Ttem excluded Loss on extinguishment of debt Other expense, net excluding special items Full Year 2009 Projection A DELTA # Ss 54
Slide 56: Operating Income
Operating Income ‘Nine Months Ended (in millions, except where noted) September 30, 2009 Operating Loss $ 278) Adjustments Restructuring and merger-related items 286 Fuel adjustment to fuel gallons consumed x $1.71 per gallon 1,301 Operating income excluding special items and fuel expense adjusted t
Slide 57: EBITDAR
EBITDAR Twelve Months Ended (in millions) September 30, 2009 Pre-tax loss $ (2,664) Northwest pre-tax loss for the period from October 1 to October 29, 2008 (629) Combined pre-tax loss G,293) Depreciation and amortization 1,565 Other non-operating expense, net 1,332 Aircraft rent 486 Ttem excluded R
Slide 58: Non-Fuel CASM
Non-Fuel CASM Ga millions) Delta operating expense Northwest operating expense for January 1 - October 29, 2008 Combined operating expense casM Items excluded: Ancillary businesses Inpaitment of goodwill and other assets MTM adjustments to fuel hedges seting in futuee peiods Restructusing and merger
Slide 59: Property and Equipment Additions
Property and Equipment Additions Full Year 2009 (in billions) Projection Property and equipment additions $ (1.2) Adjustment ‘Aircraft purchases under seller financing (0.1) Net investing activities $ (1.3) ADELTA %
Slide 60: Operating Margin
Operating Margin Operating margin Ttem excluded Restructuring and merger-related items Operating margin excluding special items Three Months Ended December 31, 2009 Projection 0-1% ADELTA % 59