Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2018)
32 slides from Delta Air Lines's investor day presentation, Dec 12, 2018
Slide 1: Delta Finance Insights
INSERT NEW IMAGE Delta 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 Reform Act of
Slide 3: Addressing New Topics and Commonly Asked Modeling Questions
Impact of new accounting standard Addressing New Topics and Commonly Asked Modeling Questions 2 An increasingly diverse top line Aligns employee incentives with owners’ interests Core to Delta’s international strategy Complementary businesses that benefit earnings and cash flows Differences between
Slide 4: Enhanced Disclosures Providing Better Transparency
Enhanced Disclosures Providing Better Transparency 3 • Delta Finance Insights is intended to provide additional commentary on newer and unique financial considerations • We are committed to providing transparency for investors through our disclosures • In the March quarter, we provided two new discl
Slide 5: Lease Accounting
Lease Accounting ADELTA
Slide 6: Early Adoption of Lease Accounting Standard in the December Quarter
Early Adoption of Lease Accounting Standard in the December Quarter 5 • Recognition of ~$6 billion incremental lease liabilities and right - of - use assets will be recorded on balance sheet • Adjustment to equity as of January 1, 2018 of ~$350 million • 2018E Adjusted Debt / EBITDAR 2 of 1.9x inclu
Slide 7: Revenue Disclosures
Revenue Disclosures ADELTA
Slide 8: More Diversified Top Line
• A larger portion of our revenue is now generated by more diverse, higher - margin revenue streams that are growing faster than Main C abin ticket sales • Since 2011, both premium ticket and American Express revenue have more than doubled, with strong future growth prospects • Over 60% of internati
Slide 9: Revenue Components of Disclosed Categories
Revenue Components of Disclosed Categories 8 Total Revenue Passenger Revenue Other Revenue Travel - Related Services Loyalty Travel Awards Ticket Premium Ticket Main Cabin Ancillary and Refinery Loyalty Misc. • Main • Basic Economy • Delta One • Delta Premium Select • Comfort+ • Flown portion of Sky
Slide 10: Methodology for Premium Revenue Disclosure
Methodology for Premium Revenue Disclosure 9 • 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 - ticketi
Slide 11: Updated 2017 Main Cabin and Premium Revenue
Updated 2017 Main Cabin and Premium Revenue (in millions) 2018 2017 $ Change% Change 2018 2017 $ Change% Change Ticket- Main cabin 5,873$ 5,546$ 327$ 6% 16,139$ 15,495$ 644$ 4% Ticket- Business cabin and premium products 3,680 3,266 414 13% 10,376 9,028 1,348 15% Loyalty travel awards 678 622 56 9%
Slide 12: Joint Ventures & Equity Investments
11 Joint Ventures & Equity Investments
Slide 13: Delta's Joint Ventures and Equity Investments are Unique
Delta’s Joint Ventures and Equity Investments are Unique 12 Note: WestJet JV and proposed combined trans - Atlantic JV subject to completion and government approvals ~$3B Joint Venture ~$1B Joint Venture ~$11B Joint Venture 9% Equity stake ~$3B Joint Venture 49% Equity stake Pending Joint Venture Eq
Slide 14: JVs and Equity Investments Create Strong Commercial Cooperation
JVs and Equity Investments Create Strong Commercial Cooperation Partner agreements ensure alignment of incentives Joint Ventures Equity Investments • Allow close cooperation and provide more choice for customers • Sharing of economic benefits drives customer - focused partner alignment • Antitrust i
Slide 15: Driving Value Through Joint Ventures and Equity Investments
Driving Value Through Joint Ventures and Equity Investments Benefits from improved revenues, cost efficiencies and consolidation of partner earnings 14 Revenue for Delta - operated flights in JV flow through passenger revenue JV settlements flow through other revenue Delta realizes cost efficiencies
Slide 16: Economics of joint ventures determined by pre-set baselines
15 Economics of joint ventures determined by pre - set baselines Joint Venture Settlements Balance Profits ($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 -
Slide 17: Accounting for Ownership Stakes
Accounting for Ownership Stakes Delta currently owns 49% of Virgin Atlantic and Aeromexico 16 3Q18 Earnings Press Release: • Delta recognizes its 49% share of Aeromexico and Virgin Atlantic in miscellaneous non - operating • Fluctuations in partner profitability driven by economic factors, seasonali
Slide 18: Profit Sharing
17 Profit Sharing
Slide 19: Understanding Delta's Employee Profit Sharing Program
Understanding Delta’s Employee Profit Sharing Program • 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 20% above that ─ Delta incurs employer taxes and other costs which add 2% to 2.5% at 10% leve
Slide 20: Calculating Profit Sharing
Calculating Profit Sharing Illustrative profit sharing calculation using $5 billion of pre - tax income 19 Profit Sharing Pool Revenue: $ 44.0B Expenses (excluding profit sharing): $ 37.8B Revenue – Expenses = Profit Sharing Pool: $ 6.2B Profit Sharing Total $2.5B threshold = $2.5B x ~12.5% $0.3B Ab
Slide 21: Refinery
Refinery ADELTA
Slide 22: Financial Statement Impact of the Refinery
Financial Statement Impact of the Refinery • The refinery provides ~200,000 barrels per day for the airline through production or exchange, approximately 80% of Delta’s domestic consumption ‒ Provides ~30% natural offset to rising jet crack spreads as the crack spread is the primary profit source fo
Slide 23: Financial Statement Impact of the Refinery (continued)
Financial Statement Impact of the Refinery (continued) • Roughly $ 300 - $500 million per year in products are sold to third parties at zero margin • Sales are recorded in other r evenue with a corresponding expense in ancillary business expense • Delta’s TRASM and adjusted margin figures exclude th
Slide 24: Ancillary Businesses & DGS Transaction
23 Ancillary Businesses & DGS Transaction
Slide 25: Delta's CASM-ex Calculation and Impact of Ancillary Businesses
3Q18 ($M) (¢) Total Operating Expenses 10,311 14.15 Less: Aircraft Fuel (2,498) (3.43) Less: Ancillary Businesses and Refinery (410) (0.56) Less: Profit Sharing (395) (0.54) NF-CASM Expense Base 7,008 9.62 Capacity (ASMs) 72,875 NF-CASM excluding profit sharing 9.62¢ Delta's CASM-ex Calculation Impa
Slide 26: DAL Global Services Transaction Overview
DAL Global Services Transaction Overview • DGS will be combined by year - end 2018 with a subsidiary of Argenbright Holdings to create a premier aviation and ground handling service provider − Delta will be an equity partner with a 49% stake in the combined company − Better positions DGS to grow avi
Slide 27: Taxes
Taxes ADELTA
Slide 28: Delta's Cash Tax Rate is Below Book Tax Rate
Book Tax Rate Cash Tax Rate 10 - 12% 23 - 24% 27 Expect to be full cash taxpayer in 2020 Delta’s Cash Tax Rate is Below Book Tax Rate • Delta’s cash tax rate is significantly below its ~23 - 24% book tax rate due to: ─ Accelerated depreciation ─ Pension funding ─ Permanently reinvested foreign earni
Slide 29: Airport Investments
Airport Investments ADELTA
Slide 30: Delta's Airport Investments
• Delta approaches each construction project individually, working closely with airport partners • Airports have different structures for how they charge airlines fees and rents − Landing fees are assessed by landed weight and pay for airfield - related costs to construct, maintain, and operate runw
Slide 31: Taking a Closer Look at the Financial Impact of LGA
Taking a Closer Look at the Financial Impact of LGA 30 Self - funded renovation of Delta’s LGA terminals drives greater certainty in long - term cost structure • Benefits to self - funding LGA: ‒ Lock in majority of long - term ownership cost, avoiding periodic rent increases ‒ Added control over pr
Slide 32: Non-GAAP Reconciliations
31 Non - GAAP Reconciliations Non - GAAP Financial Measures Adjusted Debt to EBITDAR, adjusted Delta presents adjusted debt to EBITDAR, adjusted because management believes this metric is helpful to investors in assessing the company’s overall debt profile. Adjusted debt includes an estimate of the