Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2017)
51 slides from Delta Air Lines's investor day presentation, Dec 14, 2017
Slide 1: Investor Day 2017: Keep Climbing
INVESTOR DAY 2017 KEEP CLIMBING ADELTA 4
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: 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 4 th consecutive year for delivering great results for our customers and owners 3 OUR CUSTOMERS • Industry - leading operat
Slide 5: Investing For Delta's Future
Investing For Delta’s Future TECHNOLOGY • Necessary investment in reliability and disaster recovery – successful stand - up of new data center • Going forward – focus shifts to digital transformation which will unlock our ability to deliver personalized service, further strengthening brand and reven
Slide 6: A Solid Finish to Delta's Transition Year
A Solid Finish to Delta’s Transition Year 5 Note: Adjusted for special items; non - GAAP financial measures reconciled in Appendix 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, N
Slide 7: Setting Up Well For 2018
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 fo
Slide 8: The Right Combination Of Strategic Advantages
The Right Combination Of Strategic Advantages 7 Domestic Network Customer Loyalty Investment Grade Balance Sheet Best connecting hub complex – including the world’s most efficient hub in Atlanta – enhanced by investments in New York, LA and Seattle Solid foundation with lower interest expense, more
Slide 9: Culture is Delta's Foundation
Culture is Delta’s Foundation Joanne Smith Chief Human Resources Officer
Slide 10: The Top 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
Tim Mapes Chief Marketing Officer Power of a Strong Brand
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 • Given rapidly evolving customer expectations, we benchmark Delta experiences relative to world’s other strongest brands • Strategies transcend the airline industry ― Transforming mobile, digital and social experiences ― Building direct relationship
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 de
Slide 17: Increasingly, A Brand With Purpose
Increasingly, A Brand With Purpose $40M to Charities in 2017 • 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 Mex
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 17 $2.0B $2.4B $2.7B $3.0B $3.3B $4.0B 2014 2015 2016 2017E 2018E 2021E Delta - Amex Co - Brand Contribution Delta - Amex Co - Brand Spend • Delta’s bra
Slide 19: Delta's Approach is Working
Delta’s Approach is Working • Delta’s ascending brand is reflected in consistently increasing net promoter score over the past several years • Year - to - date 2017 domestic net promoter score at 41.5%, a new record • Operational reliability, free entertainment and upgraded snacks behind 2017 improv
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 21 • 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 – expec
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 • Upgaug
Slide 24: An Unrivaled Domestic Network
An Unrivaled Domestic Network 23 Note: Circle size denotes number of seat departures • Network is optimally structured to capture premium revenue • Balanced footprint between East and West coasts • Unique hub network has driven increased relevance in key focus cities • ~60% or greater share in all f
Slide 25: Upgauging: A Proven Strategy for Delta
Upgauging : A Proven Strategy for Delta Upgauging Impact Upgauging can raise already strong domestic margins while improving customer satisfaction 24 • Delta’s network restructuring and product investments have already produced domestic margins among the best in the industry • Best domestic network
Slide 26: Taking Upgauging into the Next Decade
Taking Upgauging into the Next Decade 25 • 100 A321neo a ircraft to be delivered from 2020 - 2023, b uilding on Delta’s large narrowbody advantage well into the next decade • New engine technology and larger gauge results in 40% fuel savings over existing MD88s • Advantageous Pratt maintenance deal
Slide 27: Five-Cabin Segmentation Strategy and Branded Fares Revenue
• On track for $2.7 billion in segmentation revenue by 2019 ― $400 million of incremental benefit in 2018 • Expect First Class and Comfort+ seats to grow mid - single digits for next several years ― Premium cabins produce 5 – 8 point higher average margin than Main Cabin ― Comfort+ revenue is growin
Slide 28: Taking Segmentation to the Next Level
Taking Segmentation to the Next Level The same seat is now marketed as First Class domestically and Premium Select internationally, enabling greater fleet flexibility Premium Select gives Delta more flexibility and capital efficiency 27 Previous Current
Slide 29: Building a World-Leading Network of Carriers
Building a World - Leading Network of Carriers • Makes Delta the #1 or #2 carrier in 8 of the top 10 international markets from the U.S. Delta has the best partner network in the top U.S. international markets, giving our brand greater relevance and our customers more choice $8.2B $5.4B $4.8B $4.7B
Slide 30: Leveraging the Power of Commercial Relationships: An Example
Leveraging the Power of Commercial Relationships: An Example 29 • Profit sharing joint ventures align economic incentives across carriers • Customers can connect through Seoul Incheon, the most efficient connecting hub in Asia, as Delta and Korean work to provide a seamless experience • Joint ventur
Slide 31: Delta's Partnerships Create Tangible Value
Delta’s Partnerships Create Tangible Value • Delta expanded its international franchise in 2017 ― Implemented a joint venture and completed the purchase of 49% of Aeromexico ― Signed a JV agreement with Korean Air and announced plans for a joint venture with WestJet ― Invested in JV partner Air Fran
Slide 32: Driving Top-Line Growth
Driving Top - Line Growth 31 Building Customer Loyalty Investing In Product a nd Service Better Customer Segmentation Superior Domestic Network Leading Partners Around the World Sustainable Competitive Advantage and Revenue Premium + 200M Customers Culture of Service
Slide 33: Running A Reliable, Customer-Focused Operation
Running A Reliable, Customer - Focused Operation Gil West Chief Operation Officer
Slide 34: Delivering Top Tier Performance and Continuous Improvement
Delivering Top Tier Performance and Continuous Improvement November YTD Performance 1 DOT Missed Bag Ratio 2 1: Preliminary 2017 figures; actual results pending. DOT Completion Factor and On - Time (A0) from FY 2010 – 2016; YTD November 2017 2: DOT Missed Bag Ratio from FY 2010 – 2016 and YTD Octobe
Slide 35: Continuing to Set the Bar
0 7 14 67 79 161 241 241 2010 2011 2012 2013 2014 2015 2016 2017 +241 days Continuing to Set the Bar 34 • 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 rel
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 15.3% 20.0% 27.2% 31.1% 33.5% 37.8% 40.1% 41.5% 2010 2011 2012 2013 2014 2015 2016 2017 1: FY 2010 – 2016 and YTD October 2017 results 36 Domestic Net Promoter Score 1 22.1% 34.7% 39.6% 43.0% 50.3% 53.4% 2012 2013 2014 2015 2016 2017 Flight Attendan
Slide 38: Driving Continuous Improvement Through Innovation
Driving Continuous Improvement Through Innovation 37 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 Pr
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 39 Disciplined Cost Approach • Investments pressured costs in 2017, expected to drive benefits in 2018 and beyond • Non - fuel unit cost
Slide 41: Addressing Non-Fuel Costs Should Bring 2018 Growth Below 2%
Addressing Non - Fuel Costs Should Bring 2018 Growth Below 2% • 2017 unit cost growth driven by targeted investments, but unsustainable long term – Pressures from employee investment (1.5 pts), fleet initiatives (1.5 pts) and product investment (~1 pt ) • 2018 unit cost growth expected to return to
Slide 42: Fleet Transformation Will Drive Substantial Efficiency Gains
Fleet Transformation Will Drive Substantial Efficiency Gains 41 Average Aircraft Gauge 5 % 5 % Delivery of ~60 new aircraft in 2018 enables significant savings • Efficient capacity production drives margin expansion and unit cost productivity – Average seats per departure increasing by 5 % between 2
Slide 43: Driving Enterprise-Level Efficiency
Driving Enterprise - Level Efficiency 42 • 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
Slide 44: Fuel Prices Driving 2018 Pressure But Remain Relatively Stable
Fuel Prices Driving 2018 Pressure But Remain Relatively Stable • Market jet fuel prices expect to remain range bound between $50 - $65 per barrel with forward curve flat into 2018 $54 $45 $55 $64 2015 2016 2017E 2018E +16% Brent Prices ($/BBL) 43 Leveraging refinery and inventory management strategi
Slide 45: Continuing Balanced Capital Allocation in 2018
Continuing Balanced Capital Allocation in 2018 44 • Capital spending targeted ~50 % of operating cash flow • Allows for replacement of ~30% of Delta’s mainline fleet from 2017 - 2020 • Provides for continued investment in technology improvements Reinvest In The Business Strengthen The Balance Sheet
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 $2.2B $2.4B $2.8B $0.4B $0.4B $0.5B $0.3B $0.4B $0.4B 2015 2016 2017E 2018E Aircraft Technology Ground/Other $2.9B $3.2B $3.7B ~$4.0B Capital Spending 45 • Capital investments in 2018 will foc
Slide 47: Harnessing the Power of an Investment Grade Balance Sheet
Harnessing the Power of an Investment Grade Balance Sheet • Provided path to $2 billion earnings - accretive accelerated pension funding ‒ Issued unsecured debt in March at 3.3% blended rate ‒ Proceeds have produced double - digit returns, further improving funded status ‒ Completed all minimum requ
Slide 48: Balance Sheet Strategy Precursor to Resuming Cash Taxes
Balance Sheet Strategy Precursor to Resuming Cash Taxes 47 Debt and pension flexibility allows for resumption of cash taxes while preserving shareholder returns • Remain committed to debt reduction and maintaining investment grade balance sheet Debt Target • Pension expected to be greater than 80% f
Slide 49: Implications of Tax Reform
• Material limitation on deductibility of net interest expense is not expected • Immediate expensing of capital investments could extend NOLs into 2020 • Permanent reduction of corporate tax rate from 35% to 20% Implications of Tax Reform 48 Both House and Senate proposals would have a significant p
Slide 50: Built to Last
BUILT TO LAST 49 • Right Combination of Strategic Advantages • America’s Best Run Airline • Revenue - Driven Earnings Growth in 2018 • Consistent Financial Performance
Slide 51: Non-GAAP Reconciliations
Non - GAAP Reconciliations 50