Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2018)
73 slides from Delta Air Lines's investor day presentation, Dec 13, 2018
Slide 1: Investor Day 2018
INVESTOR DAY 2018 KEEP CLIMBING ADELTA 4
Slide 2: Agenda
Agenda Leading the Way Ed Bastian, Chief Executive Officer Great Runway of Opportunity Glen Hauenstein, President The World’s Best Run Airline Gil West, Chief Operating Officer The Power of the Delta Brand Tim Mapes, Chief Marketing Officer Delivering Top-Line Growth Eric Phillips, Senior Vice Presi
Slide 3: 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 4: Leading the Way
LEADING THE WAY Ed Bastian Chief Executive Officer
Slide 5: Delivering a Solid 2018
Delivering a Solid 2018 From Investor Day 2017 2018 Accomplishments Industry’s best operational performance topping last year’s Run a safe and reliable, customer focused operation reliability records Revenue-driven earnings growth with 4% to 6% top-line 8% top-line growth offset 90% of $2 billion fu
Slide 6: 2019 Outlook – Margin Expansion is a Business Imperative
2019 Outlook – Margin Expansion is a Business Imperative Macroeconomic View • Solid demand for air travel 4% - 6% ~1% despite slight deceleration Top-line Growth Non-Fuel Unit in global GDP on ~3% Capacity Cost Growth • Fuel volatility continues with Brent prices estimated at $65-70 per barrel $6 -
Slide 7: Well Prepared to Manage Macro Risk Factors
Well Prepared to Manage Macro Risk Factors Strong business model provides flexibility to manage macroeconomic challenges Powerful brand enables strong fuel Structurally improved business recapture model and industry Maintaining capacity flexibility Investment-grade balance sheet Discipline
Slide 8: Delta's Positioning Far Superior to Prior Cycles
Delta’s Positioning Far Superior to Prior Cycles U.S. airline industry has improved through consolidation and cost convergence 2009 2018E Pre-Tax Substantially stronger financial foundation Income ($1.1B) ~$5.0B Domestic Net Brand strength and record customer satisfaction Promoter Score 15% 45% Amex
Slide 9: The Delta Difference
The Delta Difference Top-Line Growth Culture Global Fortress Network Balance Sheet Margin Expansion + Balanced Capital Operational Customer Allocation Reliability Loyalty Unmatched Competitive Long-Term Value A Powerful Brand Advantages Creation 9
Slide 10: Five Things to Take Away From Today
Five Things to Take Away From Today Delivering superior financial results – 2019 expected to deliver profits over $5 billion for a 1 5th consecutive year, with return to margin expansion driving double-digit EPS growth and 15% after-tax ROIC A powerful consumer brand rooted in a unique culture, with
Slide 11: Great Runway of Opportunity
GREAT RUNWAY OF OPPORTUNITY Glen Hauenstein President
Slide 12: Near-Term Revenue Trends
Near-Term Revenue Trends Unit revenue growth of more than 4% in 2018 leading the industry • For December quarter, continue to expect unit revenue growth of ~3.5% with a ~7.5% increase in top line, excluding third-party refinery sales − Corporate revenue up high single-digits on both yield and volume
Slide 13: Delta is Uniquely Positioned to Meet Growing Demand for Experiences
Delta is Uniquely Positioned to Meet Growing Demand for Experiences Consumers increasingly look for connections to other people, places, and cultures Consumer shift from goods to services Experiential services are driving growth – continues to grow particularly air & foreign travel Share of Personal
Slide 14: Great Runway of Opportunity
Great Runway of Opportunity Pipeline of initiatives to grow and diversify revenue and margin Domestic Fleet Global Best-in-Class Network Strength Transformation Franchise Premium Products 14
Slide 15: Core Interior Hubs Provide Unrivaled Connectivity
Core Interior Hubs Provide Unrivaled Connectivity Fleet initiatives drive further efficiency and margin benefits to domestic hubs Delta’s Core Hubs Are Best in the Industry • Industry-leading margins MSP DTW • Ideal geographies Northern Coverage Premier Midwest + Strong Corporate Connecting Hub Base
Slide 16: Coastal Gateways Provide Future Margin Opportunity
Coastal Gateways Provide Future Margin Opportunity Our success in New York provides a proven playbook Built a #1 Position in New York Replicating success in SEA/LAX/BOS 2008 vs. 2018 • A220 a building block for margin expansion Peak Day 323 509 • Building top business market coverage Departures •
Slide 17: More Efficient Aircraft Further Strengthen Domestic Network
More Efficient Aircraft Further Strengthen Domestic Network Large narrowbody aircraft with 160+ seats offer significant margin advantage • Upgauging strategy continues with introduction of new aircraft types Unit Cost Upgauge Benefit – A220 deliveries enable retirement of additional 900 mi Stage | $
Slide 18: Widebody Fleet Transformation Improves Product and Margin
Widebody Fleet Transformation Improves Product and Margin Expanding five-cabin strategy across international fleet by 2021 • Average seats per aircraft increasing by 2% annually between 2018 and 2023, with premium seats up 40% per aircraft • Product segmentation drives revenue and profitability gain
Slide 19: Upgauging Benefits Extend into Next Decade
Upgauging Benefits Extend into Next Decade Order book allows for replacement of ~35% of mainline fleet by 2023 Regional Upgauging Narrowbody Upgauging Widebody Upgauging CRJ-900 A220 MD88 A321neo 767-300ER A330-900 (76 seats) (109 seats) (149 seats) (194 seats) (215 seats) (281 seats) Fuel Burn per
Slide 20: International Has Solid Upside
International Has Solid Upside Opportunity across fleet, product, and partner integration • International revenue premium and NPS consistently improving through better onboard International product and service NPS Revenue Premium • More consistent, higher-quality international +5 pts experience crea
Slide 21: Delta's Joint Ventures and Equity Investments are Unique
Delta’s Joint Ventures and Equity Investments are Unique 60% of international revenue benefiting from joint ventures, up from 35% in 2008 Proposed Combined JV of ~$13B ~$3B Joint Venture 49% Equity stake Pending Joint Venture ~$3B Joint Venture ~$11B Joint Venture 9% Equity stake ~$1B Joint Venture
Slide 22: Commercial Strategy Supports Measured Growth
Commercial Strategy Supports Measured Growth Majority of 2019 growth driven by fleet transformation Delta Capacity Plan Aligned with Consumer Spending • Growth in consumer spend on travel expected to (2019 Forecast) outpace overall consumer spend 4.3% • Domestic capacity growth expected to 3.3% dece
Slide 23: Great Runway of Opportunity
Great Runway of Opportunity Pipeline of initiatives to grow and diversify revenues and margin Domestic Culture of Network Strength Service Fleet Top-Line Growth Transformation Customer and + Loyalty = Global Franchise Margin Expansion Best-in-Class Better Selling Premium Products 23
Slide 24: The World's Best Run Airline
THE WORLD’S BEST RUN AIRLINE Gil West Chief Operating Officer
Slide 25: Continuing to Set the Bar
Continuing to Set the Bar Industry-leading safety, reliability, and record customer satisfaction Best completion More customers Record bag Lowest level of Record factor arrive on-time performance maintenance customer than any other cancellations in satisfaction airline history scores DOT Fewer lost
Slide 26: Building Best-in-Class Airports
Building Best-in-Class Airports Enhancing reliability and customer experience • Along with airport partners, undertaking over $12 billion in facility infrastructure projects at key hubs • Building “Airport of the Future” – anticipating future trends and technology, with flexibility to change to meet
Slide 27: Technology Enables Continuous Improvement
Technology Enables Continuous Improvement Driving superior customer experience, efficiency, and cost savings through innovation Provide a frictionless customer experience at ATL Concourse F • Utilizing biometrics • Speeding up process • Delivering superior experience Predict maintenance requirements
Slide 28: Ancillary Businesses Provide Unique Value Streams
Ancillary Businesses Provide Unique Value Streams Global Logistics Largest MRO Operator Business in North America • Delivering operational excellence in • Delivering ~20% maintenance cost cargo market advantage to competitors • Leading yield performance and volume • Adding $1+ billion of incremental
Slide 29: Scale and Scope Provide Vertical Integration Opportunity
Scale and Scope Provide Vertical Integration Opportunity Parts Custom Interiors Sourcing & Sales & Components • Source used green-time engines and • Integrating aircraft cabin interior components to reduce input costs modifications and components • Sell surplus material on open market • New wireless
Slide 30: Delta: The World's Best Run Airline
Delta: The World’s Best Run Airline Reliable Operation Continuous Improvement Unique Value Streams Industry-leading operational Utilizing technology to enhance the Driving competitive advantage and performance driving customer loyalty customer experience, operate more incremental value through subsi
Slide 31: The Power of the Delta Brand
THE POWER OF THE DELTA BRAND Tim Mapes Chief Marketing Officer
Slide 32: Delta is an Exceptional, Trusted Consumer Brand
Delta is an Exceptional, Trusted Consumer Brand “A brand is the intangible sum of a product’s attributes.” - David Ogilvy 11 Source: W2O Group, November 2017 32
Slide 33: Consistently Delivering Superior Travel Experiences
Consistently Delivering Superior Travel Experiences Broad customer choice combined with demonstrated service excellence • Industry-leading reliability • Culture of service, record brand engagement by customers • Customer-centric portfolio of products driven by customer needs • Award-winning SkyMiles
Slide 34: Leveraging Innovative Technology to Further Improve Experience
Leveraging Innovative Technology to Further Improve Experience Creating a seamless experience throughout the customer’s journey • Enhancing mobile and digital functionality • Modernizing the airport experience with biometrics, RFID expansion, TSA innovation • Improving in-flight connectivity, in-sea
Slide 35: Growing Loyalty to Unlock Value
Growing Loyalty to Unlock Value Expanding both the breadth and depth of customer connections Active Lifetime Customer Value SkyMiles Members Driving record card acquisitions SkyMiles through strong Member • ~60% of passenger revenue with Credit > 30% partnership with American Card • Significant and
Slide 36: Strong Delta Brand Provides Opportunity To Extend Relationship
Strong Delta Brand Provides Opportunity To Extend Relationship More resilient co-brand revenue stream tied to consumer spending trends Delta-Amex Co-Brand Spend Delta-Amex Contribution $92.4B 12.5% $45.5B CAGR $3.7B $3.4B 2012 2018E $1.7B Delta-Amex Co-Brand Cards 2012 2018E 2019E +50% 2012 2018E 36
Slide 37: Values-Based Brand Appeal Transcends Travel
Values-Based Brand Appeal Transcends Travel 37
Slide 38: The Opportunity We See
The Opportunity We See Millennials care about more than just …and Delta is winning what they buy… • 39% will switch from brands that +11% do not treat their employees well Consideration • 44% actively buy from +16% innovative, socially-responsible Usage brands • 55% will buy more from “vocal, +38% I
Slide 39: The Power of the Delta Brand
The Power of the Delta Brand • Powers growth that transcends the broader market • Conveys values, attributes that lead customers to prefer Delta • Reinforces customer loyalty and willingness to buy more, pay more • Central to sustained revenue growth and margin expansion over time 39
Slide 40: Delivering Top-Line Growth
DELIVERING TOP-LINE GROWTH Eric Phillips Senior Vice President – Revenue Management
Slide 41: Evolution of Delta's Best-in-Class Premium Experience
Evolution of Delta’s Best-in-Class Premium Experience More than 30% premium seats by 2023 Delta One Suite / First Class Exceptional comfort and luxurious details 2011 2012 2015 2017 2018 Premium Delta Premium Select Economy Comfort First Class upsell Comfort+ launches Delta Premium Select & Miles as
Slide 42: Product Availability in All Channels Drives Revenue Upside
Product Availability in All Channels Drives Revenue Upside Main Cabin Comfort+ Delta One/ Delta.com / Reservations Basic Economy First Corporate / Agency $400 to $500 million For each point shift in premium product mix External Retail in external channels 42
Slide 43: Making Product Available to Customers at Right Time
Making Product Available to Customers at Right Time with Right Offer Best-in-Class Post- Product Purchase Offers Choice in Seamless Shopping Payment Options 43
Slide 44: Improving All Aspects of Customer Experience
Improving All Aspects of Customer Experience 2019 2020 2021+ Payment Choice Premium seat All optional Bags (Miles as Currency) upsell services Consistent Shopping Better Better third-party offering in all Experience Delta.com display channels Frontline Personalization Personalized offers & service e
Slide 45: More Diversified Top Line
More Diversified Top Line Momentum across the business with less reliance on Main Cabin product • A larger portion of our revenue is now generated Total Revenue Components by more diverse, higher-margin revenue streams ~$44B – Growth trajectory outpacing main cabin ~5% ~7% ticket sales $35B ~8% ~6%
Slide 46: Delivering Top-Line Growth
Delivering Top-Line Growth Premium Mix and Upsell 2019 Projected Network Opportunities Top-Line Growth 4% to 6% American Express and Ancillary Businesses 46
Slide 47: Embracing Technology and Innovation
EMBRACING TECHNOLOGY AND INNOVATION Rahul Samant Chief Information Officer
Slide 48: Digital Innovation at Delta – High Tech Enabling High Touch
Digital Innovation at Delta – High Tech Enabling High Touch A proven and sustainable approach that delivers for our customers, employees, and owners Personalizing For Empowering Customers Employees • Focus on applied innovation • Leverage joint business and IT innovation teams • Partner with academi
Slide 49: Empowering Delta's People and Delighting Our Customers
Empowering Delta’s People and Delighting Our Customers An enterprise-wide digital transformation is delivering superior travel experiences Information-driven intelligent customer experiences Pre-Select Automatic Biometrics In-flight RFID Bag Meals Check-in Entertainment Tracking PRE-DEPARTURE CHECK-
Slide 50: Technology Leadership Extends Our Competitive Advantage
Technology Leadership Extends Our Competitive Advantage Continually investigating new technologies to further improve the travel experience • Exploring high impact technologies for future Innovating for the Future business value INTERNET NATURAL BLOCKCHAIN LANGUAGE OF THINGS • Using advanced analyti
Slide 51: Our People Are Our Brand
OUR PEOPLE ARE OUR BRAND Joanne Smith Chief Human Resources Officer
Slide 52: Culture is Our Biggest Differentiator
Culture is Our Biggest Differentiator “When you take care of your employees, "An employee's devotion to his or her they will take great care of your company, dedication to the job and customers, who then reward you with consideration for the customer their business and loyalty. Every major determine
Slide 53: Our People Create Superior Travel Experiences
Our People Create Superior Travel Experiences Satisfaction improves when our people interact with customers Satisfaction Measures in the Customer Journey 2x Average Customer-Facing Average 53
Slide 54: How Culture Continues to Drive Better Results
How Culture Continues to Drive Better Results 2012 2014 2016 2018 Attracting The Retaining Valued ~90% Proud to Further Growing Best Talent Employees Work for Delta Customer Satisfaction 54
Slide 55: Culture is the Foundation of Delta's Success
Culture is the Foundation of Delta’s Success Creating the conditions for a sustained margin premium SUPERIOR INDUSTRY TRAVEL LEADING EXPERIENCE PROFITS DELTA PEOPLE CUSTOMER LOYALTY 55
Slide 56: Growing Our Lead
GROWING OUR LEAD Paul Jacobson Chief Financial Officer
Slide 57: Growing Our Lead
Growing Our Lead Driving long-term value for our owners through top-line growth, margin expansion, and prudent deployment of our capital Consistently Delivering Superior Financial Results • Continued revenue momentum and improved cost trajectory position Delta for top-line growth and margin expansio
Slide 58: 2019 Outlook
2019 Outlook • Top-line growth and margin expansion ‒ 2019 EPS: $6 to $7 ‒ 4% to 6% top-line increase ‒ ~100 bps pre-tax margin expansion at midpoint • Solid cost foundation – Non-fuel unit cost growth ~1% ‒ Non-op expense higher in 2019, expected to be $450 to $500 million • Strong free cash flow ‒
Slide 59: Fuel Price Expectations
Fuel Price Expectations Projecting 2019 Brent prices to average $65 to $70 per barrel • Lower market jet fuel prices expected to result in a reduction of ~$300 million in fuel costs Brent Prices ($/BBL) • Planning for higher jet crack spreads in back half of ~$72 2019 due to IMO 2020 $65-$70 $55 $45
Slide 60: Target Maintaining Non-Fuel Expense Below Inflation in 2019
Target Maintaining Non-Fuel Expense Below Inflation in 2019 Disciplined cost trajectory remains a top priority • Drove inflection in non-fuel unit costs in 2018 with ramping benefits from efficiency initiatives, fleet transformation, and Non-Fuel Unit Cost Trajectory strong performance from operatin
Slide 61: Building on One Delta Momentum into 2020
Building on One Delta Momentum into 2020 Expected cost savings to ramp up as initiatives take hold 2020 and beyond 2019 $1B+ $500M – Enterprise-wide 2018 adoption – Execute on strategic initiatives – Sustainable productivity $150M – Drive productivity improvements, asset utilization – Expand scope o
Slide 62: Balanced Capital Allocation Strategy
Balanced Capital Allocation Strategy Reinvestment in the business while protecting the balance sheet and returning cash to owners • Disciplined reinvestment of operating cash flow XXXX revenue Reinvest in the • Enables fleet transformation and technology investment Business • Replacing ~35% of Delta
Slide 63: Investing in the Business for the Long Term
Investing in the Business for the Long Term Commitment to disciplined capital deployment • Planning for 2019 capital spending of ~$4.5 billion – Investing $450 million in technology Planned 2019 Capital Spending infrastructure to improve operational reliability and grow digital footprint ~$0.4B ~$4.
Slide 64: Harnessing the Power of Our Investment Grade Balance Sheet
Harnessing the Power of Our Investment Grade Balance Sheet Stronger balance sheet provides access to lower-cost financing, more business flexibility • Establishing long-term leverage ratio target of 1.5x to 2.5x adjusted debt to EBITDAR • Target should allow us to maintain investment grade ratings t
Slide 65: Pension De-Risking Continues
Pension De-Risking Continues Health of Delta’s pension has improved dramatically in recent years • Pension expected to be greater than 80% funded by 2020 • Funded status would improve through contributions, higher interest rates, and strong asset performance Pension Funded Status − $500 million in v
Slide 66: Committed to Consistent Shareholder Returns
Committed to Consistent Shareholder Returns Target returning 70% of free cash flow to owners with one-third through dividends Total Shareholder Returns • Returned ~$12 billion since 2013 $3.1B $2.6B $2.4B $2.5B $2.5B • 2018 marks 5th consecutive annual dividend increase, with current dividend yield
Slide 67: Repositioned to Deliver Strong Results Through the Cycle
Repositioned to Deliver Strong Results Through the Cycle Business transformation has created a durable franchise Pre-Tax Margin Adjusted Debt / EBITDAR ROIC 15%+ >11.5% 2 – 4 Points Above Cost of Capital Below Cost of Capital 1.5x – 2.5x 1999-2008 2009-2018 Long-Term 1999-2008 2009-2018 Long-Term 19
Slide 68: Five Things to Take Away From Today
Five Things to Take Away From Today Delivering superior financial results – 2019 expected to deliver profits over $5 billion for a 1 5th consecutive year, with return to margin expansion driving double-digit EPS growth and 15% after-tax ROIC A powerful consumer brand rooted in a unique culture, with
Slide 69: Non-GAAP Reconciliations
Non-GAAP Reconciliations Non-GAAP Financial Measures The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below. Reconciliations may not calculate due to rounding. Delta sometimes uses information ("non-GAAP financial measures"
Slide 70: 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 71: Non-GAAP Reconciliations
Non-GAAP Reconciliations Pre-tax income/(loss), adjusted We adjust pre-tax income/(loss) for the following items to determine pre-tax income/(loss), adjusted: Mark -to-mark et ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the se
Slide 72: Non-GAAP Reconciliations
Non-GAAP Reconciliations Operating Revenue, adjusted and Total Revenue Per Available Seat Mile "TRASM", adjusted We adjust operating revenue and TRASM for refinery sales to third parties to determine operating revenue, adjusted and TRASM, adjusted because refinery sales to third parties are not rela
Slide 73: Non-GAAP Reconciliations
Non-GAAP Reconciliations 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 operating lease liability that will