Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2015)
56 slides from Delta Air Lines's investor day presentation, Dec 17, 2015
Slide 1: Investor Day 2015: Keep Climbing
INVESTOR DAY 2015 KEEP CLIMBING A DELTA 4
Slide 2: 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 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 Consistently Producing High-Quality Returns and Cash Flows A high-quality company uniquely positioned among the S&P Sustainably and Durably Growing Our Business Industrials Raising the Bar on Our Performance 4
Slide 5: Delta: Evolution Over The Past Decade
Delta: Evolution Over The Past Decade Through consolidation, innovation and capital discipline, Delta is uniquely positioned among high- performing S&P industrial companies • Reallocating capacity and leveraging scale to produce better revenue Consolidation efficiency • Revenues have increased ~20%
Slide 6: Managing Business To Long-Term Goals
Managing Business To Long-Term Goals • Balanced, metric-driven approach producing strong results for shareholders that are consistent with high-quality industrial companies • Since introducing goals in 2013, Delta has consistently outperformed and then raised long- term targets at our May analyst me
Slide 7: Changing Investor Perception
Changing Investor Perception Despite record results and an improving financial profile, Delta’s multiple has remained at a discount to industrials as investors still ascribe significant risk to the airline’s earnings and cash flows Can the airline industry overcome its history? Are Delta’s earnings
Slide 8: Opportunity Ahead For Investors
Opportunity Ahead For Investors Delta’s stock represents an opportunity for investors to purchase a high-quality industrial at an attractive valuation Consistently producing high- …While valuations remain at a quality returns and cash flows… discount ROIC - 3 Year Average Forward Price to Earnings 2
Slide 9: Leveraging Delta's Solid Foundation
Leveraging Delta’s Solid Foundation Ed Bastian President
Slide 10: Leveraging Delta's Solid Foundation
Leveraging Delta’s Solid Foundation Using Delta’s solid foundation to produce consistent, sustainable results for shareholders while developing longer-term growth opportunities Consistently • Running a reliable, customer-focused airline is producing record Producing Solid profits and returns, allowi
Slide 11: Meeting Our 2015 Commitments
Meeting Our 2015 Commitments Solid execution across the business leads to a record year for Delta What We Said Investor Day 2014 2015 Accomplishments • Run a reliable, customer focused operation • Industry’s best operational performance, including 173 100% mainline completion factor days (6x more th
Slide 12: Completing Another Record Year in 2015
Completing Another Record Year in 2015 December quarter caps a successful year of top line growth, margin expansion and free cash flow generation • Solid demand environment, along with winter capacity actions, combined to produce unit revenues above initial guidance range • Results include $75 milli
Slide 13: Consistently Producing Solid Results
Consistently Producing Solid Results Running a reliable, customer-focused airline is producing stronger returns, allowing for improved balance sheet strength and increased return of capital to shareholders Return on Invested Capital Adjusted Net Debt Capital Returns To 28% $9.4B Shareholders $7.3B $
Slide 14: Looking Ahead To 2016
Looking Ahead To 2016 Delta is well-positioned to maintain its industry leadership position in 2016 Across the Industry At Delta • Global GDP growth estimated at 2-3% with • Top line growth, fuel savings and sustained cost domestic 3% and international 2% discipline drive 5th consecutive year of mar
Slide 15: Positioned To Grow Earnings And Cash Flow In 2016
Positioned To Grow Earnings And Cash Flow In 2016 Modest capacity growth, fuel tailwind and momentum with commercial initiatives provide Delta with solid earnings momentum going into 2016 • System capacity growth of 0-2% - appropriate level to 2016 Capacity vs Prior Year balance capital investment a
Slide 16: Strong Momentum With Corporate Travelers
Strong Momentum With Corporate Travelers Leveraging operational reliability and network/service investments to gain corporate share Corporate travelers are recognizing Delta’s …Resulting in solid increases in volumes high quality product and service… this year Business Travel News Survey YTD Ticket
Slide 17: Delta Has A Proven International Model
Delta Has A Proven International Model Equity investments, immunized joint ventures and strong commercial cooperation mimic benefits of cross-border consolidation Delta has a proven model with two principles at the core of our Top 10 U.S. 48 – International Markets international strategy: (2014 Reve
Slide 18: Transatlantic Providing Industry Leading Returns
Transatlantic Providing Industry Leading Returns Improved joint venture performance key to further gains in the Transatlantic • Long-standing AirFrance/KLM joint venture is the most integrated Air France/KLM and advanced commercial partnership in the airline industry. Joint Venture is the Delta leve
Slide 19: Pacific Restructuring Improving Margins
Pacific Restructuring Improving Margins Early efforts have restored profitability of Narita hub, improved Pacific margins by 6 points 2016 Pacific Capacity vs. 2015 • First phase of Pacific restructuring has been successful – Entity margins have increased by 6 points over last year, 5 - 7% with Nari
Slide 20: A Growing Force In Latin America
A Growing Force In Latin America Focused on maximizing value of partnerships while driving value from Delta’s network, product and service investments • Recognized as US airline with greatest brand momentum but Leveraging Delta’s working aggressively to build preference and awareness • Focusing capa
Slide 21: Expanding Partnership With Aeromexico
Expanding Partnership With Aeromexico New investment demonstrates Delta’s confidence in Mexico’s future Mexican Domestic Seat Capacity • Mexico is the largest US market in Latin America and its economy is well positioned for the future 35% – Open Skies is expected to be approved in 25% 25% 2016 and
Slide 22: Leveraging Delta's Solid Foundation
Leveraging Delta’s Solid Foundation Using Delta’s solid foundation to produce consistent, sustainable results for shareholders while developing longer-term growth opportunities Consistently • Running a reliable, customer-focused airline is producing record Producing Solid profits and returns, allowi
Slide 23: Running A Reliable, Customer-Focused Operation
Running A Reliable, Customer-Focused Operation Gil West Chief Operating Officer
Slide 24: Delivering Top Tier Operational Results
Delivering Top Tier Operational Results Top of Industry Operational Performance – YTD November DOT Completion Factor DOT Missed Bag Ratio DOT On-Time (A14) Alaska 99.6% jetBlue 1.79 Alaska 86.3% Delta 99.6% Delta 2.09 Delta 86.1% United 98.8% United 3.18 Southwest 80.0% Southwest 98.7% Southwest 3.2
Slide 25: Driving Core Reliability Performance
Driving Core Reliability Performance TechOps YTD Performance TechOps Leverage • 45% reduction in mechanical cancellations • Superior execution skills vs. record breaking 2014 • Expanded maintenance footprint • Growing internal maintenance capabilities • Serviceable levels • Reliability projects • Le
Slide 26: Keeping Cost Down
Keeping Cost Down Maintenance Expense Delta preserves its relative strength in maintenance, leading network carriers in CASM, despite the highest average fleet age and complexity in the industry Maintenance Cost Per Seat Block Hour ($) – Last 12 Months Ending June Qtr ‘15 5.78 Ind Avg 5.2 5.16 4.88
Slide 27: Improving the Customer Experience
Improving the Customer Experience Customer Surveys Awards and Recognition • Sophisticated customer surveys • Top Airline by Business Travel News for 5 • Driving record performance consecutive years • R&D service concepts • Most Admired Airline for the 4th time in 5 • Leveraging Technology and Analys
Slide 28: Our Culture Fuels Our Success
Our Culture Fuels Our Success Joanne Smith Chief Human Resources Officer
Slide 29: Our Culture Fuels Our Success
Our Culture Fuels Our Success Our Rules of the Road is the foundation of what makes Delta unique and drives our culture of open and honest communication – it is our strategic competitive advantage. OUR FOUNDATION + KEY PERFORMANCE = AMERICA’S MOST INDICATORS AWARD-WINNING AIRLINE NET PROMOTER EMPLOY
Slide 30: Balanced Investment Mindset
Balanced Investment Mindset Balanced approach to capital deployment has driven significant value for all stakeholders Make Delta an airline CUSTOMERS All Stakeholders Share In want to fly Our Success - Reliable, customer-focused operation Employees - High-quality products and service • Receive compe
Slide 31: Engaged Employees Purposeful about Maintaining Culture
Engaged Employees Purposeful about Maintaining Culture Empower & Engage Annual Employee Survey Planned and organic engagement drives commitment with Delta’s: • Culture of Celebration - Profit Sharing & Chairman’s Club • Focus on developing business acumen – Speaker Series & Network Groups 88.3% • Fo
Slide 32: Driving Our Revenue Momentum
Driving Our Revenue Momentum Glen Hauenstein Chief Revenue Officer
Slide 33: Driving Our Revenue Momentum
Driving Our Revenue Momentum Leveraging our strengths to produce further revenue gains • Focus domestically on large population centers representing Making Targeted rich revenue pools that can be served efficiently with larger Network aircraft • Internationally make investments in the most promising
Slide 34: Flying To The Right Destinations With The Right Product
Flying To The Right Destinations With The Right Product Optimize capacity by focusing on hub strengths to serve high-revenue markets over short, intermediate and long time horizons Domestic International • Over the short to intermediate term, • Richest source of growth over the capitalize on leading
Slide 35: Unique Fleet Strategy Is Cornerstone To Successful Domestic Growth
Unique Fleet Strategy Is Cornerstone To Successful Domestic Growth Domestic fleet initiatives producing a more cost effective fleet with higher customer satisfaction and lower capital cost $150 Unit Cost Upgauge Benefit • Increasing average seats per departure by an 750 mi Stage | $2.25 Fuel additio
Slide 36: Driving Higher Revenue With Improved Customer Segmentation
Driving Higher Revenue With Improved Customer Segmentation Branded Fares on track to reach 2018 revenue goal of $2.4 billion, $1.5 billion increase over 2014, with 2015 revenue up nearly 30% year over year • Completed the rebranding of Delta One, Delta Comfort+ and Main Cabin • Basic Economy being o
Slide 37: Maximizing The Value Of Our Premium Cabins
Maximizing The Value Of Our Premium Cabins Since 2013, we have demonstrated significant progress increasing paid load factors and upsell revenue for First Class and Delta Comfort+ with more upside to come First Class Delta Comfort+ First Class Paid Load Factor Delta Comfort+ Paid Load Factor ~70% ~5
Slide 38: Creating Distinct Products That Are Easy To Understand And Buy
Creating Distinct Products That Are Easy To Understand And Buy Continued upsell revenue growth by defining clear product value propositions that are easy to purchase and segmenting customers into the products they value Product Positioning and Product Availability Visual Merchandising • Make product
Slide 39: Opportunity To Capture A Greater Portion Of Travel Spend
Opportunity To Capture A Greater Portion Of Travel Spend Delta will keep investing to further segment customers and continue to offer best in class products that are easy to purchase for our ~180 million customers Growth in Optional Service Revenue per . . . Enables Delta To Capture a Larger Passeng
Slide 40: Delivering Sustainable Financial Results
Delivering Sustainable Financial Results Paul Jacobson Chief Financial Officer
Slide 41: Delivering Sustainable Financial Results
Delivering Sustainable Financial Results Strong cost execution and a disciplined capital strategy are driving sustainable financial results and will ensure Delta is well positioned throughout the business cycle • Non-fuel unit cost growth is expected to remain below 2% Strong Cost Execution over the
Slide 42: Managing Business To Long-Term Goals
Managing Business To Long-Term Goals • Balanced, metric-driven approach producing strong results for shareholders that are consistent with high-quality industrial companies • Since introducing goals in 2013, have consistently outperformed and then raised long-term targets at our May analyst meeting
Slide 43: Solid Cost Opportunity Pipeline
Solid Cost Opportunity Pipeline The productivity pipeline remains robust and will allow Delta to maintain non-fuel unit cost growth below 2% annually • Delta expects non-fuel unit cost growth to remain below 2% including profit sharing at its base earnings per share growth target of 15% • Leading op
Slide 44: Fuel Tailwind To Continue In 2016
Fuel Tailwind To Continue In 2016 Delta expects financial momentum to continue, even assuming fuel prices above the forward curve • Second year of lower market fuel prices contributing to nearly $3 billion incremental fuel savings in 2016 • Hedge strategy focused on cost efficient opportunities Delt
Slide 45: Business Opportunities Will Reduce Cash Taxes
Business Opportunities Will Reduce Cash Taxes Delta currently expects to fully utilize its $9 billion of NOLs and be a cash tax payer by early 2018 • Business initiatives will result in lower book and cash taxes – Excess pension funding reduces taxable Net Operating Loss Carry Forwards income – Acce
Slide 46: Balanced Capital Deployment Drives Value
Balanced Capital Deployment Drives Value Balanced approach to capital deployment is driving significant value for shareholders Reinvest In The Strengthen The Return Cash To Business Balance Sheet Shareholders • ~50% of operating cash • More than $10 billion in • Announced $5 billion flow to be reinv
Slide 47: Capital Efficient Investment Strategy
Capital Efficient Investment Strategy Disciplined reinvestment in the business drives long-term growth opportunities and superior returns on invested capital 2015 Consensus Capex/Sales • Delta will spend $3 billion on core growth initiatives in 14.8% 2016 including the capital investment it is makin
Slide 48: Proactively Managing Our Pension Obligations
Proactively Managing Our Pension Obligations Pension contributions are well above required levels and will allow for an 80% funded status in 2020 at current interest rates Pension Funding • Delta plans to continue contributing ~$1 billion 100% Funded status at current discount annually to the pensio
Slide 49: Delta Committed To Consistent Shareholder Returns
Delta Committed To Consistent Shareholder Returns Using strong cash generation in a balanced, deliberate and sustainable manner to reinvest in the business, further strengthen the balance sheet and return increasing levels of cash to shareholders • Delta is returning in excess of its minimum Capital
Slide 50: Opportunity Ahead For Investors
Opportunity Ahead For Investors Delta’s stock represents an opportunity for investors to purchase a high-quality industrial at an attractive valuation Consistently producing high- …While valuations remain at a quality returns and cash flows… discount ROIC - 3 Year Average Forward Price to Earnings 2
Slide 51: Non-GAAP Reconciliations
Non-GAAP Reconciliations 51
Slide 52: Non-GAAP Reconciliations
Non-GAAP Reconciliations Non-GAAP Financial Measures Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). Under the U.S.
Slide 53: Non-GAAP Reconciliations: Operating Margin, Adjusted
Non-GAAP Reconciliations Operating Margin, Adjusted We adjust for the following items to determine operating margin, adjusted for the reasons described below: Mark -to-mark et ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the se
Slide 54: Non-GAAP Reconciliations: Free Cash Flow
Non-GAAP Reconciliations Free Cash Flow We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include: Hedge margin. Free ca
Slide 55: Non-GAAP Reconciliations: Pre-Tax Income, Adjusted
Non-GAAP Reconciliations Pre-Tax Income, Adjusted Delta adjusts pre-tax income to determine pre-tax income, adjusted, for MTM adjustments and settlements, restructuring and other and loss on extinguishment of debt for the same reasons described above and Virgin Atlantic MTM adjustments for the reaso
Slide 56: Non-GAAP Reconciliations: CASM-Ex
Non-GAAP Reconciliations Non-Fuel Unit Cost or Cost per Available Seat Mile (“CASM-Ex”) We adjust CASM for restructuring and other for the same reason described in operating margin, adjusted, above and the following items for the reasons described below to determine CASM-Ex: Aircraft fuel and relate