Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2014)
58 slides from Delta Air Lines's investor day presentation, Dec 11, 2014
Slide 1: Investor Day 2014: Keep Climbing
INVESTOR DAY 2014 KEEP CLIMBING A DELTA 4
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 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 Producing Top Line Growth That Increases Margins, Provides Superior Returns On Capital And Generates The Highest Free Cash Flow In The Industry A high-quality S&P 500 industrial that delivers Lowering Business Risk To Drive growing value for its Sust
Slide 5: A High-Quality Company
A High-Quality Company Strong progress toward our long-term goals of generating solid margins and cash flow, an investment grade balance sheet and sustainable shareholder returns Long-Term Goals EPS Growth Operating •11-14% operating margins Margin •2014: 13% Delta - Goal 10-15% 10-15% • Annual EPS
Slide 6: The Path To Value Creation
The Path To Value Creation Achieving our long-term goals and lowering risk across the business should result in improved valuation EPS Growth ROIC Free Cash Flow 10-15% 15-18% 12.3% 14.5% $3B+ $1.7B Delta S&P Industrials Delta S&P Industrials Delta S&P Industrials Forward Price/Earnings Free Cash Fl
Slide 7: Delivering Growing Value
Delivering Growing Value Ed Bastian President
Slide 8: Delivering Growing Value
Delivering Growing Value Building on our strengths to expand margins and cash flow in order to reduce debt, return capital to shareholders and invest in the future 2014: Another • Record profitability with 7% top line growth, four points of margin Successful Year expansion and over $3 billion of fre
Slide 9: 2014: Another Record Year
2014: Another Record Year Completing a record year with $4.5 billion of pre-tax earnings, over $3 billion of free cash flow and a 20% return on invested capital Running A Reliable, Customer- …Leads To Record Financial Results Focused, Efficient Airline… • Industry-leading operational performance • P
Slide 10: Taking Momentum Into 2015
Taking Momentum Into 2015 December quarter caps a successful year of top line growth, margin expansion and free cash flow generation December Quarter 2014 Forecast Operating margin 11.5% - 12.5% PRASM change year over year Up 1.0 – 1.5% Fuel price $2.63 - $2.68 CASM – Ex Fuel change year over year U
Slide 11: The Backdrop For 2015
The Backdrop For 2015 Improving on all aspects of our financial performance in 2015 as a solid revenue environment, lower fuel prices and Delta-specific initiatives produce another record year Across The Industry At Delta • Modest economic growth globally, with best • Disciplined approach to capacit
Slide 12: Fuel Declines Provide Earnings Tailwind
Fuel Declines Provide Earnings Tailwind At current market prices, fuel declines provide net $1.7 billion benefit to Delta • At current forward curve, Delta’s 2015 all-in fuel price is Market Jet Fuel Prices forecasted at $2.40 – $2.50 per gallon, including hedge $3.50 and refinery impact – Each 1¢ c
Slide 13: A High-Quality Company
A High-Quality Company Strong progress toward our long-term goals of generating solid margins and cash flow, an investment grade balance sheet and sustainable shareholder returns Long-Term Goals EPS Growth Operating •11-14% operating margins Margin •2014: 13% Delta - Goal 10-15% 10-15% • Annual EPS
Slide 14: Continuing To Drive Margin Expansion
Continuing To Drive Margin Expansion Capacity growth, pricing improvement and cost productivity combine to generate long-term revenue growth, margin expansion and greater cash generation Disciplined Capacity Pricing Cost Productivity Growth Improvements • Drive capacity growth • Investments in netwo
Slide 15: Top Line Growth Enhances Returns
Top Line Growth Enhances Returns Disciplined approach to growing the business drives higher earnings, cash flow and returns on capital for our shareholders • Capacity additions must be margin accretive, cash flow Contributes To Long- positive and not add incremental debt to the balance sheet Term Fi
Slide 16: Domestic Refleeting Improves Asset Utilization
Domestic Refleeting Improves Asset Utilization Higher domestic capacity levels on a lower capital base produce improvements in ROIC • 2015 domestic capacity growth driven by higher gauge and better asset utilization – 3% higher capacity on flat departures and 11 fewer Post-Merger Domestic Fleet Tren
Slide 17: Corporate Customers Are Choosing Delta
Corporate Customers Are Choosing Delta Momentum continues as corporate revenues have increased by 7% this year Running a high-quality, …Produces strong gains in corporate customer-focused airline… revenues Business Travel News Survey YTD Ticketed Revenue vs Prior Year 1 1 1 1 Financial Services 14%
Slide 18: Enhanced Agreement With American Express
Enhanced Agreement With American Express Partnering with American Express since 1996 to create the world’s most valuable airline co-brand portfolio • New, multi-year contract with American Express continues growth momentum of Delta’s $2 billion co-brand revenue stream • Significantly improved econom
Slide 19: Strong Position In Heathrow Through Virgin Atlantic
Strong Position In Heathrow Through Virgin Atlantic Virgin Atlantic partnership and equity stake expected to generate over $200 million in benefit for Delta in 2015 • First year of joint venture has produced 2015 U.K. JV Network Changes significant increase in JV network profitability Belfast Glasgo
Slide 20: Restructuring The Pacific Network
Restructuring The Pacific Network Restructuring our approach to serving the Pacific is largest margin improvement opportunity in the network Leverage • Continue to build domestic feed into Seattle hub, increasing to 120 peak Domestic daily departures in 2015 • Network offers one-stop service to 95%
Slide 21: Delivering Growing Value
Delivering Growing Value Building on our strengths to expand margins and cash flow in order to reduce debt, return capital to shareholders and invest in the future 2014: Another • Record profitability with 7% top line growth, four points of margin Successful Year expansion and over $3 billion of fre
Slide 22: Running A Reliable, Customer-Focused Operation
Running A Reliable, Customer-Focused Operation Gil West Chief Operating Officer
Slide 23: Delta Wins Best Airline
Delta Wins Best Airline Top Airlines For Overall Performance 1st Place Virgin America 2nd Place Alaska 3rd Place jetBlue 4th Place Frontier 5th Place Southwest 6th Place American 7th Place United 8th Place Note: Rankings determined by combining the airlines’ score in all categories. Southwest includ
Slide 24: Delivering Top Tier Operational Results
Delivering Top Tier Operational Results Top Of Industry Operational Performance DOT Completion Factor DOT On-Time Delta 99.1% Delta 82.4% Southwest 98.5% American 77.7% United 98.3% United 75.7% American 98.1% jetBlue 73.4% jetBlue 96.9% Southwest 72.1% 94% 96% 98% 100% 65% 70% 75% 80% 85% 90% DOT M
Slide 25: Driving Core Reliability Performance
Driving Core Reliability Performance TechOps YTD Performance TechOps Leverage • 40% reduction in cancellations • Lowest fleet capital cost • 11% reduction in delays • Lower inventory ownership • Best reliability • Lowest maintenance CASM Maintenance Cancellations 100% Maintenance Completion 100% Com
Slide 26: Improving The Customer Experience
Improving The Customer Experience Customer Surveys Product • Extensive customer surveys • Interior upgrades • Driving record performance • Food and beverage improvements • Testing service concepts • Entertainment on demand • International Wi-Fi • Airport investments Flight Attendant Interaction Airp
Slide 27: Investing In Our Fleet For A Better Customer Experience
Investing In Our Fleet For A Better Customer Experience Significant Product Investments Continue… • 757-200 (“E” subfleet) – New interior / flat-bed seats in Delta One cabin – 18 aircraft • 757-200 – New interior and standardization at 199 passengers – 56 aircraft • 757-300 – New interior, AVOD & sa
Slide 28: Driving Our Revenue Momentum
Driving Our Revenue Momentum Glen Hauenstein Chief Revenue Officer
Slide 29: The Path To Further Revenue Gains
The Path To Further Revenue Gains Leveraging our strengths to produce further revenue gains • Optimize hub network to more efficiently serve domestic markets Give Customers • Make investments to increase the range and quality of What They Value products available to customers • Refine core pricing t
Slide 30: Giving Customers What They Value Drives Revenue Growth
Giving Customers What They Value Drives Revenue Growth Investments in network, product and service have already produced solid, sustainable revenue gains with more room for growth Network Product Service • Optimizing capacity to • Refleeting and product • Operational reliability shows leverage hub s
Slide 31: Investments In The Network To Improve Margin
Investments In The Network To Improve Margin Optimize capacity to leverage hub strengths and serve high-revenue markets West Coast New York West Coast Latin America • Achieved the leading position • Continue to develop Seattle • Completing major capacity in the world’s largest aviation hub as part o
Slide 32: Higher Revenue Through Better Customer Segmentation
Higher Revenue Through Better Customer Segmentation Industry-leading consumer products in each of four Branded Fare categories, allowing customers to tailor their travel experience Delta One / Delta Comfort+ Main Cabin Basic Economy First Class Delta One Best-in-class / product Delta Comfort+ A dist
Slide 33: Seat-Related Revenue Gains
Seat-Related Revenue Gains Branded Fares will continue momentum for seat-related revenues, including First Class upsell and Delta Comfort+ • First Class revenue is expected to benefit from the continued annualization and expansion of post- purchase upsell • As Delta continues to upgauge its fleet, D
Slide 34: Thoughtfully Rewarding Our Most Valuable Customers
Thoughtfully Rewarding Our Most Valuable Customers Changes to the SkyMiles program help to maintain our revenue premium and reduce seasonal revenue volatility • Earning miles for award travel based on spend aligns incentives to ensure that largest rewards, both in mileage and benefits, are offered t
Slide 35: Powerful Brand Drives Sustainable Revenue Premium
Powerful Brand Drives Sustainable Revenue Premium Building a brand that embodies what customers value improves customer loyalty, enables customer segmentation and drives a sustainable revenue premium Innovative Thoughtful Reliable • Contemporary, progressive • Personally accountable to • Greater con
Slide 36: Delivering On Our Financial Goals
Delivering On Our Financial Goals Paul Jacobson Chief Financial Officer
Slide 37: Delivering On Our Financial Goals
Delivering On Our Financial Goals Building a durable franchise with consistent cost performance, a strong balance sheet and balanced capital allocation • Solid cost performance with 2014 non-fuel unit costs increasing less than 1% on 3% higher capacity Managing Our Costs • Focused on productivity th
Slide 38: Maintaining Our Cost Performance
Maintaining Our Cost Performance Pipeline of initiatives in place to maintain non-fuel unit cost growth below 2% annually • Benefits from upgauging, maintenance savings and commercial productivity initiatives provide foundation to build upon in 2015 Non-Fuel Unit Cost Growth – Upgauging: Improved op
Slide 39: Actively Managing Delta's Largest Expense
Actively Managing Delta’s Largest Expense Multi-faceted approach to managing Delta’s $11 billion fuel bill involves hedging, the refinery and logistics expertise Average Fuel Price DAL vs • Goal is to generate an 8-10¢ advantage to industry average Industry • Hedging program sacrifices some downside
Slide 40: NOLs Are Valuable Asset
NOLs Are Valuable Asset Active management of our net operating loss carryforwards will defer the payment of cash taxes for several years • Net operating loss carryforwards are applied against taxable income, which is usually lower than reported book income – Equates to a longer runout period of the
Slide 41: Disciplined Reinvestment In The Business
Disciplined Reinvestment In The Business Strong operating cash flow funds appropriate level of reinvestment while allowing for significant free cash flow generation • Disciplined capital process with senior management approval for capital requests greater than $1 million Capital Expenditures ensurin
Slide 42: Generating Solid Cash Flows From The Business
Generating Solid Cash Flows From The Business Since 2010, Delta has generated more than $9 billion in free cash flow while making prudent investments in the business Capital Spending and Operating Cash Flow ($B) $6.0 $4.8 CapEx $5.0 Operating Cash Flow $4.1 $4.1 $4.0 $3.8 $2.9 $2.9 $3.0 $2.6 $2.6 $2
Slide 43: Balanced Capital Deployment Drives Value
Balanced Capital Deployment Drives Value Balanced approach to capital deployment has driven significant value for shareholders in the past two years Reinvest In The Strengthen The Return Cash To Business Balance Sheet Shareholders • ~50% of operating cash • Over $4 billion in debt • Returned $1.7 bi
Slide 44: Paying Down Debt Remains A Priority
Paying Down Debt Remains A Priority Clear path to achieve $5 billion debt target in 2016, resulting in $1 billion of run-rate interest savings versus 2009 Adjusted Net Debt $17.0B $15.0B $12.9B $11.7B $9.4B $7.2B < $6.0B 2009 2010 2011 2012 2013 2014E 2015E Interest $1.3B $1.2B $1.1B $1.0B $850M $65
Slide 45: Proactively Managing Our Pension Obligations
Proactively Managing Our Pension Obligations Pension funding remains stable while pension expense continues to decline Pension Funding • Pension funding remains manageable, with required funding levels at ~$700 million per year $915M $920M $920M – Expect to contribute incremental $250 million in 201
Slide 46: Continuing To Strengthen The Balance Sheet
Continuing To Strengthen The Balance Sheet Significant progress toward achieving investment grade metrics FFO / Debt EBITDA / Interest Debt / EBITDA 5.9x 34% - 36% 5.5x – 6.0x 29% 5.2x 20% 12% 3.6x 3.4x 2.7x 2.7x 2.0x – 2.5x 2012 2013 2014E 2015E 2012 2013 2014E 2015E 2012 2013 2014E 2015E S&P Indus
Slide 47: Strong Commitment To Returning Cash To Shareholders
Strong Commitment To Returning Cash To Shareholders Will return more than 40% of free cash flow to shareholders in 2014 Cash Returned To Shareholders Dividends Share Repurchases • Returned $1.35 billion to shareholders in 2014, a $1 billion increase over 2013 …is now competing on capital returns $1,
Slide 48: Continuing To De-Risk The Business
Continuing To De-Risk The Business Taking risk out of the business produces more sustainable, consistent results Lower Business Lower Financial Risk Lower Labor Risk Lower Fuel Risk Risk • Better revenue • Industry-leading • Refinery investment, • Reduced debt by generation through labor relations w
Slide 49: The Path to Value Creation
The Path to Value Creation Achieving our long-term goals and lowering risk across the business should result in improved valuation EPS Growth ROIC Free Cash Flow 10-15% 15-18% 12.3% 14.5% $3B+ $1.7B Delta S&P Industrials Delta S&P Industrials Delta S&P Industrials Forward Price/Earnings Free Cash Fl
Slide 50: Non-GAAP Reconciliations
Non-GAAP Reconciliations 50
Slide 51: 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 52: Non-GAAP Reconciliations
Non-GAAP Reconciliations Pre-Tax Income & Margin, Excluding Special Items Delta excludes special items from pre-tax income (also referred to as pre-tax earnings), pre-tax margin and other measures because management believes the exclusion of these items is helpful to investors to evaluate the compan
Slide 53: Non-GAAP Reconciliations
Non-GAAP Reconciliations Return on Invested Capital Delta presents return on invested capital as management believes this metric is helpful to investors in assessing the company’s ability to generate returns using its invested capital and as a measure against the industry. Return on invested capital
Slide 54: Non-GAAP Reconciliations
Non-GAAP Reconciliations Free Cash Flow Delta presents 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. (Projected) (in billions) 2014 Net cas
Slide 55: Non-GAAP Reconciliations
Non-GAAP Reconciliations Adjusted Net Debt Delta uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to present estimated financial obligations. Delta reduces adjusted debt by cash, cash equivalents and short-term investments, resulting in ad
Slide 56: Non-GAAP Reconciliations
Non-GAAP Reconciliations Non-Fuel Unit Cost or Cost per Available Seat Mile ("CASM-Ex") We exclude the following items from consolidated CASM to evaluate the company’s core unit cost performance: Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-ye
Slide 57: Non-GAAP Reconciliations
Non-GAAP Reconciliations Average Fuel Price per Gallon, Adjusted Delta excludes MTM adjustments from average fuel price per gallon for the same reason described above under the heading operating margin, adjusted. (Projected) Three Months Ended (Projected) December 2014 2014 2013 2012 Average fuel pr
Slide 58: Non-GAAP Reconciliations
Non-GAAP Reconciliations Capital Spending Delta presents combined capital spending as if the company’s merger with Northwest Airlines had occurred at the beginning of the period presented because management believes this metric is helpful to investors to evaluate the company’s combined investing act