Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2018)
32 slides from Delta Air Lines's investor day presentation, Dec 13, 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, 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: Addressing New Topics and Commonly Asked Modeling Questions
Addressing New Topics and Commonly Asked Modeling Questions Lease Accounting Impact of new accounting standard Revenue Disclosures An increasingly diverse top line Joint Ventures & Core to Delta’s international strategy Equity Investments Profit Sharing Aligns employee incentives with owners’ intere
Slide 4: Enhanced Disclosures Providing Better Transparency
Enhanced Disclosures Providing Better Transparency Committed to improving level of detail Delta 1Q18 Press Release: • Delta Finance Insights is intended to provide additional commentary on newer and unique financial considerations • We are committed to providing transparency for investors through ou
Slide 5: Lease Accounting
Lease Accounting ADELTA A
Slide 6: Early Adoption of Lease Accounting Standard in the December Quarter
Early Adoption of Lease Accounting Standard in the December Quarter Impact primarily on balance sheet with modest P&L adjustment Balance Sheet • Effects of new standard will be reflected as of • Recognition of ~$6 billion incremental lease liabilities and January 1, 2018 by recasting the March, June
Slide 7: Revenue Disclosures
Revenue Disclosures ADELTA E
Slide 8: 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 by more Total Revenue Components diverse, higher-margin revenue streams that are growing ~$44B faster than Main Cabin ticket sales ~5% ~7% • Since 2011,
Slide 9: Revenue Components of Disclosed Categories
Revenue Components of Disclosed Categories Total Revenue Passenger Revenue Cargo Other Revenue Ticket Ticket Loyalty Travel-Related Ancillary and Loyalty Misc. Main Cabin Premium Travel Awards Services Refinery • Main • Delta One • Flown portion of • Fees (bags, • MRO • Marketing • Lounge Fees • Bas
Slide 10: Methodology for Premium Revenue Disclosure
Methodology for Premium Revenue Disclosure Premium revenue has become a larger driver of Delta’s revenue performance Premium Revenue Allocation Main - Premium - Purchase Examples Loyalty Ticket Ticket • Premium revenue growth driven by fleet $200 Main Cabin Fare $200 fare transformation, branded far
Slide 11: Methodology for Premium Revenue Disclosure (continued)
Methodology for Premium Revenue Disclosure (continued) Reclassifying portion of 2017 Comfort+ revenue • Since 2016, premium ticket revenues have grown 24% as of September 30, 2018 • In 2018, Comfort+ revenue is automatically included in premium revenue given enhanced revenue reporting capabilities •
Slide 12: Joint Ventures & Equity Investments
Joint Ventures & Equity Investments 11
Slide 13: Delta’s Joint Ventures and Equity Investments are Unique
Delta’s Joint Ventures and Equity Investments are Unique Comprehensive portfolio of global partnerships expands Delta’s global reach Proposed Combined JV of ~$13B ~$3B Joint Venture 49% Equity stake Pending Joint Venture ~$3B Joint Venture ~$11B Joint Venture 9% Equity stake ~$1B Joint Venture 3% Eq
Slide 14: JVs and Equity Investments Create Strong Commercial Cooperation
JVs and Equity Investments Create Strong Commercial Cooperation Partner agreements ensure alignment of incentives • Allow close cooperation and provide more choice for customers Joint • Sharing of economic benefits drives customer-focused partner alignment Ventures • Antitrust immunity allows partne
Slide 15: Driving Value Through Joint Ventures and Equity Investments
Driving Value Through Joint Ventures and Equity Investments Benefits from improved revenues, cost efficiencies and consolidation of partner earnings Revenue for Delta-operated flights in JV flow through Delta 3Q18 Press Release passenger revenue JV settlements flow through other revenue Delta realiz
Slide 16: Joint Venture Settlements Balance Profits
Joint Venture Settlements Balance Profits Economics of joint ventures determined by pre-set baselines JV Settlement - Sample Calculation for a 50/50 Split • Baseline profitability is set for each carrier at the ($M) Delta Partner Total start of the joint venture contract Baseline Year Profit (A) 100
Slide 17: Accounting for Ownership Stakes
Accounting for Ownership Stakes Delta currently owns 49% of Virgin Atlantic and Aeromexico • Delta recognizes its 49% share of Aeromexico and Virgin Atlantic in miscellaneous non-operating • Fluctuations in partner profitability driven by economic factors, seasonality and currency need to be conside
Slide 18: Profit Sharing
ADELTA 17 eC Profit Sharing
Slide 19: Understanding Delta’s Employee Profit Sharing Program
Understanding Delta’s Employee Profit Sharing Program Rewarding employees through profit sharing is a unifying force Annual Profit Sharing • Eligible profit sharing pool is determined by Delta’s adjusted pre-tax profits $1.5B ─ Employees receive 10% of first $2.5 billion of eligible profits and 20%
Slide 20: Calculating Profit Sharing
Calculating Profit Sharing Illustrative profit sharing calculation using $5 billion of pre-tax income 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 Above
Slide 21: Refinery
Refinery 20
Slide 22: Financial Statement Impact of the Refinery
Financial Statement Impact of the Refinery Refinery results reflected in fuel expense • 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 c
Slide 23: Financial Statement Impact of the Refinery (continued)
Financial Statement Impact of the Refinery (continued) Third-party sales are profit neutral; excluded from unit revenue • Roughly $300-$500 million per year in products are sold to 3Q18 Press Release: third parties at zero margin • Sales are recorded in other revenue with a corresponding expense in
Slide 24: Ancillary Businesses & DGS Transaction
Ancillary Businesses & DGS Transaction 23
Slide 25: Impact of Delta’s Ancillary Businesses
Impact of Delta’s Ancillary Businesses Ancillary businesses are complementary to the airline and are earnings and cash flow positive • Delta’s ancillary businesses include MRO, DAL Global Services (DGS), Delta Vacations, Delta Private Jets (DPJ) and Delta Material Services (DMS) • Ancillary business
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 aviat
Slide 27: Taxes
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Slide 28: Delta’s Cash Tax Rate is Below Book Tax Rate
Delta’s Cash Tax Rate is Below Book Tax Rate Expect to be full cash taxpayer in 2020 Expected 2018 Book vs. Cash Tax Rate (Ex. N.O.L.’s) • Delta’s cash tax rate is significantly below its ~23-24% 23-24% book tax rate due to: 10-12% ─ Accelerated depreciation ─ Pension funding ─ Permanently reinveste
Slide 29: Airport Investments
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Slide 30: Delta’s Airport Investments
Delta’s Airport Investments Renovation funding of key airports including ATL, LAX, LGA, SEA, and SLC • 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 as
Slide 31: Taking a Closer Look at the Financial Impact of LGA
Taking a Closer Look at the Financial Impact of LGA Self-funded renovation of Delta’s LGA terminals drives greater certainty in long-term cost structure • Benefits to self-funding LGA: Income Statement ‒ Lock in majority of long-term ownership cost, • Pay same landing fees as Central Terminal occupa
Slide 32: 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"