Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2010)
56 slides from Delta Air Lines's investor day presentation, Dec 15, 2010
Slide 1: Delta: State of the Airline
Delta: State of the Airline Richard Anderson Chief Executive Officer
Slide 2: Delta: Building a Better Airline
Delta: Building a Better Airline Ed Bastian President
Slide 3: Delta: Building A Better Airline
2 Delta: Building A Better Airline Higher revenues plus solid cost performance drive $2.6 billion year-over-year improvement in profitability for 2010 Aggressively reducing debt using ~$2 billion annual free cash flow Addressing gaps in customer product, technology, facilities and fleet is key to ge
Slide 4: Meeting Our Commitments Led To Successful 2010
3 Meeting Our Commitments Led To Successful 2010 • Improve financial performance Increased pre-tax income $2.6 billion and operating margin 8 points • Complete merger integration and deliver $1.3 billion in synergies Technology integration complete, single operating certificate achieved and $1.5 bil
Slide 5: December Quarter In Line With Expectations
4 December Quarter In Line With Expectations December Quarter 2010 Operating margin 6 - 7% Fuel price $2.45 Total unrestricted liquidity $5.3 billion December Quarter 2010 vs. December Quarter 2009 Consolidated non-fuel unit cost Down 3 - 4% System capacity Up 7% Domestic Up 5% International Up 11%
Slide 6: Achieved 2010 Return on Invested Capital Target
5 Achieved 2010 Return on Invested Capital Target 2009 2010 Operating Income $0.1 billion $2.7 billion Market value of equity (assuming $14/share) $11.8 billion $11.8 billion Adjusted net debt $16.8 billion $15.8 billion Total invested capital $28.6 billion $27.6 billion Return on invested capital 0
Slide 7: 2011: Building A Better Airline Focus
6 Strengthen Balance Sheet Top-Line Profitable Growth 2011: Building A Better Airline Focus ~$2 billion annual free cash flow toward net debt reduction Invest For The Future Higher revenues and improved productivity from targeted investments in airport facilities, technology and on-board products Im
Slide 8: Revenue Environment Continues to Improve
7 Economic Growth Passenger Revenue Ancillary Businesses • Macro environment continues to improve • Global Insights projects worldwide GDP of 3% – U.S. growth of 2 - 3% – Stronger growth expected in Asia- Pacific • Delta’s planned system capacity increase of 1 - 3% in line with GDP forecasts • Solid
Slide 9: Passenger Revenue Momentum Continues
8 Passenger Revenue Momentum Continues Passenger Unit Revenue Change 2010 vs. 2007 (9%) (5%) (2%) (5%) (9%) flat +1% (4%) Revenue vs. 2007 Capacity vs. 2007 0% 5% 10% 15% 20% 25% 1Q10 2Q10 3Q10 4Q10 2010 vs. 2009
Slide 10: Domestic Revenue Momentum
9 Domestic Revenue Momentum 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1Q10 2Q10 3Q10 4Q10 2010 vs. 2007 (13%) (10%) (8%) (10%) (13%) (7%) (6%) (9%) Revenue vs. 2007 Capacity vs. 2007 Domestic Passenger Unit Revenue Change 2010 vs. 2009
Slide 11: International Revenue Momentum
10 0% 5% 10% 15% 20% 25% 30% 35% 1Q10 2Q10 3Q10 4Q10 International Revenue Momentum 2010 vs. 2007 (1%) +4% +7% +3% +2% +16% +16% +7% Revenue vs. 2007 Capacity vs. 2007 International Passenger Unit Revenue Change 2010 vs. 2009
Slide 12: Responsible Deployment of Capacity in 2011
11 Pacific Transatlantic Latin Domestic Capacity GDP Responsible Deployment of Capacity in 2011 Additions to key restricted business markets drive international growth Majority of international growth from additions to Heathrow, Haneda, Beijing and Shanghai Restricted Market Capacity Projected syste
Slide 13: Strong Traction With Corporate Revenue
12 Aggressively pursuing corporate contracts Corporate travel momentum Strong Traction With Corporate Revenue Improved customer service and support • Broad sector strength has brought corporate revenues back to 2007 levels • Notable improvements in Autos and Banking Broad sector strength, improved c
Slide 14: Ancillary Businesses Showing Strong Performance
13 Ancillary Businesses Showing Strong Performance Commercial Aviation Services $1.5 billion Cargo $900 million SkyMiles $1.6 billion Unbundled Ticketing $2.1 billion Diversified revenue base reduces economic volatility Ancillary Businesses expected to generate 5-10% revenue growth for 2011
Slide 15: Factors Point To Solid Earnings Growth for 2011
14 Factors Point To Solid Earnings Growth for 2011 Solid earnings improvement for 2011 • Profitable top line growth • System capacity growth of 1 - 3% • Manageable non-fuel unit cost increases of 1 - 2% • Fuel volatility creates headwind - however, solid hedge book in place • Non-operating expense s
Slide 16: Committed to Aggressive Debt Reduction
15 Operating Cash Flow Capital Expenditures $3 - $4 billion Total Three-Year Projection 2010 - 2012 $9 - $10 billion Adjusted Net Debt ($B) Free Cash Flow ~$6 - 7 billion Strong operating cash flow covers investments in product, facilities and fleet Committed to Aggressive Debt Reduction
Slide 17: Addressing Our Fleet Needs
16 International Domestic Mainline Regional Aircraft • 175 aircraft • Average age: 11 years • Investment to create high quality product (flat bed seats, in-seat video) • No imminent fleet renewal needs • 542 aircraft • Average age: 15 years • Investment in seating capacity and winglets to drive incr
Slide 18: Path To Improving Shareholder Returns
17 Encouraged with progress, but more work remains to achieve this goal Generate sustainable 10%+ return on invested capital Path To Improving Shareholder Returns 10 - 12% operating margin $5 billion EBITDAR Minimize capital reinvestment requirements Use cash to delever the balance sheet
Slide 19: Delta: Transforming Our Network
Delta: Transforming Our Network Glen Hauenstein Executive Vice President - Network and Revenue Management
Slide 20: Delta: Transforming Our Network
19 What We Fly • Transform domestic fleet and enhance ability to compete in key, high-demand markets • Focus on maximum return Where We Fly • Win in New York • International growth in restricted access markets • Utilize alliances to maximize global reach • Monetize First Class product • Capitalize o
Slide 21: Transforming the Domestic Fleet
20 Transforming the Domestic Fleet • Post-merger fleet optimization allows Delta to maintain footprint with 9% fewer aircraft • Backfilling retired planes with MD-90s, with 17 deliveries scheduled for 2011 • Evolving fleet enhances Delta’s ability to compete in key high- demand markets due to prefer
Slide 22: Refleeting to a Higher Gauge Improves Market Profitability
21 Change Total Rev 5% Total Cost (14%) Profit $0.5M Margin 21 pts Unit Cost (15%) ASMs 1% Passengers 1% Load Factor (0.6 pts) Market Example: Atlanta to Daytona Beach August 2009 Flights per Day: 7 Average Gauge: 66 August 2010 Flights per Day: 5 Average Gauge: 96 Schedule Change Results Atlanta to
Slide 23: Improving Fleet Economics and Customer Experience
22 Improving Fleet Economics and Customer Experience • Expanding first class seating on more than 60% of the mainline domestic fleet No reduction to economy seat pitch • Removal of unused galleys enables additional seating, Improving domestic fleet profitability • Increased first class seating compl
Slide 24: Delta's Fleet Mix Change is Unique to the Industry
23 Delta Domestic Growth, 1 st Half 2011 vs. 1 st Half 2009 ATA Carrier Domestic Growth, 1 st Half 2011 vs. 1 st Half 2009 Increasing gauge on domestic flying Delta’s Fleet Mix Change is Unique to the Industry
Slide 25: Win in New York
24 Become New York Airline of Choice Implement JFK Facility Solution Enhance Domestic Network • Focus on high-value business travelers with enhanced SkyPriority services • Work closely with JV operations team to improve on -time performance, baggage claims and passenger misconnects • Establish Delta
Slide 26: International Growth Centered on Highly Restricted Markets
25 LHR Atlanta Detroit New York Minneapolis Boston Miami Existing Service Enhanced Service New Service London-Heathrow and Tokyo-Haneda are unique opportunities to expand in the world’s richest business markets Tokyo-Haneda London-Heathrow Los Angeles Detroit HND International Growth Centered on Hig
Slide 27: Global Alliances Maximize Global Reach
26 Delta Delta with Partners Destinations 363 1,071 Countries Served 67 181 Daily Flights 6,103 16,212 Global Alliances Maximize Global Reach
Slide 28: Improving Revenue Production through Innovation
27 Capitalize on point-of-sale opportunities with JV partners • Leverage established relationship to expand North Atlantic customer base • Improve Italy share through Alitalia’s entry into the JV Monetize First Class Product • Increase percentage of first class up-sells – Currently in the test phase
Slide 29: Delta: Transforming Our Network
28 What We Fly Focus on improving margin • Domestic focus on largest markets, including New York • International growth in richest business markets with limited access • Transform domestic fleet, increasing gauge and reducing unit cost • Increase flights with two-class product to meet needs of busin
Slide 30: Delta: Enhancing the Customer Experience
Delta: Enhancing the Customer Experience Tim Mapes Senior Vice President - Marketing
Slide 31: Enhancing the Customer Experience
30 Enhancing the Customer Experience Safe, clean, on-time, with your bags - and a smile Products, services designed for the HVC People, technology centered on customer needs Greater speed, customer recognition, productivity-enabling tools, and unconditional protection if things go wrong Basics done
Slide 32: Enhancing the Customer Experience: At Booking
31 Enhancing the Customer Experience At Booking iPhone app delta.com Blackberry app Merchandising
Slide 33: Enhancing the Customer Experience: On the Ground
32 Enhancing the Customer Experience On the Ground
Slide 34: Enhancing the Customer Experience: On the Ground
33 Enhancing the Customer Experience On the Ground Sky Club lounges
Slide 35: Enhancing the Customer Experience: In Flight
34 Enhancing the Customer Experience In Flight Flat bed seats First Class on RJ’s Seat-back AVOD
Slide 36: Enhancing the Customer Experience: Customer Service & CRM
35 Enhancing the Customer Experience Customer Service & CRM 1 st Bag Free
Slide 37: In Summary
36 In Summary • In order to achieve superior rates of revenue growth, a superior ratio of “promoters” to “detractors” (net promoters) is required • Delta has been making targeted investments in the elements of the customer experience high-value customers (HVC) value most • Every 1% of share gain fro
Slide 38: Delta: Unlocking Innovation with Technology
Delta: Unlocking Innovation with Technology Theresa Wise Senior Vice President - Chief Information Officer
Slide 39: Information Technology Integration Successfully Complete
38 Information Technology Integration Successfully Complete • Balanced speed with differentiation • Expedited results and minimized risks with simple, disaggregated solutions • Completed without disruption to Delta and its Customers • Integration was a significant focus through mid-2010 – 1,130 man-
Slide 40: Ongoing Information Technology Investments
39 Network & Revenue Management Sales & Customer Retention Delivering a Premium Travel Experience Operational Excellence Ongoing Information Technology Investments • Investments target returns related to revenue, cost efficiency, operational excellence and customer experience • Development pace has
Slide 41: Strategic areas of IT focus
40 • Further optimization of pricing and inventory management • Tools that support further segmenting the market with flexible product and service offerings • Integrated technology to support world-class joint ventures and alliances • Simplified, next-generation reservations and ticketing • Intuitiv
Slide 42: Delta: Improving Operational Performance
Delta: Improving Operational Performance Steve Gorman Chief Operating Officer
Slide 43: Differentiating Overall Customer Experience
42 Service Recovery • Proactive compensation at First Point of Contact • Irregular ops service centers • Over 1,400 handheld units • Automated standby rebooking • Mishandled bag notification Reducing Misconnections • Decision matrix for gate hold control • Focus on international to domestic and regi
Slide 44: Baggage Claims Steadily Decreasing
43 Technology Process – Scanner usage – Real-time staffing and dispatching – Dedicated transfer drivers at hubs – Revised bag loading protocol DOT Mishandled Baggage Rate -23% -19% -16% Baggage Claims Steadily Decreasing
Slide 45: Delta: Reinforcing the Financial Foundation
Delta: Reinforcing the Financial Foundation Hank Halter Chief Financial Officer
Slide 46: Delta: Reinforcing the Financial Foundation
45 • Maintaining best-in-class unit cost structure • Utilize business leverage to mitigate cost increases • Targeted investments in customer service and operational improvements • Limited capital investment for aircraft and aircraft modifications • Targeting significant operating cash flow which wil
Slide 47: Delta Maintains Cost Advantage to Network Peers
46 Note: All figures exclude special items and profit sharing Delta has 9% cost advantage compared to network peers • Consolidated non-fuel unit costs flat to 2009 resulting in 9% Delta advantage versus industry – Fleet retirements – Technology functionality – Divisional productivity – Operational e
Slide 48: Best-In-Class Cost Structure is Key Strength
47 Critical that Delta maintains its cost advantage to network peers Best-In-Class Cost Structure is Key Strength Consolidated September YTD 2010 Non-Fuel Unit Cost (¢) % Change vs. September YTD 2009 6.42 6.62 7.34 8.18 8.58 9.15 9.30 7% 4% 5% 3% 1% 3% Note: All figures exclude special items and pr
Slide 49: Manageable Cost Increases Expected for 2011
48 Delta Consolidated Non-Fuel CASM (¢) 2009 8.24 8.28 2010 2011 Expected cost pressures: • Selling and revenue-related • Customer and product investment • Maintenance volume timing Key productivity initiatives: • Limit variable and fixed cost increases as capacity growth resumes to generate busines
Slide 50: Fuel Hedging Remains Important Strategy
49 % of Fuel Consumption Hedged Note: Hedging portfolio data as of December 3, 2010. Portfolio value is prior to premium expense. Average Crude Call 49% 39% 23% 41% 44% Collars Swaps Call options $85 $83 $85 $86 $86 Downside Participation 83% 72% 87% 79% 93% At current forward curve, Delta’s 2011 po
Slide 51: Balance Sheet Repair and Strengthening Underway
50 Balance Sheet Repair and Strengthening Underway 2010 accomplishments: • Projected to generate operating cash flow of $2.9 billion • $1.3 billion capital investments – 17 aircraft deliveries – Technology enhancements – Onboard product improvements – Facility and infrastructure renewal • Paid down
Slide 52: Disciplined Capital Spending Plan
51 Disciplined Capital Spending Plan Limited aircraft capex requirements enable targeted investments in customer and operational efficiency/productivity and maximize free cash flow • No near-term new aircraft deliveries • Strategic acquisitions of cost effective used MD-90 aircraft • Focused investm
Slide 53: Balance Sheet Strengthening and Delevering Underway
52 Scheduled Debt Maturities ($B) • Scheduled debt maturities, combined with delevering initiatives, will strengthen Delta’s balance sheet and reduce non-operating burden • Free cash flow is expected to fund Delta’s scheduled debt maturities • Delevering initiatives – Repurchasing debt – Open market
Slide 54: Delta Continues Prudent Balance Sheet Management
53 Delta Continues Prudent Balance Sheet Management Note: Liquidity includes cash, short term investments and undrawn revolving credit facilities Unrestricted Liquidity December 2011 vs. December 2010 ($B) Liquidity 12/31/10 Liquidity 12/31/11 Net Debt Maturities $5.3 $5.3 ($1.8) Net Investing ($1.5
Slide 55: Debt Reduction Drives Significant Earnings Improvement
54 Adjusted Net Debt ($B) 12/31/09 12/31/12 Lower non-operating burden reduces earnings volatility and enhances cash flow Net Interest Expense ($B) 12/31/10 $15.0 Debt reductions and delevering actions drive $500 million in earnings improvement Debt Reduction Drives Significant Earnings Improvement
Slide 56: Targeting Sustainable Returns on Invested Capital
55 Targeting Sustainable Returns on Invested Capital Building a Better Airline Transforming Our Network Enhancing the Customer Experience Unlocking Productivity with Technology Creating a Great Place to Work Reinforcing the Financial Foundation Improving Operational Performance Non-GAAP Financial Me