Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2019)
53 slides from Delta Air Lines's investor day presentation, Dec 11, 2019
Slide 1: Delta Insights
Delta Insights December 11, 2019
Slide 2: Delta Insights
Delta Insights Governance Overview Environmental Sustainability International Partner Strategy Driving Value from Customer Experience and Loyalty Finance Insights
Slide 3: Governance Overview
Governance Overview eT
Slide 4: Board of Directors
Board of Directors Delta’s board includes a rich and varied mix of expertise as well as a broad distribution of board tenure EDWARD H. BASTIAN Independence Board Tenure Diversity CEO of Delta 1 2 0-4 years 5 5-9 years 7 5 10+ years 8 11 Age: 62 Director since: 2010 All independent Average tenure 5 5
Slide 5: Board of Directors
Board of Directors DANIEL A. CARP ASHTON B. CARTER DAVID G. DEWALT Former Chairman and CEO of Director of the Belfer Center for Former Executive Chairman and Eastman Kodak Science and International Affairs CEO of FireEye at Harvard Kennedy School Age: 71 INDEPENDENT Age: 65 INDEPENDENT Age: 55 INDEP
Slide 6: Board of Directors
Board of Directors JEANNE P. JACKSON GEORGE N. MATTSON SERGIO A.L. RIAL Former President, Senior Former Partner of Goldman CEO of Banco Santander Brazil Strategic Advisor to the CEO of Sachs NIKE Age: 68 INDEPENDENT Age: 53 INDEPENDENT Age: 59 INDEPENDENT Director since: 2017 Director since: 2012 Di
Slide 7: Governance Practices
Governance Practices Sound Governance in Place Board • Separate non-executive Chairman and CEO roles • All directors elected annually with majority voting in uncontested elections • No outside director will stand for re-election after age 72 • Robust annual self-evaluation of Board and committees Sh
Slide 8: Executive Compensation Closely Tied to Performance
Executive Compensation Closely Tied to Performance • Compensation based on linking pay to performance through a mix of relative and absolute financial and operational performance measures • Measures of the operation include on-time performance, baggage handling, flight completion factor, and net pro
Slide 9: Executive Compensation Practices
Executive Compensation Practices “Pay for Performance” Approach to Compensation • Commitment to pay-for-performance philosophy that emphasizes shareholder value creation • Use of multiple performance measures, both absolute and relative, both annual and long-term – aligned with broader employee ince
Slide 10: Environmental Sustainability
Environmental Sustainability John Laughter Sr. Vice President Corporate Safety, Security and Compliance
Slide 11: Investor Day Emissions Offset by Delta
Investor Day Emissions Offset by Delta All emissions associated with air travel for Investor Day have been offset by Delta through verified carbon offset credits from The Guatemalan Conservation Coast Project, which protects 54,000 hectares of threatened rainforests, conserving over 400 bird species
Slide 12: Environmental Sustainability – Core to Delta’s Values-Led Brand
Environmental Sustainability – Core to Delta’s Values-Led Brand “Being a good corporate Annual Corporate citizen is key to the Delta Responsibility Report culture, which is why our sustainability efforts are more than just words. Delta is committed to producing 9th year significant, measurable resul
Slide 13: Environmental Sustainability – Key Focus Areas
Environmental Sustainability – Key Focus Areas Climate Waste Stakeholder Action Reduction Engagement Reducing Eliminating waste Ensuring that our emissions from jet and diverting employees, fuel is a primary hundreds of customers, and focus thousands of pounds the communities we from landfills serve
Slide 14: Climate Action: Jet Fuel is Our Biggest Opportunity
Climate Action: Jet Fuel is Our Biggest Opportunity Jet Fuel 98% Jet fuel accounts for over 98% of Fleet Renewal Delta’s total emissions Fuel Efficiency Sustainable Aviation Fuel Other Emissions 2% Carbon Neutral Growth 14
Slide 15: Climate Action: Renewing our Fleet and Driving Efficiency
Climate Action: Renewing our Fleet and Driving Efficiency Fleet Renewal Fuel Efficiency 300+ APU reduce fuel usage through heat carts, NEW AIRCRAFT IN LAST 5 YEARS ground power units, and enhanced power conditioned air at gates 25% MORE EFFICIENT THAN AIRCRAFT COST TO CARRY THEY ARE REPLACING. : red
Slide 16: Climate Action: Sustainable Aviation Fuels (SAF)
Climate Action: Sustainable Aviation Fuels (SAF) SAF on Delivery Flights SAF Production Facility Feasibility study for SAF production facility in Washington • Partnership with Airbus on delivery flights out of Toulouse State: • Partnership with Airbus and Air BP for carbon neutral • Feedstock: wood
Slide 17: Climate Action: Commitment to Carbon Neutral Growth
Climate Action: Commitment to Carbon Neutral Growth Capping Emissions Through Carbon Offsets 12 MILLION METRIC TONS OF CO2 REDUCED Reduces CO2 in the atmosphere through GLOBALLY BY DELTA'S CARBON verified emissions reductions OFFSETS EQUIVALENT TO EMISSIONS FROM Social Cobenefits 1.7 MILLION Advance
Slide 18: Waste Reduction
Waste Reduction Reduced Waste 300,000 POUNDS PER YEAR IN PLASTIC REDUCTIONS 5% ON CAMPUS WASTE REDUCTION THROUGH COMPOSTING 350,000+ POUNDS UNIFORMS DIVERTED FROM LANDFILLS 18
Slide 19: Engaging Our Employees, Customers and Communities
Engaging Our Employees, Customers and Communities Green Up Youth Advisory Board Habitat for Humanity Business Resource Group on Sustainability • 16 members, representing 11 states & • In Flight Recycling - Recycled more than • Delta’s largest and fastest growing BRG - American Samoa 3 million pounds
Slide 20: Delta’s International Partner Strategy
Delta’s International Partner Strategy Steve Sear President, International EVP, Global Sales
Slide 21: Delta’s Joint Ventures and Equity Investments
Delta’s Joint Ventures and Equity Investments Expanded JV of ~$13B (Launching January 1, 2020) ~$3B Joint Venture 49% Equity stake Pending ~$1B Joint Venture ~$3B Joint Venture 10% equity stake in Hanjin-KAL ~$11B Joint Venture 9% Equity stake ~$1B Joint Venture 47% Voting Interest 3% Equity stake P
Slide 22: Uniquely Creating Deeper Partnerships That Maximize Benefits
Uniquely Creating Deeper Partnerships That Maximize Benefits Interline Codeshare Equity Joint Venture Equity and Incl. Antitrust Immunity (ATI) Joint Venture • IROP Protection • Single Brand • Operational and • Joint Commercial • Complete Strategic • Inventory Access Selling (DL*) Customer and Opera
Slide 23: Value from Delta’s Partner Investments Continue to Mature in 2020
Value from Delta’s Partner Investments Continue to Mature in 2020 Implement new expanded JV • Through 2019, Delta has made significant progress in building out a strong partner portfolio • Benefits extend beyond 2020 as Continued growth and ramp-up initiatives mature Implement new transborder JV Lau
Slide 24: Delta’s International Partner Strategy Panel
Delta’s International Partner Strategy Panel Steve Sear President International & EVP Global Sales Perry Cantarutti Senior Vice President Alliances Matteo Curcio Vice President Asia Pacific (Seoul) Nicolas Ferri Chief Commercial Officer, Aeromexico (Mexico City) Roberto Ioriatti Vice President Trans
Slide 25: Driving Value from Customer Experience and Loyalty
Driving Value from Customer Experience and Loyalty Sandeep Dube Sr. Vice President Customer Engagement & Loyalty
Slide 26: The Value of Customer Experience
The Value of Customer Experience When consumers love your products and services, it leads to better business results 26
Slide 27: NPS: Delta’s Measure of Customer Experience
NPS: Delta’s Measure of Customer Experience Survey Question How likely are you to recommend Delta? 5 Definitely Will 4 Probably Will 3 May or May Not 2 Probably Will Not 1 Definitely Will Not Promoter Neutral Detractor Calculation Net Promoter Score (NPS) = % Promoters - % Detractors 27
Slide 28: Better Business Results Driven by Best-in-Class Customer Experience
Better Business Results Driven by Best-in-Class Customer Experience Domestic NPS & Revenue Premium 119% Strong relationship 117% 51% observed between 38% NPS and Revenue Premium 106% 15% 2010 2015 2019 YTD 3Q19 Domestic Revenue Premium Domestic NPS Note: NPS sourced from Domestic ISM Surveys; 2019 P
Slide 29: Delta Leverages Its Key Assets to Elevate Customer Experience
Delta Leverages Its Key Assets to Elevate Customer Experience START BOOKING CHECK-IN SECURITY BOARDING ONBOARD ARRIVAL DEST. NPS is measured across the travel ribbon to understand customer pain points and to inform decisions on future investments The Delta People Data and Process Understanding the C
Slide 30: Improving Customer Experience Drives Loyalty Which Unlocks Value
Improving Customer Experience Drives Loyalty Which Unlocks Value SkyMiles Member Top Line Revenue with Credit Card “Delivering a distinctive journey Active experience makes it more likely SkyMiles Member that customers repeat a purchase, spend more, recommend to their friends, and stay with your com
Slide 31: The Strategic Importance of American Express
The Strategic Importance of American Express Delta-American Express Contribution ~$7B Contract renewal through 2029 provides platform for significant value creation $1.4B for both partners 2010 2023E 31
Slide 32: Finance Insights
Finance Insights Jill Greer Vice President, Investor Relations Julie Stewart Managing Director, Investor Relations
Slide 33: 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 34: Agenda
Agenda Investor Relations Update - Perception study feedback - Update on approach to financial guidance Commonly Asked Modeling Questions - Revenue disclosures - Pension update - Tax update - Joint Ventures & equity investment accounting - Profit sharing calculation - Airport investments 34
Slide 35: We Asked – You Told Us
PERCEPTION STUDY We Asked – You Told Us Strengths Opportunities • A clear strategic vision • Demonstrate ability to sustain success over a cycle • Competitive positioning • Maintain margin premium • Strong management • Cost management • Building brand loyalty • Target setting • Leading financial per
Slide 36: Evolving Our Guidance Approach
U P D AT E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E Evolving Our Guidance Approach Reduce Reduce number of adjustments in key performance measures adjustments Streamline annual Focus on the metrics that inform our business decisions guidance Long-term Reduce near-term updates and pr
Slide 37: Reducing Adjustments to Improve Transparency
U P D AT E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E Reducing Adjustments to Improve Transparency Prior Definition Revised Definition (starting in 2020) Excluding fuel, profit sharing and ancillary Non-fuel unit cost Excluding fuel and profit sharing businesses Operating Cash Flow le
Slide 38: 2020 Guidance Metrics
U P D AT E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E 2020 Guidance Metrics Annual Quarterly Focusing on metrics that create shareholder value Including key performance drivers • Total revenue growth • Total revenue growth • Unit revenue (TRASM) • Earnings per share • Unit cost (CASM-
Slide 39: Evolving Our Approach
U P D AT E O N A P P R O A C H T O F I N A N C I A L G U I D A N C E Evolving Our Approach Fewer Near-Term Updates Long-Term Focus Better Insight • Ending quarter-end • Moving Investor Day to • Evaluating enhanced guidance updates June loyalty disclosure • Eliminating monthly • Establishing multi-ye
Slide 40: Agenda
Agenda Investor Relations Update - Perception study feedback - Update on approach to financial guidance Commonly Asked Modeling Questions - Revenue disclosures - Pension update - Tax update - Joint Ventures & equity investment accounting - Profit sharing calculation - Airport investments 40
Slide 41: Building Durability through Healthy and Diverse Revenue Streams
REVENUE DISCLOSURES Building Durability through Healthy and Diverse Revenue Streams Corporate Revenue Mix by Sector Industry Top Sectors Ancillary 1. Financial Services (15%) 2019E and Cargo Travel 2. Manufacturing (15%) ~$47B 6% Related Services 3. Technology (14%) 5% Loyalty 6% Program Ticket Reve
Slide 42: Revenue Components of Disclosed Categories
REVENUE DISCLOSURES Revenue Components of Disclosed Categories Total Revenue Passenger Revenue Cargo Other Revenue (~90% of Total Revenue) (~2% of Total Revenue) (~8% of Total Revenue) Ticket Ticket Ancillary and Loyalty Main Cabin Premium Refinery • Main • Delta One • MRO • Brand value of mileage •
Slide 43: Methodology for Revenue Allocation
REVENUE DISCLOSURES Methodology for Revenue Allocation Revenue Allocation Main - Premium - Purchase Examples Loyalty Ticket Ticket $200 Main Cabin Fare $200 fare • Premium revenue growth driven by fleet transformation, branded fares, and 20,000 Mile Main Cabin Fare $200 fare improved upsell capabili
Slide 44: Mileage Sales and Recognition in the Financial Statements
REVENUE DISCLOSURES Mileage Sales and Recognition in the Financial Statements Cash from Mileage Sales Agreements Income Statement Recognition: Category Subcategory Companion Certificates Passenger Revenue Ticket Bag Fee Waivers, Priority Boarding Passenger Revenue Travel-Related Services Brand Value
Slide 45: Proactively Addressing Pension Obligation
P E N S I O N U P D AT E Delta Delivers Again in 2017 Proactively Addressing Pension Obligation Funded Status % Cash Flow • Elective contribution of $1 billion in 2019 with $500 million planned in 2020 68% ~70% • Pension relief provides flexibility with no mandatory funding through 2024 38% Balance
Slide 46: Cash Taxes Expected To Begin in 2021
TA X U P D AT E Cash Taxes Expected To Begin in 2021 Expected Book vs. Cash Tax Rate • Cash tax rate is expected to remain below the 23-24% book tax rate for next several years 10-12% • Lower cash tax rate reflects: Book Tax Rate Estimated Cash ─ Immediate expensing of asset additions allowed Tax Ra
Slide 47: Delta’s Joint Ventures and Equity Investments
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING Delta’s Joint Ventures and Equity Investments Expanded JV of ~$13B (Launching January 1, 2020) ~$3B Joint Venture 49% Equity stake Pending ~$1B Joint Venture ~$3B Joint Venture 10% equity stake in Hanjin-KAL ~$11B Joint Venture 9% Equity stake ~$1B Joint
Slide 48: JVs and Equity Investments Create Strong Commercial Cooperation
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING JVs and Equity Investments Create Strong Commercial Cooperation Joint Ventures Equity Investments • Allow close cooperation and provide more • Commitment to relationship, often reinforced choice for customers through board-level participation • Sharing of
Slide 49: Driving Value Through Joint Ventures and Equity Investments
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING Driving Value Through Joint Ventures and Equity Investments Benefits from improved revenues, cost efficiencies and percentage of partner earnings Delta 3Q19 Revenue for Delta-operated flights in JV flow through Press Release passenger revenue JV settlemen
Slide 50: Joint Venture Settlements Balance Profits
JOINT VENTURE & EQUITY INVESTMENT ACCOUNTING Joint Venture Settlements Balance Profits JV Settlement - Sample Calculation • Joint venture economics determined by pre-set for a 50/50 Split baselines, set for each carrier at the start of the contract ($M) Delta Partner Total Baseline Year Profit (A) 1
Slide 51: Understanding Delta’s Employee Profit Sharing Program
P R O F I T S H A R I N G C A L C U L AT I O N Understanding Delta’s Employee Profit Sharing Program Annual Profit Sharing • Rewarding employees through profit sharing is a $1.5B ~$1.5B unifying force $1.3B • Eligible profit sharing pool is determined by Delta’s adjusted pre-tax profits $1.1B $1.1B
Slide 52: Impact of Profit Sharing on the Income Statement
P R O F I T S H A R I N G C A L C U L AT I O N Impact of Profit Sharing on the Income Statement – Illustrative Example 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
Slide 53: Delta’s Financial Approach to Airport Investments
AIRPORT INVESTMENTS Delta’s Financial Approach to 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 air