Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2012)
49 slides from Delta Air Lines's investor day presentation, Dec 12, 2012
Slide 1: Delta Investor Day: Keep Climbing
KEEP CLIMBING. A DELTA # DELTA INVESTOR DAY ZONZ
Slide 2: 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, that c
Slide 3: The Path Forward
The Path Forward Richard Anderson Chief Executive Officer
Slide 4: Consolidation Producing Financial Stability
Consolidation Producing Financial Stability 2002 – 2004 Now Major Airlines 8 5 Total revenues $75 billion $120 billion Net income ($3) - ($10) billion $6 billion Leverage ratio 7.0 x 4.5x 4
Slide 5: Airlines Have More Runway Ahead
1,212 422 Deliveries 1999 - 2002 Scheduled Deliveries 2013 - 2016 Airlines Have More Runway Ahead Mainline Aircraft Deliveries for Major U.S. Carriers $30+ billion capital …with a much different forward outlook on capacity and capital The industry is approaching similar levels of profitability… Mult
Slide 6: Delta Is Taking a Different Approach
Delta Is Taking a Different Approach All stakeholders need to share in our success to break the industry’s historical pattern Make Delta a great investment for SHAREHOLDERS - Solid returns on invested capital - Balanced capital deployment Make Delta a great place to work for EMPLOYEES - Job stabilit
Slide 7: Focus on Free Cash Flow
Focus on Free Cash Flow 2.6 3.8 4.1 4.8 4.1 2.9 1.8 1.3 1.2 0.9 2.1 2.6 1.2 1.3 1.3 2.1 2.1 -2 -1 0 1 2 3 4 5 6 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Est* 2013 Est* $ Billions Capex Operating Cash Flow Historical Capital Spending and Operating Cash Flow 7 No
Slide 8: A High Quality Investment For Shareholders
2005 - 2009 Restructuring and Merger Integration Focus on restoring operating cash flow and combining the two airlines 2009 – 2013 Investing in the Business and Reducing Risk Operating cash flow dedicated to operational and product investments and balance sheet repair 2013 – forward Balanced Capital
Slide 9: Building On Our Success
Building On Our Success Ed Bastian President
Slide 10: Building On Our Success
Building On Our Success Our Plan Is Delivering Results Momentum To Continue In 2013 Taking Our Performance To the Next Level Leveraging scale and first - mover advantage and taking the next step forward to long - term, sustainable profitability and free cash flow generation Continued delivery of our
Slide 11: 2012: Another Year of Strong Performance
2012: Another Year of Strong Performance • Generate solid earnings growth and free cash flow • Continue revenue momentum from corporate share gains, new merchandising revenues and strong operational performance • Make Delta an airline customers prefer • Reduce labor, financial and operational risk t
Slide 12: Ending 2012 With a Profitable December Quarter
Ending 2012 With a Profitable December Quarter December quarter 2012 Operating margin 5 – 6% Fuel price, including taxes and settled hedges $3.20 - $3.25 Capital expenditures $600 - 650 million Total unrestricted liquidity $5.1 - $5.2 billion December quarter 2012 vs. December quarter 2011 Passenger
Slide 13: Setting the Stage for 2013
Setting the Stage for 2013 Across the Industry • Slow, but positive, global GDP growth • More financially - stable U.S. airline industry as merger integrations mature and restructured carriers emerge • U.S. carriers maintain capacity restraint with growth less than GDP • Inflationary pressures acros
Slide 14: Maintaining Our Momentum In 2013
Maintaining Our Momentum In 2013 Grow total RASM Improve productivity Invest in the business Grow passenger and ancillary unit revenues through corporate revenue gains, disciplined capacity management, technology - enabled merchandising initiatives, and returns from product and service investments F
Slide 15: Generating a Revenue Premium To The Industry
7% 13% 9% 8% 11% 13% 10% 14.5% 13% 14.5 % 13% 13% 11% 6% 8% 4.5% 4% 0.5% 5.5% 2.5% 3 - 4% 6% 12% 5% 6% 9% 12% 8% 11% 7% 9% 5% 7% 8% 4% 5% 2% 1% - 1% 2% - 1% Delta A4A Excl DAL Generating a Revenue Premium To The Industry Delta has a network, product and operation that customers are willing to pay a
Slide 16: Making Solid Inroads With Corporate Customers
Making Solid Inroads With Corporate Customers Increased corporate revenues by 11% in 2012, despite 2% decrease in capacity A diverse base of corporate customers…. …and strong gains in corporate revenue 11.1% 16% 0% 17% 15% 8% - 1% 14% 8% 10% 10% 13% Total Other Defense Banking Business Services Ener
Slide 17: Long-term Focused On Margin Expansion
8.53 8.92 2011 2012 2013 Long-term Focused On Margin Expansion Last three years have been period of investment – in people, product, technology and operations. Revenue and margin expansion have been strong... but cost trends need to stabilize • Pre - tax margins expanded by 800 bps since 2009 − Prod
Slide 18: Taking Our Performance To the Next Level
Taking Our Performance To the Next Level Leveraging scale and first mover advantage achieved through consolidation as the foundation for long - term, sustainable profitability and free cash flow generation LaGuardia Expansion Trainer Refinery Acquisition International Equity Investments Domestic Fle
Slide 19: Domestic Fleet Restructuring
Domestic Fleet Restructuring Upgauging domestic fleet to improve revenue generation and more efficiently produce capacity Domestic Fleet Count • Two - class RJs have both higher RASM and lower CASM compared to 50 - seat jets − Customers willing to pay for a better onboard experience, including first
Slide 20: International Equity Investments: GOL and Aeromexico
International Equity Investments Equity investments in GOL and Aeromexico generate network scale and produce solid revenue improvements in Latin America’s two largest markets • 3% equity stake, including board seat • Delta now has the most US – Brazil city pairs of any carrier − GOL itineraries make
Slide 21: International Equity Investments: Virgin Atlantic
International Equity Investments Acquiring 49% of Virgin Atlantic provides unique opportunity to increase Heathrow presence • Delta to invest $360 million to acquire the 49% stake in Virgin Atlantic currently held by Singapore − Virgin Group to retain its 51% stake and Virgin Atlantic will remain pr
Slide 22: Virgin Atlantic Joint Venture Increases Heathrow Presence
International Equity Investments Joint venture with Virgin Atlantic allows Delta to significantly increase Heathrow presence • Heathrow accounts for 85% of all travelers in the top 10 markets and 55% of travelers in the top 25 markets − Joint venture creates instant step - function improvement in De
Slide 23: Virgin Atlantic Joint Venture Improves Customer Preference
International Equity Investments Joint venture with Virgin Atlantic generates improved customer preference for Delta CoolBrands Top 10 UK Brands (2012/2013) 1) Apple 6) BBC iPlayer 2) YouTube 7) Glastonbury 3) Aston Martin 8) Virgin Atlantic 4) Twitter 9) Bang & Olufsen 5) Google 10) Liberty • Delta
Slide 24: Trainer Refinery Acquisition
Using vertical integration to address Delta’s largest expense • Refinery acquisition is a means to address Delta’s largest and fastest growing expense − 80% of Delta’s domestic jet fuel needs covered by production and off - take agreements − First time Delta has had the scale to consume all the outp
Slide 25: Building On Our Success
Building On Our Success Our Plan Is Delivering Results Momentum To Continue In 2013 Taking Our Performance To the Next Level Leveraging scale and first - mover advantage and taking the next step forward to long - term, sustainable profitability and free cash flow generation Continued delivery of our
Slide 26: Running a Reliable, Customer-Focused Airline
Running a Reliable, Customer - Focused Airline Steve Gorman Chief Operating Officer
Slide 27: Investing in Operational Excellence
Investing in Operational Excellence • Fleet - targeted bases concentrating maintenance on fleet types • Optimized maintenance planning • Increased station parts allocation compliance • Fleet - specific reliability projects • Aircraft turn process improvement − D - 35 and D - 3 focus • Efficient push
Slide 28: Ongoing Improvement in Mishandled Bags
Ongoing Improvement in Mishandled Bags • 66% reduction in claims over last six years • Leveraging airport infrastructure investments and scanning technology • Improved bag transfer process • Bags to claim No. 1 network carrier in DOT Missed Bag Ratio 36% reduction in mishandled bags (per 1,000 custo
Slide 29: Driving Higher Customer Satisfaction
Driving Higher Customer Satisfaction 63% reduction in DOT complaints Utilizing direct customer feedback • Over 10 million surveys • Airports and on - board experience • Real - time alerts • Accountability Service recovery from disruptions • Technology enhancements • “Need Help” service centers • Fir
Slide 30: Improving the Product Offering
Improving the Product Offering New and upgraded Delta Sky Clubs Refreshed Business Elite with Flat - Bed Seats Personal On - Demand Entertainment Sky Priority Economy Comfort Domestic First Class 30
Slide 31: Dramatic Increase in Customer Preference
Dramatic Increase in Customer Preference 16% 13% 14% 21% 18% 20% 24% 26% 27% 1Q 2Q 3Q 2010 2011 2012 Domestic Net Promoter +50% +100% +93% “Delta does an outstanding job of taking care of the customer both on the ground and in the air.” - Corporate Services Director “I have found Delta to be the epi
Slide 32: Generating a Sustainable Revenue Premium
Generating a Sustainable Revenue Premium Glen Hauenstein EVP Marketing, Network, Revenue Management and Alliances
Slide 33: Generating a Sustainable Revenue Premium
Generating a Sustainable Revenue Premium • Valuing passengers’ time through operational excellence • Targeted improvements in onboard product, world class facilities and technology • De - commoditize air travel by focusing on customized and differentiated experience • Powerful global network with st
Slide 34: Customers are Valuing Our Top-Tier Operating Performance
2.0 3.0 4.0 5.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2010 2011 2012 Corporate Share Gap Growth Share vs. Fair Market Share Customers are Valuing Our Top - Tier Operating Performance Delta’s investments in operating performance are key to attracting time - conscious high value customers and corporate acc
Slide 35: Building a Durable Network for the Future
• Virgin Atlantic partnership will increase Delta’s LHR offerings from 9 to 23 flights per day • GOL partnership provides access to 22 interior points in Brazil • Expanded Aeromexico codeshare gives Delta connections to 32 interior points in Mexico • Leveraging codeshare with Alaska to supplement SE
Slide 36: LaGuardia Expansion
24% 46% 22% 20% 13% 16% 33% 11% 8% 7% 2007 2012 LaGuardia Departures LaGuardia Expansion Reallocating slots between carriers generates scale, produces consolidation - like benefits • Delta has the leading position at New York’s preferred business airport − Non - stop service to 47 of the top 50 busi
Slide 37: Generating a Revenue Premium To The Industry
7% 13% 9% 8% 11% 13% 10% 14.5% 13% 14.5 % 13% 13% 11% 6% 8% 4.5% 4% 0.5% 5.5% 2.5% 3 - 4% 6% 12% 5% 6% 9% 12% 8% 11% 7% 9% 5% 7% 8% 4% 5% 2% 1% - 1% 2% - 1% Delta A4A Excl DAL Generating a Revenue Premium To The Industry Delta has a network, product and operation that customers are willing to pay a
Slide 38: The Sky is the Limit: Expanding the Revenue Possibilities
The Sky is the Limit 24% 19% 2004 2011 Air Travel as Percentage of Total Travel Spend Source: U.S. Dept of Commerce Bureau of Economic Analysis, total spend includes air transportation, tourist packages, accommo dat ions and amusement parks Significant revenue upside to regaining share of total trav
Slide 39: Striking the Right Financial Balance
Striking the Right Financial Balance Paul Jacobson Chief Financial Officer
Slide 40: Striking the Right Financial Balance
Striking the Right Financial Balance • Investments in business driving revenue growth as well as cost increases • Strategic investments have boosted pre - tax margin performance • Structural cost initiatives will preserve Delta’s cost advantage and pave the way for margin expansion • Taking a differ
Slide 41: Investments Pressuring Costs, but Improving Margin Performance
Investments Pressuring Costs, but Improving Margin Performance 7.40 7.90 8.40 8.90 9.40 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 DAL Legacy Carriers Excl DAL Rolling 12 Months Non - Fuel CASM While non - fuel unit costs have increased 8% from 2009, Delta has maintained its cost advantage and improved its earni
Slide 42: Structural Cost Initiatives Aimed at Maintaining Cost Advantage
Structural Cost Initiatives Aimed at Maintaining Cost Advantage $1 billion program will reduce expense without jeopardizing superior product Fleet Restructuring $300M Maintenance Redesign $150M Distribution Platforms $100M Other Costs $125M • Mainline deliveries and large regional jets will facilita
Slide 43: Initiatives will Ramp up through 2015
6.50 7.00 7.50 8.00 8.50 9.00 9.50 10.00 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 $0.6B $1.0B 2013 2014 Fleet Restructuring Staffing Efficiency Maintenance Redesign Distribution Other Costs Initiatives will Ramp up through 2015 Delta will continue to face off - setting CASM pressures, but initiatives
Slide 44: Managing Fuel Expense to Reduce Risk
Managing Fuel Expense to Reduce Risk Refinery Update Improved Fuel Management Unique approach to Delta’s number one input cost • Trainer refinery will produce a loss for the December quarter due to depressed gasoline crack spreads and Hurricane Sandy • Hurricane Sandy negatively impacted distributio
Slide 45: Prudent Use of Capital Spending
Prudent Use of Capital Spending $2.1 billion capex forecast for 2012 and 2013 is modest by historical standards 2.6 3.8 4.1 4.8 4.1 2.9 1.8 1.3 1.2 0.9 2.1 2.6 1.2 1.3 1.3 2.1 2.1 -2 -1 0 1 2 3 4 5 6 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Est* 2013 Est* $ Bil
Slide 46: Wise Deployment of Free Cash Flow
2009 2012 2013 Long Term Debt ($B) 17.8 12.6 Capital Leases 0.5 0.6 Implied Aircraft Debt 3.4 1.9 Less Unrestricted Cash (4.7) (3.3) Adjusted Net Debt 17.0 11.8 10.0 Wise Deployment of Free Cash Flow Focus on reducing adjusted net debt to manageable levels… Delta has generated $3.9 billion of free c
Slide 47: Pension Obligation is Manageable
Pension Obligation is Manageable Benefit from Pension Protection Act of 2006 extends Delta’s funding relief through 2031 GAAP unfunded liability driven higher by low corporate interest rates, but funding requirement is modest • GAAP liability is driven by current low interest rate environment and is
Slide 48: Healthy Balance of Free Cash Flow Deployment
Healthy Balance of Free Cash Flow Deployment Delta expects to achieve its target of reducing adjusted net debt to $10B in 2013 Evolution of Free Cash Flow Deployment Investments in Merger Integration Delevering and Investing in the Product Healthy Balance Once debt reduction goal is achieved, focus
Slide 49: Striking the Right Financial Balance
Striking the Right Financial Balance • Investments in business driving revenue growth as well as cost increases • Strategic investments have boosted pre - tax margin performance • Structural cost initiatives will preserve Delta’s cost advantage and pave the way for margin expansion • Taking a differ