Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2008)
78 slides from Delta Air Lines's investor day presentation, Dec 9, 2008
Slide 1: Delta: One Great Airline – 2008 Investor Day
Delta: One Great Airline2008 Investor Day December 9, 2008
Slide 2: Delta: A Sound Investment Positioned for Long-Term Success
Delta: A Sound Investment Positioned for Long-Term Success Building the Premier Global Network Delivering for the Customer Growing Other Revenue Sources Achieving Operational Excellence Building On A Strong Financial Foundation Wrap-up and Q&A Lunch with Executives Majestic Ballroom, 5 th Floor Rich
Slide 3: 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 4: Delta: A Sound Investment
Delta: A Sound Investment Richard H. Anderson Chief Executive Officer
Slide 5: Our Investment Thesis
Our Investment Thesis Strategic Objectives Build financially viable airline - achieve consistent profitability, top-tier pre-tax margins, industry leading balance sheet Create a comprehensive worldwide network that is structurally sustainable, drives RASM premiums of 105-110% of industry, and genera
Slide 6: Our Investment Thesis
Our Investment Thesis Strategic Objectives Build the world’s leading global alliance in terms of market presence, distribution, customer experience and financial contribution Deliver industry-leading safety and operational performance coupled with a relentless commitment to customer service Sustain
Slide 7: Financially Superior Business Model
Financially Superior Business Model DL System PRASM vs. Industry 1 3Q08 YTD Operating Revenue 3Q08 Unrestricted Liquidity ($B) 3Q08 Mainline Non-Fuel Unit Costs (¢) 95% 98% 99% 102% 2005 2006 2007 2008YTD 10.8% 9.9% 6.1% 4.9% 3.5% 6.2 4.6 2.9 2.9 1.3 6.85 7..31 7.74 8.06 8.08
Slide 8: The Leading Global Network
The Leading Global Network Provides the scale to weather economic downturn Japan #1 Asia #1 Domestic #1 Latin America #2 Transatlantic #1 Africa #1
Slide 9: Delta: Positioned for Long-Term Success
Delta: Positioned for Long-Term Success Ed Bastian President
Slide 10: Delta: Positioned For Long-Term Success
Delta: Positioned For Long-Term Success Managing the current economic cycle Unlocking merger benefits Capitalizing on the value of the world’s largest airline Fuel price decline, capacity rationalization and merger synergies provides tools we need to manage economic downturn Moving with speed and ef
Slide 11: Recession Will Drive Industry Revenue Decline in 2009
Recession Will Drive Industry Revenue Decline in 2009 Historical Industry Operating Revenue Change Global economy in recessionary cycle which will continue through 2009 and possibly beyond Creates softening revenue environment as leisure and business customers reduce discretionary and business-relat
Slide 12: Why Managing the Current Crisis Will Be Different
Why Managing the Current Crisis Will Be Different Domestic Capacity Discipline Industry Domestic Capacity Change Unprecedented Fall in Fuel 2008 Crude Oil Prices ~14% decline in domestic capacity over two years Aircraft being retired or sold – not coming back into the system Capital markets closed t
Slide 13: Well Positioned to Deal with Economic Uncertainty
Well Positioned to Deal with Economic Uncertainty Unit revenue premium, best-in-class cost structure, and solid liquidity position % change YoY 3Q08 Mainline Non-Fuel Unit Costs 3Q08 Unrestricted Liquidity Premier global network drives unit revenue premium and provides tools to manage economic weakn
Slide 14: Delta Is Well Positioned for 2009
Delta Is Well Positioned for 2009 Fuel price decline, capacity rationalization and merger synergies allow for cash generation in face of economic downturn Industry Revenue Fuel price Mainline non-fuel unit cost Full year Year-end target Unrestricted liquidity Capacity Domestic International 2009 Tar
Slide 15: Confidence in Value, Timing of Synergies
Confidence in Value, Timing of Synergies Merger provides unparalleled synergies $500 million in 2009, ramping up to $2 billion at steady state Mitigating risk around timing and value of synergies FAA-approved plan for single operating certificate Technology platforms chosen Network actions being tak
Slide 16: Integration of the Airlines On Track
Integration of the Airlines On Track Network/Operations Customer Employee Expanded codeshare - DL code on >90% of NW flights at end of November Announced summer 2009 routes to unique international markets Increasing hub-to-hub connectivity Business as usual” messaging – gradual transition of check-i
Slide 17: Prioritizing Integration Activities That Drive Real Value
Prioritizing Integration Activities That Drive Real Value to Customers, Employees, and Shareholders Targeting a reduction to $500 million in cash costs to integrate the airlines Technology ($175 million) Employees ($150 million)Product($100 million) Facilities ($75 million) Core platform and applica
Slide 18: Capitalizing on the Power of the World's Largest Airline
Capitalizing on the Power of the World’s Largest Airline Expanded scale and scope of the airline Unlocking value in the network Combining the best of both companies Establish industry leading co-brand partnership by pairing the largest loyalty program with the best affinity card issuer Enhanced pote
Slide 19: American Express Agreement Generates $2 Billion in New Liquidity
American Express Agreement Generates $2 Billion in New Liquidity over Next Two Years Pairing the world’s largest loyalty program with the best marketer in the industry Best-in-class affinity card agreement Over $15 billion in value for next seven yearAgreement provides $1 billion in immediate liquid
Slide 20: Delta: Positioned For Long-Term Success
Delta: Positioned For Long-Term Success Managing the current economic cycle Unlocking merger benefits Capitalizing on the value of the world’s largest airline Fuel price decline, capacity rationalization and merger synergies provide the tools to manage economic downturn Nearly $7 billion in liquidit
Slide 21: Delta: Building The Premier Global Network
Delta: Building The Premier Global Network Glen Hauenstein EVP – Network Planning and Revenue Management
Slide 22: Delta Has Led The Industry In Revenue Momentum
Delta Has Led The Industry In Revenue Momentum Domestic PRASM 1 vs. the Industry Commitment to capacity discipline Right-sizing domestic network Fleet re-gauging Improved domestic product 1 Length of haul-adjusted PRASM for Delta and Northwest combined for all periods presented 94% 98% 100% 102% 200
Slide 23: The Leading Global Network
The Leading Global Network Provides the scale to weather economic downturn Japan #1 Asia #1 Domestic #1 Latin America #2 Transatlantic #1 Africa #1
Slide 24: Network Diversity Mitigates Risk
Network Diversity Mitigates Risk Creates a natural hedge against regional weakness Less Reliance On Domestic Markets 1 International Mix By Region 2 Reflects capacity mix for month of August for DL standalone 2005-2008 and DL+NW 2009-2010. Source: July 2009 OAG Domestic International ME/Africa/India
Slide 25: Commitment to Capacity Discipline Across The Network
Commitment to Capacity Discipline Across The Network Reduce unprofitable capacity while growing network footprint Remove bottom 10% underperforming markets Growth in Africa/Middle East offsets reduction in Europe Re-gauging Pacific for improved profitability Realign Mexico/Caribbean with growth to u
Slide 26: Optimizing the Domestic Network
Optimizing the Domestic Network Salt Lake City $1B market with 290 flts/day 57% revenue share Serving 30 unique cities Minneapolis $1.7B market with 500 flts/day 68% revenue share Detroit $1.7B city with 525 flts/day 65% revenue share 2 nd largest Midwest hub only behind ORD New York (JFK) Largest o
Slide 27: Full Transatlantic JV = Opportunity to Maximize Profits
Full Transatlantic JV = Opportunity to Maximize Profits Value created from: Reducing capacity while keeping similar levels of service Powerful hubs drive most efficient routings Cross-fleeting to optimize gauge Creating the preferred alliance for high yielding corporate accounts $200M+ incremental p
Slide 28: Most Powerful Domestic Network Combined With Most Powerful Asian Network
Most Powerful Domestic Network Combined With Most Powerful Asian Network Expanded ALK relationship facilitates development of West Coast Pacific gateway US Position North America cities US gateways to Asia Transpacific flights/day 1 3 2 4 271 182 154 148 10 60 4 2016 16 6 5 Beijing Seoul Busan Osaka
Slide 29: Narita Restructuring Drives RASM Improvement
Narita Restructuring Drives RASM Improvement Better positioned through balanced capacity and improved connectivity Narita – Transpacific seats increased 30% via new hub connections Intra-Asia capacity reduced to lessen dependence on low yielding local traffic Overall network coverage increased with
Slide 30: Capitalize on Delta's #1 Position to NYC
Capitalize on Delta’s #1 Position to NYC Integrate Northwest Continue profitable int’l expansion London product upgrade Appropriate aircraft gaugeAdding key service to Tokyo, including 13 one-stop Asian connections Increase network breadth with unique destinations in Europe and Africa Lie flat seati
Slide 31: Fleet Options Enable Flexible Network
Fleet Options Enable Flexible Network Enhanced ability to adjust capacity as demand environment changes International widebody capacity matched to seasonal demand Larger aircraft redeployed to hubs and high density routes Narrowbody aircraft scheduled based on capacity and capability Example Atlanta
Slide 32: Lowest Capital Cost Enables Flexible Utilization
Lowest Capital Cost Enables Flexible Utilization Mission Short-Haul Long-Haul Transoceanic Capital Cost Market MD88/90 A320 737/8 777/747
Slide 33: Revenue Momentum Continues
Revenue Momentum Continues Strategic Opportunities Drive Incremental Value System PRASM vs. the Industry 1 1 Length of haul-adjusted for Delta and Northwest combined for all periods presented. 2005 2006 2007 2008 2009E Target YTD 95% 98% 99% 102% 105% 110%
Slide 34: Delta: Delivering for the Customer
Delta: Delivering for the Customer Jim Cron Senior Vice President – Global Sales and Distribution
Slide 35: Delivering for the Customer – Network Scope
Delivering for the Customer – Network Scope Broadest possible schedule network is the most important airline attribute for the business customer Combined network offers industry leading convenience Delta is clearly delivering the network to the business customer Japan Domestic Latin AmericaA frica
Slide 36: Delivering for the Customer – Other Key Value Drivers
Delivering for the Customer – Other Key Value Drivers Portfolio of hubs allows us to adjust capacity in response to economic challenges without sacrificing unique markets or critical time of day coverage Despite capacity reductions, new revenue generating markets continue to be launched (e.g. JFK-NR
Slide 37: Distribution Strong Foundation
Distribution Strong Foundation New Delta becomes world's #1 global segment producer (9%) with a strong #1 US POS position (23%)* 2006 GDS agreements produce significant cost improvements over seven-year term Traditional agencies generate meaningful yield premiums as a channel (nearly double non-trad
Slide 38: Delta: Growing Other Revenue Sources – TechOps
Delta: Growing Other Revenue Sources – TechOps Tony Charaf President – Technical Operations
Slide 39: MRO Scope
MRO Scope EngineComponentsAirframe Capacity of 900-1,000 engines per year Engines account for nearly 80% of total MRO revenue Global presence brings TechOps customers from over 30 countries on 5 continents Merger with Northwest expands global presence Customer engines approximately 50% of TechOps ov
Slide 40: MRO Financial Performance
MRO Financial Performance Delta TechOps (30% CAGR) has grown at five times the rate of the MRO Industry (6% CAGR) over the past three years Approximately 70% of Projected 2009 MRO Revenue is currently secured with geographically diversified long-term contracts with operators such as Gol, ABX, Hawaii
Slide 41: Long-Term MRO Growth Strategy
Long-Term MRO Growth Strategy Strong Relative Position in the Industry Well Positioned to Weather Global Economic Crisis Atlanta as “Gateway to the world” – continued focus on MRO pillars Merger expands TechOps capacity and capability Flexible, efficient, and highly skilled workforce trained in cont
Slide 42: Delta: Growing Other Revenue Sources - SkyMiles
Delta: Growing Other Revenue Sources - SkyMiles Jeff Robertson Vice President – Loyalty Programs
Slide 43: Contract Extension with American Express
Contract Extension with American Express Agreement provides over $2 billion in short-term liquidity Immediate Liquidity + Contract Enhancements Leverage Existing Partnership Immediate $1B purchase of miles Additional $1B of new value through rate improvement, volume and other program enhancements in
Slide 44: Growth in Revenue is Significant
Growth in Revenue * is Significant DL & NW Annual Revenue Synergy from program consolidation * Revenue defined as gross mileage sales and other program-related revenue $1.4B $1.1B $1.5B $2.0B $2.1B $2.2B 2005 2006 200702008E 2009E 2010E 2011E
Slide 45: Program Membership
Program Membership Total Members Post-Merger Largest program attracts additional high-quality partners and improved rates Source: AA: 60M from 10-K 2/20/08, UA: 52M from 10-K 2/29/08, CO: 35M from CO self-reported data in SkyTeam Fact Sheet Aug08, US: 30M - Webflyer.com and Ideaworks analysis 74M 60
Slide 46: SkyMiles – A World-Class Loyalty Program
SkyMiles – A World-Class Loyalty Program Largest Loyalty Program Incremental Revenue Opportunities Best of Both Programs SkyMiles - #1 in total membership with 74M members, over 20% more than the #2 program Also # 1 in active membership and revenue Largest program attracts additional high-quality pa
Slide 47: Delta: Achieving Operational Excellence
Delta: Achieving Operational Excellence Steve Gorman Chief Operating Officer
Slide 48: Excellent Operational Performance in 2008
Excellent Operational Performance in 2008 On-Time Reliability Baggage Top tier completion factor October YTD Delta and Northwest in top three of departures within zero and arrivals within 14 minutes Most efficient block times in industry Opportunity to enhance by adopting best practices of both comp
Slide 49: Merging Operations with Minimal Customer Disruption
Merging Operations with Minimal Customer Disruption Centralize functions Consolidating all functions within operations groups Dual certificate operations with strong, experienced leaders for key functions Operations Control Centers (including Dispatch) Flight Operations and In-Flight Services Pre-me
Slide 50: Progress Towards Single Operating Certificate
Progress Towards Single Operating Certificate On-Schedule SOC Plan completed in August 2008 and approved by FAA in September Detailed timeline for analysis, implementation and FAA approval Program approach identifying all operational processes and procedures that must be aligned Adopt and go – no hy
Slide 51: Single Operating Certificate Unlocks Significant Synergies
Single Operating Certificate Unlocks Significant Synergies Network Supply Chain Facilitates full network optimization Fleet and schedule flexibilityFully merged operations Single operations control Flight operations and in-flight services including base realignment, scheduling and resource planning
Slide 52: Delta: Building On A Strong Financial Foundation
Delta: Building On A Strong Financial Foundation Hank Halter Chief Financial Officer
Slide 53: Building On A Strong Financial Foundation
Building On A Strong Financial Foundation Enhancing a strong financial foundation Preserving and growing liquidity Best top line revenue growth Managing unit costs despite capacity reductions Ancillary and third party revenue opportunities Benefits of productivity initiativesMitigating fuel price ri
Slide 54: Solid Revenue Performance Strengthens Position
Solid Revenue Performance Strengthens Position Delta is delivering a revenue premium to the industry 3Q08 YTD Operating Revenue 1 % change YoY Delta System PRASM 2 LOH-Adjusted domestic PRASM 1 Represents Delta and Northwest combined results 10.8 9.906.104.903.56 95098099010202005 2006 200702008 YTD
Slide 55: Best-In-Class Cost Structure
Best-In-Class Cost Structure Cost advantage positions Delta to better weather economic challenges Removed associated costs along with domestic capacity 20-25 Delta mainline aircraft and equivalent of 100 regional jets by end of 2008 Voluntary programs resulted in over 4,000 headcount reductionSecond
Slide 56: Ancillary and Third Party Revenue: Source of Significant Value
Ancillary and Third Party Revenue: Source of Significant Value Cargo Investments in product, technology and people Focus on yield management Power of expanded global network MRO Outpacing industry revenue growth Double-digit margins Northwest’s capability and facilities provide unique opportunity 1
Slide 57: Fuel Price Decline, Capacity Rationalization and Synergies Provide Upside
Fuel Price Decline, Capacity Rationalization and Synergies Provide Upside to Manage Economic Downturn Annualized savings from $50 decline in crude price per barrel ($100 to $50) Savings from capacity reduction of 6 - 8% Merger synergies Total Impact ~$5 Billion~$1 Billion ~$0.5 Billion ~$6.5 Billion
Slide 58: Fuel Hedging Portfolio Allows For Nearly 80% Participation in 2009
Fuel Hedging Portfolio Allows For Nearly 80% Participation in 2009 At Market Fuel Prices % of Fuel Consumption Hedged Call options SwapsCollarsProjected fuel pricePortfolio Downside ParticipationAvg. Jet Fuel Equivalent Floor Avg. Jet Fuel 3.39 3.33 2.70 2.70 3.06 2.81 2.87 2.71 1.32 0.80 2.09 0.00
Slide 59: Disciplined Capex Plan for 2009
Disciplined Capex Plan for 2009 Invest prudently to create the most profitable, flexible, and operationally capable fleet while preserving liquidity Optimize fleet flexibility with strategic aircraft purchases 6 777-200LR 6 737-700 8 CRJ-900 Invest in products/technologies that maximize fleet profit
Slide 60: Fleet Rationalization Lengthens Re-Fleeting Horizon
Fleet Rationalization Lengthens Re-Fleeting Horizon Flying an MD-88 aircraft saves $2.6 million per year vs. purchasing a new B737-800 Annual total cost advantage of MD-88 vs. new B737-800 ($M) Note: Based on crude price per barrel of $60 and $20 crack spread Ownership cost advantage lower crew and
Slide 61: Delta Maintains A Strong Liquidity Position
Delta Maintains A Strong Liquidity Position Cash preservation a priority in time of economic weakness and volatile fuel prices Unrestricted Liquidity December 2008 vs. December 2009 ($B) Liquidity expected to grow in 2009 despite economic weakness Note: Liquidity balance includes cash and short term
Slide 62: Estimated Free Cash Flow of $8 - $9 Billion Over Next Three Years
Estimated Free Cash Flow of $8 - $9 Billion Over Next Three Years Total Three Year Projection 2009 – 2011 Adjusted Net Debt ($B)EBITDAR Operating Cash Flow Capital Expenditures Net Debt Maturities Strong financial foundation, merger benefits drive free cash flow generation $15 - $17B $11 - $13B $11
Slide 63: Delta's Net Operating Losses Are a Significant Asset
Delta’s Net Operating Losses Are a Significant Asset Value of NOLs approaches $15 billion Net Operating Losses (NOLs) $B 1 Expect use of NOLs to offset future pre-tax income Minimal cash tax requirements 1 Net operating losses projected for Delta and Northwest as of December 31, 2008 10.0 4.5 14.5
Slide 64: Building On A Strong Financial Foundation
Building On A Strong Financial Foundation Enhancing a strong financial foundationManaging risk in the business Preserving and growing liquidity Best top line revenue growth Managing unit costs despite capacity reductions Ancillary and third party revenue opportunities Benefits of productivity initia
Slide 65: Delta: One Great Airline
Delta: One Great Airline Solid balance sheet and liquidity position Durable financial foundation Financial and strategic benefits of consolidationPremier global network and leading alliances Engaged, committed workforceInvestments in customer service and operational improvements
Slide 66: Appendix A: Bankruptcy Claims Update
Appendix A: Bankruptcy Claims Update
Slide 67: Working Through Bankruptcy Claims Distributions
Working Through Bankruptcy Claims Distributions Targeting to complete claims process during 2009 Delta Plan of Reorganization contemplates distribution of 400 million shares by end of 2009 To date, 311 million shares have been distributed including 14 million shares to employees No change to estimat
Slide 68: Appendix B: Unaudited Condensed Combined Financial Information
Appendix B: Unaudited Condensed Combined Financial Information
Slide 69: Unaudited Condensed Combined Financial Information
Unaudited Condensed Combined Financial InformationThe following Unaudited Combined Statements of Operations and Unaudited Condensed Combined Statement of Cash Flows have been developed from and should be read in conjunction with (1) the unaudited interim consolidated financial statements of Delta an
Slide 70: Unaudited Combined Statements of Operations
September 30, 2008 OPERATING REVENUE: Passenger: Mainline $ 5,330 $ 5,364 $ 6,265 $ 6,723 Regional affiliates 1,381 1,445 1,649 1,606 Cargo 374 332 372 363 &# 160; Other, net 705 759 802 838 Total operating revenue 7,790 7,900 9,088 9,530 OPERATING EXPENSE: Aircraft fuel and related taxes 2,292 2,53
Slide 71: Unaudited Condensed Combined Statement of Cash Flows
DELTA AIR LINES, INC. Unaudited Condensed Combined Statement of Cash Flows ' For the Nine Months Ended September 30, 2008 (in millions) Net cash provided by operating activities $ 852 Cash Flows From Investing Activities: Property and equipment additions: Flight equipment, including advance payments
Slide 72: Unaudited Combined Statements of Operations
Unaudited Combined Statements of Operations DELTA AIR LINES, INC. Unaudited Combined Statements of Operations Excluding Special Items (in millions) Delta Northwest Special Items Combined Delta Northwest Special Items Combined Three Months Ended December 31, 2007 Three Months Ended December 31, 2007
Slide 73: Combined Statements of Operations
Combined Statements of Operations OPERATING REVENUE: Passenger: Mainline $ 3,627 $ 2,638 ; $ - Regional affiliates 1,143 506 - Cargo 160 212 - Other, net 569 233 - Total operating revenue 5,499 3,589 - OPERATING EXPENSE: Aircraft fuel and related taxes 1,678 1,206 - Salaries and related costs 1,092
Slide 74: Unaudited Condensed Combined Statement of Cash Flows
Unaudited Condensed Combined Statement of Cash Flows DELTA AIR LINES, INC. Unaudite d Condensed Combined Statement of Cash Flows ' For the Nine Months Ended September 30, 2008 DELTA AIR LINES, INC. Unaudite d Condensed Combined Statement of Cash Flows ' For the Nine Months Ended September 30, 2008 (
Slide 75: Appendix C: Non-GAAP Reconciliations
Appendix C: Non-GAAP Reconciliations
Slide 76: Forward Looking Projections
Forward Looking Projections Delta is unable to reconcile certain forward-looking projections to GAAP, including projected Mainline non-fuel CASM, adjusted net debt, unrestricted liquidity, length of haul adjusted PRASM to industry, earnings before interest, taxes, depreciation, amortization and airc
Slide 77: Length of Haul Adjusted PRASM
Length of Haul Adjusted PRASM
Slide 78: Mainline Non-Fuel CASM
Mainline Non-Fuel CASM Delta and Northwest exclude special items because management believes the exclusion of these items is helpful to investors to evaluate the companies' recurring operational performance. Delta's cost per available seat mile (CASM) excludes expenses related to Delta's providing m