Delta Air Lines, Inc.

Good morning, everyone, and welcome to the Delta Airlines December quarter and full year 2018 financial results conference call. My name is Augusta, and I will be your coordinator. At this time, all participants are in a listen-only mode until we conduct a question-and-answer session following the presentation. As a reminder, today's call is being recorded. I would like to now turn the conference over to Jill Greer, Vice President of Investor Relations. Please go ahead, ma'am.

Thanks, Augusta. Good morning, everyone, and thanks for joining us. With us in Atlanta today are our CEO, Ed Bastian, our President, Glenn Hauenstein, and our CFO, Paul Jacobson. Our entire leadership team is here in the room for the Q&A session. Ed will open the call and give an overview of Delta's financial performance. Glenn will then address the revenue environment, and Paul will conclude with a review of our cost performance and cash flow. To get in as many questions as possible during the Q&A, please limit yourself to one question and a brief follow-up. Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in Delta's SEC filing. We'll also discuss non-GAAP financial measures. All results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the investor relations page at ir.delta.com. And with that,

Thanks, Jill. Good morning, everyone. Thanks for joining us today. Earlier today, we reported our full year results, including a December quarter pre-tax profit of $1.2 billion and earnings per share of $1.30, both of which were at the top end of expectations that we gave you at the start of the quarter. Our top line grew 7% in the quarter. This solid performance, combined with our best non-fuel unit cost result of the year, offset a $500 million increase in fuel expense. The December quarter marked a successful step on our path to improve margin performance, with our pre-tax margin expanding over last year's, even if excluding the one-time gain from our DGS transaction. 2018 was a successful year for Delta as we delivered strong results for our customers and our owners. Our earnings per share improved nearly 20% over the prior year, and we returned $2.5 billion back to our owners. We ended the year with an 11.6% pre-tax margin and a return on invested capital of 14.2%. Notably, our $5.1 billion in pre-tax income was only 3% below 2017, despite a 30% increase in our fuel expense. The last time we saw a 30% annual fuel increase was 2011, and that year, earnings fell approximately 25%. This really sums up the resiliency of our business and how different Delta is. For our customers, Delta's operation is the best in the industry, and 2018 was another record-setting year. We ended the year with 143 days without a single cancellation across the entire Delta system, including both mainline and Delta connection, exceeding 2017's full-year record of 90 days. For our mainline product alone, we had a record-breaking 251 days without a cancellation, delivering an on-time arrival rate of 85.7%. This exceptional performance by our operations team resulted in Delta being named 2018's most global, excuse me, most on-time global airline by Flight Global for the second year in a row. Running a great operation is the foundation for high customer satisfaction. When combined with the great service our employees provide and the investments we've made in our product, we're creating some of the most loyal customers in the airline industry. We drove improvement in net promoter scores during 2018 in every region of the world. Our domestic net promoter score has tripled over the last decade and reached an all-time high in September of over 50%. All of these results are a reflection of the incredible work of the Delta people. and I'm pleased to recognize our employees' outstanding performance this year with over $1 billion in profit sharing for the fifth consecutive year. As we move into 2019, while fuel volatility has been a major story the last few months, prices now sit almost exactly where they were a year ago, and by the way, where we thought they would be. This, coupled with strong non-fuel unit cost control, should position us well for cost stability in the new year. The revenue environment remains solid. After 8% top-line growth last year, we are assuming a modest reduction in global economic growth rates for 2019. We expect top-line growth to be 5% this quarter, a rate we are also anticipating for the full year, as we communicated last month at our investor day. Our revenues to China, a market that's driving some trade and travel concerns, grew 27% in the fourth quarter. and we expect a similar level of growth this quarter. Most importantly for Delta, the domestic revenue environment, which accounts for approximately 70% of our total past year revenue, continues to do well. Corporate revenues grew 8% in 2018, and recent bookings show this trend continuing. Now with respect to the government shutdown, we are seeing some pressure on our business. On the revenue front, we're experiencing about $25 million per month in lower government travel. The bigger impact is on our operation. With non-essential work at the FAA shutdown, our Airbus 220 start date is likely to be pushed back due to delays in the certification process. This is also hampering our ability to put seven other new aircraft deliveries into service. But it's our customers who are seeing the biggest impact with longer lines at airport security. We're working closely with TSA on any steps we can take to minimize these delays including mobilizing Delta employees to perform nonessential aspects of the security process. We strongly encourage our elected officials to do their very best to resolve their differences and get our government fully open as quickly as possible. In summary, 2018 was a strong year for our customers, owners, and employees. We experienced significant top-line demand growth for our product, our operational reliability was record-setting, and our brand has never been more healthy. Despite a $2 billion fuel headwind, we generated double-digit margins, topping $5 billion in profits for the fourth year in a row. And we expect 2019 will build on these strengths and deliver a great year of returns for our stakeholders. The demand environment is solid, and our cost base should be stable, resulting in improved earnings and cash flows for our owners. And while we're certainly mindful of the challenges that exist, macro trends, currency headwinds, an extended government shutdown, Our team has built a great foundation for our business and Delta is well positioned for success in 2019. And now I'll turn it over to Glenn to discuss the revenue environment.