Delta Air Lines, Inc.

Please stand by, we're about to begin. Good morning, everyone, and welcome to the Delta Airlines March quarter financial results conference call. My name is Jake, 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 now like to turn the conference over to Jill Greer, vice president of investor relations. Please go ahead.

Thanks, Jake. Good morning, everyone, and welcome to our March quarter earnings call. Joining us from 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 filings. We'll also discuss non-GAAP financial measures. All results exclude special items unless otherwise noted, and you can find a reconciliation of our non-GAAP measures on the investor relations page at ir.delta.com. And with that, here's Ed.

Thanks, Jill. Good morning, everyone. Thanks for joining us today. Earlier today, Delta reported an $832 million pre-tax profit, or 96 cents per share. The core business performed well, and we saw a nice upside from our contract renewal with American Express. We grew our earnings per share by 28%, expanded our operating margin by 150 basis points, and delivered an after-tax return on invested capital of 14.5% over the last 12 months. This performance demonstrates how we are translating our unique brand, unmatched competitive advantages, and pipeline of initiatives to drive earnings growth, margin expansion, and solid returns for our owners. This also underscores our confidence that we have in our future, which is one of the reasons why we accelerate our share repurchases, returning $1.6 billion to our shareholders this quarter. We achieved 7.5% top-line growth as demand for our product remained strong. Our ancillary businesses delivered double-digit growth, and we extended our leadership in delivering great value for our customers. This starts with industry-leading reliability as the world's best-run airline. We delivered the best March quarter completion factor in our history at 99.06% despite a very difficult winter weather. Reliability and our culture of service underpin the strength of our brand and allow us to build lasting customer relationships. Domestic net promoter score has averaged 50% this year, up seven points versus last year. This is the reason we sustain the best revenue premium in the industry, and it's not just our customers who notice. Earlier this week, Delta topped the airline quality rating and was the only airline to improve in all categories. That's as important. We continue to execute on cost discipline. Non-fuel unit cost declined slightly, marking the third quarter in a row of cost performance below inflation and giving us good line of sight to achieving our full-year non-fuel unit cost expectations of 1%. The combination of revenue momentum and cost discipline drove a one-point improvement in our pre-tax margin, a successful step in our path to improve margin performance for the full year. and our earnings per share growth of 28% in the March quarter should be in the top 10% of companies in the S&P 500. At the heart of this performance are the Delta people. Their hard work and focus on the customer is what sets Delta apart, and I want to thank them and say congratulations for starting the year with $220 million towards next year's profit sharing. During the quarter, there were exciting developments in loyalty, our maintenance, repair, and overhaul business, and fleet, that ensure we build on our earnings momentum, strengthen our strategic advantages, and further diversify our revenue streams. Fifty-five percent of our revenue now comes from premium products and non-ticket sources, up from less than 40 percent in 2011. The growing revenue streams from loyalty on our MRO are a major component of the $3 to $4 billion in free cash flow that we expect to generate this year. Our long-term agreements give us better visibility and even more confidence in the sustainability of this level of cash generation. Importantly, they are decoupled from airfares and provide stability in any economic environment. Last week, we were pleased to announce a contract renewal with American Express, extending our agreement through 2029. Delta and American Express are two great consumer brands, and our shared passion for service and innovation is at the foundation of our long-term partnership. Our American Express partnership is our most important commercial relationship, and I appreciate the confidence that Steve Squirey and the rest of the Amex team places in Delta. While our Amex contract wasn't set to expire for several years, the early renewal accelerates momentum by providing certainty and a platform for mutual growth and investment. We expect a new agreement to enable substantial growth in the Delta SkyMiles credit card portfolio setting the stage to create not just the industry's most valuable co-brand program, but one of the most valuable consumer co-brands on the globe. Delta's benefit is expected to grow to $7 billion by 2023, up from $3.4 billion last year and just $1 billion at the start of this decade. This growth trajectory demonstrates the strength of the Delta brand and the growing attractiveness of our value proposition to our customers. As the largest MRO in North America, we also expect to generate double-digit growth, reaching more than $800 million in revenues this year. And we are growing this business by developing new capabilities and securing long-term partnerships. During the quarter, we completed construction on the world's largest engine test cell. The test cell opens the door to new, larger engine testing capabilities, including those in our agreements with Rolls-Royce and with Pratt & Whitney. As we continue to invest in and grow our maintenance business, we expect the MRO top line to reach $2 billion over the next five years. And finally, we continue to transform our fleet. While we have made substantial enhancements to our fleet over the last number of years, we expect substantial efficiency benefits are still ahead for us, supporting revenue growth and contributing to Delta's sustained margin advantage. With more than 80 new deliveries this year, 2019 will be an important year for this initiative. We had a milestone this quarter with the first flights on our state-of-the-art Airbus 220. This innovative aircraft sets a new standard for the domestic narrow-body product. Our customers love it, and we're finding them booking specifically to beyond the Airbus 220. We have 90 deliveries of this product alone scheduled over the next several years. So 2019 is off to a real solid start. The core business performed well during the quarter, which combined with the upside from the American Express renewal gives us increased confidence in our full-year plan of strong top-line growth, margin expansion, and double-digit earnings growth. Business has momentum, and there are significant opportunities ahead of us. We have a strong foundation with our strategic advantages, which are our culture, our leading operational reliability, an unrivaled network, our loyalty program and relationship with American Express, and an investment-grade balance sheet. These advantages, combined with a great brand powered by the very best professionals in the business, provide the engine to drive long-term value for our owners. Before I turn the call over to Glenn and Paul, I'd also like to take a minute to introduce Tim Mapes, who will become our Chief Marketing and Communications Officer starting next month. Tim has more than 25 years of experience with Delta and has been a leading force behind the Delta brand. Tim is assuming this role because our good friend, Ned Walker, is heading off to a well-earned retirement. Ned, you leave behind an incredible legacy of leadership and service to Delta and the industry, and on behalf of the entire Delta family, thank you. And now I'll turn the call over to Glenn to discuss the revenue environment.