Delta Air Lines, Inc.

Good morning, everyone, and welcome to the Delta Airlines June quarter 2021 financial results conference call. My name is Katie, 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 Julie Stewart, Vice President of Investor Relations. Please go ahead.

Thank you, Katie, and good morning, everyone. Thanks for joining us for our June quarter 2021 earnings call. Joining us today from Atlanta is our CEO, Ed Bastian, our president, Glenn Hallenstein, our interim co-CFO, Gary Chase, and our entire leadership team will be available for Q&A. Ed will open the call with an overview of Delta's performance and strategy. Glenn will provide an update on the revenue environment and our brand momentum, and Gary will discuss cost, fleet, and our balance sheet. I'd also like to welcome our incoming CFO, Dan Janke, who's with us in the room today but will not be participating in Q&A. Similar to last quarter's call, we've scheduled today's call for 90 minutes to make sure that we have time for plenty of questions. For analysts, we ask that you please limit yourself to one question and a brief follow-up so that we can get to as many of you as possible. After the analyst Q&A, we will move to our media questions, after which Ed will provide a brief closing statement. 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, and 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, I'll turn the call over to Ed.

Well, thank you, Julie. Good morning, everyone. I appreciate you joining us this morning. As we speak, we're well into the summer travel season. And if you've been to the airport in recent weeks, you've seen firsthand how travelers are reclaiming their lives and returning to the skies. This increase in demand drove a better-than-expected revenue outcome for us in the June quarter, with revenues down 49% versus 2019, resulting in a $6.3 billion increase total revenue. This was an impressive 76% sequential improvement from the March quarter. More encouragingly, the momentum is continuing as we exited June with a demand environment that's accelerating. Domestic leisure demand and yields are above June quarter 2019 levels, and we see clear signs of business and international demand recovery heading into the fall. Through the crisis, we've earned an unprecedented level of brand loyalty and trust. thanks to the world-class service, operational reliability, and innovation that drives the Delta difference. And our commitment to safety, cleanliness, and wellness is as strong as ever. The people of Delta are our strongest competitive advantage, powering our resurgence and running the best operation in the industry. It is because of our people's incredible work that Delta was honored as the number one airline for 2021 by J.D. Power. I want to thank every member of the Delta family for the professionalism, spirit of service and warmth you show to our customers every single day. I'd also like to thank our crews and operations teams for continuing to put our customers and their safety first as we restore our business. We are now in active recovery of our business and the challenges of getting our airline fully back to the service level our customers expect and deserve is daunting in light of the huge surge in demand that we are experiencing. But we're taking all the right steps primarily through increased staffing levels at both Delta and our contract service providers to service this demand without compromising on the standard of care and cleanliness that our customers have become accustomed to on Delta throughout the pandemic. And even with these challenges, our team continues to run the very best airline in the industry, leading on all key operating metrics for the month of June and year to date. For the June quarter, we narrowed our pre-tax loss to $881 million. This was meaningfully better than initial expectations driven by demand strength. Importantly, we achieved significant financial milestones during the quarter. These include returning to profitability in the month of June, with the pre-tax margin in the high single digits, despite still missing 40% of our prior revenue from June of 2019, generating $1.5 billion of free cash flow and nearly $200 million of adjusted free cash flow in the June quarter. Achieving solid profitability and generating meaningful free cash flow a little over a year from the start of the worst crisis in this industry's history is an impressive statement about the resilience of our business and the great work of our people. In showcasing the value of the commercial partnerships that we've developed leveraging the Delta brand, We have created almost $1 billion in investment value this year through our partnerships with Wheels Up and Clare. And I want to point out that $1 billion is against a zero-cost base. I want to give a big shout-out to Kenny Dichter and the Wheels Up team as their listing on the New York Stock Exchange goes live today. We're proud to be Wheels Up's exclusive commercial airline partner and largest shareholder, with a stake valued at over $500 million. Also, congratulations to Karen Simon Becker and the CLEAR team on their successful IPO. Our investment in CLEAR is worth approximately $340 million. And finally, I want to congratulate Sir Richard Branson and our team at Virgin Galactic for making history last weekend and completing their first fully crewed space flight. It was exciting to watch Richard break new barriers once again, this time commercial space travel. I take the time to mention these relationships because of the much larger ecosystem that Delta operates and attracts. And these opportunities to create value will continue to be nurtured as we extend our brand beyond traditional airline boundaries. With June profitability in the books, we're now in the restoration phase of recovery and focused on harnessing the power of our differentiated brand and our resilient competitive advantages to drive sustainable profitability in the second half of 2021. and enable long-term value creation. Specifically, for the September quarter, we expect a mid-single-digit pre-tax margin as demand continues to improve with the return of corporate travel and gradual reopening of international markets. We are starting to see signs of a resurgence of business and international travel, both of which are supporting the next leg of the revenue recovery. And we're well-positioned to take advantage of both with leading domestic corporate share and a strong global network. Around the country, more and more offices are opening and people are reconnecting to their businesses and to each other. With 72% of our employees vaccinated, we officially reopened our own offices last month in June. And as I interact with other CEOs, I'm encouraged to hear about their own plans to accelerate their return to office. That sentiment is coming through loud and clear in our most recent corporate survey with almost 95% of our accounts indicating they'll be returning to their offices by the end of this year. Domestic corporate volume grew from 20% base in March of this year, March month that is, to 40% recovered in the June month, and we expect it to be close to 60% recovered by September based largely on these reopenings. I'm also encouraged by the strength that we're seeing in international. While we know international demand recovery will be very choppy and uneven, we're seeing strong bookings to Europe when countries open their borders. From our experience in the US, we're seeing the impact that widespread vaccinations have on reopening the economy. We know the same will be true for the rest of the world over time, but are mindful of the risks that new variants pose to the pace of recovery. And our team will stay very disciplined in restoring international capacity. As the recovery builds steam, we are making the required investments, including hiring frontline and reservations employees and investing ahead of the full recovery of the airline in places like maintenance and training. This will allow us to continue to provide industry-leading service levels and prepare the airline for success in a stronger than previously expected demand environment. These investments are key to the execution of our strategy to win. which is defined by providing best-in-class service to our customers and leveraging the brand while creating a simpler, more efficient airline. The power of our brand has come through the crisis stronger than ever, and we're seeing evidence of this across the business. The resilience of our American Express co-brand credit card program is a great testament to the increasing brand affinity that we have. Card spend on the Delta American Express portfolio in the month of June was 115% recovered to 2019 levels for the same month, despite travel purchases still being off by 25% in that same period. We're continuing to renew and simplify our fleet, and yesterday we announced that we're opportunistically adding seven Airbus 350s and 29 737-900ERs that will enter service over the next 12 to 24 months. These are current vintage to the aircraft that we operate in our existing fleet, and we're adding these pre-owned aircraft for substantially less than the cost of new planes. These aircraft align with our fleet strategy that's focused on simplification, scale, size, and sustainability, and create optionality for future growth or replacement in a capital, disciplined manner. These transactions accelerate our recovery plans which also began with the exercise of 25 Airbus 321neo options in April. The A321neos, which will start to deliver in 2022, offer the lowest C cost in our fleet and will strengthen Delta's gauge advantage relative to our competitors. Our recent actions on fleet enhance efficiency throughout the cost structure. Gary will talk more about this shortly and will highlight the progress that we're making on our balance sheet and journey back to investment grade metrics. As our recovery path becomes clearer, so does our future as a carbon-neutral airline. In 2020, we committed to our airline's carbon neutrality and we're taking actions today that are critical to our future. This includes the reduction in emissions that we're achieving with our fleet renewal, investments in sustainable aviation fuel together with many corporate partners, and the evaluation of long-term investments in carbon reduction and removal technologies. During the quarter, we released our inaugural 2020 ESG report, which expands on the corporate responsibility reports that we have issued in the past. You'll be able to hear more about our ESG commitments as well, importantly, as our multi-year financial targets and vision moving forward at Delta's Capital Markets Day, which we will be holding in person in New York on December the 16th. This event will give everyone an opportunity to hear from our management team, which over the past year we've strengthened by bringing in outside perspectives and promoting our deep bench. That includes Allison Osman, who during the quarter pleased to announce was named our Executive Vice President and Chief Customer Experience Officer. In addition, John Lauder, who I'm also pleased we announced as our new Executive President and Chief of Operations. Allison and John are Delta veterans who bring deep experience and unmatched expertise to their roles. In addition, our incoming CFO, Dan Janke, brings extensive business and financial skills to his role, as well as a broad global perspective and operational experience that will serve us well in the recovery and beyond. Dan's background makes him the ideal leader to advance our efforts to restore Delta to our pre-pandemic financial position. You'll hear from him briefly before Gary delivers the financial update. With this great team of servant leaders, we're building an airline that's positioned to drive long-term value for all our stakeholders, our people, our customers, our owners, and our communities where we live, work, and serve. I could not be more excited about our future. And now, I'd like to turn it over to Glenn.