Delta Air Lines, Inc.

We stand by. We're about to begin. Good morning, everyone, and welcome to the Delta Airlines December quarter and full year 2021 financial results conference call. My name is Cody, and I'll 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, Cody. Good morning, everyone, and thanks for joining us for our December quarter and full year 2021 earnings call. Joining us today from Atlanta, our CEO, Ed Bastian, our president, Glen Howen's son, our CFO, Dan Jenke. Ed will open the call with an overview of Delta's performance and strategy, and Glen will provide an update on revenue, and Dan will discuss costs in our balance sheet. After the prepared remarks, we'll take analyst questions, and we ask you please limit yourself to one question with a brief follow-up so we can get to as many of you as possible. And after the analyst Q&A, we'll move to our media questions. 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, 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 really appreciate you joining us today. Before getting into the December quarter results and outlook, I want to spend a couple minutes discussing the current environment. As everyone's aware, the Omicron variant has significantly impacted our people, our customers, and our operation, as well as most parts of society over the last three weeks. The combination of the rapid spread of the variant at the peak of a strong holiday demand period and in the face of extreme winter condition in parts of the country created some of the most difficult travel conditions that we ever remember experiencing. I'm incredibly appreciative of the great work that our frontline team has done and continue to do to help our customers get to where they need to be as safely and quickly as possible, no matter the circumstances. Our teams have faced these difficulties head on, while also managing the impact of the virus in their own lives, and I want to thank every member of the Delta team for your work during a very challenging period. To our customers who have been affected, we appreciate your patience and your understanding. The good news? is that over the past seven days, our operation has stabilized, with Omicron-related cancellations impacting only about 1% of our flights. And since Sunday, the number of Omicron-affected cancellations are around 20 a day out of nearly 4,000 daily flights. And in fact, yesterday, we only had two Omicron-related mainline cancellations. So while the new variant is not done, it appears that the worst may be behind us. Based on how quickly the case counts have risen, our medical team expects cases to peak in the US over the next few days, followed by a steep decline in cases. And we're already starting to see that happen amongst our own staff. Given the high transmissibility and lower severity of Omicron, this variant is likely to mark the shift in COVID-19 from being a pandemic to a manageable and ordinary seasonal virus, which should accelerate the path to a normalized environment. When we spoke last month about Omicron as a risk at Capital Markets Day, a lot was unknown. Today, we know a lot more. And while the first 60 days of the year will be impacted, we're confident that the pace of travel recovery will resume its December trajectory as we move into President's Day weekend and a strong spring and summer travel season are ahead of us. So as we reflect on 2021, it was a year like no other for Delta. While challenging, we made significant progress in our recovery. At Capital Markets Day, we highlighted that our competitive strengths had deepened through the course of the past two years, and I'm extremely proud of our entire team for all their efforts. Full-year revenue of $27 billion in 2021 improved nearly $11 billion, or 67% from 2020, with the rate of recovery accelerating from only 25% as measured against 2019 at the start of the year to a close of the year of nearly 80% as we exited December. This resulted in a full year 2021 pre-tax loss of $3.4 billion. And while we obviously have still much work ahead of us, our pre-tax results improved by $5.5 billion versus 2020 and included a profit of around $400 million for the second half of this year. This performance positions Delta as the only major US airline to achieve second-half profitability and demonstrates that we have significant momentum in the continued restoration of our financial foundation. Sharing our success is one of the pillars of Delta's culture, which is why we are happy to announce this morning a special profit-sharing payment for all global employees. On February 14th, the vast majority of our people will receive a payment of $1,250. This is a well-earned recognition for the incredible work they have done over the past year to move our airline through the crisis and position us for recovery. Turning to December quarter highlights and our March outlook, in the fourth quarter, we recorded a pre-tax profit of $170 million, excluding the impact of Omicron disruptions we estimate our profitability would have been approximately $250 million in the quarter. This was on revenue that was 74% recovered to 2019 levels, up eight points from the September quarter. We started the quarter with lingering impacts of the prior variant, but encouraged by the significant improvement in demand and pricing that we saw throughout the quarter in each of our passenger segments. Turning to the March outlook, we expect to incur pre-tax losses in the months of January and February before returning to solid profitability in the month of March. The Omicron case surge is impacting business travel and international recovery the most. As meetings are canceled, planned office reopenings are postponed, and countries put restrictions back in place. On the consumer side, we're seeing some near-term hesitation in booking behavior given the prominence of COVID in our daily lives. And that combined with operational challenges that the industry is facing, consumers are delaying travel until case counts subside and the industry operational reliability is restored. So as a result, we're seeing the rate of recovery step down in the months of January and February to approximately 70% versus 19 levels from nearly 80% where we were in December. And while the downturn in demand has been quick, we expect an equally rapid improvement once U.S. case counts begin to decline. We remain confident in a strong spring and summer travel season with significant pent-up demand for consumer and business travel, both domestically and internationally. We expect the month of March to return to the recovery trajectory that we were on in December, resulting in revenue recovery of 72% to 76% for the full quarter. Glenn will talk in greater detail about the revenue environment, and Dan will walk through our costs shortly. Based on our current outlook, we expect first quarter to be the only loss-making quarter for the year, and we're confident that we'll generate a meaningful profit for the full year of 2022 as the recovery resumes and accelerates in the spring and the summer. Despite the challenges of the current environment, the multi-year recovery plan that we laid out last month at Capital Markets Day is unchanged. No one is better positioned than Delta to lead the recovery as business travelers return to the skies. Delta is also uniquely prepared to benefit from the reopening of international markets, which we are optimistic we'll start seeing this spring as restrictions lift. Our three core priorities discussed last month remain unchanged. Fortifying our trusted consumer brand, restoring financial performance and foundation, and building a better future for our people and our planet. As part of this, we remain firmly committed to our values and ESG goals, including our commitment to fighting climate change and moving forward towards a future of net zero aviation. We recently announced the hiring of our new chief sustainability officer, Pam Fletcher, the industry's only sea level CSO. Pam established an impressive track record as a senior leader at General Motors and has an extensive history of putting the customer first and developing products that help to enable a world free of emissions. So as we move past the final phase of the pandemic, I'm confident that we'll continue our trajectory to not only emerge stronger than before, but to expand our lead in the industry and strengthen our position as the premium airline of choice in the years ahead. Our ambition is to transcend the industry and create significant long-term value for all of our stakeholders. Everything we've done during this long crisis puts us closer to achieving that ambition. Thank you again. And with that, I'll turn the call over to Glenn.