The Delta Air Lines June Quarter 2023 Financial Results Conference Call is being coordinated by Matthew and led by Julie Stewart, Vice President of Investor Relations. Ed Bastian, the CEO, will open the call with an overview of Delta's performance and strategy, followed by Glen Hauenstein's update on the revenue environment and Dan Janki's discussion of costs and the balance sheet. After the prepared remarks, there will be a question-and-answer session with analysts, followed by media questions. The discussion contains forward-looking statements and non-GAAP financial measures.

Delta announced record revenue and earnings for the June quarter, with $2.68 per share, a 90% increase over last year, and 19% higher revenue. Operating income was $2.5 billion, and free cash flow was over $3 billion. The Delta team was recognized for their exceptional service, earning the best U.S. airline for the fifth year in a row. To share the success with their team, they provided eligible employees with a 5% pay increase, and have accrued over $660 million in profit sharing year-to-date.

Delta is expecting to have a strong financial performance for the year, with double-digit revenue growth and mid-teens operating margin. They are also expecting to deliver earnings of $6 to $7 per share. Delta is committed to running the world's best airline, and their strategy is focused on free cash flow, return on invested capital, and earnings durability.

Delta achieved record June quarter revenue of $14.6 billion, up 19% over last year, driven by consumer demand strength. The airline was ahead of its initial expectations with momentum in June, and June 30 was a new record for industry volume and the highest summer revenue day in history. Total unit revenues were up 1.3% over prior year on improved yield and load factor. Additionally, Delta was recognized as the #1 corporate blood drive donor with the American Red Cross for the sixth consecutive year.

Delta saw an increase in total revenue and loyalty revenue in the second quarter of the year, and they are on track to exceed their $6.5 billion target. In the third quarter, they expect total revenue to increase 11-14% year-over-year, despite a 2-4% decrease in unit revenues. Domestic demand remains strong, while international demand is continuing to increase. Corporate travel is expected to increase in the second half, with several of the least recovered sectors showing optimism for the fall.

Delta's capacity growth is expected to normalize to mid-single digits in 2024, which will improve reliability and reduce unit costs. In the June quarter, Delta delivered earnings of $2.68 per share and operating margin of 17%, with nonfuel unit costs up 2.4% year-over-year. They also generated operating cash flow of $2.6 billion and repaid $3 billion of debt in the first half of 2023. For the September quarter and full year, Delta expects mid-teen operating margins and earnings of $2.20 to $2.50 per share.

Nonfuel unit costs are expected to decline 1-3% year-over-year in the September quarter, and the company is taking steps to drive efficiency and reduce costs. Fuel prices are expected to be between $2.50-$2.70 per gallon, and a refinery turnaround in mid-September will result in a breakeven in the second half of the year. The company is on track to achieve full year earnings of $6-$7 per share, an operating margin greater than 12%, and free cash flow of $3 billion. Additionally, the company is aiming to reduce leverage ratio to 3x and return on invested capital to 14% by the end of the year.

Delta Airlines is expecting to generate more than $4 billion in free cash flow in 2024 and over $10 billion in the period from 2023 to 2025. They are also investing heavily in digital technology, both customer-facing and back office, to improve the customer experience. Dan Janki and Ed Bastian both emphasized the importance of this investment.

Glen Hauenstein and Ed Bastian both commented on the strong demand they are seeing domestically and internationally. Hauenstein noted that they have seen an increase in the June quarter and are encouraged by the trends as the summer progresses. Bastian noted that they need to reach their $7 EPS target before discussing what the next step is, but that they are still in the middle of a three year plan.

Ed Bastian and Glen Hauenstein discuss the long-term financial targets of the company, and the recent month-over-month step-down in airfare CPI. They note that the methodology of the CPI data is a sample of a sample, and is different from what they are seeing. They suggest that the variance may be due to the high demand and low supply of travel last May and June, when people wanted to go somewhere without considering cost.

Delta executives have expressed optimism that international travel will remain strong into the fall, with summer travel being particularly strong. Dan Janki also noted that Delta will be paying down more than $4 billion of debt this year and any additional cash generated will be used to pay down debt.

Glen Hauenstein explains that they have extended the season of European markets into November and December, instead of restarting in April and May. Southern Europe has a longer season than previously and Northern Europe has a much shorter season. They are trying to create a network that produces the best returns on a year-round basis. On the domestic portion of international journey, the load factor is about 10, which includes the Caribbean and Mexico.

Dan Janki from American Airlines was asked by Sheila Kahyaoglu from Jefferies how much of the raised margin guidance for 2023 was coming from fuel and nonfuel costs. Janki responded that the biggest driver was nonfuel costs, which would be down low single digits in the second half. He also mentioned that the second quarter and fourth quarter performance in the halves would also contribute to the margin performance. When asked about cash, Janki said that the CapEx assumption was still 5.5 and the delivery of the aircrafts was around 42-43 for the year. He also mentioned that if certain adjustments were made, the third quarter RASM would have been in line with seasonality.

Delta Air Lines Chief Revenue Officer Glen Hauenstein and Chief Financial Officer Dan Janki discussed the expectations for third quarter domestic and international Revenue per Available Seat Mile (RASM). Hauenstein noted that the outbound 4th of July being in the second quarter had a positive effect on RASM, but the comparison to last year showed a deceleration from 1 to a midpoint of minus 3. Janki discussed that the pilot deal throughout the year and the wage increase for the entire Delta workforce will benefit the company in the low single digits for capacity growth in the coming year.

Glen Hauenstein and Ed Bastian discussed the third quarter RASM guide and how it does not assume any share pickup at the expense of competitors. They also mentioned that Delta has a long history of competing well in New York and will continue to do so. Additionally, they noted that laggards are the ones most encouraged to travel as offices reopen and that the propensity to travel is directly related to whether or not people are in the office.

Delta Air Lines CEO Glen Hauenstein states that the company's guide includes a slow and steady build in domestic RASM that could potentially accelerate for additional upside. The outperformance of Delta's domestic RASM is mainly attributed to its premium products and services, as well as the investments made in coastal gateways and the core. These investments have been producing good returns for the company.

Glen Hauenstein discusses the balance of domestic and international capacity growth in the coming year and speaks to the success of LATAM's South American revenue base. He then addresses the TransAtlantic joint venture, saying that it is successful and that there may be new approaches and learnings from the pandemic that could change the way it is operated.

Glen Hauenstein explains that they are getting back to normal seasonality by having the Southern schools go back in August and the Northern schools go back after Labor Day. This has been reflected in their ASM peak in July, followed by a decrease in August and September. Despite this, Brandon Oglenski suggests that revenue in the fourth quarter may be softer than the third quarter, given the full year guidance.

Viasat recently launched a satellite, but experienced a deployment issue. Glen Hauenstein discussed the remaining months of the year, with Labor Day, October, and the holidays being the peak periods. He believes there is potential upside in the back half of the year if business travel returns more than expected. Tim Mapes then instructed the media on how to queue up for the call.

Delta is disappointed with the news from Viasat, but is committed to making sure domestic performance remains the same. They are also not weighing in on proposals to raise the pilot age or the affirmative action ruling from last month, but are reviewing their DEI policies.

Delta executives discussed their expectations for corporate and leisure travel in the fall, as well as contingency plans for potential legislation that would impact credit card fees and charges. They concluded the call with the hope that everyone had a great rest of the summer and that they would talk again in October.

This summary was generated with AI and may contain some inaccuracies.