Delta Air Lines, Inc. · NYSE:DAL
Delta Air Lines — Investor Day (December 2016)
41 slides from Delta Air Lines's investor day presentation, Dec 15, 2016
Slide 1: Investor Day 2016
Investor Day 2016 Jill Sullivan Greer Vice President - Investor Relations
Slide 2: Safe Harbor
Safe Harbor Statements in this presentation that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward - looking statements" as defined in the Private Securities L itigation Reform Act of 1
Slide 3: Delta: America's Leading Global Airline
Delta: America’s Leading Global Airline Ed Bastian Chief Executive Officer
Slide 4: Delta: America's Leading Global Airline
Delta: America’s Leading Global Airline 3 America’s Best Run Airline Leading Partnerships Throughout the World Sustainable Margins, Returns, and Cash Flows Investment Grade Balance Sheet Provides Solid Foundation Setting the standard for financial, operational and service excellence in the airline i
Slide 5: Rounding Out A Successful 2016
Rounding Out A Successful 2016 Delivering on commitments to all Delta stakeholders results in another year of top - tier performance 4 • Delivering the industry’s best operation – with over 80 days of zero network cancellations and over 233 days of zero mainline cancellations, more than 4 times AAL/
Slide 6: Delta's Model for Long-Term Success
All delivered by the best people and culture in the global industry Delta’s Model for Long - Term Success 5 +185% +165% +xx% +1xx% Safe, Reliable and Customer - Focused Operation Enhance Our Brand Premium Accelerate Globalization Invest for the Long Term
Slide 7: Changing Investor Perception
Changing Investor Perception 6 Importance of Unit Revenue Growth • More challenging pricing environment than expected in 2016, as yields were pressured by lower fuel, stronger dollar, geopolitical events and domestic competition • With rising fuel and labor costs, regaining positive unit revenue gro
Slide 8: A Sustainable Revenue Premium
A Sustainable Revenue Premium Glen Hauenstein President
Slide 9: Driving to Positive PRASM is a Priority
Driving to Positive PRASM is a Priority Line of sight to achieve positive unit revenue growth through disciplined capacity and revenue management 8 • Goal of achieving positive unit revenue growth in mid - 2016 was delayed by ~6 months – Lower fuel prices, domestic close - in yield softness, foreign
Slide 10: The Path to Positive PRASM
The Path to Positive PRASM 9 Commercial initiatives should result in flat PRASM in 1Q17 with improving trends Domestic • Capacity growth moderates to +2% in 2017 • Seeing very strong business demand following U.S. election, paving the way for positive RASM in 1Q • Domestic RASM has seen solid improv
Slide 11: Customer Focus Drives Revenue Premium
Customer Focus Drives Revenue Premium Achieving a revenue premium by focusing on the products and services that our customers value and want to purchase 10 • Delta’s strong customer focus combined with investments in our fleet, network, product, and partners have driven a significant revenue premium
Slide 12: Investing in Products and Amenities that Customers Value
Investing in Products and Amenities that Customers Value 11 Delta One / First Class • Introducing the A350 - 900 in the Pacific, including the world’s first all - suite business class + • F irst major U.S. airline customer for the C Series, which offers better customer experience and range • Replaci
Slide 13: Better Segmentation Drives Stronger Brand and Customer Loyalty
Better Segmentation Drives Stronger Brand and Customer Loyalty 12 Further segmenting our product to give our customers an even more tailored experience Branded Fares Revenue: 2014 - 2019 • Delta One/First Class: Exceptional comfort and luxurious details • Delta Premium Select: A new superior cabin p
Slide 14: Maintaining Our Lead in Customer Segmentation
Maintaining Our Lead in Customer Segmentation 13 34% 43% 50% 2015 2016 2018 Goal Delta Comfort+ Paid Load Factor More Markets Improved Distribution Better Revenue Management • Basic Economy domestic rollout expected to be complete by mid - 2017 • Broader international rollout to follow in 2017/18 •
Slide 15: SkyMiles Buy More Than Tickets
SkyMiles Buy More Than Tickets Change to revenue - based program has created a currency that customers can now use to tailor their experience 14 • After revolutionizing the way miles are earned with revenue - based accrual, we are giving our customers even more redemption options powered by SkyMiles
Slide 16: Leading Co-Brand Partnership in the World
Leading Co - Brand Partnership in the World 15 Stronger loyalty program has more value for all partners • Partnering with American Express since 1996 to create the world’s most valuable airline co - brand portfolio • American Express partnership is expected to produce over $300 million in incrementa
Slide 17: Leveraging the Best Alliance Partners Around the World
v Leveraging the Best Alliance Partners Around the World 16 • R elationships with world - leading partners make Delta stronger in every geography and help diversify our top line • With our SkyTeam and alliance partners, we cover markets comprising 98% of US - international passenger demand • 49% equ
Slide 18: Maintaining Our Revenue Premium
Maintaining Our Revenue Premium A Sustainable Revenue Premium 17 +185% +165% +xx% +1xx% Strong Focus on the Customer Investments in Products and Services Better Customer Segmentation Leading Partners Around the World
Slide 19: Running A Reliable, Customer-Focused Operation
Running A Reliable, Customer - Focused Operation Gil West Chief Operating Officer
Slide 20: Delivering Top Tier Performance and Continuous Improvement
Delivering Top Tier Performance and Continuous Improvement 19 November YTD Performance 1 3.43 2.96 2.53 1.80 1.5 2.0 2.5 3.0 3.5 4.0 American Southwest United Delta DOT Missed Bag Ratio 98.8% 98.8% 99.0% 99.5% 95% 96% 97% 98% 99% 100% American Southwest United Delta 62.5% 62.7% 70.8% 74.7% 55% 60% 6
Slide 21: Setting New Standards
222 78 36 6 5 DL DC UA WN AA Domestic 100% Completion Factor Days 2 Setting New Standards • Crew systems/ Technology • Connectivity/ Mobile • Process Engineering • Simulators TechOps • Superior execution, skill, and flexibility • New technology capabilities • Maintenance footprint and infrastructure
Slide 22: Delta Connection Performance
Delta Connection Performance • Summer/winter seasonal reliability prep speedlines • Targeted reliability visits between carriers • Leverage Delta TechOps • Network restructuring (focus on LGA) • Crew staffing optimization • Substitution operations Innovation Connection Performance • 67% reduction in
Slide 23: Customer Experience
Customer Experience 22.1% 34.7% 39.6% 43.0% 48.7% 2012 2013 2014 2015 2016 Flight Attendant Interaction NPS 1 22 • Sophisticated customer surveys • Driving record performance • Customer centric training • Service recovery focus • Leveraging technology and analysis • Mobile • Delta Private Jets Innov
Slide 24: Our Culture Fuels Our Success
Our Culture Fuels Our Success Joanne Smith Chief Human Resource Officer
Slide 25: Balanced Investments, Leading Results
Balanced Investments, Leading Results 24 Delta’s virtuous circle – a balanced investment in its employees, customers, and shareholders – has produced industry - leading results. It begins with meaningful investments in employees. Sustainable Margins, Returns, and Cash Flows Industry’s Best Operation
Slide 26: Investments Beyond a Paycheck
Care and Wellness Providing tools to increase physical, emotional, and financial fitness Development and Inclusion Fashioning , cultivating, and empowering the leaders of tomorrow Technology Making work faster, friendlier, and more efficient with better technology Investments Beyond a Paycheck 25 En
Slide 27: Culture: Our Greatest Competitive Advantage
Culture: Our Greatest Competitive Advantage 26 Drive the Business Support our Communities Servant leadership and results orientation are core values and key differentiators We don’t just fly there - caring for and giving back to each other and the communities we serve is in our DNA Breast Cancer Res
Slide 28: A Great Place to Work
A Great Place to Work 27 Annual Employee Survey 2016 Employee Engagement scores at an all time high 81% 84% 86% 88% 89% 2012 2013 2014 2015 2016
Slide 29: A Durable Business Model
A Durable Business Model Paul Jacobson Chief Financial Officer
Slide 30: A Durable Business Model
• Capex has built in flexibility with a target to not exceed 50% of operating cash flow • Allows Delta to address upcoming fleet retirements and continue upgauging the domestic fleet • Productivity benefits to offset cost pressures from fuel, lower capacity, and investments in product and service •
Slide 31: Productivity to Help Mitigate Cost Pressures
Productivity to Help Mitigate Cost Pressures Delta remains committed to delivering non - fuel unit cost growth of 2% or less over the long - term • 2013 - 2017 non - fuel unit cost CAGR of 2.5% includes ~50 basis points of pressure from profit sharing given robust pre - tax earnings growth • 2017 no
Slide 32: More Runway for Upgauging Benefit
More Runway for Upgauging Benefit 31 Continuing to develop a larger - gauge, more cost - efficient fleet • Increasing average seats per departure on narrowbody fleet by ~5% between 2016 and 2018 – more efficient capacity production drives margin and cost productivity – Continued retirement of 50 sea
Slide 33: Operational Efficiency Drives Cost Savings
Operational Efficiency Drives Cost Savings 32 Delta’s leading operational reliability and maintenance strategy drive cost benefits Maintenance Cost Per Seat Block Hour ($) LTM 2Q16 Source: Form 41 data Industry Avg. (Ex - DL): 5.1 • Delta has made significant investments to support its strong operat
Slide 34: 2017 Fuel Prices Expected to be Higher for First Time Since 2014
2017 Fuel Prices Expected to be Higher for First Time Since 2014 Rising fuel price environment underscores importance of unit revenue growth and strong cost controls • Market jet fuel prices forecast to increase nearly 30% and drive ~$1.2 billion in incremental cost for Delta in 2017 – Year - over -
Slide 35: Sustainable Capital Deployment Strategy
Sustainable Capital Deployment Strategy Balanced approach to capital deployment supports sustainable earnings and shareholder returns 34 Reinvest In The Business • Capital spending targeted not to exceed 50% of operating cash flow • Allows for replacement of ~30% of Delta’s mainline fleet from 2016
Slide 36: Disciplined Investment Strategy
Disciplined Investment Strategy Capital spending plan allows Delta to address upcoming fleet retirements and invest in high return opportunities • Capital expenditure targeted not to exceed 50% of operating cash flow – Improved profitability drives strong and more consistent operating cash generatio
Slide 37: Proactively Managing Our Pension Obligations
($300) ($150) $0 $150 $300 2016 2018E 2020E Proactively Managing Our Pension Obligations • Delta plans to continue contributing ~$1.2 billion annually to the pension plan through 2020 • Delta’s pension liability is estimated to be $11 billion at year - end – Each 50 basis point increase in the disco
Slide 38: Maintaining Our Investment Grade Balance Sheet
Maintaining Our Investment Grade Balance Sheet De - risked balance sheet has driven an investment grade rating and will allow for consistent shareholder returns • Balance sheet progress recognized with investment grade rating by Moody’s and Fitch • Continue to target $4 billion adjusted net debt by
Slide 39: Delta Committed To Consistent Shareholder Returns
Delta Committed To Consistent Shareholder Returns Plan to return 70% of free cash flow to owners, with an increasing focus on the dividend 38 • Dividend represents a long - term commitment to consistently return cash to owners - Delta expects to return a greater percentage of its cash through divide
Slide 40: Opportunity In Proving Durability
Opportunity In Proving Durability 39 Note: High quality industrial transports include CHRW, CSX, EXPD, FDX, KSU, NSC, R, UNP, UPS; Adjusted for special items; FCF Conversion is 2013 - 2016E average; Source is FactSet Implied Delta Stock Price at High Quality Industrial Transport Valuation Multiples
Slide 41: Non-GAAP Reconciliations
Non - GAAP Reconciliations 40 Non - GAAP Reconciliations 41 Non - GAAP Financial Measures Pre - Tax Income and Net Income, Adjusted Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance wit