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My notes from the Delta 2Q 2008 Investor’s Conference Call
Current Status:
Things are going well at Delta, considering the price of fuel. Most factors are trending in the right direction:
Net income $137million (was $274m in 2Qtr 07)
4% operating margin
10% increase in revenue – now 102% of industry average
Increased revenue comprised of 6% higher passenger revenue, 2% higher traffic and 36% increase in cargo revenue on a 15% increase in ton/miles.
Other revenues up 45% (such as performing maintenance for other airlines & SkyMiles programs)
Fleet growing with 20 “international capable aircraft” to be delivered in the remainder of 2008 and 2009. Two additional 777 orders and 737-700 which will serve the hot and high Central & South American markets. (old news and they will probably replace a couple 757’s as they go to the desert)
$4.3 Bn in liquidity with $671m incoming cash from fuel hedging positions (do your own math to see where Delta would be without hedging)
Delta was ahead of the curve on reducing domestic capacity this summer.
Delta either owns, or has very low ownership costs on its fleet, allowing for flexibility.
Outlook Items:
International demand softening from the US. Delta seeing international customers booking flights further into the future to get lower fares. Demand from offshore remains very strong. Delta’s footprint is different than its competitors and thinks it will be insulated from competition from open skies.
Merger:
Further analysis of hard numbers and the result of the work done by the 26 teams evaluating operational integration have resulted in the anticipated cost of the merger being reduced to $600m and the benefits expanded to $2bn.
Delta is working hard to establish the sort of positive relationship with NWA pilots as Delta enjoys with DAL pilots now. Getting the pilot deal done helps get this important group in support of the merger and allows the timeline to be moved forward. There isn’t a money benefit to the new contract, but getting the merger done quicker means that the network can be harmonized sooner – so those benefits will be arriving sooner.
Delta will apply for a Single Operating Certificate in August.
The $600 million cost of the merger will be:
Consolidated Data Processing systems
Aircraft interiors and paint to make Delta one brand
Maintenance
Some stations like LAX will be consolidated. This will result in one time cash charges, but then should result in savings.
Q&A:
Delta might raise cash after the merger. (made me think of Air France, but no mention was made of where significant investment might be coming from)
Still working on 2009 business plan. There have been unprecedented price increases and now Delta has to evaluate how customer demand changes. There will be big flying reductions in August and September. The result of those changes will have to be evaluated. The plan remains very flexible.
Traders asked questions relating to getting some relief for AirTran. Delta not cutting capacity on routes where it competes with AirTran.
Questions were asked about Delta’s RJ reductions. Plans are for at least 100 aircraft worth of flying to come out of the system. This will be done through schedule changes and contract negotiations. (no definite targets)
Delta will look further at cuts in domestic and RJ flying for 2009.
Current Status:
Things are going well at Delta, considering the price of fuel. Most factors are trending in the right direction:
Net income $137million (was $274m in 2Qtr 07)
4% operating margin
10% increase in revenue – now 102% of industry average
Increased revenue comprised of 6% higher passenger revenue, 2% higher traffic and 36% increase in cargo revenue on a 15% increase in ton/miles.
Other revenues up 45% (such as performing maintenance for other airlines & SkyMiles programs)
Fleet growing with 20 “international capable aircraft” to be delivered in the remainder of 2008 and 2009. Two additional 777 orders and 737-700 which will serve the hot and high Central & South American markets. (old news and they will probably replace a couple 757’s as they go to the desert)
$4.3 Bn in liquidity with $671m incoming cash from fuel hedging positions (do your own math to see where Delta would be without hedging)
Delta was ahead of the curve on reducing domestic capacity this summer.
Delta either owns, or has very low ownership costs on its fleet, allowing for flexibility.
Outlook Items:
International demand softening from the US. Delta seeing international customers booking flights further into the future to get lower fares. Demand from offshore remains very strong. Delta’s footprint is different than its competitors and thinks it will be insulated from competition from open skies.
Merger:
Further analysis of hard numbers and the result of the work done by the 26 teams evaluating operational integration have resulted in the anticipated cost of the merger being reduced to $600m and the benefits expanded to $2bn.
Delta is working hard to establish the sort of positive relationship with NWA pilots as Delta enjoys with DAL pilots now. Getting the pilot deal done helps get this important group in support of the merger and allows the timeline to be moved forward. There isn’t a money benefit to the new contract, but getting the merger done quicker means that the network can be harmonized sooner – so those benefits will be arriving sooner.
Delta will apply for a Single Operating Certificate in August.
The $600 million cost of the merger will be:
Consolidated Data Processing systems
Aircraft interiors and paint to make Delta one brand
Maintenance
Some stations like LAX will be consolidated. This will result in one time cash charges, but then should result in savings.
Q&A:
Delta might raise cash after the merger. (made me think of Air France, but no mention was made of where significant investment might be coming from)
Still working on 2009 business plan. There have been unprecedented price increases and now Delta has to evaluate how customer demand changes. There will be big flying reductions in August and September. The result of those changes will have to be evaluated. The plan remains very flexible.
Traders asked questions relating to getting some relief for AirTran. Delta not cutting capacity on routes where it competes with AirTran.
Questions were asked about Delta’s RJ reductions. Plans are for at least 100 aircraft worth of flying to come out of the system. This will be done through schedule changes and contract negotiations. (no definite targets)
Delta will look further at cuts in domestic and RJ flying for 2009.
