Delta Air Lines, Inc. Q3 FY2025 earnings call

Key Points - Ed Bastian: Quarter's results reinforce Delta's competitive advantages. Revenue growth led by premium, corporate, and loyalty. Pretax income $1.5B, earnings $1.71 per share, 11.2% operating margin. Free cash $830M, year-to-date free cash flow $2.8B. Return on invested capital 13%. Operationally led industry in reliability and customer experience. Accrued nearly $1B towards profit sharing. Recognized essential aviation work during government shutdown. Outlook: fundamentals improving, expecting double-digit operating margin in December, full-year earnings ~$6 per share in upper half of July guidance range, free cash flow updated to $3.5B - $4B. - Glen Hauenstein: September revenue increased 4.1% to $15.2B, a third-quarter record. Total unit revenue improved, domestic unit revenue turned positive. Corporate sales trended positively, up 8% year-over-year. Diverse high-margin revenue streams contributed 60% of total revenue. Loyalty ecosystem is a powerful driver of enterprise value. Outlook: environment improving, sales trends accelerated, expecting total revenue growth of 2% - 4% in December with solidly profitable unit revenues. - Dan Janki: Outperformed industry in on-time performance, completion factor, and net promoter score. September recorded record third-quarter revenue of $15.2B with 11.2% operating margin and earnings $1.71 per share. Non-fuel unit cost growth approximately flat to prior year, year-to-date non-fuel unit cost growth less than 2%. Generated third-quarter operating cash flow $1.8B, free cash flow $830M. Successfully repriced SkyMiles term loan. Outlook: December revenue growth 2% - 4% with positive unit revenue, fourth-quarter earnings $1.6 - $1.9 per share and operating margin 10.5% - 12%, full-year earnings ~$6 per share in upper half of guidance range, free cash flow updated to $3.5B - $4B.

Delta Air Lines reported revenue growth of 4% in the September quarter. Pretax income was $1.5 billion, earnings were $1.71 per share with an 11.2% operating margin. Free cash was $830 million, and year-to-date free cash flow was $2.8 billion. Return on invested capital was 13%. Diverse high-margin revenue streams grew double digits year-over-year, contributing 60% of total revenue. Premium revenue grew 9%, loyalty revenue improved 9%, travel-adjacent products grew mid-teens, cargo revenues increased 19%, and maintenance, repair, and overhaul revenue grew more than 60%.

Full-Year - Full-year earnings outlook is approximately $6 per share, in the upper half of the July guidance range. - Free cash flow guidance updated to $3.5 billion to $4 billion. ### December - Expect revenue growth of 2% to 4% year-over-year with positive unit revenue - Fourth-Quarter - Fourth-quarter earnings expected to be $1.6 to $1.9 per share and an operating margin of 10.5% to 12%.

• Government shutdown impact: Glen Hauenstein mentioned government shutdown had an impact, with cost less than a million dollars a day now. - Industry financial divergence: Carriers prioritizing earnings over cost of capital, leading to competitive capacity changes in hubs. - Supply chain inflation: Dan Janki noted inflation in maintenance and parts is still an issue with the supply chain having a long way to go to come in line.

Q: Good morning, everyone, with respect to the strong improvement in cash flow year-over-year and operating cash flow, can you just expand on the drivers of that improvement?

A: Dan Janki said year-to-date improvement is offsetting headwinds from booking curve compression with working capital benefits.

Q: One of the questions we got from a general this morning was, can you put the corporate recovery in context, excluding any benefit from a CrowdStrike comp?

A: Glen Hauenstein said corporate revenues have recovered to 2019 levels and are slightly above, with runway for further expansion.

Q: I was wondering if you could unpack the improvements you're seeing in the domestic market and how much that might be unique to you just given your exposure to higher-income households?

A: Glen Hauenstein said exposure to higher-income households enhances Delta's relative position versus carriers catering to lower to middle-income environment.

Q: premium revenue growth exceeded that of the main cabin by 13 points. And I guess my question is a bit of a follow-up to Katie's. I mean, obviously, the outcome is driven by weakness in oil and consumer, but can you drill down a bit deeper into actual changes in consumer behavior?

A: Glen Hauenstein discussed premium still having long runway, reengineering of purchase process making premium products more attainable, and high retention rate of premium customers.

Q: In your forecast for Transatlantic travel, I'm wondering if you still expect that to be mostly driven by US point of sale do you see a rebound from non-US based customers?

A: Glen Hauenstein said Transatlantic travel is mostly US point of origin driven, but hopes for rebound from European point of sale due to dollar appreciation.