Delta notes from Raymond James and JP Morgan conference 3/7 & 3/8

Discussion in 'Delta Air Lines' started by topDawg, Mar 7, 2016.

  1. topDawg

    topDawg Veteran

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    Paul Jacobson did the speaking today and i have a few notes. 
     
    Consolidation is a big driver in the industry health. 
    Scale is important and consolidation is what has given the industry that scale.
    Drive to sustainability is the idea at Delta. Still have work to do but getting better YOY
    3 Billion benefit in fuel YOY from 2015-2016.
    2% cost on a unit bases and plan to be back to flat to up RASM by summer.
    unit revenue 8 cents on the dollar system wide over competition, 20 cents domestically
    Focus is still very much on the long term and not the short term. 
    debt reduction saving over 1 billion now in interest costs.
    2016 is expected to be a strong year for Delta.
    0-2% capacity growth.
    3 billion in fuel savings over 2015
    Still a big focus on un-bundling fares
    300M of incremental revenue growth YOY expected to be over 1B by 2018.
    747 wind down over the next 18months
    Trying to stay nimble with the fleet and able to shift capacity where needed.
    SEA/NYC/LAX/MEX all doing very well.    
    Brazil not so much.
    75% of the fuel savings was saved in 2015, despite unit revenue head winds.
    Positive RASM by S16
    Capacity discipline, capacity discipline capacity discipline 
    Other carriers are tossing capacity (unprofitable) at chasing market share. 
    expecting to see some currency benefit in 2016 but US interest rates are expected to rise making the dollar strong which will eat into some of that benefit
    Hedge book completely closed in January, 100-200M losses from those in each quarter
    The company is going to look into how(if) they hedge in the future. If they get back into the hedging game then they will start with a clean sheet (from the January close out)
    Trainer doing well. Delta believes it is keeping jet fuel lower because of the jet fuel out put from Trainer
    300M in profit last year(2015)
    Slight loss in Q1 for Trainer
    Trying to keep driving margins up in every division of the company
    Part out program a big key for Delta. Older fleet but lower maintenance costs even than airlines like AA who have shinny jet syndrome (I added the shinny jet syndrome part)
    Best reliability even with the older fleet.
    20% increase in revenue on 20% fewer departures and 12% fewer aircraft since the merger.
    still going to increase gauge on aircraft (ie E90s over 50- seaters)
    bettering the product while increasing gauge
    historical costing cutting has decreased reliability/product, Delta expects to be able to keep its capex numbers flat (2-3B YOY) basically no matter what now, thanks to consolidation and balance sheet clean up. 
    10 Billion in debt paid down in the last 6 years. 
    Airlines not seeing a recession right now but one will happen, Delta expects to fair much better than the past and others.
    Pension going to see increase in pay down.  
    improved return on invested capital by 27 points since the merger
    that puts Delta in the top 10%of S&P industrials
    Other big part of consolidation is the diversity in the network. Delta was mostly a TATL and distant third in Latin America while NWA was a mostly TPAC airline. Merged airline has built a better Latin American network (and is still working on such) and rebuild of the TPAC network has made Delta more nimble than in the past. Now if one part of the network is doing poorly the airline can shift capacity to other parts of the network. Also fleet make up allows Delta to pull capacity if needed and not have brand new airplanes sitting around costing money. 
    Branded fares are going to be the way future. HVCs seem to really like it. As he said, if you buy in the last minute then in the old model you got what was ever left over, now the 6-12 month out family trip to MCO isn't getting those premium seats and the last minute HVCs are.
    Premium economy doing well.
    Delta expecting 400M in incremental revenue from American Express deal in 2016. expecting to double by 2020.  
    None of it matters if the airline sees all this money and goes out and increases it debt by buying large amounts of airplanes (I think that was a shot at another AAirline)
    For 1991-2001, the last peak, over 1,000 aircraft on order. This time its 50% of that. Buying aircraft just to buy aircraft is one of the key reasons the industry was hurting so bad after 9/11
     
     
    Thats all for today, there is going to be another presentation tomorrow (JP Morgan) and I will try to post some notes from it tomorrow.  
     
     
     
     
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  2. topDawg

    topDawg Veteran

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    Ed Bastian spoke yesterday
     
    2015 best year in Delta history
    214 days without a mainline cancellation. 2/3s of the year. 
    WN+AA+UA combined had 40 days without mainline cancellation
    19% revenue premium on the domestic system.
    3 Billion dollar fuel tail wind in 2016
    capacity discipline will keep going in 2016
    Setting up the airline to make profits during any part of the economic cycle
    Q1 Operating margin 18-20% (that is just frickin crazy.)
    10% change YOY on margin
    PRASM guidance -2.5%-5%
    January PRASM better than expected
    February PRASM worse than expected
    Weather cost 1 point in PRASM in February
    Close in yields not where DL wants it and the domestic market place is choppy. Not worried about it though.
    Fuel prices are up about 10 cent a gallon.
    Q1 Operating margin will probably be closer to 18% vs 20%
    Demand is strong and future demand looks good.  
    CASM ex fuel up 5% which including Profit sharing. without PS it would be down 2%  
    continuing TPAC restructuring 
    Domestic growth 1-3%, international 0 to down 2%
    LAX/NYC/SEA doing well, above system PRASM and has been for last 9 months.
    Internationally London, Mexico and Caribbean doing great, Brazil, Japan and the ME not so much
    In Q1 expecting to retain 75% of fuel savings to the bottom line. At goal and is expected to stay there for 2016
    Looking at a 1 point currency headwind for 2016, most of which is coming in Q1(2 points)
    Hedge book closed. 2016 the last year Delta will take a loss from it
    Refinery should be at break even this year. It was never suspose to be a profit maker. It is doing its job, supply high and keeping pressure on the crack spread. 
    20% higher revenues on 20% less departures on 6% less seats and 12% fewer aircraft
    15 Billion dollars invested in the product in the last 5 years.  
    Upgrading will continue
    2009 interest expense was 1.4 billion, down to 400M this year. 1 Billion reduction
    Compare VERY well to other S&P industrials. Should be even better in 2016.
    Network very balanced.
    International not the place to be putting a ton of capacity.
    However now is a good time to build the relationships to build on later when currency gets better.
    7 of the 10 top markets in the world are JV and/or equity and/or Delta hubs
    Branded fares are the future. Tacking on fees isn't the way to go.
    30% growth in in merchandising revenue since 2013.
    American Express contract is worth ~4B over the life of the contract
    MRO 25% growth since 2010 and expect to continue
    20 billion in saved capital when comparing aircraft deliveries from 1999-2001 to the next three years (industry wide)
    Stock not where Delta wants it when compared to S&P industrial but getting much better.       
     
    Q&A part
    Asked about GOL investment (tossing bad money at them)
    No plan to invest anymore capital in GOL. Working with them to restructure (hopefully out of court) but Delta wont be the lender of last resort for GOL.
     
    Asked about C-series (what would it take to get Delta to buy) 
    its an aircraft that "fits a need" 717 and E90s have just been the tip
    MD88s will need to be replaced "in the next 5 years" (which goes along with the rumors that a replacement order is coming soon)
    Will Delta buy? "no idea"
     
    What are you going to do with the investment grade, now what
    "Hang it up in our office"
    "not take on more debt"
     
    seriously, not going to take on more debt. Some aircraft financing but keeping it paid down
     
    Asked about SkyMiles changes
    Its a big liability to Delta. Working with new ways to allow people to burn those miles, via new partnerships.
    Delta wants you to be able to use them to buy tickets but also the product you get. Used buying alcohol in the SkyClub as an example of where Delta wants to go.
     
    Asked about where the company will grow longer term
    International is the long term growth.  68% of the company is domestic but in 10 years the company wants it to be more balanced with international. (something they preached during BK FWIW) 
     
    Asked about the benefits of JVs 
    ROI of VS, paid 300M made 250+M in 2016
    Planning to close 49% in AM in Q2 or Q3
    Able to bring Delta into these airlines (example, IT being used by the JV airlines) 
    China is going to be the next big target. They expect Open skies at some point
    AF/KL JV doing great.
     
    Asked about regional partner issues
    shifting Delta know how into Connection  
    adding Delta employees to Connection 
    Seeing a big improvement into Connection stats. 
    Also shifting away from 50 seaters to bigger RJs and to mainline. Connection will be smaller than in the past. 
    Pilot issues is getting better at 9E. 
     
    and thats all. 
     
    I just want to note, some of it is a repeat of yesterday. Slide show is on Delta.com
     
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