2014 Investor Day presentation

[WorldTraveler]

no the juvenile delinquents are the ones that run this forum.

they are the ones that embrace a culture of being unable to debate business issues without turning the discussion personal.

If the population on the board is falling, they have no one to blame but themselves.

problem with your theory is that the DL forum is as busy as ever.

just like Kev could have done, FWAAA could have simply corrected the data, posted the correct data and moved on.

he chose to escalate what had been a reasonably pleasant conversation into a personal pissing match.

the sad reality is that FWAAA and Kev both represent the immaturity of people on this forum to discuss business issues without turning them into personal attacks... it's gone on for years.

 

[Kev3188]

just like Kev could have done, FWAAA could have simply corrected the data, posted the correct data and moved on.

he chose to escalate what had been a reasonably pleasant conversation into a personal pissing match.

Um, okay?

Here's what I've posted so far in this thread. I'll let everyone judge for themselves...

Happy (innocuous) reading!


 

I see bits & pieces of this are already showing up all over the place. I thought it merited it's own thread, as there are some interesting points to be discussed (at least I think so, anyway)...

*H/T to 700UW for the link
 
http://ir.delta.com/files/doc_presentations/2014/Investor-Day-Combined-Presentation-with-Non-GAAPs(1).pdf

 
 

*I always look at Operating margin first, and then go back from there.

*The "non fuel productivity improvements" comments usually mean "do more with less" for people like myself. Hopefully, some of the other efficiencies will offset that for once.

*I'm curious what optimizing domestic markets will mean overall...

*On a personal note: It won't happen, but a little less corporate jargon, and little more "normal" English on these PPT's would go a long way...

 
 

Yes I know.

ButI have to think that at least some of them would appreciate a little more "real talk" once in awhile...

 
 

No kidding. But what would I know?

After all, I just pick things up & put them down all day... 🙄
 
 

No, I'd like it to stay in English; I just want the words to reflect a little more every day use, and a little less "jargon monoxide."

 
 

...Or the other shoe seriously drops come 2017...


...Or pay down some debt...
 
 

You're likely right; I just want to see how it all plays out...

 

[WorldTraveler]

it's not necessarily in this thread, Kevin and it is not necessarily today.

and if you were half serious about changing the culture of this board, you would do a whole lot more to call everything that is wrong what it is.

there is no reason that you, FWAAA, E, and dozens of others on this board shouldn't be able to admit when someone has a factual point. but rarely does that happen.


and there is no reason that people here can't point out someone's mistakes without turning into a personal pissing contest.

FWAAA pointed out an error yesterday and I acknowledged it. The discussion moved on peacefully.

He couldn't contain his immature emotions today and simply correct the factual error.

He had to take a swing.

Just like so many others have done. it's the culture of this board and includes your inability to admit that I was right 6 years ago about what I said about the board and DL's labor relations.

you still can't admit that... and it shows in what you write.

others have their own issues they can't admit someone else is right.


Pity FWAAA's poor "students" at the hands of his pathetic need to prove his self worth.

Don't talk to me about improving the quality of this board until you start doing the same thing and you call others out for what they do.

 

[topDawg]

dawg,
interest rate assumptions are used to calculate the level of funding necessary for the plans.

a more 'favorable' interest rate from the perspective of the funding company means lower contributions to the plan with the assumption that interest rates long term will be better than what they are now.

given that nearly all developed world central banks are virtually loaning money at no cost - the US, EU, and Japan - because their economies are too weak to justify higher interest rates - long-term investments such as what underlie pension plans have to assume high levels of contributions by the company because the assets of the plan are seeing low returns on their investments.

AA wants the same type of interest rates as DL has had.

the questions Congress will have to answer are

1. Is it necessary or will it create more risk to the pension system to allow AA to reduce its payments?
2. Can AA pay its pension obligations now and likely in the future - again the industry is in a very different position now vs. where it was when DL and NW were allowed to change their level of pension contributions?
3. Is it good public policy to be creating a single employer exception esp. in light of the two questions above. remember CO also had pensions like AA's that were not terminated and CO was not in BK. I do not know UA's position on this issue but they have pension plans that were inherited from CO and that are similarly treated.

I'm an idiot. I am not sure exactly wtf i was thinking there. 

 

[WorldTraveler]

no you are not an idiot.

 

[Glenn Quagmire]

A quick count of the first page of this delta forum shows one person with the last post on 18 of the threads. Since I stopped reading them, I can only imagine the delusions of grandeur and superiority on display with his rants.

This is an unstable person with a very strange, delusional, obsessive compulsive problem.

If someone here knows him, an intervention is in order.

 

[WorldTraveler]

and what does it matter to you how much someone posts.

Is this 1st grade where everyone has to get an equal share of the cracker?

Have I succeeded at keeping anyone who has wanted to from posting on this forum?

your phobias are becoming apparent for the world to see.

 

[FrugalFlyerv2.0]

Over three years, yes. $250 million a year, just like I posted.

From the Investor Day presentation, page 45:
 

You aren't even conversant in the basic facts of the discussion. As I posted yesterday, you might benefit from additional reading and research and less posting. That way, you might be correct more often on the facts.

Your posts in this thread would, if they were submitted by my students, earn a C- at best due to your lack of familiarity with the facts.

 
 

 

Someone is ticked that AA will be "stuck" with the non-BK terms of their pension funding requirements. and that AA's fuel hedge gains aren't really gains at all.

Let me know what level of additional funding A will have made by the time that DL has made its $750M in additional funding.

if AA was half as concerned about the level of pension funding they might have to make later in this decade, they might start figuring out how to keep their M80s in operating condition instead of spending money on new aircraft that could require more than $500 million / year in additional interest payments.

or is that DL is near the top of the industry in service rankings while AA still grovels around in the basement?

what is it? or is it just your typical AArrogance.

you don't have the personal maturity to debate facts of the industry so instead you turn everything into a personal pi78ing contest.

clearly part of the AA culture involves turning business issues into efforts to slam someone else.

 
Nice deflection!

 

[WorldTraveler]

again, it is important that the sum total to date is $500M instead of $750M which it will be by next year.

but FWAAA and others have been carrying on about how it is unfair that DL has had an advantage over AA.

and whether DL paid $250M more or less won't change that legislators and regulators are more interested in whether AA can pay its pension obligations bills the way they are structured now rather than whether it is fair or not.

We can add this to the list of topics for follow-up but I don't think that AA will get the pension changes it wants.

this is precisely what happens when you wait until an upturn in the industry to decide to restructure.

it is hard to convince anyone that you deserve special consideration - and any pension exceptions are special consideration - when you are making billions of dollars per year.

no deflecting that reality but some will surely try.

 

[topDawg]

Alright. I am going to post the notes from investor day. Starts with Richard then Ed then a Q&A with them. Then it goes to Paul, Glen and Gill and a Q&A with them. *note* these are NOT direct quotes unless marked as so. These are highlight from what I heard. 
 
So his is the notes from Richard. 
 
Consolidation good for everyone, PAX, employees, investors
 
Praising all the leaders at US airlines. Says the industry is much more return focus than ever before.
 
Third best preforming stock in S&P 500 in last two years.
 
Third highest cash flow yield in the S&P 500 industrial (60 or so companies.)
 
Expecting 4-5 billion profit this year(2014)
 
Expecting over 5 billion profit in 2015
 
Capex spend is going to go up a little bit. Has been pretty much 1.5-2. Should be going up to 2-3B.
 
He talked about how basically the fleet strategy mixed with the (awesome) team at TechOps is able to give Delta maintenance cancelation numbers for the month that others wish they could do in a year.
 
Wants to be the best ran airline in the World, believes they are so in the US now.
 
Net debt down to 6B in 2016.
 
Share repurchase done a year early. Pushed it forward due to ebola scare.
 
Because of the above they will look at a new program to push more money to investors. Expect something in May.
 
Wants to run at 10-15% EPS growth. S&P industrial is 12-13%. Delta wants to be above that
 
He talks about how important it is to on the fleet. It makes parking airplane is much more simply choice. Not just long term but seasonal parking and things of that nature. What is funny however he brings up the 744 fleet, but most of that fleet is leased not owned.
 
10-15% EPS growth, 3B+ free cash flow, 15-19% ROIC are all the goal. 

 

[topDawg]

Ed
2014, 3B+ free cash flow, 4 point margin growth.
 
2015 5B+ pretax profit.
 
Airline of the year from BTN, ATW. Morgan Stanley  corporate airline of the year.
 
Once again, Awesome employees and will get 15%(ish) profit sharing check
 
Q4 2014, operating margin 11.5-12.5%, RASM up 1-1.5% Fuel ~2.60-2.70
 
Refinery cutting the hedge loss. ~75M in profit there.
 
Yen hedge will generate 140M. Yen not looking good, still falling and still expected to fall. Euro also weak.
 
 
Expecting 2.10-2.20 a gal in 2015. 70cen drop. ~2B in savings in fuel after a 1B loss. 2016 doesn’t have much hedging as of now. (however has options to cover the upswing if that happens) 1cent of fuel = 40M of cost. (wow)
 
 
2015 capacity up 2-3%. Majority will be in the domestic market place. International should be flat to up less than 1%.
 
 
Down slightly in departures (less than a point) how capacity up. Growing in LAX, LHR, NYC, SEA. 20 less aircraft in 2015. (RJs, ML numbers up)
 
 
IT, supply chain management and Maintenance very important for the airlines cost base. More investments into those things in 2015 to drive costs down.
 
 
Trying to get the best utilization out of the current fleet
 
Domestic aircraft numbers down 15% from merger. Again mostly 50 seat RJs.
 
 
110 aircraft mods in 2015 (757, Airbus). Adding avg of 9 seats per plane
 
Corporate rev. up 7%. LON, NYC, LA a big part of that growth. Banking, media and Auto up the most. (14%, 11% and 11% respectfully)
 
New AMEX deal for 6%. Brings in 2B in revenue. Old contract was to end in 2016, was very important to get that renewed early. Will double the run rate benefits over the next 5 years.
 
 
VS numbers are better than expected. 200M benefit in 2015. (amazing considering Virgin was a money pit just a few years ago). Really pushing Delta/Virgin in London and seeing the return on that push.
 
SEA up to 120 flights next year. Hitting all the major markets now, SFO, LAX, LAS, DEN and PHX.
 
Capacity in pacific, mainline Japan down. Due to 744s mostly. 350/339 20% better cost per seat. Down to 5 intra-Asian markets in 2015. (GUM/SPN/ROR not intra-Asia) 

 

[WorldTraveler]

thanks, Dawg.

commentary on what you commenting on.

I would imagine that if fuel prices had started to drop before DL made the decision to park the 744s, they might push the decision to park the 744s back a year or two. Not sure if they are in a position to use the existing 744 fleet a little more next summer (2015) but the decision has as much to do with pilot staffing as it does with the availability of the aircraft. DL already has started the process of restaffing the 744 fleet based on fewer aircraft.

thank for getting the current number for yen hedge benefits. There are likely benefits from Canadian dollar and Pound hedges because each of those hedges as fallen against the dollar. Any hedges that DL has will offset some of the hedge changes and carriers that don't hedge currencies will bear the full changes in those currencies.

DL continues to view maintenance differently. Other carriers see maintenance as an expense. DL sees maintenance capabilities as an opportunity to reduce DL's other costs and to sell DL services where it helps to offset the cost to DL to provide its own maintenance services. and it is working.

Even though DL's aircraft spending (capex) is growing, the amount of cash that DL is generating is far larger than AA or UA which are similarly sized and may be generating similar amounts of profits. other carriers simply have more debt which limits the ability to pass profits on to other entities including employees.

and yes all US airlines are focusing on returns - which is why capacity will come out of other airlines that don't generate similar levels of RASM which will affect employee numbers. DL is setting the standard for revenue growth which is forcing other airlines to make network decisions in order to get rid of capacity that doesn't generate comparable returns.

 

[topDawg]

Q&A
Owning the fleet allows Delta to basically hedge against a down turn because they can park, say M88s, quickly and it costs next to nothing. Maintenance checks can come and go easily if the economy goes bad. (that was a statement that made me feel safe for sure…..sarcasm) Also the part out program is a big cost saving factor. Can flex up or flex down as needed. Also saves vs OEM cost. Staffing is very adjustable. Pilots are a little tricky due to rules but can still flex up and down.
 
 
Profit sharing a GOOD thing because if things go bad then it will cut costs on its own. With the profit sharing program it makes it less needed to make pay cuts because you will make a defacto pay cut as profits go down. (if they did)
 
 
Richard also said he completely sees net debt to go to zero. Cash flow is just too strong for it not to keep dropping like a rock. Delta is very set up from small down turns, as we saw in 2008 and little to no employee reductions. Consolidation has really helped with that.
 
 
Competitor hedging means little to nothing at Delta. If airline X buys a long term hedge that doesn’t mean Delta will. They plan for a higher cost outlook on fuel v a low cost. Plan for high cost in case they come and enjoy the spoils if they don’t.
 
 
Latin America is doing well. Mexico the best market thanks to AM. JV discussions have started. Brazil is the largest and GOL adds 30% feed. Brazil market place is pretty up and down however.
 
 
ROIC on Virgin is great. Investment will be paid back by the end of 2015. AF/KL/AZ and VS JVs worth 13Billion. Very profitable.
 
 
Asked if they thought the government was going to put their hands in the industry like the railroads. Richard (like myself) believes that that won’t happen. Clinton tried and it failed, badly.
 
 
They talked about breaking the ROIC down by fleet. Not just say 737 but 737-700, 737-800, 737-900ER. That plays a big part into the fleets mods and things like that.
 
 
Talked about taxes, made some interesting comments. Have a JV with Virgin, offices in AMS…..AMS is good.(not sure what exactly he means, more info in Q1) 
 
 
GREAT pricing on the 339/359. Not looking too much into used WB. Mods, records etc. make it hard and overpriced. NBs 738/739/321 market looking promising. 321 with V2500s were said…..10 or so year old frames are being looked at. (MAX/NEO going to drive the market up thanks to so many airlines parking airframes really early)
 
 
Top three in S&P 500 in stock run, 30B market cap. (sitting just under 40B today FWIW)  Goal is to be looked at like LM, John Deere and railroad companies for long term investor. Ed made it clear that things like the fuel price drop is a big test for the industry. Hopes and wants airlines to keep prices where they are vs dropping them and chasing unprofitable market share just cause.
 
Building this Delta started in 2004-2005. Gerry was really a table setter (my words not theirs).
 
 
Most of CapEX is going into fleet. 300M or so going into core IT, A large amount of IT is in-house and it is done so because OALs want to get to it. Also allows to better the product to fit Delta’s need vs off the shelf.
 
 
Interesting comment, I might be wrong WT which is why I bolded this, Anderson said CapEX is being put into MRO, “test equipment and better engine shop capabilities”. Hmmmm maybe a new test cell….
 
Called the pilots the leaders of the operations (ahem, if the plane breaks a pilot aren’t fixin it. I’m just sayin…..). Hopefully they can get a CBA that benefits the pilots but also the company. The relationship Delta has with DALPA should help with that. 

 

[topDawg]

Alright. I will be back in a little with Gill, Glen and Paul as well as that Q&A. 

thanks, Dawg.

Welcome. 
 

I would imagine that if fuel prices had started to drop before DL made the decision to park the 744s, they might push the decision to park the 744s back a year or two. Not sure if they are in a position to use the existing 744 fleet a little more next summer (2015) but the decision has as much to do with pilot staffing as it does with the availability of the aircraft. DL already has started the process of restaffing the 744 fleet based on fewer aircraft.

I don't think so. I believe the Yen taking a dump has a lot more to do with the 747 than the fuel price. NRT is about the only place Delta has really be able to fill the whale profitably and now that market is falling off a little bit. Also because the 747 is so high J (with no real way to drop it down) hurts. China, as much as people want to make it out to be, is not a super high J market. DTW-PVG is probably the only China market Delta could fly profitably with the 744. also it is hurting the beach markets so traditional routes like HNL-NRT, KIX-NRT are better off on the 330, 767 which makes it harder to find a roll for the 747 in the fleet.
 
I believe what has done the 744 in was the growth they were planning with the new 333s got put on the back burner and they need to do something with those planes. 744 is a prefect target to replace.  
 

thank for getting the current number for yen hedge benefits. There are likely benefits from Canadian dollar and Pound hedges because each of those hedges as fallen against the dollar. Any hedges that DL has will offset some of the hedge changes and carriers that don't hedge currencies will bear the full changes in those currencies.

agreed. 
 

DL continues to view maintenance differently. Other carriers see maintenance as an expense. DL sees maintenance capabilities as an opportunity to reduce DL's other costs and to sell DL services where it helps to offset the cost to DL to provide its own maintenance services. and it is working.

Well I also think that the best thing to happen to Delta, and Delta TechOps, is getting Tony and his boys out and getting Don and his team in. 
 
for example, Tony and John would have never walked 330 c-checks all the way up the chain to Richard to get them done in-house. Not only will Delta not get 20-25 Delta checks down on Delta aircraft next year, it also opens up a MRO market for a fleet that is a huge and growing world wide fleet. (and Delta has already won the c-checks for HA. Making moves for other airlines checks now) 
 
Tony (and John) acted more like the 767, 757 and M88 would fly for ever and ever. They didn't do much to grow the business for up and coming aircraft. Now with Don he is doing things to grow the business. Much more airbus support as well as things like adding the A300/A310 CF6 engine, adding the CF6-80C2B8F engine (and engine Tony sent out and his reason was basically just because), Adding the CF4-8s. 
and more too come. 
 
So while I think Richard and Ed looked at TechOps like you said I believe it has been much more important that Don and his team have taken over and are making the fight to add to the business. 
 
 
Also not having to buy tons of shinny new toys, owning the fleet and flying the planes for 25-35 years is a key in this I believe. (much harder to part out a 738 than it is a MD80 for example) 

Even though DL's aircraft spending (capex) is growing, the amount of cash that DL is generating is far larger than AA or UA which are similarly sized and may be generating similar amounts of profits. other carriers simply have more debt which limits the ability to pass profits on to other entities including employees.

Agreed. Richard talking about getting debt to zero was an awesome thing to hear. 
 

and yes all US airlines are focusing on returns - which is why capacity will come out of other airlines that don't generate similar levels of RASM which will affect employee numbers. DL is setting the standard for revenue growth which is forcing other airlines to make network decisions in order to get rid of capacity that doesn't generate comparable returns.

I agree with that also. 

 

[WorldTraveler]

the benefit of keeping the 744s in a falling yen environment is that fuel is falling faster than the yen which means that DL COULD discount more aggressively to fill aircraft - allowing the 744s to be kept in service longer.

But DL's revenue numbers have long shown that DL will not throw capacity into a market and then discount aggressively in order to fill planes. That is precisely why DL pulls markets fairly quickly if they don't generate acceptable financial returns. Other carriers do not operate their networks the same way.

I will defer to your judgment who is best to lead TechOps... I am 100% behind you to get as much work done inhouse and to get as much MRO capabilities inhouse.

Low debt is great as long as there are appropriate protections in place to ensure that a leveraged buyout isn't possible.... NW changed immensely after they were subjected to a LBO which only happened because NW was a very profitable airline. I don't know what DL execs have in place to prevent an LBO but that is the risk of having low debt and generating lots of cash.

thanks also for catching the piece about investing in MRO facilities... and I disagree that any employee group can have more influence over the operation. it is a team effort.