New DL Marketing Campaign = "High Quality Industrial Transport Company"

[Glenn Quagmire]

"Delta's management team is trying to combat this perception by changing the way investors look at Delta. While Delta will always be an airline, it wants investors to consider it as part of the broader category of high-quality industrial transportation companies. This alternative peer group contains many companies with higher valuations than Delta, which should encourage investors that Delta has more room for share appreciation."

ROTFLMAO.

It is a good strategy for a company who is being relegated to the sidelines in air travel media.

"A high-quality industrial transport company?

This is why executives repeatedly used the phrase "high-quality industrial transport" in one form or another to describe Delta at the company's investor day on Wednesday. Delta wants investors to think of it as being part of a larger transportation group that includes railroads, truckers, and package delivery companies. It's not a coincidence that all of these companies have higher earnings multiples than Delta."

http://www.fool.com/investing/general/2013/12/13/delta-air-lines-wants-to-change-the-conversation.aspx

I apologize in advance for providing cannon fodder for a rather boisterous widget slinging cheerleader that thankfully I have on ignore.

Please refrain for quoting him so I do not have to see his slobbering.

 

[robbedagain]

Just wait til dl starts owing taxes... 2014 is not expecting to be as high as what it is now for dl time will tell but one thing is for sure dl will be continuing to face stiff competition

 

[ChockJockey]

"A high-quality industrial transport company?

 
Is there anything more to this besides window dressing for mentally deficient investors?

 

[Kev3188]

I doubt it, but if they want to be looked at the same way as, say, BNSF or UPS then we can start by offering the same sorts of CBAs to DL employees that those companies have...

 

[Glenn Quagmire]

I think I understand that they want to look like more than 'just an airline' to investors (for the reasons indicated in 'The Fool' article). I doubt that this will change their passenger centric marketing campaign.

That said, I could see different ads in different places. Maybe in the FT or IBD an ad speaking to the "High Quality Industrial Transport" (whatever that is in their business model). Since they do not have a cargo operation any longer, it seems like a stretch.

However, I do not see them touting that 'industrial transport' tag on their Facebook page.

Another interesting quote from the article on the challenges facing Delta:

"Delta is likely to see mixed results in its attempt to earn a higher earnings multiple. First, while the company is not paying cash taxes right now (it has credits for its previous operating losses), Delta will eventually start owing taxes. Factoring in a normal tax rate, Delta is trading much closer to the average of other high-quality transports.

Second, Delta will ultimately face much stiffer competition than most industrial transportation companies due to the nature of the airline industry. Ultra-low-cost carriers are likely to continue growing rapidly over the next decade, making it harder for legacy carriers to fill the "back of the plane".

Meanwhile, American Airlines has vastly strengthened its transatlantic route network by merging with US Airways, and low-cost carriers are likely to continue gradually expanding point to point service throughout the U.S."

 

[737823]

Corporate IR messaging with management wanting to signal to the investment community DL is working to earn a higher multiple that's all. Nothing new here. If anything this trend would be seen on the sector level across all carriers in DLs peer group. Obviously 2013 has been an incredible run for DL and other airline stocks, and many believe what we have seen is only the beginning and valuation of airlines today is like the rails were in the early 2000s.

Josh

 

[737823]

I doubt it, but if they want to be looked at the same way as, say, BNSF or UPS then we can start by offering the same sorts of CBAs to DL employees that those companies have...

To the DL employees covered under CBAs sure, pretty sure the pilot agreement is industry leading.

Josh

 

[Kev3188]

 

Corporate IR messaging with management wanting to signal to the investment community DL is working to earn a higher multiple that's all. Nothing new here.

Indeed.
 
 

To the DL employees covered under CBAs sure, pretty sure the pilot agreement is industry leading.

Josh

Maybe so, though I'm also curious how the dispatcher's CBA ranks vs. other carriers...

 

[WorldTraveler]

I doubt it, but if they want to be looked at the same way as, say, BNSF or UPS then we can start by offering the same sorts of CBAs to DL employees that those companies have...

except DL employees aren't interested in CBAs. and DL employees don't see themselves as needing CBAs in order to achieve industry leading pay.

Further, DL's investors perceive DL's stable labor environment as an ASSET that increases DL's value compared to the rest of the industry.

As for industry leading, DL employees will gain profit sharing that amounts to HALF OF a BILLION dollars, the highest among US airlines ever and very much on par if not exceeding what other comparably sized industrial companies provide in profit sharing.

Valuation in the industry is at an all time high because the industry has reduced capacity overall and pushed up profits.

The WN/FL merger eliminated a significant amount of low fare capacity. DL and UA's mergers both removed a lot of capacity that has resulted in more firmer pricing.

AA/US in contrast have been adding capacity for several years and there is a very good chance that a lot of the profits that AA/US has predicted will not materialize because other carriers will add capacity in key new AA markets - that is exactly what DCA, DAL, and Latin America growth is all about - and those are the top areas that will receive capacity in the next year.

OTOH, AAL will draw some investor dollars that have been moved into other stocks, including Delta and United.

DL is demonstrating to investors that it is delivering higher quality financial results now.

 

[Kev3188]

 

Further, DL's investors perceive DL's stable labor environment as an ASSET that increases DL's value compared to the rest of the industry.

Of course they do. Having the masses get all uppity and daring to demand fair treatment through collective bargaining can be so messy... 🙄

 

[WorldTraveler]

You just can't accept that the vast majority of DL employees ARE happy and do perceive themselves to be well compensated.

They don't want collective bargaining because it would result in them ending up with LESS than what they have based on the example of their peers.

And before 700 pipes up and throws in WN, perhaps he can tell me if WN employees will be receiving the near equivalent of one month's salary for profit sharing ON TOP OF pay raises they already got this year.

 

[Glenn Quagmire]

Corporate IR messaging with management wanting to signal to the investment community DL is working to earn a higher multiple that's all. Nothing new here. If anything this trend would be seen on the sector level across all carriers in DLs peer group. Obviously 2013 has been an incredible run for DL and other airline stocks, and many believe what we have seen is only the beginning and valuation of airlines today is like the rails were in the early 2000s.
Josh

How do you see Delta and it's peer group marketing itself to investors as an industrial transport? I assume this would be targeted at institutional investors. Short term looks good for all, but long term is anything but certain.

"Very long-term projections are by their very nature uncertain, but the U.S. airline industry is expected to remain profitable over the next two decades given the improving worldwide aviation trends. However, growth may be held back until 2015 due to volatility in fuel prices and the ongoing economic headwinds, particularly in Europe.

Although U.S. airlines experienced sluggish growth over the last few months, the demand for air travel is expected to nearly double over the next 20 years, as predicted by the U.S. Federal Aviation Administration (FAA). Passenger enplanements are expected to grow 2.8% to 757.2 million in 2014 and about 2.1% in the future, reaching $1.0 billion by 2027 and nearly $1.15 billion by 2033.

The FAA projects air traffic, customarily measured in billions of revenue passenger miles (implying a unit of one mile flown by one passenger), to grow many folds over the same period. Revenue passenger miles will jump from 815 billion reported in 2011 to 1.46 trillion by 2033 at an average annual rate of 2.8%.

International traffic is forecasted to move up 4.0% per year, reaching 402.9 million in 2033. Domestic travel will grow at a more modest clip of 2.8% annually. This projection assumes a steady economic recovery with no major headwinds like a large rise in oil price, swings in macroeconomic policy or financial meltdowns. Further, major North American airlines will raise capacity (available seat miles) at an annual rate of 2.0%, reaching 1.06 trillion by 2033."

I would think most institutional investors would shy away from the airline sector due to high volatility and exposure to external factors beyond anyone's control. But I am not controlling a pension fund at this time...

Good analysis here:

http://finance.yahoo.com/news/airline-industry-stock-outlook-aug-170501027.html

"Currently, the biggest airline amalgamation that is creating waves is the merger of US Airways Group Inc. (LCC) and American Airlines Inc, a subsidiary of AMR Corporation (AAMRQ). The merger will likely to be completed within the next few months, with the European Unions (EU) approval expected in the coming days. In mid Feb, the board of directors of both the carriers gave their nod to the pending merger agreement, paving way for the largest global carrier.

We see American Airlines-US Airways as the hottest pair in the industry as it will be in the best interest of customers. This collaboration will dethrone United Continental Holdings from its current status of being the carrier of the highest number of passengers. As a result, the newly formed airline -- American Airlines Group Inc. -- will emerge as a successful candidate by balancing its debt level and lowering costs."

 

[Kev3188]

 

How do you see Delta and it's peer group marketing itself to investors as an industrial transport? I assume this would be targeted at institutional investors. Short term looks good for all, but long term is anything but certain.

I'd like to hear his perspective as well.

I would think most institutional investors would shy away from the airline sector due to high volatility and exposure to external factors beyond anyone's control. But I am not controlling a pension fund at this time...

That association with volatility is exactly what they are trying to transcend (at least that's how it's been explained to us, anyway)...

 

[WorldTraveler]

How do you see Delta and it's peer group marketing itself to investors as an industrial transport? I assume this would be targeted at institutional investors. Short term looks good for all, but long term is anything but certain.

I would think most institutional investors would shy away from the airline sector due to high volatility and exposure to external factors beyond anyone's control. But I am not controlling a pension fund at this time...

Good analysis here:

"Currently, the biggest airline amalgamation that is creating waves is the merger of US Airways Group Inc. (LCC) and American Airlines Inc, a subsidiary of AMR Corporation (AAMRQ). The merger will likely to be completed within the next few months, with the European Unions (EU) approval expected in the coming days. In mid Feb, the board of directors of both the carriers gave their nod to the pending merger agreement, paving way for the largest global carrier.

We see American Airlines-US Airways as the hottest pair in the industry as it will be in the best interest of customers. This collaboration will dethrone United Continental Holdings from its current status of being the carrier of the highest number of passengers. As a result, the newly formed airline -- American Airlines Group Inc. -- will emerge as a successful candidate by balancing its debt level and lowering costs."

Most airline stocks are held by institutional investors but the higher quality airlines including ALK, DAL, and LUV have HIGHER percentages of individual instead of institutional investors.

Every investor is ultimately interested in the same goal - the greatest return on investment.

It is precisely because of the historic volatility of the airline industry that many investors have only traded airline stocks, not held them as investments.
LUV has been an exception and it is DL's goal to move into the investment grade category because it results in lower borrowing costs and greater access to capital.
The irony is that the carriers who are running the best businesses are the ones who are less in need of loans and other investments because they are using what they have better than others.

Everyone sees the AA/US merger as a great thing right now... that is the nature of airline mergers.

The reality is that few mergers have produced the benefits that the merger promised and when it did it has come much later than when promised.

DAL and NWA merged 5 years ago, a couple years before UA and WN who are still unlocking the benefits of their mergers.

The competitive situation in the airline industry changes very rapidly.

The whole reason why DL is moving as aggressively as it is now is because it has competitive advantages relative to AA and UA that it intends to use to the max.

Perhaps AA and UA will catch up but the very high likelihood is that there will be a number of key structural changes in the industry in the next few years with the next year being the most significant with competitive moves on the west coast, DAL, DCA, and Latin America.

By the time AA/US are fully merged, the industry will look very different and it is far from clear that AA/US will have achieved what they intended in light of competitors in the industry.

 

[Glenn Quagmire]

I'd like to hear his perspective as well.That association with volatility is exactly what they are trying to transcend (at least that's how it's been explained to us, anyway)...

Interesting Kev. Have they passed on information to actual employees (couldn't help myself) about a campaign to calm market fears?