Delta Air Lines, Inc. (DAL)

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Delta Airlines, Inc. (DAL)

Q4 2008 Earnings Call

January 27, 2009 10:00 am ET

Executives

Jill Greer – Director of Investor Relations

Richard H. Anderson – Chief Executive Officer & Director

Edward H. Bastian – President

Hank Halter – Chief Financial Officer & Senior Vice President

Glen W. Hauenstein – Executive Vice President Network Planning & Revenue Management

Michael H. Campbell – Executive Vice President Human Resources, Labor & Communications

Paul A. Jacobson – Senior Vice President & Treasurer

John E. Walker – Senior Vice President & Chief Communications Officer

Analysts

Michael Linenberg – Merrill Lynch

Gary Chase – Barclays Capital

Ray Neidl – Calyon Securities

Jamie Baker – J. P. Morgan

Hunter Keay – Stifel Nicolaus & Company

Media

Liz Fedor – Minneapolis Star Tribune

Harry Weber – The Associated Press

Mary Jane Credeur – Bloomberg News

Kelly Yamanouchi – Atlanta Journal

Corey Dade – Wall Street Journal

Mary [inaudible] – Detroit Free Press

Andy Compart – Aviation Daily

Presentation

Operator

Welcome to the Delta Airlines fourth quarter and calendar year 2008 financial results conference call. My name is Cynthia and I will be your coordinator. At this time all participants are in a listen only mode until we conduct the question and answer session following the presentation. (Operator Instructions) I would now like to turn the call over to Jill Greer, Director of Investor Relations for Delta Airlines.

Jill Greer

Thank you for joining us today to discuss Delta’s December 2008 quarter and full year financial results. Joining us from Atlanta today are Richard Anderson, Chief Executive Officer and Member of the Board of Directors; Ed Bastian, Delta’s President; and Hank Halter, our Chief Financial Officer. Also joining us after the call during the Q&A session will be Glen Hauenstein, Executive Vice President of Network and Revenue Management; Mike Campbell, Executive Vice President of HR and Labor Relations; Paul Jacobson, Senior Vice President and Treasurer; and Ned Walker, Senior Vice President and Chief Communications Officer.

Richard will begin the call with a Delta and industry overview of 2008 as well as Delta’s flight plan for 2009. Ed will then address our 2008 financial performance and what the airline anticipates as we go in to 2009. Hank will then conclude the comments with a review of Delta’s cost performance and liquidity. We’ve allocated 25 minutes for executive comments. After their comments we’ve allocated 25 minutes for questions from the analyst. We’ll then conclude the call with a 10 minute Q&A for the media.

When we get to the Q&A I would like to request that you limit yourself to one question and a brief follow up. That should allow us to get as many questions in as possible during today’s briefing. Today’s discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual result to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in our SEC filings.

We’ll also discuss certain non-GAAP financial measures. You can find the reconciliation of those non-GAAP measures on our investor relations website at www.Delta.com. With that, I’ll turn the call over to our Chief Executive Officer.

Richard H. Anderson

2008 was a successful year for Delta filled with a number of pretty remarkable achievements in the face of very significant challenges. Those challenges being high fuel prices earlier in 2008 and of course the difficulties in the worldwide economy that we face today. Delta completed a historical merger with Northwest and a smooth integration process is well under way.

In 2008 we took quick and decisive action to reduce capacity in response to rising fuel prices. We grew our top line much better than industry at 8% and maintained cost discipline while continuing to invest prudently in our employees and our underlying businesses. I think this is the really important part of the call which is to separate the fuel hedging part of our business from the underlying airline business.

If we were buying fuel at market prices we would have reported $166 million net profit in 4Q excluding special charges and we would have had an operating profit or a projected operating profit in the first quarter of 2009. That’s the key message. When you separate what’s happening in the fuel environment and look at the fundamentals of the core business, we think we’re quite well positioned. This is probably best illustrated by the fact that if you take the combined Delta NW, we had a $160 million operating profit in 2008 despite a $4.5 billion run up in fuel. So, the point is to really sort of look at the underlying business separate from the fuel.

As we’ve said repeatedly on these calls we’re really committed to capacity discipline and given the flexibility that our fleet gives us to idle airplanes, return airplanes and basically do it at no capital costs it’s give us the ability to adapt quickly to changes in fuel and the demand environment. We’ve got a huge benefit coming from fuel prices coming down and we’re confident that we’ll hit the $500 million merger synergy target that we’ve given you and that’s why we’re expecting profitability in 2009 and a growing cash position in 2009.

But, all of this wouldn’t be possible if it weren’t for the employees of Delta and they give all of us a lot of confidence that we’ll be successful in 2009. We’ve built a world class team that’s done a really tremendous job and I’d like to recognize all of our folks for their very hard work. Delta employees worldwide should be very proud of their accomplishments in 2008. We dealt with significant challenges from volatile fuel prices to a global financial crisis and in the midst of all of it, completed the merger in record time and all of its been going quite smoothly.

The team never took their eye off the ball. Our operation ran well as we built the world’s largest airline. The employees have done a nice job taking care of our customers and we look forward to a successful 2009 under their continued hard work.

Now, I’d like to take everyone through a bit of our results for the December quarter and full year 2008. For the December quarter Delta reported a net loss of $340 million excluding special charges and the impact of out of period fuel hedges. That includes Northwest results after the merger closed, so from October 30th through the end of the year. Obviously, no one could have predicted oil would fall so precipitously from $147 per barrel in the summer to less than $50 by the end of 2008.

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