Delta Airlines (DAL)
Q2 2009 Earnings Call
July 22, 2009 10:00 am ET
Jill Greer - Director, Investor Relations
Richard H. Anderson - Chief Executive Officer, Director
Edward H. Bastian - President; Chief Executive Officer of NWA
Hank Halter - Chief Financial Officer, Senior Vice President
Glen Hauenstein - Executive Vice President of Network and Revenue Management
Ned Walker - Chief Communications Officer
Michael Campbell - Executive Vice President of Human Resources and Labor Relations
Mike Linenberg - Banc of America Merrill Lynch
Jamie Baker - JP Morgan Chase
Duane Pfennigwerth - Raymond James
Hunter Keay - Stifel, Nicolaus & Company
William Greene - Morgan Stanley
Gary Chase - Barclays Capital
Kevin Crissey - UBS
Helane Becker - Jesup & Lamont
Martin Mulane - Minnesota Public Radio
Mary Jane Credeur - Bloomberg News
Harry Weber - Associated Press
Kelly Yamanouchi - Atlanta Journal-Constitution
John Wellesie - Media
Paul Beebe - Salt Lake Tribune
Previous Statements by DAL
» Delta Air Lines, Inc. Q1 2009 Earnings Call Transcript
» Delta Airlines, Inc. Q4 2008 Earnings Call Transcript
» Delta Airlines, Inc. Q3 2008 Earnings Call Transcript
Thanks, Cindy and good morning, everyone. Thanks for joining us to discuss Delta's June quarter financial results. Joining us from Atlanta today are CEO Richard Anderson; Ed Bastian, Delta's President; and Hank Halter, our Chief Financial Officer. Also joining us during the Q&A session will be Steve Gorman, our Chief Operating Officer; Glen Hauenstein, EVP of Network and Revenue Management; Michael Campbell, EVP of HR and Labor Relations; Paul Jacobsen, our Treasurer; and Ned Walker, Senior Vice President and Chief Communications Officer.
Richard will begin the call with a Delta and industry overview. Ed will then address our June quarter financial and revenue performance and give an update on the merger. Hank will conclude with Delta's cost performance and liquidity. We have allocated about 25 minutes for executive comments and after their comments, we’ve allocated 25 minutes for questions from the analysts. We will 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 two questions. That should allow us to get to as many questions as possible during the call.
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 results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in Delta's SEC filings.
Unless otherwise noted as GAAP, all financial results and guidance we give today, including comparison to prior year period, will be on a combined basis, including results for Delta and Northwest for all periods. We will also discuss certain non-GAAP financial measures. Operating expense and unit cost results exclude special items unless otherwise noted.
You can find the reconciliation of non-GAAP measures on our investor relations website at Delta.com.
And with that, I will turn the call over to our Chief Executive Officer, Richard Anderson.
Richard H. Anderson
Thank you, Jill. Good morning, everybody and thanks for joining us today. Over the last year, the airline industry has faced its toughest environment since deregulation, as the global recession and volatile oil prices have significantly impacted all airlines.
Industry passenger revenues are down more than 20% so far this year and jet fuel prices have risen almost 20% since the beginning of the year and continue to be volatile. This year has been and will remain challenging for the industry as we do not see any meaningful recovery in 2009. Despite this environment, Delta is the best positioned of the network carriers with the best margins of our peers, a strong cash position, superior network, leading cost structure, important benefits from consolidation and the best employees and I want to thank all Delta people worldwide for their continued efforts during these difficult times.
Excluding merger related expenses, Delta reported a net loss of $199 million for the quarter. These results include $390 million in fuel hedge losses, decisions we took in the summer of 2008, so excluding those losses and the merger costs, we would have made a $191 million net profit in the June quarter. This is an important point because it shows the underlying strength of the core enterprise. While not at a level we should achieve during the June quarter, these results reflect our focus on right-sizing capacity, cost discipline, and liquidity preservation and demonstrates our ability to continue to adapt our business model to match the difficult economy.
Our merger continues to pay significant benefits that are unique to Delta and quite important in this difficult period.
On a 7% capacity reduction, our consolidated unit costs excluding fuel were up only 2% due entirely to higher pension costs. We generated $834 million in operating cash flow, which allowed us to pay down debt, invest in the merger integration to unlock synergies, and grow our liquidity balance this quarter to $5.4 billion.
We expect capacity to be down for the full year 79% and we will extract all of the related costs as we have successfully done so each time we have pulled capacity the last couple of years.
But similar to the rest of the industry, Delta is experience significant pressure on revenues and we do not expect to be profitable this year. In light of this unprecedented decline in revenue, we will continue to do what it takes to adapt our business to the weak revenue environment. More than any of our competitors, we have shown that Delta will creatively take bold actions, such as the acquisition of Northwest, our full joint venture with AFKL, our unique expansion to Africa, or our shut-down of the freighter business across the Pacific, all of which are taken in a determined march to ensure our success.