Delta Air Lines, Inc. (DAL)

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Delta Air Lines, Inc. (DAL)

Q4 2012 Earnings Conference Call

January 22, 2013 10:00 ET

Executives

Jill Greer - Managing Director, Investor Relations

Richard Anderson - Chief Executive Officer

Ed Bastian - President

Paul Jacobson - Chief Financial Officer

Ned Walker - Senior Vice President and Chief Communications Officer

Analysts

David Fintzen - Barclays Capital

Michael Linenberg - Deutsche Bank

Glenn Engel - Bank of America

Jamie Baker - JPMorgan

Savi Syth - Raymond James

Duane Pfennigwerth - Evercore Partners

John Godyn - Morgan Stanley

Hunter Keay - Wolfe Trahan

Kevin Crissey - UBS

Basili Alukos - Morningstar

Josh Freed - The Associated Press

Kelly Yamanouchi - Atlanta Journal-Constitution

Mary Jane Credeur - Bloomberg News

Linda Loyd - Philadelphia Inquirer

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Delta Air Lines December 2012 Quarter Financial Results Conference Call. My name is Kyle and I will be your coordinator. At this time, all participants are in a listen-only mode until we conduct a question-and-answer session following the presentation.

I would now like to turn the conference over to Ms. Jill Greer. Go ahead, ma’am.

Jill Greer - Managing Director, Investor Relations

Thanks, Kyle. Good morning, everyone, and thanks for joining us for the December quarter call. Joining us from Atlanta today are Delta’s CEO, Richard Anderson; our President, Ed Bastian; and our Chief Financial Officer, Paul Jacobson. We also have the entire leadership team here in the room for the Q&A session. Richard will open the call, Ed will then address our financial and revenue performance, and Paul will conclude with a review of cost performance and liquidity. To get in as many questions as possible during the Q&A, please limit yourself to one question and a brief follow-up.

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. We will discuss non-GAAP financial measures. All results exclude special items unless otherwise noted and you can find the reconciliation of our non-GAAP measures on the Investor Relations page at delta.com.

And with that, I will turn it over to Richard.

Richard Anderson - Chief Executive Officer

Thank you, Jill. Good morning, everyone and thank you for joining us on this call. This morning, we cap off a successful 2012 by announcing a $238 million profit for the December quarter or $0.28 per share in line with first call consensus. Delta generated a 5.5% operating margin and unit revenues grew by 4%.

For the full year 2012, we grew our net income by 30% year-on-year to $1.6 billion, expanded our pre-tax margins by 100 basis points, reduced our net debt by over $1 billion, and produced an 11% return on invested capital. Our unit revenues for the year grew 7% and we have now generated a unit revenue premium to the industry for the last two years. These results would not have been possible without the hard work and dedication of the entire Delta team, and I would like to thank them for all of their efforts on behalf of our customers in our company and our shareowners in the past year. I look forward to being with them and recognizing them on Valentine’s Day this year with a $372 million profit-sharing payout which will equal 6.67% of base pay for our frontline employees.

We entered 2013 as a stronger airline entering our fourth consecutive year of good profitability and free cash flow. Through a variety of initiatives, we discussed with you at our Investor Day in December, we will build on the success we enjoyed in 2012 by posting even better operating and financial results in 2013 as we execute on our commitment to sustainable and growing profitability for our investors. For our customers, we will again make targeted investments in our operations, products and facilities and couple that with consistent execution to make Delta the preferred airline in the world.

Last year, we made significant operational and customer advancements that placed Delta at the top of operational performance and customer service. The initiatives produced a 99.5% completion factor, an 86.5% on-time arrival rate, a 25% improvement in DOT luggage performance, and a 40% reduction in DOT customer complaints.

We are continuing to prudently invest in high-quality products, infrastructure, and our network. We have successfully launched Economy Comfort, enhanced our personal on-demand entertainment systems, revamped our LaGuardia terminal C and D building a connector between the two, opened a new international terminal at Atlanta, launched our new Delta website, and purchased a 49% stake in Virgin Atlantic. In addition, behind the scenes, we have and will continue to make significant capital investments in pricing, yield management, distribution, and business intelligence tools.

The investments in our people, tools, and capabilities and revenue management, pricing and distribution are critical to maintaining our long-term RASM premium. All these accomplishments have driven our revenue premium as we were recently recognized by the Business Travel News which awarded Delta the top airline in all categories. And the Wall Street Journal which gave Delta the number one ranking in its annual airline score card.

We cannot run a great airline and generate the operating results we have achieved without good employee relations and morale, and we are proud of the fact that Delta has the best employee relations in the industry. We value these relationships, so we have made investments to make Delta a great place to work, this important for our shareowners. For our shareholders we are focused on making Delta a high quality investment with an ROIC targeted return of 10% to 12% over the long run.

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