Delta Air Lines, Inc. (DAL)

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Delta Air Lines, Inc. (DAL)

Q4 2011 Earnings Conference Call

January 25, 2012 10:00 AM ET

Executives

Jill Sullivan Greer – Managing Director, Investor Relations

Richard Anderson – Chief Executive Officer

Ed Bastian – President

Hank Halter – Senior Vice President & Chief Financial Officer

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

Ned Walker – Senior Vice President-Corporate Communications

Analysts

Jamie Baker – JP Morgan Chase

Dan McKenzie – Rodman & Renshaw

Bill Greene – Morgan Stanley

Gary Chase – Barclays Capital

Glenn Engel – Bank of America/Merrill Lynch

Mike Linenberg – Deutsche Bank

Kevin Crissey – UBS

Helane Becker – Dahlman Rose

Hunter Keay – Wolfe Trahan

Savi Syth [ph] – Raymond James

Jeff Kauffman – Sterne, Agee

Josh [ph] – Goldman Sachs

Ray Neidl – Maxim Group

Josh Freed – Associated Press

Kelly Yamanouchi – Atlanta Journal Constitution

Mary Jane Credeur – Bloomberg News

Jeremy Lemer – Financial Times

Darren Shannon – Aviation Week

Wayne Risher – The Commercial Appeal

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Delta Air Lines December 2011 quarter financial results conference call. My name is Katie, and I will be your coordinator. (Operator instructions) I would now like to turn the call over to Ms. Jill Sullivan Greer, Managing Director of Investor Relations for Delta.

Jill Sullivan Greer

Thanks, Katie. Good morning, everyone, and thanks for joining us on our December quarter call. Speaking on the call today will be Richard Anderson, our CEO; Ed Bastian, our President; and Hank Halter, our CFO. We also have our leadership team here for the Q&A, including Glen Hauenstein, Mike Campbell, Paul Jacobson, Holden Shannon, Ben Hirst, and Ned Walker.

Richard will open the call, Ed will then address our financial and revenue performance, and Hank will conclude with the review of our cost performance and liquidity. To get in as many questions during the Q&A, please limit yourselves to one question and a follow-up. I do have to tell you 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 these differences are described in Delta’s SEC filings. We'll 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 the call over to Richard.

Richard Anderson

Thank you. And thank you for joining us this morning. Today Delta reported a $379 million profit for the December quarter, beating First Call by $0.07. Our operating margin increased three points to 8%, as revenue growth covered more than $500 million in higher fuel cost. This is Delta’s most profitable December quarter in its history. We are continuing our successful strategies to make this business healthy, strong RASM growth, fully covered fuel, capacity discipline, superior operations in customer service, healthy employee relations, debt reduction, wise capital budgets, and innovations across our businesses.

For the full year, we had top line growth of 11% with about 30 fewer airlines, generated a net profit of $1.2 billion and $1.6 billion of free cash flow, with $3 billion in higher fuel expense. This is the most important factor for investors because fuel cost increases were covered by revenue. Our CapEx came in below $1.3 billion. Our 9.1% return on invested capital represents the second year in a row that we have returned our cost of capital. And we have returned our extra cash flow to shareholders by reducing net debt to $12.9 billion.

During the year, we significantly improved our operations in customer service with our 2011 performance coming in at the top of the global airline industry for reliability, baggage and customer service. The Wall Street Journal Middle Seat column recognized Delta for its significant operational turnaround in 2011. At the same time, we continued to invest in our product and customer service, and we’re pleased that we earned top honors from Fortune, Business Travel News and Travel Weekly. And most recently, PC World selected Delta as the Top Tech-Friendly Airline in the US.

These results would not have been possible without the hard work of the Delta people, and I congratulate them and thank them. They will earn $60 million in shared rewards during 2011 as well as $264 million in profit sharing to be paid out on Valentine’s Day.

As we enter 2012, we are well positioned to build on our 2010 and 2011 performance and take advantage of solid demand. This momentum continues in 2012 and is reflected in the 1Q guidance we issued this morning, projecting a 2% to 4% operating margin in 1Q. Ed and Glen will provide more color on the forward demand as our unit revenues for January are up double-digit, continuing the trends of 4Q. We continue to see revenue momentum from corporate share gains and new merchandising revenues, which will be about $400 million incremental revenue in 2012, which when coupled with our revenue premium to the industry bode well for strong 2012 performance.

We are keeping a curt conservative stance on capacity with a planned reduction of 2% to 3% system in 2012. We will remain flexible with the ability to further reduce capacity if conditions so dictate. We are making needed facility improvements in our key hubs and we are on track to begin operating from Atlanta’s new international terminal this spring, 12 new wide-body gates, and from our new world-class Terminal 4 in JFK in summer 2013.

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