DELTA AIR LINES, INC. Q1 FY2025 earnings call

Performance Snapshot - Pre-tax earnings for the quarter were $382 million or $0.46 per share, flat compared to the prior year. Revenue set a new March quarter record, up 3.3% year-over-year, with an operating margin of approximately 5%. Free cash flow amounted to $1.3 billion, and there was a double-digit return on invested capital. - Operationally, Delta achieved leading on-time performance and system completion factor. In February, a $1.4 billion profit-sharing payout was celebrated, and Fortune ranked Delta #15 on the list of the 100 best companies to work for. ### Demand and Market Dynamics - February and March faced a more challenging macro environment. Domestic Main Cabin and corporate travel were soft, but international and diversified revenue streams showed greater resilience. ### Capacity and Cost Strategies - Planned to keep second-half capacity growth flat year-over-year, with domestic Main Cabin seats declining. Actively managing the cost base to achieve low single-digit growth in nonfuel unit cost. For the June quarter, an operating margin of 11% to 14% and earnings of $1.70 to $2.30 per share were expected, with nonfuel unit cost growth in the low single digits. Net aircraft additions for the year were projected to be less than 1%, with 10 or fewer incremental aircraft. Adjusting the workforce and supplier base to align with lower growth levels, and the workforce was expected to be below last year's levels due to natural attrition. Aim to repay at least $3 billion of debt during the year.

For the March quarter, revenue stood at $13 billion, marking a 3.3% year-over-year increase. Unit revenues saw a decline of 1%. Diverse high-margin revenue streams contributed nearly 60% of total revenue. Premium and loyalty revenue both rose by approximately 7% year-over-year. Remuneration from American Express climbed 13% to reach $2 billion. Cargo revenue grew by 17% year-over-year due to higher yields and double-digit volume growth, while MRO revenue increased by 7% from heavier engine workscopes. Geographically, domestic revenue grew by 1% with main cabin demand softness, and international revenue grew by 7%, with transatlantic up 5% and Pacific up 16% year-over-year.

June Quarter Outlook - Anticipated 2Q revenue to range from a 2% decline to a 2% increase compared to the prior year. Operating margin was expected to be between 11% and 14%, with earnings per share from $1.70 to $2.30. Nonfuel unit cost growth was projected to be in the low single digits. ### Full-Year Perspective - It was premature to project the full-year outlook, but Delta was well-positioned for solid profitability and meaningful cash flow in 2025 given the actions taken and current fuel price levels.

• Macro-economic uncertainty regarding global trade, which has stalled growth in certain areas. - Potential impact of tariffs on the cost structure, including aircraft deliveries and the supply chain. - Uncertainty about the duration and extent of the current macro environment, which could affect travel demand.

Q: Could you provide context on the high and low end of the second-quarter guidance and how weakness in the U.S. domestic market might spread to international and premium segments?

A: Glen Hauenstein stated that while approximately $5 trillion of wealth had been wiped off the books, affluent cohorts' wealth remained higher than in 2019. They were closely monitoring the situation but had not seen a spillover from the U.S. domestic market weakness to international and premium segments yet.

Q: Regarding capacity cuts, when are the second-quarter schedules set and when will the back-half cuts begin?

A: The second-quarter schedules were largely intact with some minor trimming. Back-half cuts would start in August, concentrated in the Southeast region where schools return earlier.

Q: In a recessionary environment, how have different demand cohorts performed?

A: Premium segments have been more resilient than Main Cabin segments.

Q: For capacity cuts, which regions and fleet types are the primary focus?

A: The primary focus was on domestic main cabin off-peak time channels, and there was an acceleration in retiring older airplanes.

Q: How will Delta manage costs related to tariffs?

A: Delta would look at direct flying costs, maintenance cycles and timing, airport operations labor hours, and the supplier base to manage costs.

Q: What has been the impact of tariffs on international markets, and how have Canada, Mexico, and transatlantic markets performed?

A: Canada had a significant drop in bookings. Mexico had a mixed performance. Transatlantic was skewed towards U.S. point of sale, with 80% of long-haul international revenue coming from onshore U.S.

Q: What is the risk and recovery outlook for corporate demand to pre-pandemic levels?

A: Corporate travel had been flat year-over-year, and it was premature to project far into the future.

Q: Will Delta pay tariffs on new aircraft deliveries?

A: Delta would not pay tariffs on aircraft deliveries and was working with Airbus to resolve the tariff issue.

Q: How are premium buy-ups holding up during the market downturn?

A: Premiums continued to widen the gap over Main Cabin segments.

Q: What is the outlook on the anatomy of a downturn and growth?

A: Ed Bastian was confident that the strong would become stronger and the period of uncertainty would not be elongated.

Q: On media questions about tariffs and international leisure Main Cabin decline?

A: Ed Bastian was working with Airbus on tariffs, and Glen Hauenstein stated that premium segments outperformed Main Cabin in international but no specific percentage was provided.