Here is the webcast:CCBN - Lobby

Doing well despite possible post recession dip in US and Europe, high oil prices (up 22%) and disaster at our Asian hub. You’d expect us to be burning the furniture and raising cash at any price in this environment, the opposite is true.

June quarter notes:

• Revenue premium results in 636 million operating profit despite 1 Bn increase in fuel costs. Revenue has outpaced fuel price increase!
• Reduced to 13.8Bn debt
• 8 ½% return on invested capital

September Quarter looking better than expected:

• Operating margin between 9 and 11% (2% better than forecast)
• Fuel coming in slightly lower than expected
• Strong bookings with yield improvement (12% to 15% increase in revenue)
• Capacity down 1% Y2Y (elsewhere stated as down 3%)

Going forward:

• Managing for high fuel prices
• Managing non fuel costs, must get costs back to 2010 costs
• Winter flying down 5% Y2Y, especially in markets where revenues do not cover fuel prices
• Flying 20% fewer seats in the winter than the summer
• Done making money in the summer and losing money in the winter
• Good at selling to business. Not as good at selling to customers. Working offerings like economy comfort which has been selling very well. Thinking about using the product domestically as well. Putting WiFi in RJ’s & Lie Flat seats. Very excited about the new JFK terminal which will be the core of “mainline.”
• Delta.com & Res sales is 50% of sales. Better if we can sell direct
• 10-12% down over the Atlantic. Decreasing everywhere but Latin America. Shrinking smaller hubs, especially Memphis.
• $450 million in hedge benefits on fuel cost increases
• Capacity reductions ARE causing non fuel costs to RISE.

Fleet renewal:

• 737-900 15% to 20% reduction in fuel costs per seat and much lower maintenance costs compared to the 757. 757 flying will be reduced. Cash flow positive and accretive from a P&L basis. Thanked Boeing & Airbus for their work on the competition and look forward to talking to them in the “out years.”
• Very comfortable with fleet. Put to rest any thought that we are in the market for another aircraft order. Reason … watching Capital Expenditure. No orders in the next couple of years.
• Expect to get to 10 Bn debt level in 2013. That will save us $500,000,000 a year.

Q&A

• Paying down debt before stock buy back
• NWA merger credited with business sales strength
• US Domestic is our main market with 50 to 60% of our business. Much of our international business is sold in the US. Emirates and Air Asia are not direct competitors, but they do pressure margins. We are investing in Aero Mexico and feel being partnered well allows us to compete.
• Part of our RASM growth was the excise tax suspension
• Very pleased to be an investor with a seat at the table with Aero Mexico. We can bring our skill sets into the emerging marketplace in Mexico and Brazil and we will benefit from lower labor costs. We are looking at other internal markets, especially in South America.

 

What about winning NYC! Cutting 11destinations across the Atlantic! Retreat, retreat, retreat, CAL/UAL will eat our lunch. Let's see, EDI, LYS, KBP, CPT, EZE, TXL, SNN, MAN, BUD, ARN, CPH, and seasonal ZRH, AGP, VLC, PSA. Oh, and don't forget AMM and CAI, which are both understandable due to unrest in the Mid-East. I also forgot Bucharest.

 

The about face on the small narrowbody RFP leads me to beleive that we may be looking at a consolodation scenario where we end up with some small narrowbody airframes. LCC and B6 both have 190's so maybe there is something going on behind the scenes with that. That being said, the volume and bounce in stock prices today were due to the pullback in capacity plans for 2012 even though they don't anticipate a drop in demand. That and look at the operating margins for the summer even with high fuel prices....that is some good stuff there.

 

Take a look at Air France, KLM, et. al. We still sell the tickets. They fly the heavy metal.

 

I would be the plug on LCC's anything just to drive to work for the first time in my airline life. But wait, where is the challenge in that??? REAL AIRLINE PILOTS COMMUTE (but real airline pilots are also dumba$$es)

Ferd <-----winning by making stuff up, so I'm told

 

That is not what it tells me. First, I think we are wanting to de-risk our business by deleveraging it and paying down debt. Second, the order is getting pushed off until we are in negotiations. ALPA, by refusing to state clearly that scope is not for sale is sending a message, in turn, management is keeping its options open. They are not going to commit when the open question remains.

Delta management stated they had been in talks with Bombardier and Embraer. Those manufacturers sell types that are operated by our regional partners. Further, the RJ's guys all stated their companies had been asked to submit proposals on operating these jets.

Also note D-ALPA was at the conference and recognized right off the bat. What ever is going on, D-ALPA is in the loop. They stated unequivocally that there were no 100 seat negotiations, or proposals.

As far as buying low cost carriers, we just bought part of Aero Mexico and are working on GOL. It was stated we are getting a Joint Venture going and full anti trust immunity in the future. When it comes to cabotage, maybe we are a first mover. That's where I'd be focused ... more than parts of LCC.

FWIW, AeroMexico Connect has a fleet of E190's on order with 99 seats in a two class config.

 

Yo, dudes!

 

Bar,
True, or they realize that the 717 will suit their purposes nicely over the next ten years!

 

I just think that there isn't a reliable, proven 100 seat airplane. Composite airframes with GTF's are the future. Haven't seen a reliable one built yet. Wouldn't placing an order for a unproven aircraft just take up Cap Ex?

 

Operated by who?

AeroMExico dumped the the 717, ordered E190's (the IGW version) and outsourced them. Then Delta bought part of AeroMexico and sits on the BOD. My guess is that if AeroMexico finds the costs of the 717 prohibitive, how much more so would Delta Air Lines. Further, Delta wants out of some of the CRJ50 contracts. Delta needs something to offer our regional "partners" to induce them to adjust their contracts.

We don't talk about it much openly, but there's 700 airplanes and half our departures contracted to Corporations under deals we can't modify as quickly as the market changes. I'd guess for this reason, CMR may finally be parted out in the next year and our massive investment there simply written off to zero.

It is senseless and illegal to go to an investor's conference and lie. So, the most likely story is that what we are told is the truth.