The Transcripts

Delta Air Lines (DAL) Q1 2023 Earnings Call Transcript

Operator Good morning, everyone. And welcome to the Delta Air Lines March Quarter 2023 Financial Results Conference Call. My name is Matthew, 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. As a reminder, today’s call is being recorded. [Operator Instructions]I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.Julie Stewart Thank you, Matthew, and good morning, everyone. Thanks for joining us for our March quarter 2023 earnings call.Joining us from Atlanta today are our CEO, Ed Bastian; our President, Glen Hauenstein; and our CFO, Dan Janki. Ed will open the call with an overview of Delta’s performance and strategy, Glen will provide an update on the revenue environment, and Dan will discuss costs and our balance sheet. After the prepared remarks, we’ll take analyst questions. We ask you please limit yourself to one question and a follow-up, so we can get to as many of you as possible. After the analyst Q&A, we will move to our media questions.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’ll also discuss non-GAAP financial measures, and all results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the Investor Relations page at with that, I’ll turn the call over to Ed.Ed Bastian Thanks, Julie. Good morning, everyone. We appreciate you joining us today.2023 is off to a strong start for Delta with record advance summer bookings, the launch of free Wi-Fi and continued recognition as the industry leader, not only by our customers but by Fortune, Cirium and the Wall Street Journal.During the March quarter, we generated earnings of $0.25 per share on revenue that was 45% above last year and a record for the March quarter. Delta’s operating income was $550 million, a more than $1 billion improvement year-over-year, bringing our trailing 12-month operating profit to nearly $5 billion. We generated close to $2 billion of free cash flow in the quarter, reflecting robust demand for summer travel. Better-than-expected cash generation enabled us to accelerate that reduction, moving us closer to our goal of returning to investment-grade metrics. All-in, a very solid performance by our team in the seasonally weakest quarter of the year.Delivering safe and reliable service remains our top priority, and no airline does this better than Delta. I’d like to thank our teams for all they do for our customers each and every day. The dedication, professionalism and hard work of Delta’s 90,000 people worldwide are the foundation of our company.Sharing our financial success with our people has always been an important part of our DNA. Our industry-leading profitability in 2022 enabled us to pay out more than $550 million in profit sharing in February. More profit sharing than the rest of the industry combined. And we’re looking forward to larger payouts next year as we expect to deliver significant earnings improvement.We also rewarded eligible employees with a 5% pay increase on the 1st of April, and received strong ratification from our pilots on the new four-year contract, providing well-deserved increases for all of our people. The performance of our people and the momentum of our brand was recognized when Delta was ranked number 12 overall of Fortune’s World’s Most Admired Company list, a remarkable statement about the resiliency of our company, given the pandemic challenges of the last few years.Our brand is built on a foundation of service and operational reliability, and we are committed to delivering the level of service our customers expect as we ramp operations for the coming summer season. The operating teams have done a great job getting ready and we are planning to grow June quarter capacity 17% over last year to meet strong customer demand. This growth is, though, a couple of points below our initial plan to fully restore capacity this summer, as we focus on delivering the best operation in the industry and remain prudent in our capacity restoration.As I mentioned at last December’s Capital Markets Day, aviation infrastructure is still fragile. But collectively, we’re working to ensure resiliency as we manage constraints around the supply chain, aircraft delivery delays and training needs. I want to commend the FAA for collaborating with the industry to help improve the customer experience in New York by temporarily relaxing minimum flight requirements given ATC staffing challenges.Turning to our outlook. With solid first quarter performance and visibility into the strength of summer travel demand, we are confident in our full year guidance for revenue growth of 15% to 20% year-over-year, earnings of $5 to $6 per share and free cash flow of over $2 billion, the three main guideposts we shared with you last December.For the June quarter, we expect to deliver the highest quarterly revenue in our history, a 15% operating margin and EPS of $2 to $2.25 a share. Our forecast operating profit of $2 billion matches Q2 of 2019, demonstrating that the earnings power of this franchise is intact. Glen and Dan will provide more details on the components of our outlook.As we look to our upcoming Investor Day in June, we will outline the long-term opportunities that we’ve cultivated through years of investment, building on our industry leadership position and further enhancing our long-term financial profile. One focus area will be innovation and digital technology, where we continue to grow our leadership position.Increasingly, it’s one of the reasons customers are choosing Delta with significant growth in direct bookings and higher engagement through our digital channels. We have reached an important step in our digital transformation with the rollout of fast, free, high-quality Wi-Fi, which has been a tremendous success. We began this effort several years before the pandemic, and it has required significant investment and resources to achieve.In addition, this month, we began rolling out Delta Sync for SkyMiles members, which will unlock a more personalized customer experience in the air and on the ground. When customers join the SkyMiles loyalty program, it enables us to deepen our trusted relationship and create stronger brand preference. As we’ve rolled out fast, free Wi-Fi as well as other benefits, new SkyMiles memberships have accelerated at a record pace.Growth has been particularly strong among younger customers with a record 3 million total enrollments during the quarter. Thanks to the size and growth of our loyalty program, the value of our Amex co-brand card portfolio continues to reach new highs and leading brands are joining our consumer ecosystem, creating further opportunities. I look forward to discussing this and more about how Delta is transforming the customer experience on June 27th in Atlanta. Hope you all can join us that day.In closing, the industry backdrop remains constructive, and we are well positioned to grow earnings and cash flow in 2023, 2024 and beyond. Delta continues to set itself apart. We are on our way to transcend the industry with our leading consumer brand and deliver financial outcomes that create significant long-term value for our owners.Thank you again. And with that, let me hand it over to Glen for more details on our commercial performance.Glen Hauenstein Thank you, Ed. I’d like to start by thanking our employees for the difference that they make every day. We delivered record March quarter revenue at $11.8 billion, 14% higher than 2019 on 2% less capacity. Total unit revenues, or TRASM was 16% higher than the same period in 2019. These results include approximately 1-point impact from flying less capacity than initially planned.Consumer demand was well ahead of pre-pandemic levels and drove strength in domestic and international travel. Business travel improved in the quarter with small and medium businesses ahead of ‘19 levels while managed corporate travel showed steady progress led by international.Diverse revenue streams, including premium and loyalty, generated 56% of total revenue in 1Q. Premium revenue growth continued to outpace the main cabin. Total loyalty and revenue grew 28% versus the prior year, with continued momentum in our American Express co-brand portfolio.We saw card spend up more than 20% year-over-year. This supported a record $1.7 billion of remuneration from American Express during the quarter, keeping us on track to deliver over $6.5 billion in 2023. Throughout the recovery, travel behaviors and patterns continue to evolve. The hybrid workplace is blurring the lines between business and leisure trips while the removal of change fees has increased customer flexibility, allowing them to book trips earlier. This dynamic was more pronounced in the March quarter, and so we are continuing to adopt and see opportunities to further optimize our revenue management approach to these new travel behaviors in future months.We expect June quarter revenue to be up 15% to 17% year-over-year on capacity that is 17% higher. This implies unit revenues will be flat to down 2% compared to prior year, including a couple of point impact from higher international mix as well as lapping record cargo revenues.For comparison to the March quarter, the midpoint of this outlook is a 3-point sequential improvement in total unit revenues versus 2019, driven by improvements in both, domestic and international. Moving forward, we are sunsetting the comparisons to 2019 and returning to year-over-year metrics. Domestically, we are growing our seats mid-single digits over last year with our core hub rebuild beginning to take hold in June and accelerating through the fall.On international, we are excited with the momentum we’re seeing and expect record revenues and profitability for the summer travel season. To meet increasing demand, we are growing our international seats by more than 20% in the June quarter compared to prior year, and we already have about 75% of our bookings on hand.In the transatlantic, we’re seeing strong demand on our largest ever summer schedule. Our Amsterdam hub performance continues to improve, and we are pleased with the outlook for all of our new markets.In Latin America, momentum is continuing to build. The breadth of Delta’s long-haul network to South America continues to improve as we begin to leverage our partnership with LATAM. Pacific demand is accelerating, and we expect record margins meaningfully ahead of pre-pandemic levels. Our multiyear restructuring efforts in the Pacific are paying dividends, and our partnership with Korean Air is performing extremely well, providing us future growth opportunities.In closing, consistent execution of our long-term commercial strategy is supporting industry-leading margin performance and demonstrating the resiliency of our business model. The long-term investments we’ve made in our fleet, global network and technology pave the way for future growth and margin expansion.Thank you. And with that, I’d like to turn the call over to Dan to talk about the financials.Dan Janki Thank you, Glen, and good morning to everyone. For the March quarter, we delivered earnings of $0.25 per share and a 4.6% operating margin in line with our guidance. Our nonfuel costs were 4.7% higher than the first quarter of 2022. It is including a 1-point impact from lower capacity, primarily due to winter storms.Fuel price for the quarter averaged $3.06 per gallon, this including a $0.25 benefit from our refinery, which continues to provide a unique hedge to fuel volatility. Our operating cash flow was $2.9 billion. That was the highest March quarter result in Delta’s history. After investing $1.1 billion back into the business, we generated $1.9 billion of free cash flow.Strong cash generation enabled $1.2 billion of debt reduction. This including accelerated debt repayment of $700 million with an average interest rate of 7%. Liquidity ended the quarter at $9.5 billion and adjusted net debt of $21 billion. Our leverage ratio improved from 5 times at year-end to 3.9 times at the end of March on a trailing 12-month basis.We now expect to complete our full year planned debt reduction in the first half of the year, and we’ll continue to evaluate opportunistic debt repayment. Over the last year, we accelerated more than $3 billion in debt reduction, targeting our highest cost debt and reducing our interest expense.Recognizing this progress we are making, S&P and Fitch both upgraded their outlook for our ratings. Returning to investment-grade metrics is a key priority. We remain focused on reducing net debt and achieving our targeted 2 to 3 times leverage ratio in 2024, while continuing to consistently reinvest in the business.Now, moving to guidance for the June quarter. On fuel, we expect our fuel price per gallon to be $2.55 to $2.80, including a $0.10 to $0.15 contribution from the refinery. While lower than that last year, I’d note that fuel prices remain volatile and are still approximately 30% higher than in 2019.On nonfuel, we expect unit cost to be 1% to 3% higher than prior year. For the first half, we expect to grow capacity 17%, approximately 2 points less than our initial expectations, with a similar 2-point impact expected on our unit cost.More than three months into the year, our absolute costs are tracking as expected. Higher labor rates are fully incorporated across the mainline and regionals. Inflation is stabilizing and we are in the final stages of our rebuild. By the end of June, aircraft reactivations will largely be complete and training is starting to step down with a third of our pilots moving into production.As I outlined on our call in January, core maintenance is higher year-over-year in the first half of the year. We expect it to decline in the second half, resulting in a 5-point year-over-year progression in our unit cost from the beginning of the year to the end. Secondly, achieving scale while restoring efficiency are Delta’s largest CASM levers. The pace of capacity restoration remains the primary level.In summary, we are confident in our year-over-year decline in the second half and expect a 10-point improvement in our unit cost progression as we progress through the year. Running the most reliable operation in the industry is key to delivering a competitive cost structure and underpins our industry-leading margins. Combined with our outlook for revenue, we expect the June quarter operating margin to be 14% to 16% and earnings to be between $2 and $2.25 per share.With a quarter behind us and the visibility we have in the summer, we have higher confidence in our full year guidance for significant improvement in earnings and free cash flow. We are reaffirming our full year guidance for operating margins of 10% to 12%, earnings of $5 to $6 per share and more than $2 billion of free cash flow. And we remain on track to earn over $7 per share in 2024 with more than $4 billion of free cash flow.So in closing, I’d like to thank the Delta people for the elevated service they provide to our customers every day. Our people will always be the delta difference. Now with that, I’d like to turn it back to Julie for Q&A.Julie Stewart Matthew, can you please remind the analysts how to queue up for questions?Question-and-Answer Session Operator Certainly. [Operator Instructions] Your first question is coming from Mike Linenberg from Deutsche Bank.Mike Linenberg I have one question, but it’s a two-part sort of pronged revenue question maybe for Glen or Ed. There is this ongoing debate about the pace of revenue growth and whether it’s moderating in domestic versus international. I know, Glen, you gave some color on that. But you did also talk about a shift in the booking curve, which I think you referred to as being pronounced. One, can you dig into that a little bit deeper and maybe how that could be having some impact on the data?And then, number two, when I think about Delta and your network, I mean, you do have the most exposure to the industrial heartland. And you look at the ISM number over the last 5 months, we’ve been contracting, right? The manufacturing sector may now be in a recession and that’s a part of the world that you have a decent amount of exposure to. What both corporate and/or discretionary that flow through sort of Detroit mini — is there any additional color that you can — that you’ve seen that you can sort of elaborate with respect to that comment?Glen Hauenstein Sure, Mike. Let me try and answer the first one. And I’d like to just mention that on Tuesday, we had our second highest cash sales day ever. Seasonality that’s starting to decline, usually those occur earlier in the year. So I think that just points to the strength of the core demand for our products and services, be it domestic or international, just at a combined level, the number two sales day in our total history occurring this week. And so, behind that backdrop of really strong consumer demand across the board, I think what we’ve seen is travel patterns changing and shifting a little bit more than they did pre-pandemic. We had a lot of stability, pre-pandemic, and we’re adjusting here into what I would call a new normal, and we’ll figure out exactly where that lands over time.What that meant in the quarter was materialization rates actually went down a bit throughout the quarter and materialization rates to us is book to flown ratios. Normally just a couple of points, accelerating a couple of points more than usual, probably attributing that to the flexibility without change fees that we’re seeing in the marketplace. And so, that’s really easy to accommodate as we just turn up slightly our overbooking levels to make sure that we capture the higher load factors.And then secondly is the booking trends inside of 30 days. And we were knowing that inside of 30 days was declining, and the strong demand was just outside of 30 days. And so the demand is very strong, and it’s a matter of how many you let through the gate at what point in time. And we had, for example, wanted to go into month 3 to 4 points ahead. We’re tiling that up a little bit to be more like 5 to 6 points ahead, given that the combination of materialization rates, which has some impact on that, of course, but also where consumers are booking. I think those are just RM tactics that we’re using to adjust to this new demand set. And I don’t think that it indicates that there is any softness in core demand strength. So I think we feel really confident in the summer and what we have on the books and what we’re seeing real time in terms of demand. And so, I feel very good about that.Relating to industrial recession, we don’t really see that. As a matter of fact, if you look at Minneapolis and Detroit, they’re actually ahead. Now they’re the least restored of our hubs right now, particularly in Detroit is one tick below the rest of the system. But you’ve also had rationalization in competing hubs in the region. And so, they’re willing to say, okay, well, maybe some of the industrials. These hubs are not point-to-point like Boston or New York, they’re really the connecting flow within the U.S. So, there’s opportunity as we continue to restore those networks to put more flow on the network. Not 100% resilient — reliant, of course, on Detroit, mostly relying on the flow traffic that flows over to Detroit.So I think what we’re seeing, we see strength in all of our core hubs. Our core hubs are less restored than our coastal gateways, and that’s one of the upsides that we have for the rest of the year as we move through the year. And they’re producing incredible returns and incredibly strong demand sets.Operator Your next question is coming from Jamie Baker from JP Morgan.Jamie Baker Glen, as we think about the swing year-on-year in the second quarter from domestic strength last year to international momentum this year. Do you recall what the domestic portion of the international journey contributed to last year’s second quarter domestic revenue, what it’s likely to contribute this year and what the normal second quarter contribution used to be?Glen Hauenstein Domestic portion of international journey is right around 10% of domestic travel. So, it’s not that big of an impact. And last year was probably 7% or 8%, and this year is probably going to be 8% or 9%. So I wouldn’t say there’s significant changes in that. The summer, of course, is highly reliant on the local demand since we sit in very big local markets for our international marketplace, so New York and JFK being the largest in particular. And generally, if you can take locally, you prefer local because yields are higher. So — and JFK is largely 80% local for international travel. So maybe let’s rely on Atlanta, of course, has more flow on it, but still a large local component.Jamie Baker Okay. Helpful. And as we assess the, I guess, achievability of the second quarter revenue guide, could you disclose what percent of revenue is already booked by entity? International tends to book further in advance. So, I’m assuming that’s your highest confidence. Are we 70% booked internationally and 40% domestically, 60-30?Glen Hauenstein We are 75% internationally, and we’re significantly less than that domestically.Operator Your next question is coming from David Vernon from Bernstein.David Vernon Glen, please don’t drop the mic. A question for you. Can you walk us through why revenues maybe came in at the lower end of the 1Q range, and talk to whether there’s anything in there that was trailing off through the quarter? I ask this because the market is really struggling with whether Delta is limping or leaping into the June quarter. And any color on what drove the source of weakness in 1Q and whether that may carry forward in the 2Q could help a lot. Thanks.Glen Hauenstein Clearly, I think we talked a little bit about the two components. One was we had 1 point less of capacity, driven by some weather events and recovering from those weather events. The second is the fact that the lower materialization rates in the RM systems adapting to those that we couldn’t do it real time because you have to see if they’re stable before you adjust for them. So I think that’s what we’re looking at in the second quarter. And as we mentioned in the — versus ‘19, we have positive momentum in 1Q to 2Q, both domestically and internationally. So, I think we’re feeling — I know there’s a lot of anxiety about domestic demand for the summer, but we don’t share that anxiety.David Vernon And then maybe just as a quick follow-up. You mentioned sort of corporate domestic or core domestic sort of corporate bookings is 85% recovered. Is the expectation — can you talk a little bit bigger picture about how you expect that to trend throughout the rest of this year based on the research work you’ve done based on what your bigger corporate flyers are telling you right now and the level of certainty that maybe they have on some of those plans?Glen Hauenstein Right. Our corporate travelers are telling us they expect that to continue to accelerate. The — we are not counting that in our — we’re counting a stable 85% revenue, 75% of traffic.David Vernon That’s in the 2Q guidance?Glen Hauenstein Yes.Operator Your next question is coming from Savi Syth from Raymond James.Savi Syth Maybe switching gears a little bit. It looks like capacity in 2Q is a couple of points lower than you were thinking back in December. Where is that? Is that mostly coming out of the domestic market? And along those lines, as you go into the summer months, how do you kind of think about the four entities? I know you gave a little color on international and domestic for 2Q, but just a little bit further in.Glen Hauenstein Yes. It’s being driven by our desire to ensure that we have an industry-leading operational — and what we saw in the March quarter was we had a little bit longer than we would like in recovering from weather events. So, we can — as weather shortfalls were and they were primarily in the domestic narrowbodies that we want to ensure we have all the right resources behind them because we know we’ll have weather events in the summer as we always do. So, it was just a bit of a step back, not really by demand, but really by supply, our supply was a little bit more constrained than we had hoped. And that should provide us the ability to provide whatever level we want of capacity in the fall depending on how the global environment shapes up.Savi Syth Understood. And then maybe a question for Dan. There seems to be less kind of cost of prices this year. Could you talk a little bit about what’s leading to that better predictability?Dan Janki We’re just deeper into the restoration. And I think as we’ve gotten deeper in, we continue to have better visibility to that. We have all the labor dialed in as we’ve talked about, you’re seeing stabilization in the regionals. That was 1 that we chased last year. As it relates to third-party suppliers, the peak of contract inquiries and repricing was heavy in fourth quarter of ‘21 begin in the first half of ‘22. And if you look at those requests, coming in, they’ve dropped up meaningfully for that. So, I think you’re starting to see that stabilization in the inflation component of third-party and coming in very in line with what we expected from that perspective. So just better visibility. I think we’re deeper into the restoration. So operationally, arms on it related to that. So, our absolute cost visibility is good at this point in time. Certainly, the unit cost metric, as we’ve talked about, is impacted by the ultimate capacity that we fly.Operator Your next question is coming from Duane Pfennigwerth from Evercore ISI.Duane Pfennigwerth Most of the sort of short-term revenue questions have been asked. But just on corporate, can you talk a little bit about maybe the changes, if any, that you saw since mid-March, any commentary on financial services or banking in particular? And then relatedly, there’s so much — there’s so many headlines around technology and layoffs, and I know you’re less levered to that. But could you just contrast how recovered is the technology vertical from a corporate travel perspective relative to other industries that you serve?Glen Hauenstein Sure. Technology is one of the least recovered. Financial services is actually showing some momentum, surprisingly. And so, I think as we think about our geographic pull, one of the things we’re excited about is New York was really not back last year. And of course, we have a lot of exposure to New York, and we’re seeing really good — New York not only as an origin market improvement, but New York is a destination market improvements as well. So, that should bode well for us for the summer. And again, I think what’s really interesting is more of the forward lines between the yields of corporate and high-yield leisure that didn’t exist back pre-pandemic 5 years ago. And so where we’re not selling those premium seats to corporates, we are selling them at near corporate rates to high-end leisure customers, and that’s really providing a very nice insulation for us.Ed Bastian Duane, one thing I’d add to that is that you’re seeing corporately a pretty significant push to get workers back in the office. And we have seen a high correlation between the opening of offices with the return of corporate travel, principally with consultancies, advisers, people being available to take meetings. And so, that underlies the strength. And I think you’re going to continue to see that over the course of the year is going to be, I think, a good tailwind for us on the corporate revenue front.Duane Pfennigwerth And then just on — for my follow-up, with respect to the core hub restoration and maybe getting back some of your RASM premium to the extent that you see that as a driver. Where are we on core hub restoration and sort of what part of the calendar as we think about the balance of 2023, would you expect that to really contribute? And thanks for taking the questions.Glen Hauenstein No, thanks for that question because I think it’s very important. I think when we outlined back in December, core restoration is one of the highlights of 2023 that is distinctive about Delta’s. What we didn’t say is when that occurred in ‘23 and kind of a mea culpa on that because in the first half of the year, that really wasn’t what happened. It starts right around now and it goes through the fall. So that should be really a key driver for us as we move through the back half of the year, both on cost and revenue.Dan Janki Yes, revenue and costs. Yes.Operator Your next question is coming from Conor Cunningham from Melius Research.Conor Cunningham So, the range of outcomes on revenue is still pretty wide for the full year. I was just curious if you could unpack the high and low assumptions. Presumably, you have pretty good visibility on the first half. Just curious on the swing factors as you think about the second half for your revenue.Glen Hauenstein I think we see the same reports that all everybody sees. I think Ed outlined very well that we think there is still remaining pent-up demand from the $300 billion that was not spent on airline travel during the pandemic. So, we’ll see how that plays out in the fall, and we have a lot of flexibility in terms of what we offer as we get out of the summer. What we’re saying today is we are confident through the summer. And then, we’ll take another look as we get closer to it, do we see any demand trends changing. I think what we hear from the marketplace, everybody is looking for those lines. We don’t see them right now. So we would tell you if we did. And if we do see them, we’ll make the adjustments that would be required for the fall.Conor Cunningham Okay. And then maybe following up on Savi’s earlier question. Dan, I think you mentioned that you have 2 points lower capacity in the first half, which is certain CASM ex. And I don’t think you changed your 2023 capacity and cost guidance. So, just curious like what the offsets might be, or is the first half impact just going to impact the full year from that level? Thank you.Dan Janki Yes. We — sure, Conor. We had the 2-point impact on capacity. That had a 2-point impact on unit cost. We’re still sitting here in April. So, we have a lot of the year to play out as it relates to capacity. And as we progress through the year and set that that will ultimately determine it. If you went through the year and you made that up, you pick that up. If not, it would have a corresponding impact on unit cost as you progress. But as we talked about on the point with Savi is our visibility to absolute cost is clear and better than it’s been in the restoration. And as you go through the back half, you get that inflection point, the points that we’ve talked about with core maintenance stepping down from being a headwind to a 2- to 3-point benefit. And as Glen talked about with the restoration of the hubs you start to pick up scale and efficiency associated with that. And the rebuild steps down. So that gives us confidence in the progression ultimately will be where on a unit basis, where do you fall out as it relates to capacity impact that has. But as you know here, we’re focused on running a great operation and the alignment is to the primary financial outcomes, which is margins, earnings and cash.Operator Your next question is coming from Catherine O’Brien from Goldman Sachs.Catherine O’Brien Maybe just a follow-up [Technical Difficulty] just a clarification on that 10-point cost progression. Is March quarter up just under 5%? Does that mean we should be modeling December quarter to be down 5%, or how should we be thinking about that 10 points? And then that improvement — that’s driven by cost, you have really good visibility on, right? So timing of maintenance events, I think you said that’s a 5-point swing and then some benefit from planned training decelerating. If you could just talk a little bit more about that that would be great.Dan Janki Yes. That’s right. You think about the 10-point progression from beginning to end, and that would be down mid-single digits from that perspective. The maintenance is the 5 points — 4 to 5 points related to first half being up to back half being down. The other drivers there is rebuild, those transition rebuild costs. We incur about 80%, 85% of them in the first half of the year, really aircraft reactivations, it’s training, it’s hiring components. Those step down and I mentioned that in the prepared remarks, pilots being one and the crews being one of them. We’re putting 600 pilots into production. So, it’s really the first time over the last 18 months that are actually — school house will step down here during the second quarter. And then the other components are the efficiency, scale and efficiency that starts to step in as you get the core rebuild, about 5 points of aircraft utilization, and we just get a better use of our facilities and our people as we progress through the back half.Catherine O’Brien Great. Makes a lot of sense. Then maybe one for Glen. Can we just dig into the corporate sales international ex-China, 90% recovered? Can you just walk us through how that looks from your different cabins? Are your business class cabins running at a similar level restored? And then by type of trip, are you still seeing a similar number like out and back Road Warrior type trips as you were pre-COVID?Glen Hauenstein Great question. Most of the business travel internationally is in the front cabin. So, I’d say 75% to 80% is in the front cabin. So, that’s fueling front cabin strength. I’d say all of our premium products in the long-haul international markets are doing incredibly well. This is really the first year we have premium economy at scale. About 85% of our flights long-haul now have — that will be 100% by next year. But — so we’re flying this for the first time with ubiquity in the international arena, and we’re seeing amazing results on the premium economy count at the Premium Select. So, very excited about the rebound in international travel, both leisure as well as business. Now, what was the second part of your question? I’m sorry.Catherine O’Brien Yes. Just like on the type of trip, are you still seeing those kind of like shorter Road Warrior out-and-back type trips to the same degree, or are you seeing the length of trip change at all here?Glen Hauenstein We are seeing the length of trip change and Road Warriors are not staying one day, day trips are down. And that’s really what we’re trying to harness here as we move forward is normally, we would use AP, advanced purchase as one of the big key drivers for separating our business versus leisure. Now it’s really stay. And even with stay, it’s not as defined as it used to be. So, those are the fences we’re trying to rearrange how we think about our pricing systems and fencing. We don’t want to get too much into how we think about that. But clearly, AP is one that we’re leading out of.Operator Your next question is coming from Scott Group from Wolfe Research.Scott Group I got just a couple of near-term follow-ups and then a longer-term question. So, the 70% booked for Europe and significantly less domestically, how does that compare with pre-pandemic sort of levels entering Q2? And then, the overall unit revenue flat to down slightly, is there a difference domestically, internationally on the year-over-year trend?Glen Hauenstein We are — 75% is about where we would expect to be at this point in time for international long haul. Domestic, we are within a couple of points where we would expect to be. It’s really the — how much you want to take in advance. And when you think about 90 days, it’s not all 90 days. Inside of 30 days, we want to be ahead. So, that’s the difference. Second question, I’m sorry.Scott Group There was just like the RASM for the unit revenue flat to down slightly for Q2, is there a difference domestic, international?Glen Hauenstein Yes. It’s a mix difference. International is up significantly and domestic is relatively flat versus year-over-year.Scott Group And then, Ed, you — on the prepared comments, you said you expect strong earnings growth again in 2024. Is that a market macro comment, or are there company-specific tailwinds that you have that you can share? Just like when I look at the second half guide, right, it’s sort of flattish year-over-year. So, what changes in ‘24 to get back to strong earnings growth, anything company-specific?Ed Bastian Well, I don’t know what you’re inferring on the second half guide. We really haven’t given a second half guide. I think you’re just backing into the overall — we haven’t updated our full year. I think it’s too early in the year to give an updated ‘23 guide, but if you look at our ‘24 guide, it’s to get to north of $7 a share. And that’s the trajectory we’re on. And to — one comment I made, which I haven’t heard anyone pick up on, for the second quarter forecast we are forecasting to be already at $2 billion of operating profit, which is the same amount that we were at the second quarter of ‘19. It’s quite a statement in terms of how the recovery is going and you consider that at a much higher fuel price, it’s at much higher labor rates, and it’s also with the system not restored. So, I think all of that gives you continued opportunities. We’re looking to take the nonfuel CASM down in the back half of the year, which is going to be a meaningful tailwind for us. We don’t see revenue declines in terms of demand strength. I know everyone has their own point of view on that, and we don’t have a great crystal ball beyond the next four or five months. But from what we’re hearing from our travelers, what we’re hearing from the market, what we’re hearing from agencies, this is a very different recovery trajectory than other consumer businesses are experiencing.Operator Your next question is coming from Andrew Didora from Bank of America.Andrew Didora So, the $11 billion air traffic liability, pretty staggering number here versus the $6 billion to $7 billion that you had in 2019. I assume it’s this number that gives you a lot of the confidence in your outlook. But I guess my question, just curious if any of the dynamics within the APL have changed today versus a pre-pandemic where maybe a lower percentage gets translated into revenues because of no change fees or something else? Just curious there.Dan Janki Yes, let me — a few things. One, I think the level of it is what gives us confidence in the second quarter and the second quarter revenue and revenue through this summer, the strength that we’re seeing both internationally and domestic. You get the benefit of the people more comfortable booking longer elongation of the curve. You certainly have fares that are up. But I also think with the policies that we’ve taken during this period of time being customer-focused, customer-friendly, people have gotten comfortable with no change fees and booking out, and that’s driven the elongation of the curve. And we’ve seen the behavior within that to be very consistent in regards to how it’s been performing. So yes, it’s a step up, but I think it’s a sign of strength, and in regards to the customers feeling comfortable with the policies and changes that we’ve made.Andrew Didora Thanks. And just as a follow-up, Ed, we spoke about kind of — I know you’ve been tweaking down capacity a little bit. But what have you done from an operational perspective to minimize the risk of having the disruptions that you saw during last year’s summer peak? Thanks.Dan Janki The teams have — well, we spent a lot of time in regards to just ensuring that we have the right resources in the right places with the right level of training. So, a lot of effort’s gone into this over the past, month after month after month across the operating teams, everything from the crew activity and ensuring that we’re aligned network to crewing all the way down into tech operations in regards to the staffing that we have in place as it relates to line maintenance, they’re continuing to focus on turnaround time regarding aircraft out of service and the associated items. So, we continue to be ensuring that we’re putting those types of capabilities, buffers in place for the readiness and then the proactive actions that we talked about with adjusting June capacity based on — Glen mentioned it, the resiliency and the ability to recover from storms. We know that they will happen in the summer, and we’re targeting that around areas that we want to ensure that we have deeper resilience around, and the teams are focused on that.Ed Bastian If I could add to Dan’s comments, one major thing in addition is that our team has another year under their belt of experience. We have a very young team out there and leaders as well as frontline employees and getting through another year gives you a lot more confidence in terms of what we’re seeing. Secondly, we are pretty much through the hiring. We’ve been still higher, but the hiring rates that we’re at now are just normal hiring rates for normal attrition, not the massive bulge that we needed to go through to restore the business. And so not only are we able to reduce the focus on getting out and hiring people we can take the people that have been doing the training and put them back in the business because our employees train and we have some of the very best employees that do the training. So getting them back focused into the business for the summer will also be a very nice benefit as we go through this. But there’s a list of 50 steps and 50 things that we’re doing that we review in great detail. And we’re confident it’s going to be a very, very strong operational summer for Delta customers.Operator Your next question is coming from Brandon Oglenski from Barclays.Brandon Oglenski Glen, I’m going to ask kind of a nerdy one, but your load factor did seem to step down sequentially in the first quarter. Did that have an impact from this actualization factor that you’re talking about? And I guess, can you expand on how you control for that in the future with your RM system? Do we even get to like backwardation on yields or no?Glen Hauenstein I think, really, there’s two things I talk about in that realm. One I just want to mention, even though it wasn’t in the question was there’s two things we need to do better next year. One is harness the demand set better that is the new norm and post-pandemic world. And I think we’re getting that real time now, and we’ll make those adjustments. And so materialization rate is relatively easy to combat because it just relates to your overbooking model. So, if you were at 103% on average, and you have two extra points, you just go to 105 in terms of what your ability to take is. There’s a little bit of risk in that. And so we probably won’t go to 105 right away. We go to 104, see how that works, 4.5. [Ph] And that’s why you have to retrain yourself and see what the actual events happen. Because these are changing in relatively condensed time periods, we don’t want to overshoot and cause a disruption. So we’re going to be a little bit more careful on getting that real time.But the other piece is doing the whole network over better next year, right, is that we saw travel patterns of all that are very different than pre-pandemic and where people are flying. And so, as we get to — one of the things that gives us real confidence about improving next year over this year is when we look at what we did in January, being able to do that better in terms of where we have our capacity placed. And that’s the part I think I’m really excited about is we now have the real post-pandemic travel patterns, which are very different in terms of cities that fly to in places they want to go. If you take New York to Florida, which has never been bigger, there’s a reason why, right, as people have decided that they can live in Florida and work in New York. And those are the things that we’re now incorporating into our analysis as we move forward and things I think we’re really excited about in the future.Brandon Oglenski Appreciate that, Glen. And then very quickly related to the ATL being close to $11 billion in your free cash flow guidance for $2 billion this year. Does that guidance incorporate the payment to the pilots? And how do we think about free cash as the year progresses now?Dan Janki Free cash flow, the — as we mentioned in December and on first quarter, the one-time ratification payment that was made was not a special item. You see it this quarter, it’s not in the free cash flow. And certainly, going back to the ATL, the cash performance in total, as it relates to the operating cash and where we are in free cash flow gives us confidence in being greater than $2 billion for the year — first quarter and through the half. Thank you.Operator Your next question is coming from Helane Becker from TD Cowen.Helane Becker Ed, you talked about something I had a question about actually, and that was productivity improvements, which you mentioned that so many people have a year or more worth of experience. Can you — is there any way you or Dan can put any numbers around that and just say, it’s like X percent of CASM improvement or cost improvement?Dan Janki When you — when — yes, there’s a lot of different benchmarks used, and you certainly look at this at every operating group. And things have changed. We used 2019 as a benchmark as a way marker, but I don’t know that, that’s always your operations changed how the teams execute has changed. But it’s an anchoring point that we use and we look at our operating groups, each of those by where they were, what’s changed, how are they tracking to those levels. And we certainly have by group metrics, and we know where we’re at. But when you look at the total, when you bring it back up and you think about what’s in our run rate, take out the rebuild component, but just around efficiency, there’s 2 to 3 points, 4 points of opportunity in there as it relates to us getting better as we move forward through the back half of the year into next year. And those are all going to move at different paces in regards to it. The one that’s going to be, for instance, probably the slowest here will be around regionals and the regional flying that we do. We know we’re — elevated levels were underutilized by almost 30% as it relates to the aircraft and capability, and that one will cure over the ‘24 period and in into ‘25. And then other ones will have a different pace associated with it.Ed Bastian Helane, couple of added points. We mentioned in past calls, the amount of incremental training that we’re doing is in the hundreds of millions of dollars a year. Obviously, a lot of that’s going to dissipate, now that we get into a more normalized pattern. We’re going to get the employees not just the cost of the training, but the instructors are doing the training back into the operation and providing that leadership. The other thing is that, as Glen mentioned, the network is continuing to evolve. And what we’ve seen is the staffing has been a bit lumpy during this recovery from the pandemic and getting your employees and your shifts to the schedule and understanding what the schedule looks like. There’s a lot of opportunity in there at the airport level and efficiency across the board. So, I think efficiency is certainly a big part of the reason why we expect in the second half of this year to bend the trajectory on nonfuel CASM and start taking it down relative to prior year versus the continued upward push we’ve been seeing.Helane Becker That’s hugely helpful. Thanks, Ed. And then just for my follow-up question, as you know, being in New York, the FAA asked you to cut capacity by 10% this summer. So, that adds to your inability to be back to where you really want to be. Does that continue into the fourth quarter? And then, have you talked to them about getting more experienced controllers in the region? A. And B, is this something we need to look forward to every single summer? I mean, don’t they have to do their part too in terms of improving their infrastructure?Peter Carter Hi. It’s Peter Carter. Thanks for the question. Good to hear from you. So that release is until September 15th. So, it does not get into the fourth quarter. But what I would say is that it is hopefully going to be only something we would need to do this summer because we are engaged in ongoing discussions with the FAA precisely on the topic of ensuring that they have the appropriate staffing for that New York — and frankly, it’s beyond New York, but for our national air system. And I think the one thing you’ve probably seen from them in their granting this waiver is that they are acknowledging that they have an issue that they need to solve, which is really an important, I think, acknowledgment because it allows us to work together to try to solve it, help them solve it together. So, we’re — it is the most efficient and safest air traffic control system in the world, and we need to continue to invest in it.Helane Becker Thank you, Peter. Thanks, everybody.Julie Stewart Thanks, Helane. Now, we’ll go to our final analyst question.Operator Thank you. Your final analyst is going to be Sheila Kahyaoglu from Jefferies.Sheila Kahyaoglu Just to switch gears a little bit, maybe talking about the loyalty program, it continues to be pretty successful. Revenue is up 27% year-over-year in the quarter. And I know you’ve laid out 2024 targets. But generally, how are you thinking about growth runway from here, what levers are there to pull? And how do you think about the correlation to the broader economy and the broader macro? And if there’s any metrics you watch more carefully with that.Glen Hauenstein I think there are two components of that. One is the accounts in force, and that is, of course, related to our ability to bring new customers in. And we have posted record acquisitions in the last year, and we just had another — in the month of March, it was a record monthly acquisition for — in the history of the cards. So, I’d say we see real strength in the brand, and that’s really what drives the acquisitions. People want to associate with Delta, and they want associate with the SkyMiles program because it does apply great value to those customers. So, put that in one side and then put them the actual spend on the accounts in force. And that, I think, is more of a fluctuation in the economy. We see that continuing to be strong as we sit here today. But that’s the piece I think that could shift up or down a little bit depending on how the economy rolls out in the second half of the year. But what we’re counting on is that being more than offset by our new acquisitions, accounts in force, and really, more and more premium customers. And I think that’s an exciting thing that we’ll talk about in June. So, stay tuned on details on that. We’ll — go to give you some more details on how we see that evolving.Julie Stewart That will wrap up the analyst portion of the call. I’ll now turn it over to Trebor Banstetter from our Corporate Communications department to start the media questions.Trebor Banstetter Thank you, Julie. And just to remind everyone, we’ve got time for one question and one follow-up each, and we’ll get to as many as we can in the time remaining. Matthew, if you could please reiterate for the members of the media, the instructions for joining the question queue.Operator Certainly. [Operator Instructions] Your first question is coming from Alison Sider from Wall Street Journal.Alison Sider I was wondering if you could talk a little bit about the recent near-miss or safety incidents that we’ve been seeing. Has Delta — have you looked at your own data? Have you noticed any anything concerning or any kind of trends or anything that would suggest if there’s sort of a cause behind some of these incidents?Ed Bastian Hi Ali, it’s Ed. We talked about this several weeks ago around the time of the summit that the FAA convened. We thought it was a very positive step to bring all the stakeholders together to talk about what we’re seeing and what we can do to continue to improve upon the very best safety aviation system in the world. Yes, there’s no question that we’ve had some additional incidents than you would see that are a bit out of the norm in terms of timing. Fortunately, the safety systems caught those incidents, but we’ve got to be vigilant at all times and continue to find ways to get better in that environment. So, nothing that gives us pause. It is, by far, the safest form of travel period — of any form of travel. But we want to make certain the stakeholders are all focused as this industry works through, the infrastructure rebuild that FAA is seeing as well as the airlines are seeing.Alison Sider And then you mentioned sort of like the relative newness or experience of the workforce as a factor in the operational issues. Do you think that that has played a role in kind of that uptick in safety incidents as well?Ed Bastian There’s no evidence that that is necessarily the case. Listen, we have the world’s foremost safety management systems and risk mitigation focus in the aviation community. And we knew that we have younger people. And so, we get out ahead of that. We don’t wait for something to happen. We are on the front end of that with training and added procedures, added buffers, added focus in the operations. So no, I would not lay it necessarily at the hands of experience.Operator Thank you. Your next question is coming from Mary Schlangenstein from Bloomberg News.Mary Schlangenstein I wanted to get one quick clarification, and then I have a quick question. When you were talking about corporate recovery, and you were saying you’ve recovered 85% of revenue, 75% of traffic in the second quarter, is that like total overall domestic and international corporate, or was that a segment of that?Glen Hauenstein That’s system. [Ph]Mary Schlangenstein Okay. Okay. And then the second question I had was on high-end leisure travelers continuing to buy up. Are you seeing these folks buy up into what you would normally see business or first-class seats? Are they buying up only to the top premium economy level? And if it’s the former, is that something that you expect to continue long term where these passengers are buying up into your ultimate highest classes?Glen Hauenstein They’re buying all the way up to domestic first and Delta One on the long-haul international. So — and this is a phenomenon that we’ve seen in making it more accessible. I think that’s really been part of our long-term journey that we’ve been talking about for many years. It is something we wanted to achieve is to make those products more accessible to people. And I think we’ve seen success through the pandemic and coming out of the pandemic, once we see high stickiness to those products. So once you start flying in those cabins, you tend not to go back.Mary Schlangenstein And you expect them to be durable to maintain well beyond the pandemic or post-pandemic years?Glen Hauenstein Absolutely.Operator [Operator Instructions] Your next question is coming from David Slotnick from TPG.David Slotnick Thank you for the question. You touched on this a little bit in the analyst portion, but I wondered if you could talk a bit about staffing levels, both on the flight deck elsewhere throughout the operation and really with your third-party vendors. Have you had any disruption? And do you expect any disruption because of short staffing, say, with caterers or refuelers or anything like that?Ed Bastian We said on the call that we’re getting into our normal staffing ranges and the amount of churn and turnover we’re seeing both on the third-party support staff as well as the added staffing we’ve hired is starting to get in a pretty good place. So no, I don’t — again, there’s always a one-off pocket where you have some unique pressure. But on balance, no, that’s not a problem.David Slotnick And then you say that you’re 75% booked for international travel this summer. Just with change — change fees and everything, what percent of that would you normally expect to see change their flights or maybe canceling those ones for a later point?Ed Bastian That will be in the high single digits.Trebor Banstetter Thank you, David. And that covers our media questions for today. So we can go ahead and wrap the call. We want to thank everyone for their time and participation.Operator Thank you. That concludes today’s conference. Thank you, everyone, for your participation today.