Good morning and welcome to the Delta Air Lines December Quarter Financial Results Conference. My name is Kelly Ann 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 today's presentation. [Operator Instructions]. As a reminder, today's call is being recorded. At this time I’d like to turn the conference over to Ms. Jill Sullivan Greer, Vice President of Investor Relations. Please go ahead, Ma’am.

Good morning everyone and thanks for joining us for our December quarter call. Joining us in Atlanta today are Richard Anderson, our CEO, Ed Bastian, our President and Paul Jacobson our Chief Financial Officer. We have the rest of the leadership team here in the room for our 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 our cost performance and cash flow. 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'll also 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 ir.delta.com. And with that, I'll turn the call over to our Richard.

Thank you, Jill. Good morning, everyone. This morning Delta reported a $1.45 billion pre-tax profit and delivered earnings per share of $1.18 for the fourth quarter of 2015. This result marks a 42% improvement year-on-year and was in line with consensus expectation. For the full year, we generated a $5.9 billion pre-tax profit, an increase of 29% over 2014. We grew our top line by 1% and realized substantial fuel savings which allowed us to expand operating margins by over 3 points to 16.2%. Our return on invested capital was 28.3% for 2015. We generated $3.8 billion of free cash flow and returned $2.6 billion of that back to our owners this year. Our 2015 financial performance ranks Delta among the top 10% of S&P Industrials. We are poised to continue outperforming as low fuel prices will allow us to produce further earnings and margin expansion in 2016 in the face of a strong dollar and some global economic uncertainty. I want to thank the entire Delta team for all their hard work that contributed to another record year in 2015. For their efforts, we accrued $1.5 billion in profit sharing for the full year 2015. We are looking forward to our largest profit sharing payout in our history on Valentine’s Day 2016. Our people are the primary reason Delta is the top performing airline in the world and we are thankful for their commitment to our company. Our foundation at Delta is quite strong, similar to other high quality industrial companies our focus is to drive value for our owners through topline growth, margin expansion, double digit EPS growth and prudent deployment of our strong cash generation. As we highlighted at Investor Day last month, we have built a durable business model that can deliver strong results throughout the…

Thanks, Richard. Good morning everyone. Thanks for joining us today. For the December quarter our pre-tax income increased 42% year-over-year to $1.45 billion. We expanded our operating margin more than 4.5 points to 17.1%. We are able to drive a significant improvement in our margins because we remained disciplined and strategic about our growth, which allowed us to capture more than 75% of the savings from lower fuel prices. For the quarter, we saw a five point improvement in domestic margins, while international margins improved by four points. Thanks to our Delta employees for the contributions to another strong quarter, performance that drove a profit sharing accrual of nearly $400 million bringing full year total to $1.5 billion. 2015 was another record year on all fronts and we look forward to rewarding the Delta team for driving industry leading operation and financial results on February the 12. We have the best employees in the industry driving superior performance which allows us to pay industry leading total compensation. Our revenues declined two points for the quarter versus the prior year driven by $160 million headwind from foreign exchange which means we were able to successfully push most of these fuel savings to the bottom line. Corporate demand remains solid with volume growth of 3%. Domestic continues to be strong particularly in the Transcons and West Coast markets. Corporate travel buyers recently named Delta the leading airline for the fifth consecutive year rating us number one in the business travel news annual airline survey. This is the first time BTN voters who manage tens of billions of dollars in annual travel spend have selected the same airline for five years in a row. We continue to invest in our ability to upsell on Delta.com which is driving our ancillary revenue growth. We…

Thanks, Ed, and good morning, everybody. I appreciate you joining us today. I will start by highlighting another strong cost performance by the Delta team this quarter. Lower fuel prices and strong cost controls contributed to a roughly $570 million decline in total operating expenses, despite nearly $120 million in higher profit share. Non operating expenses declined by $9 million even with the $75 million loss associated with the write off of our remaining Venezuelan currency exposure which was included in our results. Non-fuel CASM increased 1.9% on flat capacity including about a point of pressure from the pay raises we implemented in early December. That was offset by a little more than a point due to the currency benefits on the expense lines. As we have said previously, we have built a good foundation for cost productivity and we will continue to benefit from several of our ongoing initiatives including upgauging for several more years. Modifications on 20% of the fleet as Ed mentioned during the early innings including on the 757s, the A320s, the A319s and the CRJ700s. You should remember that in conjunction with the December first wage increase from most of our employees we made a change to our profit sharing plan which affects our CASM due to the geography shift. Given the timing of those increases in 2015, our core cost growth will be more weighted towards the front half of 2016. We expect non fuel CASM including profit sharing to increase roughly 5% for the first quarter with about approximately half of that growth driven by year-over-year profit sharing. For the fourth quarter, our total fuel expense declined by over $700 million driven by lower market fuel prices which was net of $340 million in hedge losses including early settlements. Our all in fuel…

Kelly Ann, that’s going to wrap up our prepared remarks and we are ready for Q&A, if you could give the instructions to the queue.

[Operator Instructions] We’ll hear first today from Michael Linenberg with Deutsche Bank.

Hey, and good morning everybody. Two questions here. Just if I go back on a month, the guidance for the other revs look like it was coming in about $1.5 billion. The print was closer to $1.4 billion. Is there anything in there that we should be aware of maybe why it came in a little bit lighter?

Mike, its Gary.

Hey, Gary.

There’s rounding in there. Big drive difference forecast to forecast third party refinery sales. There is no margin in there. So there is no conclusion.

And there was an offsetting benefit in the ancillary guidance as well Mike.

Okay, great. Thanks Gary. Thanks, Jill. And then, just a second question, we’ve had to deal with these present headwinds as it related to fuel surcharges. And I think at the last time I looked at like the U.S. Japan market, it look like that we were moving towards the lower band as it relates to fuel surcharges given this further decline in fuel it would seem that in many of the fares we must be getting close to a zero fuel surcharge in the fare. Is that right? Is this fuel surcharge issue? Is this the fuel price to stay where they are? Are we going to even be dealing with this, three to six months out?

Sorry, Mike, it’s Glen. We are adjusting based on the fuel and of course in Japan it is a formulaic. Sometimes we are -- in the past we’ve been able to roll that surcharge best peers [ph] as they’ve change, but I’m not predicting what the future is, what we want to comment and how we think that will roll out in future.

Okay. Fair enough. Thank you.

We’ll hear next from Julie Yates from Credit Suisse.

Good morning.

Hi, Julie.

As you reiterated that your revenue trend should stabilize by this summer, but with crude down another 25% since your Investor Day, how should we think about the goal to return to flat to positive PRASM by summer, we saw this push out last year when crude took another leg down from when you initially gave that goal, this is the most recent collapse in crude impair your confidence at all in the timing of that trajectory?

Hi, Julie. Yes, it certainly push additional pressure on getting to a positive RASM result and we made those comments this morning based on where the four sit today, but clearly crude were to fall another 15%, 20% and some people are calling for over the next few month that will put incremental pressure. These are good trades and we’re happy about crude continuing to fall, but we want to make sure our investor base understands that we appreciate the importance of getting the positive RASM and we’re certainly doing through the network actions, pricing actions, what we can to get the revenue line about the water line.

Make sense. Thank you. And then, Paul one for you perhaps. Just on CASM next guide for Q1, 5% took some by surprise, I appreciate the dynamics on profit sharing and the two raises for the non-union employees, but perhaps if you can walk us through just how the trajectory should look as the year progresses to get you to that guidance of sub 2%?

Good morning Julie. Thanks for the question. Clearly, you highlighted the biggest drivers in the first quarter and as I mentioned in the prepared remarks the core CASM is weighted more towards the front half of the year as a result of the fact they were lapping those two increases in the first quarter. So, we’re going to continue to manage it. We feel good about it as we head into and through 2016.

Okay. Can you give us the CASM-Ex number for Q1 excluding profit sharing as you’d express in the past?

Yes. We said it, it was about half, half of the five was due to core half of due to profit sharing.

Okay, great. Thanks guys.

From Morgan Stanley we’ll hear from Rajeev Lalwan.

Hi. Thanks for the question. Just in terms of thinking about capital allocation for the rest of the year, I mean, things like PRASM moving in the right direct. Fuel is coming down. I guess whereas the incremental cash flow go and then kind of related to that it seems like you’re not increasing by the actual quarter year-over-year if I heard you correctly, so just some color there would be great?

Yes. This is Richard. We have a bias to holding our core CapEx at around the 3 billion number, and the reason why is – that is really the optimum number that we can execute on a given 12-month period and have a high confidence of delivering the benefits on the time line we lay out. So that really is linchpin to our capital allocation strategy. We do believe that we’re going to have substantially better operating cash flows because low fuel prices is very good for our business overall. We have a bias toward applying that to share buyback. So, I think its reasonable to expect just as we said in our prepared remarks that in 2015 we hit nearly 70% of returning our cash to our owners. And I would expect that we would expect that given the performance that we’re on pace to achieve that our share buyback number would be materially higher in 2016 than it was in 2015. Now, also understand that we have – we’re going to close the Aeromexico transaction, expected to close in the first half of the year which will drive about $800 million of cash, but that will a quick and immediate return as our investment in Virgin did. So, core CapEx at 3. We have the Aeromexico investment coming, but longer term our bias is to put the money in share buyback.

Great. And then just on the topic of fuel I think maybe Ed made the comment before retaining 50% to 75% or so on the savings, can you just talk about what data points we should look for to see where that in fact shakes out and what pushes you above it or below it, and specific items that we should look for throughout the year?

Hi. Your question is in relation to how we’re doing with recapturing the full savings.

Yes. I mean, just throughout the year what we look for to say, at the end of the year Delta was able to keep 75% of it or 100% of it or we should we focus on capacity or surcharges?

For us it was really simple in Q4. Our revenues were roughly – excuse me, our capacity was roughly flat. Our revenues were down about two points, but that was almost entirely due to the FX impacts on the international. So, by definition we drove all the recovery of savings to fuel to the bottom line or certainly the vast majority of it. As fuel continues to decline that continue to put some incremental pressure on it, but the pricing environment where we stand today is allowing us to do that because we’ve taken some pretty aggressive network actions to accommodate.

Great. Thank you.

Maybe one other way to think about this is if you look at full year 2015 results and we expect to be able to repeat this at least this performance in 2016. In 2015, our operating revenues were up 1%, so top-line was up 1%. Our fuel expenses were down 20%, and our EPS was up 38%. We took a lot of that to the bottom line. That – it means it’s pretty remarkable that our top-line went up 1% in 2015, and we were able to take 20% which was 2.2 and this is after fuel hedge losses. We took 2.286 lower fuels and produced a 38% improvement in EPS.

Great. Thank you gentlemen.

We’ll move next to Jamie Baker with JPMorgan.

Hey, good morning everybody. Question for Paul. You gave a lower Q1 up margin guide at Investor Day but there wasn’t lot of clarity as to what assumptions you were baking in at that time other then fuel coming down. Were there any other revisions to your forecast specifically incrementally better or worst on the revenue outlook?

Hi, Jamie, this is Ed.

Hi, Ed.

We did as you know; we closed December revenues with a little stronger momentum than we were anticipating in the guide and we see that continuing into the first quarter, so, its combination of lower fuel and certainly or marginally improved revenue.

Okay. Second question, operations related. The general rule of thump that I’ve used at least for the industry is that it takes about four months between deciding to adjust ones capacity and actually beginning to fly the new schedule. And I’m wondering obviously the booking curve is going to influence this, but in the case of Delta have you gotten any more adept at making substantive schedule revisions in even less time or is four months give or take still a reasonable assumption to use?

Jamie, it’s Glen.

Hi, Glen.

It depends on the circumstance. In the case of the Paris attacks we started making substantial changes to Brussels and Paris capacity within a week or so. So, I think it really depends on severity and whether or not we believe that we would generate cash by flying it or not generate it. We’re able to park the airplane at any point in time, so if you were looking at – I don’t think its ever been four months, I think its probably three months at the outside for just a general slight bias up or down, but on specific actions relating to big changes in demand I think we can do that pretty much real time.

Okay.

Yes. This is Richard. Let me give the case in point, which is the pilot shortage at the regional. The pilot shortage at the regionals, we adjust that weekly. And bottom line is you can do a pretty dramatic schedule change in 30 days.

Okay. That’s helpful. We’re obviously taking lot of recessionary type questions these days, so it’s good to be able to know the speed with which you are could potentially, but hopefully it won’t have to react. So thank you very much gentlemen. Take care.

Thank you.

We’ll hear next from Duane Pfennigwerth with Evercore ISI.

Hey, thanks. Just to follow-up on Jamie’s question. I wonder if you could just tell us a little bit specifically about what your business is telling you about the U.S. economy, obviously there’s a lot of fear out there for folks to look at other sectors in transports, but as you measure it what is your business telling you about the health of the U.S. economy today versus maybe 30, 60, 90 days ago?

Hey, Duane. We’re pretty optimistic relative to what you read on CNBC or Wall Street Journal or some of the thunders out there that are predicting the future. We are booked ahead in terms of load factor for each of the months for February, March, April and really add into early summer, in case of early summer, its little bit early to call that, but we see demand is very strong and I think one of the issues that we’ve talked to our investors about is that dividend or that the American consumer has gotten from lower fuel whether or not its heating their home or whether or not its filling up their car with gas and where they’re reinvesting and they seem to be willing to reinvest that into Airline purchases, but at slightly low fares and those lower fares are being generated by the lower price of fuel, but core demand strength seems very strong in terms of corporate and core demand strength in terms of leisure seems strong as well for as far as we can see in the next 30, 60, 90 days.

Thanks one for that.

Duane, this is Ed. Let me add to that, because we also see as I’ve said in the remarks, continued strength in corporate demand. Our corporate demand in the fourth quarter was up 3% across the Board. Obviously, internationally it was down a bit in Europe given some of the effects of the Paris attacks. But broadly speaking our corporates continue to tell us that they expect growth in 2016 over 2015 level. So I think this really gets down to a question if the volumes are there, we flew the Christmas season and the Thanksgiving season with some of the strongest load factors in our history. And people translate that into what it means with revenue, there is certainly pricing pressure out there from the fact that fuel prices are half of what they were a year ago, but our yield to run average were down about 4% in the quarter, so both of that fall into the bottom line and our business looks pretty healthy.

Thanks for that detail. And then just on a follow-up here, the language about core CapEx of $3 billion. I just want to check does that mean excluding strategic acquisition like Aeromexico or what would be the difference between core and non-core CapEx? And thanks for taking my question.

That’s right.

That’s it.

That’s it.

Thank you.

And from Bank of America, Andrew Didora.

Hi, good morning everyone. I guess kind of follow-up to an earlier question. When you initially gave 2016 capacity of up to do, fuel obviously was 3% higher that it is today. But I know you’ve often said that you do run your business based on a much higher oil price, but if today’s level were to hold for the better part of this year, do you think your thoughts on capacity would change at all?

It’s the guide we gave you.

Okay. Fair enough. And then just when I think about your growth here domestically, what are some of the key markets that are you’re looking to add in as oppose to maybe some of the weaker markets you’re looking to kind of move capacity around a bit?

Andrew, hi, its Glen. I think there is really three things we’re concentrating on. One is the continuing up gauge of the airline which we have a lot of great and I think innovative programs in place whether it not identification that Paul talked about or whether it’s the continued retiring of the 50 seat airplane and upgauging the airline more to be a mainline airline. So we have that as a couple of points. And actually the fleet count remains less. When you ask about the commitment and really Jamie asked before what the lower boundary was and we have plenty of space on the lower boundary. What we really plan for the upper boundary in terms of how many airplanes do we have coming in and how many pilots that we hired. That’s really what determine and why we can say with confidence zero to or two, because that’s really running our factories as efficiently as we could. We can always step back from that if the economic conditions changed. But the investments for this year are really and filling everything we’ve started before continuing to get Kennedy to its full 250 departure per day. We think if 250 departure a day since connectivity is expediential that we will really see some aggressive improvements in return in Kennedy as well as Seattle which more and more is relying not only on the Seattle local traffic but on the connectivity that we’re generating through Seattle at this point from the entire Pacific Northwest, so really those are two key linchpins along with upgauging and making our existing hubs more efficient.

That’s great. Thank you very much.

We’ll move on to Savi Syth with Raymond James.

Hey, good morning. Just a couple of questions. The first it is a follow-up on the corporate demands standpoint. I know the shift of volume made sense. It was up about 5% I think in the prior quarter, 3% this quarter. Is that a function of just tougher comps as they kind of the slowing growth there? Or how do you – how would you kind of rate the somewhat slowdown in the year-over-year growth?

Savi, this is Ed. It’s really a function that we have put less capacity out. The overall rate of improvement continues at the same level.

That makes sense. And then just a follow-up on the fuel hedge side, I know, its been the kind of the right decision to not hedge here and kind of giving outlook lower, maybe that’s a right thing, but how do you – any kind of latest thoughts on hedging and maybe what prices if you do hedge today or even about to hedge?

Good morning, it’s Paul. You know I would say that what we announced today is really a function of the continued uncertainty and volatility that are in the markets today. We think there will continue to be opportunities out there. We’re still committed to hedging over the longer term, but feel this is the right time to just kind of sit on the sideline and wait it out.

And if you were to hedge Paul, what kind of prices are you going to hedge?

Very low.

Okay. All right. Thank you very much.

And Kelly, we’re going to have time for one more question from the Analyst.

And that will come from Buckingham Research, Dan McKenzie.

Hi. Good morning. Thanks guys for squeezing me in here. Two questions tied to the commercial initiatives. I guess first here with respect to branded fare initiative what percent of the domestic routes are ultimately going to be touched by this once we get to full speed at 2018 and then more importantly how big is the revenue tailwind from curtailing the revenue dilution from business travelers that otherwise might be buying down. Is it worth of half a percentage point of domestic PRASM, one percentage point, any color would be helpful?

Let me answer the first question first. The first question is we intended to have all four fare products on all markets by 2018, so that was the easy one. The second one is about the dilution of revenue for basic economy from customers that are in the corporate world and what upside that might have. And I would say that is an indirect benefit and we think that’s in that the several hundred million dollar a year range, based on our trial where we are today.

Okay. Very good. Secondly, at the Investor Day you guys cited fleet initiatives of course as a key commercial initiative driving margin expansion. I’m just wondering holding still constant how much of the margin improvement came from RJ restructuring in 2015 and as the expectation of that trajectory would be similar in 2016?

You know we don’t candidly all the numbers we have on this table in front of me, we actually don’t track that number per se. I think what you have to look it is what the value is that we receive from upgauging and that’s really reflected in our operating margin.

Okay. Thanks for the time, guys.

And that may conclude the analyst portion of the call. And I am now going to the turn the call over the Kevin Shinkle our Chief Communications Officer for the media portion of the call.

Thanks, Jill. Welcome to the media portion of the portion. We’ll have about 10 minutes for questions. Please limit yourself to one question and one follow-up. And Kelly Ann, can you please provide the instruction to how to register for a question.

[Operator Instructions] And we’ll hear first from Jon Ostrower with The Wall Street Journal.

Hi. Good morning, gentlemen. Just touching on the announcement from Frontier earlier this month, I’m curious from that perspective where you guys sit on adding a 42 new routes into their network and whether or not that represents any kind of stabilizing force for the U.S. domestic market more broadly and whether or not how you see that competitive challenge facing up or overall capacity as Frontier [ph]?

You know, it’s our policy to not comment about our future actions with respect to competitive dynamics in the marketplace.

Can you add – do you believe that the action could represent a force that ultimately strengthen Delta’s position or do you see that more as a path for stabilization or any kind of color just to that move just from the competitive dynamics.

We have a policy of not commenting upon the competitive – future competitive dynamics in the market place.

Thank you.

You are welcome.

We’ll move next to Jeffrey Dastin with Thomson Reuters.

Thank you very much for taking the call. Would you mind saying your thoughts Bombardier's C series and whether Delta is considering a purchase of the aircrafts?

You know they brought the C-Series to Atlanta right before Christmas and we met with Fred Cromer, President of Bombardier and it’s a pretty impressive airplane. The geared turbofan is the really the first big innovation since the Boeing 787, revolutionized the composite structure for the body the fuselage of the airplane. So, we actually think that at right price it’s quite a competitive airplane particular given the engine technology. So we’re taking a very serious look at it.

Thank you very much.

And from Flightglobal, Edward Russell.

Hi, yes. I was just wondering if you could elaborate on your plans for LAX, in regarding moving the terminals 1, terminals 2 and terminals 3 there. Are you planning any kind of renovations, rebuilding the terminals, if you can elaborate please?

Hi. This is Ed. We’re – as Richard mentioned on a call a week ago, we have entered into a non-binding MOU with LALA [ph] and the board, and at this point in time we are working with the board on hopefully turning that into a binding intent over the next number of months and we’re not really at liberty to comment on that.

Okay, could you please give an idea of the timeline when such a move could take place if you do decide this does happen?

We’re not at liberty to comment. It’s really up to the commissioners and the Mayor’s office and we appreciate the support we perceive but there’s a long way to go yet.

Thank you.

And we’ll go to the Philadelphia Inquirer's, Linda Lloyd.

Thanks for taking my call. Could you help me understand why the trainer refinery posted an $8 million profit for the quarter when the October earnings call you expected a $30 million fourth quarter profit and a full year profit of $230 million? Thank you.

Hi Linda, this is Paul Jacobson. You know primarily its related to the crack spread environment that we see. You know distillate cracks are down which is very very good for the airline since we are a substantial consumer of jet fuel, but the refinery is actually doing a fantastic job in terms of reliability and operational performance. So we are very pleased with the results.

Yes and the fact, this is Richard. If I could just add something to that. You know we’re really proud to own the trainer refinery; it’s a great group of professional people that operate that refinery. And if you look at the industry data, it is now the top performing refinery in pad 1 in the Northeastern U.S. So it’s a core and critical strategic asset for Delta.

Thank you. What was the full year profit for the refinery?

Just under $300 million and we paid $150 million for it.

So financially it’s working out fine, right.

Spectacular.

Thank you. Thank you for answering my question.

Hey, thank you. Well with that, we’ll conclude our earnings conference call. Thanks to everyone for listening.

Again that will conclude today’s Delta Airlines conference. Thank you all for joining us.