Good morning, everyone, and welcome to the Delta Air Lines December Quarter and Full Year 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, this 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.

Thank you, Matthew, and good morning. Thanks for joining us for our December quarter and full year 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 that you please limit yourself to one question and a brief follow-up so that we can get to as many of you as possible. After the analyst Q&A, we’ll move to our media questions. As a reminder, 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, ir.delta.com. And with that, I’ll turn the call over to Ed.

Well, thank you, Julie, and good morning, everyone. We appreciate you joining us this morning. Earlier today, we reported our full year and December quarter results, posting fourth quarter earnings of $1.1 billion, or $1.28 per share, on record quarterly revenue that was 11% higher than 2022 and an operating margin of 10%. I want to sincerely thank the 100,000 strong Delta team for their outstanding work in delivering these results and serving our customers. Delta carried more travelers this holiday season than any other time in our history, and we delivered industry-leading operational performance with the number one system completion factor amongst our peer set throughout the December quarter. To put that in context, we carried 9 million customers, a record 9 million customers, I’d add, on 60,000 mainline flights over the holiday period, with fewer than 40 cancellations in aggregate. Our December quarter results marked a strong close to year two of our three-year plan. For the full year, we reported earnings of $6.25 per share, the second highest EPS result in our history on revenue that was 20% higher than the prior year. We delivered an 11.6% operating margin and pre-tax income of $5.2 billion, a near doubling over 2022. We generate free cash flow of $2 billion while investing $5.3 billion back into the business, and we improved our leverage by two full turns and reinstated our quarterly dividend. Return on invested capital was 13.4%, a five-point improvement from 2022, a tremendous amount of progress, especially if you consider where we sat the short three years ago, and I’m so proud of our team across the board. Sharing our financial success is a long-standing pillar of Delta’s culture, and I’m thrilled to announce that we’ll be rewarding our employees with $1.4 billion in well-earned profit sharing…

Thank you, Ed, and good morning, everyone. I want to start by thanking all of our employees for their hard work and dedication this year. For the full year, we delivered record revenues of $55 billion, about 20% higher than pre-pandemic. Strong execution on our commercial strategy resulted in significant outperformance against the industry with international delivering record margins and profits. We finished the year with unit revenues 3% higher than 2022, also about 20% above pre-pandemic levels. Diversified revenue streams, including premium and loyalty, generated 55% of revenue, reflecting Delta’s differentiated strategy. Premium led all year with record paid load factors and yield growth outpacing Main Cabin. The rollout of Delta Premium Select on long-haul international is nearly complete and the revenue generation has been above our expectations. As we continue to increase our premium seat mix and segment the cabin through our five product strategy, we have structurally improved the international margins. Our loyalty program continued to exceed our expectations with record SkyMiles acquisitions in 2023. Total loyalty revenue was up 19% over the prior year with 15% growth in co-brand spend and increasing mix of premium cards in our Amex co-brand portfolio. In recognition of our commitment to the Business Traveler, Delta was named number one in Business Travel News Airline survey for an unprecedented 13th consecutive year. Delta gained corporate share during the year and successfully launched SkyMiles for business, providing small to medium sized companies new benefits to support further growth in the important SME segment. Corporate sales accelerated into year end, including double-digit year-over-year growth in the month of December. Technology and Financial Services led this momentum for the December quarter with Media and Auto sectors seeing notable traction following the strike resolutions. December quarter revenue was a record $13.7 billion, 11% higher than…

Thank you, Glen. And good morning to everyone. 2023 was another meaningful milestone in restoring our financial foundation. We delivered earnings of $6.25 per share and pretax income of $5.2 billion, nearly double our performance of last year. Operating margins of 11.6% was up four points from last year and expected to lead the industry. We generated operating cash flow of $7.2 billion, enabling reinvestment in our people, our fleet and technology. After gross CapEx of $5.3 billion, we generated free cash flow of $2 billion. During the year, we paid more than $4 billion of gross debt. This included accelerated repayment of $1.7 billion of higher cost debt. We ended the year with liquidity of $6.8 billion and grew our unencumbered assets to $26 billion. Our leverage ratio improved two turns to finish the year at three times. Return on invested capital improved to 13.4%, up five points over 2022. S&P upgraded our credit rating in the second half of last year. We are investment grade rated at Moody’s and we are now only one notch away from investment grade with outlooks improving at both S&P and Fitch during the year. With this progress, we reinstated our dividend last summer, broadening our appeal to yield focused investors. We closed out the year strong, reporting a December quarter pretax profit of $1.1 billion, on operating margins of 9.7%, resulting in earnings of $2.28 per share. Non-fuel unit costs were up 1.1% year-over-year in line with our guidance. Now moving to our outlook, for the March quarter, we expect earnings of $0.25 to $0.50 per share on approximately 5% operating margin. We expect March quarter fuel price to be $2.50 to $2.70 per gallon, with a $0.05 to $0.10 refinery benefit. The refinery profit is expected to be down more than…

Thanks, Dan. Matthew, can you please remind the analysts how to queue up for questions?

Certainly. At this time we’ll be conducting the analyst question-and-answer session. [Operator Instructions] Your first question is coming from Michael Linenberg from Deutsche Bank. Your line is live.

Oh, hey, good morning, everyone. This is a question probably to both Dan and Glen. With the new A350-1000s coming in 2026, and knowing that you do have some additional Airbus widebodies delivering over the next few years, are you still going to be in a situation where maybe you have to extend your 767 fleet? I know that is to be fully retired. I think it was going to be by 2025. Will you have enough lift? And if not, are we going to see additional investments into maybe some of these older aircraft to keep them running through until you take deliveries of the bigger airplanes?

As we move through 2025, 2024 through the back half of the decade, we expect to retire the 767-300s through that period of time on a pretty consistent basis as you step through while continuing to fly the 400s.

So you’ll continue to fly the 400s beyond 2025, Dan?

Yes.

Mike, I don’t think…

[Indiscernible] in 2025.

It was never our intent to have that fleet grounded by 2025. It was our intent to have them out of international long haul by 2028 and retired by 2030.

2030, yes.

Okay. Okay, makes sense. They’re a bit younger. And then, Glen, just my second question, what was the headwind due to the cancellation of the Israel services in – the Israel services in the fourth quarter? And is that a good way to think about the March quarter impact if you don’t restart those services by the 31st? Thanks.

So, Mike, the initial hit was clearly the greatest because as we moved through the quarter, we redeployed the assets to other markets. So, I would say it was about a point of revenue in 4Q, and that really goes to very little impact in 1Q and beyond. And, of course, we’re assessing the issues in Israel. Our current intent we have loaded for sale April, we’ll see how that manifests as we move through. But our priority is always safety first, safety of our customers and our crews, and that’s going to be our priority.

Okay. Thank you.

Thank you. Your next question is coming from Helane Becker from TD Cowen. Your line is live.

Thanks very much, operator. Hi, team. Thanks for the time. So, two questions. One for, I think, Ed, you mentioned this morning on CNBC that you were seeing improvement in corporate, especially in the tech sector. So I’m kind of wondering if you or Glen can talk about what you’re seeing in corporate by sector and maybe by geographic region.

Well, I’ll start and Glen can add his color as well. We are seeing continued improvement in the corporate sector, and we had a number of laggards, tech being by far the largest in terms of that had essentially not returned to travel. And we’re finally starting to see tech companies traveling again and again I think a lot of it is the return to office that is driving some of that. The consultancies as well, which have also been laggards again, given their clients have had their offices somewhat reduced, office hours opening is helping there, and we’ve seen it across the board. The other thing I mentioned this morning also is the auto and entertainment sectors have rebounded nicely. Entertainment clearly and the auto is starting to rebound following the strikes in the fourth quarter.

That’s very helpful. Thank you. And then just for my follow-up question, as you think about International, I noticed that in your schedules, you’re elongating the season with maybe just January and February in International being seasonally lower. Are you seeing travel move into those months as well so that you would extend or add especially to your coastal hubs, more international service going east?

Absolutely. I think we’ve disclosed this previously, is that we’ve seen the seasons elongate for leisure travel to Europe really March through October now is pretty strong. Of course, the shoulder is still not as strong as the peak summer. But in response to that, and again, this is part of our optimization of how we fly is tailoring our capacity to when demand actually exists.

Okay. That’s really helpful. Thanks, team. Have a nice day.

Thank you.

Thank you.

Of course.

Thank you. Your next question is coming from Jamie Baker from JPMorgan. Your line is live.

Good morning, everybody. Glen, on the pending inflection in domestic RASM, I appreciate we’re seeing capacity plans tighten up across the industry. My question is whether you’re seeing any revisions in how the growth year airlines are behaving outside of nearly cutting capacity. Anything else interesting we should be focused on, or is it simply a supply exercise that’s driving the improvement?

Well, I think Jamie, you’ve got a couple of contributors to it. One is what Ed just mentioned, the improving conditions in the corporate environment. And it’s been a slow and steady rebuild since the end of the pandemic. But we are at post-pandemic highs somewhere right around 90% restored to pre-pandemic levels as we head into this year. So that I think is an exciting backdrop for a domestic turnaround. Of course, we have some of the rationalization of capacity, but we also have continued improvements in segmentation and pricing. I can’t talk to our competitors. I just know how we are working now. And 20 years ago, we were only compare – only worried about the lowest fares in the market, and now we’re worried about the entire ladder and the relativity within those ladders and trying to get people to experience the higher quality products. And I think that’s really led to our ability to continue to segment the customers in a more enlightened way moving forward. And that’s going to be one of the key drivers as we head through this year.

Okay. I appreciate that. And then a second question for Ed, during your interview with Phil this morning, you mentioned you’re still holding out hope for the $7 earnings outcome this year. If we fast forward to a year from today, give or take, and that indeed has been the outcome, what do you think the primary driver will have been? I guess the better way to ask is, do you think there’s upside based on what Delta can control, or do you think it’ll simply be exogenous factors like, hey, fuel cooperated, or, I don’t know, maybe the consumer leaned even further into premium, that that sort of thing?

Sure. Thanks, Jamie. I get the question. I think the level of volatility that we see is what causes us to be a bit cautious and prudent in giving that $6 to $7 EPS guide in 2024. We’ve been signaling that a bit for the last six months, and that’s where we sit today. I have great confidence in us hitting that guide, which is what I think the Street wants to know, where our confidence level is. There are a bunch of macros that we look at into the year, which we’ll have to see how they play out. Clearly, the geopolitical front continues to be quite testy, including the fact that this is a political election season, not just in the U.S., but around the world. Energy prices, we saw this morning just how volatile energy prices are. And to me, the supply chain both the cost and the constraints that we see in this industry continue unabated. We’re not making nearly the progress on the supply chain improvements if anything. Every news we get seems to be a bit worse, not better. So that constrains growth and increased cost. That all said, my internal stretch for myself and our team is to still get to that $7 number this year. I think we have a possibility to get there, but I also think that the macro weighs on that assessment. And I think to be prudent, we should set expectations maybe a little bit lower and hope to overachieve just by the way we did in 2023. We gave a $5 to $6 guide and came in on the top end. And I’d like to see a year from now that we’re reporting that same type of result.

Glen and Ed, thank you very much for taking my questions. Take care.

Okay. Thank you.

Thank you. Your next question is coming from Conor Cunningham from Melius Research. Your line is live.

Everyone, thank you. Just on the regions in general, you obviously sound more constructive domestically, but I think you mentioned that you still see a fair bit of upside in terms of international. If you could just level set on your overall like regional expectations in 2024, I think that would be helpful. Thank you.

Well, I think we’re expecting domestic to continue to improve, the comps gets easier as we move through the year. So we should see some nice momentum there. We had a fantastic year in the Transatlantic. We’re hoping to beat that, but there’s a really high bar as we move through the year. What we have on the books today is really pretty exciting for the month of April, where we have about 40% of our Transatlantic bookings in place. We have unit revenue sitting at high-single digits up, which I think most people wouldn’t expect. Of course, we have a lot of booking to go there, but the early returns for spring and summer are very favorable as we sit today. Pacific, where we have an incredible amount of capacity, it’s being absorbed nicely, and we expect that to inflect into a positive territory as those growth rates come down, we move through the year. And last but not least, Latin, and our ambitious build of South America with our partners LATAM is paying very good strong dividends. We’re improving our profitability, albeit, at lower unit revenue. So I think we’re very excited about where South America sits. And the beaches this winter seem a little oversaturated that will rationalize itself out as we move through the year.

Appreciate that. And then Dan, on 2024 costs, I was hoping if you could provide some thought just on the shape of the cost trajectory. It seems like a lot of it just has to do with timing of maintenance and really, really that type of stuff. So just any color, additional color there could be helpful. Thank you.

Yes. As said maintenance was up $350 million for the year with a focus on the first part of the year. The other piece of it is you think about efficiencies, efficiencies just build as you progress through the year. One example is we’re down on – we’re fully staffed. One place we’re hiring is pilots that will be down 50% – over 50% from last year, but again, front half centric with training associated with it as you get ready for the summer. And that really normalizes the historical levels in the back half of the year. So just a good steady drum beat of efficiencies as we pace through the year.

Appreciate it.

Thank you. Your next question is coming from Stephen Trent from Citi. Your line is live.

Good morning, everybody, and thanks very much for taking my question. This might be for Ed or Glen, but you addressed it a little bit in an earlier response. But how deep do you think this supply chain stuff goes? First, we have the GTF engine, now the MAX 9 door plug. Do you think we’ve kind of reached the bottom, or are you concerned there could be more to come 6 months to 12 months from now?

Thanks, Stephen. This is Ed. I hope there’s no more surprises, but I’d be lying to you if I thought that’s the case. I mean I think we’re continuing to work through the – in this post-pandemic world, the implications of the supply chain issues that we saw. And while the MAX 9 issue is a one off, separate issue, I’m not referring to that. I am referring principally to the engine side of the business. And there’s a lot of work on Pratt. We have a lot of reliance on Pratt. And their challenges that they’re facing have been well chronicled. One of the things that we see on the engine side is as a lot of the incremental resources that our engine providers and suppliers have put their resources against it also strips away resources from maintenance work on their existing business with us. So we’re working through as efficient a manner with Pratt. They were in this week and spent a lot of time with them. Roles and gee, everybody in the engine world has challenges, not just on the original build, but more importantly on the parts and the repair side of the business. And a lot of it’s an experience factor level. All the suppliers in our industry lost a tremendous amount of experience due to the pandemic. And it’s taking time to get that back, to get the turn times, down to where they need to be. And when you have higher turn times, that not only delays the entry into service, it also causes costs to go up.

I appreciate that, Ed. Thank you. And as my follow-up, I appreciate as well what you mentioned on the Latin market doing well. Any high level color respect to – with respect to sort of deep LATAM versus short haul LATAM. I mean I presume a lot of the uplift you’re seeing is from the JBA spooling up, but just wanted to make sure I understood that correctly. Thank you.

Yes. I think you described it perfectly. There’s a little pressure on the short haul LATAM, particularly on the resorts, where a lot of capacity was added by the industry year-over-year. But we’re having really incredible performance into deep South America as we continue our coordination of launching the JV with LATAM. And we’re very excited about the short-term and the long-term prospects there.

Great. I appreciate that, Glen, and thank you very much.

Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live.

Hey, good morning, guys, and thanks for taking the question. So Dan, as you think about what happened in 2023, as far as kind of the cost creep that led us to a little bit of a higher cost position than maybe you would have thought in the beginning of the year. Can you give us a kind of rundown around kind of what you missed in 2023? And then with that as kind of a backdrop, talk to some of the sources of risk that you might see for that most single-digit outlook for CASM, MAX in 2024.

Yes, predominantly, yes, David, certainly, two drivers. First, we flew less capacity and kept the cost into invest back into the business. That was one. And the second piece was what we talked a lot in the second half of the year was the investment in maintenance and the cost associated with maintenance. And those were really, when you look at where we were, from what we got it to where we ended up just over plus two, those were the single two biggest drivers associated with that. When you think about that as we go into New Year, four here, a lot different backdrop as we’re in a more normalized growth environment. When you’re thinking and planning and the teams are executing the 3% to 5% growth versus 17% to 20% growth, the focus really less on this training and hiring and the restoration of the airline and our operating teams are focused on the operational performance and fine tuning that. And as you do that, that sets the stage to drive the efficiency. And things that we actions that we took in if we are paying off, if you look at the maintenance doing a lot of work and there’s a lot to still go. But the fourth quarter performance aircraft out of service down 30%, maintenance cancels down over 80%. So that those actions that they’re taking around, proactive reliability, getting the touch time on the aircraft, paying dividends, but that’s really what allows us when you’re in that normalized environment, you can really stay after that consistently day in and day out. That sets the stage for the execution around efficiency.

David, if I could jump in here, it’s hard to overstate just how hard it was to bring the full business back up again over the last 2.5 years. And the intensity of that has been phenomenal. And our team’s done a great job, but it’s taken every fiber of our being and hiring and resource we have to try to get ahead of it. We’re there now. Okay. And you see the results in the fourth quarter, they were remarkable. The best fourth quarter operational results I think this company has ever posted. And that is, I think, the big opportunity as we enter the year. I don’t know that we know yet just how much we have available to us as we start to return to a normalized environment and start tweaking those efficiencies. I think it’s going to be significant. And it’s kind of hard to forecast, because this team has been for the last two plus years in a very different part of the build, but I’m confident we’re going to see some great opportunities. And that’s to Jamie’s earlier question, some of my internal expectations of hoping that we can get through that $7 above EPS number. I’m willing to put that number on paper quite yet, but I think the opportunity is there.

Thanks for that added color. Just to maybe kind of follow-up on that point a little bit, as you think about the optimization efficiency gains that are ahead of you. I appreciate that it’s hard to quantify it all, but can you give us a sense for what the driver of some of these things are kind of big picture wise? Is it about utilization of aircraft? Is it about getting the staffing optimized? Or is it more about just working some of the friction costs in the business out and sort of continuously improving, chasing down a bunch of little dogs and cats across the business? I’m just trying to get a sense for kind of what are we looking at here? Are we looking at a large set of projects or are there one or two things that are going to be super pivotal around the optimization side of this?

David, I think it’s all the above. And it’s not just what you mentioned on the cost side, it’s also on the revenue side. Consumer behaviors have changed a lot. And to this point, we’ve been using somewhat older models to predict behavioral patterns. And we now have actually a good baseline over the last year and a half of what – how consumers are purchasing, what they’re purchasing, when they want to travel, which Glen and his team will use to drive better network and revenue outcomes for our business. It’s in the cost line. The fact that we have 10% more employees today than we had at this point, pre-pandemic, essentially driving the same level of operations, tremendous amount of opportunity to get efficient. But when the operators know what they can count on and they’ve got their arms around the full operation, I think you’re going to see the cash register start to ring with cost and savings efficiency. So I know it’s a bet on the come a little bit, but I’m optimistic we’ll get there. But it’s really hard to quantify at the same time.

Excellent. Thanks a lot for the added color.

Thank you. Your next question is coming from Ravi Shanker from Morgan Stanley. Your line is live.

Thanks. Good morning and happy New Year, everyone. I know your commentary on demand sounds pretty good, but can you unpack a little bit more detail on what you’re seeing in the forward booking curve through spring break and maybe even the activity through the Paris Olympics over the summer? What kind of forward indicator do you have that people might be traveling more?

Well, I think I mentioned it as a response to one of the other questions, but we have pretty good visibility on the early bookings for the summer Transatlantic season, and we have a higher booked load factor as well as higher yield. So those are the two things you watch for and both are indicating quite positive for the Transatlantic. The U.S. has, of course, a closer in booking curve, but as far as we can see out through a spring break, things look great for the U.S. And as I mentioned earlier, some of the close in beach resorts have a little bit too much industry capacity this year. That’ll probably get rationalized out over time, but still will be very profitable as we move through the peak winter season. And then as Pacific rush, as we continue to lap the buildup of our Pacific as we move through the year, we expect those unit revenues to accelerate demand, particularly strong to the [indiscernible] as well as to Japan in the spring season. So very exciting. As we look forward, I hope we can outdo our plan.

Got it. And apologies if I missed this earlier, but do you – I mean, some of your peers are having issues with the potential extended grounding of some aircraft for inspections. Do you see any kind of spillover benefit for that in the short-term? And kind of – is any of that in your 1Q guidance?

Yes. We’ve seen minimal improvements and what we have seen is mostly in Seattle, where they’ve had to cancel a significant portion of their schedule out of Seattle, but we’ll see how long that stays out. But right now, I wouldn’t say, it’s a significant number in the grander scheme of things. It’s significant for Seattle, but not significant for our whole network.

Understood. Thank you.

Thank you. Your next question is coming from Duane Pfennigwerth from Evercore ISI. Your line is live.

Hey, good morning. Maybe just on the cadence of the non-op savings and the component drivers of that. Is it spread pretty evenly throughout the year or is it more kind of second half weighted?

Yes. The driver is $75 million to $100 million, really driven by interest expense. And as we’ve accelerated the debt reduction action that drives the benefit, we expect pension to be flat on a year-over-year basis. The team did a great job. The pension delivered at or slightly above its targeted return, so no headwind associated with that. You get some – a little bit around some of the equity earnings of our partners, but we expect to be pretty consistent throughout the year due to the interest reduction and savings coming through as you progress through the year.

Thanks. And then just a follow-up for Glen. You’ve done a nice job taking some active steps to – on the capacity sequentially 4Q to 1Q. But could you just speak to seasonality and maybe by entity? Where is seasonality a lot different than it used to be? Where is it kind of normalized? So any sort of key trends you’d highlight in change in the underlying seasonal patterns here into the first quarter?

Yes. I think we’re at our new norm, and our new norm is different than 2019,but what I see mainly is an extension of the international seasons. So we mentioned that in an earlier question that it used to be the summer peak was just June, July, August, and now I think we’re moving into April through March. All the way through October is a very strong season, particularly for southern Europe. Northern Europe starts a little bit later. And then the other thing I just mentioned, I mentioned in an earlier call as well, is that the beach Mexican and the Caribbean beaches just seem to have a little bit too much capacity this year, and we’ll work through that as we go through the year. But if you look, those are up 20%, 30% across the board and having a little trouble keeping up with that – the demand keeping up with that kind of capacity increase. And I imagine, it is – people plan next year that they’ll trim on the margin those back down again or let that demand catch up. So generally, I think we’re in a good spot here with supply and demand as far as the I can see, we’re positive in all the future months and almost all the future – in almost every entity with the exception of lab.

Thank you

Thank you. Your next question is coming from Brandon Oglenski from Barclays. Your line is live.

Hey, good morning, everyone, and thanks for taking my question. I guess, Ed or Dan, I mean, looking back from your prior 2021 targets, you guys are guiding at the top end here to effectively reach that. And I think not a lot of people gave you credit. So that’s the context of my question. But that said, valuation in your stock is still pretty low. I think investors are just concerned that we’ve seen peak airline profitability, and your guidance would effectively say about flat profitability this year in 2024 versus 2023. So maybe coming back to some of these prior questions, what is in your control that can get profitability higher? Maybe looking beyond this year, that can give investors comfort that this business should be earning mid-teens.

Thanks, Brandon. And you’re right. When you think about when we set that target, it was in December of 2021. I’ll never forget we were at the exchange. I believe you were there, and Omicron was just being announced as the newest variant. So the level of knowledge that we had to the future and where this thing was going, it was candidly, kind of maybe a bit crazy for us to put out a three year plan. But I thought it was really important and instructive for us as well as our investors to let them see how we’re thinking about the progress. And the great news is, through the first two years, we are at, if not ahead of plan along the headway. And I think if I was to go back and say what has changed, that maybe has given me a little bit of pause for seven, not longer term, but just in the short-term, I think it’s the higher cost of labor certainly was not known back then. The higher inflation rates were not known back then. And most importantly, the supply chain constraints, the full extent, were not clearly not known, have no knowledge of the challenges we face. So when you think about all the macros we encountered, I think we’ve done a very good job of controlling those things that we can control. And as you’ve heard from several of the questions, I still internally am targeting us to get to that $7 number this year. And I think we can, I really do. But I think it’s also prudent that we give a nod to some of those macros that we’re facing. I think the optimization opportunities, as I mentioned, are significant, and they run across every single part of this business. And all of our leaders are working hard to ensure that we’re delivering an excellent quality product which unleashes that optimization benefits. I think the work that we’re doing on the balance sheet with all the debt reduction is derisking and taking that down is important. We’re on track with our free cash flow guidance, $3 billion to $4 billion this year, and we’re still looking at a $10 billion target between 2023 and 2025 for free cash. So I think you’re right, there’s a lot of noise that, “we were lower inguidance”. I don’t really look at it that way. I just think it’s giving nod to some of the macro realities and wanted to give you a prudent estimate to what we are confident we can deliver this year with a nod towards there’s some real upside here.

Thank you for that, Ed. And then, Dan, the maintenance issues have been present now for probably over a year, if not longer, I guess, what are you doing longer term planning to maybe mitigate that? And is there any favorable offset longer term here in your MRO business? Thank you.

The – one is, we continue as we get into a period here where we’re more normalized in growth. It’s allowing us to extend our planning horizon, where we’re able to look out on a rolling not only 12, but 18, 24, 36 months. And I think the more visibility and stability that we get from that allows us to better plan as it relates back into how we run our fleet and how we balance that capacity with cost. And I think that will continue to give us more certainty around that. The other piece is just the heavy lift that our entire tech ops team has in working closely with the supply chain, and with all our partners across that getting clarity in regards to the things that they need to do and we can do on their behalf as it relates to Delta, in regards to continuing to improve the execution of that over time. And we’ve got to work closely with those partners to continue to improve that. And then to the last piece on MRO, yes, there will be an opportunity to continue to grow. I think as we’ve talked about before, we’re well positioned on all these platforms. The focus has been, and we’ll be right here making sure that we’ve got strong foundation on Delta and Delta’s fleet. But we also do have an eye to continue to grow the MRO business, and you’ll start to see that. Start this year but really in earnest in the years two and three years out.

Thank you.

Thank you. Your next question is coming from Andrew Didora from Bank of America. Your line is live.

Hi. Good morning, everyone. So, question for Glen. I think you started ramping up your core hub growth in the middle of 2023. Is there any way you can quantify what the benefits of this build out were to your revenue performance over the back half? And what share of your capacity growth this year will be growth in these hubs?

Yeah. I think we just alluded to a majority of our growth will be in our core hubs or to partner hubs. So probably 75% to 80% of our growth will be in those locations. We feel that we accelerated the coastal gateway growth earlier in the process with our once-in-a-lifetime opportunities to become the leading carriers in markets like Los Angeles and Boston. And those are paying huge dividends for us as we head into 2024, with Boston, for example, leading the unit revenue ascension for this quarter. So we’re really, really pleased with the way it shaked out. And we still have some more rebuild to do in our core hubs. It’ll probably take us through this year and into next year given the lower growth rates that we have, but that’s what we’re working on for the next 18 to 24 months.

Got it. That’s helpful. And then just Dan, in the $3 billion to $4 billion of free cash flow, are you assuming any sort of cash taxes this year or when do you expect to become a cash taxpayer? I thought it was a number of years out, but just curious if there’s any update there? Thank you.

No. We don’t expect cash taxes this year and would expect that potentially cash tax payments starting in 2025 and beyond.

Thank you.

Matthew, we’ll now go to our final analyst question before then going over to the media.

Certainly. Your next question is coming from Savi Syth from Raymond James. Your line is live.

Hey, good morning, everyone. Maybe a quick one for me; just, you talked about pilot hiring being down 50% year-over-year, and you’ve heard similar comments from the industry. Just curious what that means for your kind of regional operation? And if there was much of a drag in 2023, either to cost or to revenue from that operation and what you can expect this year and next year?

So thanks for that question, and I think that plays well into some of the other themes that we’ve talked about. Or what are the potential upsides to our plan that could get you towards the $7. We have planned for stability in the regionals after 2.5 years of really instability, where we didn’t know how many hours we had really three to four months ahead of time. And what we’ve seen is that there is a lot more stability. What we haven’t accounted for is the full utilization of our fleet. So we still have 50 to 100 airplanes and less of utilization than we have on the ground in our fleet. So should that lower hiring at the main line translate into more availability in the back half of the year? That would be potential upside to our P&L.

Perfect. All right. Thank you.

All right. That will wrap up the analyst portion of the call. I’ll now turn it over to Tim Mapes to start the media questions.

Thank you, Julie. Matthew, if we could reiterate for the members of the media the instructions with regard to accessing the call and follow ups, please.

[Operator Instructions] Your first question is coming from Ted Reed from Forbes. Your line is live.

Hi. Thanks for taking the question. It’s for Glen. I just wondered if the Delta passenger in 2024 looks different than the passenger in 2023. And I’m also asking whether the age of revenge travel is over and are we past revenge travel? Thank you.

Well, I mean, this is all an opinion, right, as that, revenge travel, I think has years to go, particularly in long haul international. When you look at the aging of the demographics that people in their retirement years want to travel, and they were robbed of the ability to travel for three years, and we weren’t able to accommodate last year. I think as we continued accommodation of that for the next several years until that revenge travel catch up. I think domestically we’ve done that. Revenge travel was early in the process, and we’re kind of at our new equilibrium, and that gives us the opportunity to optimize as we move forward. And do they look different? They always look different.

As for destinations are we more in unique – is it more unique transatlantic that they’re looking at or more the traditional transatlantic or something else?

I think it’s more the traditional Italy, Spain; those are two of the Italy, Spain, Greece are such hot spots. Portugal is a hot spot, and I think during the peak summer we’re really excited about the prospect of bringing SAS along with us and now having hubs in Copenhagen and Stockholm that will allow us to have even more destinations in Europe than we serve today.

All right. Thank you, Glen.

Thank you. Your next question is coming from Kelly Yamanouchi from Atlanta Journal-Constitution. Your line is live.

Thanks. Ed, you mentioned having 10% more employees today than pre-pandemic and essentially driving the same level of operations and the opportunity to get efficient. I was wondering if that means growing operations with the same number of employees or potentially cutting the staffing level.

Hi, Kelly. No there’s no plans just to cut staffing levels at all. This is about our people being able to garner more experience because a lot of the new employees that we’ve added over the last few years are adding to that 10% and continuing to be a bit more efficient in productivity and the staffing levels. But no, we have no intention to make any reductions in people.

Okay, great. Thank you.

Thank you. Your next question is coming from Leslie Josephs from CNBC. Your line is live.

Hi, good morning, everyone. Wondering if you are seeing any increased bookings since United and Alaska have had to ground their Max 9s? And then separately maybe this is a question more for Glen, but do you think you’re done with the measures that you had to take last year in terms of the SkyMiles program and lounges to sort of combat crowding, since this year is going to be so busy, and if you have enough premium seats to offer the market currently?

Well, I’ll take the second question first, is, we made some serious changes to our programs that were designed to really put the right people in the right categories so that we could deliver industry leading premium experiences. And as you know, while they were announced in the fall, most of them don’t take into effect until 2025. And I think what we’ve estimated is that should – we should be done without those kinds of major changes to our programs. Of course, those programs are always changing, but I think the changes moving forward will be much more minimal. So I think that’s behind us. We’ll see how that plays out by the end of this year and into 2025. And your other question was on the Max...

On booking. Oh yeah, since the grounding.

We’ve seen a small uptick specifically in Seattle, but Seattle is a small portion of our entire system. So it’s kind of minimal in the grander scheme of things, but it’s relevant in Seattle.

Thank you.

Thank you. Your next question is coming from Mary Schlangenstein from Bloomberg News. Your line is live.

Yeah, my question was asked. Thank you.

Thank you. Your next question is coming from Alison Sider from Wall Street Journal. Your line is live.

Thank you. I was wondering, do you still think Delta still has the same advantage over rivals just in terms of reliability in its operation? Is that something that you’re kind of working on?

Hi, Allie, this is Ed. The one thing that we’ve seen over the last couple of years which has been great for customers is that the overall reliability in the industry has improved and carriers increasingly are competing over operational performance rather than some other things in the past that people may have been focused against. And I think that’s great and I think it pushes us to be even better, and I think it’s a great outcome for the industry as a whole. So, yes, the competition is definitely more focused on reliability than ever before. And I still expect Delta to maintain its premium lead in that sector.

And then if I could ask about sort of labor shortages, are you concerned at all or starting to feel the impact of a shortage of maintenance workers? Is that something you expect to come to the head this year?

We are not experiencing any issues around labor shortages. Maybe in very small isolated places we still have some additional people we’d like to bring in, but we are at where we need to be. And for us it’s less about the shortages, it’s more about the new people that we brought on continuing to gain experience, and that’s a big deal, particularly in the maintenance area.

Thanks.

Thank you, Ali. Matthew, we have time for one final question, please.

Certainly. Your last question is coming from Robert Silk from Travel Weekly. Your line is live.

Oh yeah. Good morning. Glen, you mentioned that you all had gained corporate share this year. I’m wondering if you could elaborate on what caused that. You think how you gained it and there was any impact. Some of it might have come from the removing of bears from the traditional GDS channels by your main competitors?

Yeah. I think one of the issues were we were very inventory constrained in 2022 as we were behind the industry in our rebuild? And in 2023 we caught up back to basically a pre-pandemic level of capacity and those additional seats were enabled more corporates to get on the aircraft. I’d say what’s different about now versus pre-pandemic is that before the pandemic and before the segmentation of customers, the differential between the yields on corporate and the yields on non-corporate high end leisure was significant. And these days those have closed, so now you have competition for the premium seats between those two categories that didn’t exist pre-pandemic. And that’s exciting for us as we manage them. But I think getting more seats available is one of the key priorities in the premium sector so that we can accommodate all the demand.

Okay. Thanks. And what about seeing any sort of share shift based upon your strategy of leaving all your fares available in the traditional EDIFACT GDS?

Yeah. Clearly we think that our strategy is more customer friendly, and I’m sure that’s part of it, but we don’t want to buy it.

Okay. Thank you.

Matthew that will wrap up the call. If you want to close it up.

Certainly, that concludes today’s conference. Thank you for your participation today.