Delta Air Lines, Inc. (NYSE:DAL) Q1 2019 Earnings Conference Call Transcript

Apr 10, 2019 • 10:00 am ET

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Delta Air Lines, Inc. (NYSE:DAL) Q1 2019 Earnings Conference Call Transcript

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Executive
Ed Bastian

not just our customers who noticed. Earlier this week, Delta top the Airline Quality Rating and was the only airline to improve in all categories.

Just as important, we continue to execute on cost discipline. Non-fuel unit cost declined slightly marking the third quarter in a row of cost performance below inflation and given us good line of sight to achieving our full-year non-fuel unit cost expectations of 1%. The combination of revenue momentum and cost discipline drove a 1 point improvement in our pre-tax margin, a successful step in our path to improve margin performance for the full year. And our earnings per share growth of 28% in the March quarter should be in the top 10% of companies in the S&P 500. At the heart of this performance of the Delta people, their hard work and focus on the customer is what sets Delta apart. And I want to thank them and say congratulations for starting the year with $220 million towards next year's profit sharing. During the quarter, there were exciting developments in loyalty, our maintenance, repair and overhaul business and fleet that ensure we build on our earnings momentum, strengthened our strategic advantages and further diversify our revenue streams. 55% of our revenue now comes from premium products and non-ticket sources from less than 40% in 2011. The growing revenue streams from loyalty and our MRO are major component of the $3 billion to $4 billion in free cash flow that we expect to generate this year. Our long-term agreements give us better visibility and even more confidence in the sustainability of this level of cash generation. Importantly, they are decoupled from air fares and provide stability in any economic environment.

Last week, we were pleased to announce a contract renewal with American Express, extending our agreement through 2029. Delta and American Express are two great consumer brands and our shared passion for service and innovation is that the foundation of our long-term partnership. Our American Express partnership is our most important commercial relationship, and I appreciate the confidence that Steve Squeri and the rest of the AmEx team places in Delta. While our AmEx contract wasn't set to expire for several years, the early renewal accelerates momentum by providing certainty in a platform for mutual growth and investment. We expect the new agreement to enable substantial growth in the Delta SkyMiles credit card portfolio, setting the stage to create not just the industry's most valuable co-brand program, but one of the most valuable consumer co-brands on the globe. Delta's benefit is expected to grow to $7 billion by 2023, up from $3.4 billion last year, and just $1 billion at the start of this decade. This growth trajectory demonstrates the strength of the Delta brand, and the growing attractiveness of our value proposition to our customers.

As the largest MRO in North America, we also expect to generate double-digit growth, reaching more than $800 million in revenues this year, and we are growing this business