David Vernon

Speaking on behalf of David Vernon, Justine asked about discussions with regulators for a sweeping federal framework, the progress on shifting to single-vehicle operators, and for clarification on the upper bound of 'tens of trucks' by year-end.

Answer

CEO Christopher Urmson expressed optimism for a national regulatory framework, citing supportive comments from the Transportation Secretary. CFO David Maday clarified that the operational focus is shifting to *no* vehicle operators for commercial runs, making the single vs. dual operator mix for testing a less relevant metric. Maday did not provide a specific upper bound for the truck count, reiterating focus on execution and the mid-single-digit millions revenue guidance for 2025.

David Vernon questioned the scalability of the Aurora Driver, asking why extending to the new Fort Worth to Phoenix lane wouldn't require a similarly lengthy validation process as the initial Dallas to Houston lane.

Answer

CEO Christopher Urmson explained that a core company thesis is the 'self-similarity' of freeways, meaning driving is fundamentally the same across different states. He noted that the Aurora Driver's capabilities transferred seamlessly to the Phoenix lane, requiring only minor, anticipated work. Urmson emphasized that their granular validation process allows them to identify only the incremental features needed for a new lane, making each subsequent lane deployment faster.

David Vernon inquired about the exit rate for cost per piece in Q3 and its expected acceleration into Q4, seeking specifics on the United States Postal Service final mile agreement and its potential impact on 2026 domestic margins.

Answer

Brian Dykes, CFO, explained that Q3 cost per piece faced a tough year-over-year comparison due to exiting e-commerce volume, but noted improved production metrics from automation and anticipated savings from the driver voluntary severance program in Q4. Carol Tomé, CEO, detailed the $175 million driver buyout with a less than one-year payback. She expressed optimism about a preliminary agreement with the USPS for GroundSaver and Mail Innovations, leveraging their final mile capabilities, with more details expected by year-end and no Q4 benefit.

David Vernon inquired about the exit rate for cost per piece in Q3, whether it's expected to accelerate into Q4, and sought specifics on the new agreement with the United States Postal Service for final-mile delivery and its potential impact on cost per piece and 2026 domestic margins.

Answer

Brian Dykes, CFO, noted that Q3 cost per piece faced a tough year-over-year comparison but highlighted improved production metrics and the upcoming savings from the driver voluntary severance program in Q4. Carol Tomé, CEO, detailed the driver buyout's quick payback and expressed enthusiasm for the preliminary USPS agreement, which leverages USPS for final mile and UPS for middle mile, expecting benefits for Ground Saver and Mail Innovations starting early next year, though no Q4 impact.

David Vernon asked for the annualized 2026 run-rate of the cost savings and questioned if the price increases on the newly insourced Ground Saver (formerly SurePost) service were causing volume churn to competitors.

Answer

CFO Brian Dykes projected a similar level of savings in 2026 but deferred a precise figure. He explained the 8.5% decline in Ground Saver volume was largely intentional, aimed at improving revenue quality by shedding less profitable business. CEO Carol Tomé added that UPS's high reliability, with 97% on-time delivery, is a key differentiator against competitors.

David Vernon asked for the annualized 2026 run-rate of the $3.5 billion in cost savings and inquired about volume and pricing trends for the newly in-sourced Ground Saver product.

Answer

CFO Brian Dykes stated that a similar amount of cost savings is expected in 2026 but deferred specifics. Regarding Ground Saver, he confirmed an 8.5% volume decline in Q1 was an 'intentional decline' to improve revenue quality with certain customers following the in-sourcing. CEO Carol Tomé added that this trend would likely continue in Q2 and emphasized the product's high reliability as a key differentiator.

David Vernon of Bernstein sought clarity on the 2025 margin guidance, asking what the run-rate margin would be without near-term deleveraging, and questioned the company's organic growth outlook excluding the Amazon volume reduction.

Answer

CFO Brian Dykes explained that the forecast already includes taking out fixed costs commensurate with the volume drawdown, leading to a 6% rise in revenue per piece. He noted the actions unlock future margin control. CEO Carol Tomé addressed growth, stating the non-Amazon small package market is growing in the low single digits and UPS plans to take share, particularly in SMBs (targeting 32% of U.S. volume in 2025). She emphasized growth in complex logistics, healthcare, and B2B. Brian Dykes quantified that the Amazon action reduces revenue by ~$2.5B, offset by over $1B in growth from other areas.

David Vernon asked for the key drivers behind the significant operating profit ramp expected from Q3 to Q4 and how those factors might shape profitability into 2025.

Answer

CFO Brian Dykes attributed the projected profit increase to a focus on revenue quality, strategic pricing actions, and the acceleration of cost-out initiatives like 'Fit to Serve' and 'Network of the Future'. He noted that these productivity gains provide an incremental bump over normal seasonality and that the company expects to exit the year with a domestic margin slightly higher than the previously guided 10%.

David Vernon asked for a quantifiable quarterly run rate for intermodal volume decline due to competitive responses, assuming no other business changes, and inquired about the risk of further volume loss.

Answer

Chief Commercial Officer Ed Elkins stated that quantifying the exact run rate is difficult but noted the effect was on the margins in Q3, with the impact expected to build in Q4 and Q1. He expressed confidence that cargo owners would eventually return to Norfolk Southern's network due to its value proposition, despite the current challenging truck freight environment.

David Vernon of Bernstein asked for a quantifiable quarterly run rate of intermodal business loss due to competitive responses, assuming no other business changes. He also inquired about the risk of further volume deterioration and strategies to regain traffic by directly engaging beneficial cargo owners (BCOs).

Answer

Chief Commercial Officer Ed Elkins stated that quantifying the exact run rate is difficult but noted the impact was on the 'margins' of intermodal in Q3, not the majority. He expects the impact to build in Q4 and Q1, leading to 'pain here for the next handful of quarters.' He expressed confidence that cargo owners will eventually return to Norfolk Southern's network due to its compelling value proposition, despite the current challenging truck freight environment.

David Vernon asked for guidance on how to model coal RPU sequentially and about the potential seasonality or timing of the guided 150 basis points of OR improvement throughout 2025.

Answer

CMO Ed Boyle indicated that the headwind on coal RPU from lower seaborne prices is present now and expected to continue in the near-to-medium term. CEO Mark George stated the 150 bps OR improvement is an annual target, and while quarterly results will have puts and takes, strong operational momentum provides confidence in hitting the full-year goal despite inflationary pressures.

David Vernon asked about the U.S.'s competitive position in the export met coal market amid a potential price correction and the possible volume and price headwinds for NSC in 2025.

Answer

CMO Ed Elkins stated that while it's early for a 2025 view, the U.S. has historically remained very competitive. He noted a strong demand position for export thermal coal and identified China's demand and geopolitical uncertainty as key variables for met coal. He affirmed the company is prepared to meet global customer demand.

David Vernon asked for a quantification of the 'knife-edge improvement in yields' observed for assigned seating bookings in January, inquiring about the proportion of the schedule sold and any impact on the sell-through rate. He followed up by asking about the cadence of the initiative plan and which quarter is expected to see the maximum contribution from these initiatives.

Answer

COO Andrew Watterson declined to quantify the 'knife-edge' yield improvement due to the early stage of the booking curve but expressed confidence in a revenue-positive customer reaction. CFO Tom Doxey stated that peak contribution from initiatives would be in the 'last quarter of your time period' as they continue to build. CEO Bob Jordan speculated that the peak value for assigned and extra legroom seating, based on the booking curve, would likely occur around early Q3 2026, while co-brand card initiatives are expected to ramp up throughout the entire year.

David Vernon from Bernstein asked for an explanation for the lower load factor relative to peers and inquired about expectations for load factor recovery. He also questioned if the company should consider more aggressive capacity cuts.

Answer

Chief Operating Officer Andrew Watterson explained the lower load factor was a result of a deliberate pricing strategy to maintain robust yields amid macro weakness, avoiding a 'falling knife' scenario of deep discounting. He noted that load factors began improving in April as the company participated more in further-out discounting. Watterson added that initiatives like Basic Economy and improved network connectivity are designed to boost off-peak load factors without sacrificing peak-period yields.

David Vernon sought to understand the percentage of premium seats in the mix by the end of 2025 and the relative buy-up from non-premium to premium seats, aiming to model the unit revenue lift from the changing product mix.

Answer

Steve Johnson, Vice Chair and Chief Strategy Officer, emphasized the consistent strength of premium demand, noting that premium leisure is a significant driver. He reported that the premium cabin's paid load factor is nearly 80%, up from the mid-60s pre-pandemic, and nearly 50% of ticket revenue comes from premium. Robert Isom, CEO, further detailed product investment areas, including in-flight amenities, premium lounges in Charlotte and Miami, and hard product enhancements across the fleet, including 787-9s, XLRs, and 777-200 reconfigurations.

David Vernon asked for a quantification of the percentage of premium seats at the end of 2025 and the expected change, along with commentary on the relative buy-up from non-premium to premium seats, to help model the unit revenue lift from product mix changes.

Answer

Steve Johnson, Vice Chair and Chief Strategy Officer, emphasized the strong and consistent premium demand, which he described as a 'post-pandemic new normal' for premium leisure. He noted that premium cabin load factors are now 65% for premium leisure, outperforming the main cabin by 5 PRASM points year-over-year, with a paid load factor of nearly 80% (up from mid-60s pre-pandemic). Nearly 50% of ticket revenue now comes from premium. Robert Isom, CEO, added that product investments include in-flight amenities, premium lounges, and hard product upgrades like new 787-9s, XLRs, and 777-200 reconfigurations, which extend fleet life and offer a 'capital spending holiday.'

David Vernon of AllianceBernstein asked about the key opportunities for improving the customer experience, and how American will measure and communicate its progress to investors.

Answer

CEO Robert Isom stated that progress will be measured by customer perception via Net Promoter Scores (NPS) and by financial results, specifically premium and overall unit revenues. He highlighted investments in flagship suites, lounges, and in-flight amenities. He confirmed they benchmark NPS against peers and see it as a significant opportunity, starting with running a reliable operation.

David Vernon of Bernstein inquired about American Airlines' plans for capacity moderation in the second half of the year given demand weakness, and whether the recovery of corporate share is achieving expected yields.

Answer

CEO Robert Isom confirmed the airline has a "negative bias to all capacity" going forward and will react nimbly to demand shifts, though summer capacity is largely set. Vice Chair Steve Johnson added that the corporate share recovery is proceeding as expected.

David Vernon asked Steve Angel about his view on the industrial logic of end-to-end railroad mergers, whether similar economics can be recreated through partnerships, and CSX's stance on pursuing such mergers.

Answer

Steve Angel, President and CEO, emphasized performing well as a standalone company and capitalizing on partnership opportunities to drive shareholder value. He noted the rigorous STB approval process for mergers and stated CSX would pursue a better path to shareholder value if it presents itself later.

David Vernon from Sanford C. Bernstein & Co., LLC asked for the percentage of CSX's revenue that originates west of the Mississippi River to better understand freight flow dynamics.

Answer

EVP & CCO Kevin Boone stated that over half of CSX's business touches another railroad but declined to provide a more specific breakdown of revenue origination by geography.

David Vernon asked whether restoring service is primarily a resource or scheduling issue, and if key metrics can recover before major infrastructure projects like the Howard Street Tunnel are complete.

Answer

EVP and COO Michael Cory described the recovery as a "gradual process" that will not be resolved overnight but will show improvement throughout Q2. He noted that recent flooding on a key reroute corridor complicated recovery efforts, requiring the team to essentially "start from scratch" on certain operational plans.

David Vernon asked for a breakdown of the $300 million headwind between volume and price, and questioned if recent project-related service issues were creating additional volume pressure.

Answer

EVP and CCO Kevin Boone clarified the $300 million headwind was entirely related to met coal prices and fuel surcharge, not volume. EVP and CFO Sean Pelkey added that they do not anticipate any volume disruption from the Howard Street Tunnel project, as the incremental costs are specifically to preserve that volume for future growth.

David Vernon asked for perspective on how CSX's investments in corporate culture have translated into measurable changes in metrics like employee churn rates or internal Net Promoter Scores.

Answer

CEO Joseph Hinrichs stated that while culture is hard to measure, the company has seen meaningful improvements in employee Net Promoter Scores. He directly linked these cultural efforts to business results, including record-high customer NPS, improved efficiency, and network resiliency, citing the company's hurricane response and early labor agreements as tangible outcomes of a stronger 'ONE CSX' team culture.

David Vernon asked about the impact of competitive capacity being down in Delta hubs year-over-year, inquiring if there's a difference in domestic revenue trends between hubs and point-to-point leisure markets, and whether main cabin trends are industry-wide or Delta-specific. He also asked if, given the weakness and irregular operations in 2025, there's reason to expect Delta to be at the upper end of its long-term financial framework for 2026.

Answer

President Glen Hauenstein noted broad improvement across coastal gateways, core hubs, and focused cities, with the biggest improvements in coastal cities (New York, Los Angeles, Boston, Seattle) due to corporate travel and Delta's improving share. CEO Ed Bastian acknowledged strong headwinds in early 2025 (aircraft incidents, trade uncertainty, consumer confidence drop) and stated that if today's environment projects into 2026, it would be a 'really strong year,' though specific 2026 guidance is not yet available.

David Vernon asked about the impact of competitive capacity being down in Delta hubs year-over-year, inquiring if there's a difference in domestic revenue trends between hubs and point-to-point leisure markets, and whether main cabin improvement is an industry-wide or Delta-specific phenomenon. He also questioned if, given the 'weirdness' of 2025, there's reason to expect Delta to be at the upper end of its longer-term financial framework for 2026.

Answer

President Glen Hauenstein reported broad improvement across coastal gateways, core hubs, and focused cities, with the biggest upticks in coastal cities due to improving corporate travel and Delta's increasing share. He noted that main cabin improvement is a broad brush improvement. CEO Ed Bastian acknowledged the strong headwinds faced in 2025 and stated that if today's environment projects into 2026, it is expected to be a very strong year, though specific 2026 guidance is not yet available.

David Vernon asked how much of the second-half unit revenue guidance relies on Delta's own network adjustments versus expectations of competitors' capacity actions. He also sought an update on the potential impact of aircraft tariffs and Delta's related discussions with the government.

Answer

President Glen Hauenstein stated the outlook is a combination of both factors: what Delta can control and what is visible in competitors' schedules through September. CEO Ed Bastian reiterated his strong stance that Delta does not plan to pay any tariffs on aircraft deliveries, expressing encouragement about progress in Washington and citing the recent UK-US trade agreement as a positive template.

David Vernon from Bernstein questioned how much of the improved unit revenue outlook is driven by Delta's own network control versus expectations of competitors' capacity cuts. He also asked for an update on the potential impact of aircraft tariffs.

Answer

President Glen Hauenstein stated the outlook is based on a combination of what Delta can control and visible capacity adjustments from peers. On tariffs, CEO Ed Bastian was firm, stating, "we're not planning on paying any tariffs for aircraft deliveries." He added that Delta is encouraged by progress in trade discussions, particularly the UK-US acknowledgment of the 1979 Aviation Act.

David Vernon questioned the potential impact of tariffs on Delta's CapEx budget and its appetite to defer aircraft deliveries. He also asked about the trend in customer buy-ups from Main Cabin to premium products and whether the yield spreads were widening.

Answer

CEO Ed Bastian stated unequivocally that Delta will not be paying tariffs on aircraft deliveries and is working closely with its partner Airbus. President Glen Hauenstein confirmed that the premium cabins continue to outperform Main Cabin and that he expects the yield spreads between them to widen in the upcoming quarter, not converge.

David Vernon requested a breakdown of the 10% corporate demand growth between volume and yield, asked about corporate market share trends, and inquired about the balance of ASM growth between international and domestic.

Answer

President Glen Hauenstein stated that corporate growth was initially driven by traffic and is now fueled by a mix of both positive traffic and positive yield. He asserted that Delta's corporate share is at record highs. He guided that international ASM growth would be slightly higher than domestic, with Latin America seeing the lowest growth.

David Vernon of AllianceBernstein inquired about the confidence in separating the U.S. election's impact from broader consumer weakness and asked about Delta's domestic capacity strategy as competitors reduce their schedules.

Answer

President Glen Hauenstein explained that the election's impact is clearly isolated to the two weeks surrounding the event, with strong booking trends before and after, indicating it's not a sign of general consumer weakness. CEO Ed Bastian added that while details will come at Investor Day, Delta is restoring capacity in core hubs like Atlanta to pre-COVID levels.

David Vernon sought to understand the operating leverage, asking about factors contributing to Q1 leverage (e.g., incentives) and why more profit isn't falling to the bottom line despite $1 billion in cost savings and 5% revenue growth, suggesting a mix shift to less profitable traffic.

Answer

EVP & CFO John Dietrich reiterated that a variety of dynamic factors are influencing operating leverage, including the opportunity cost from the global trade environment's impact on revenue. He acknowledged that a mix shift to lower-yielding, though still profitable, traffic is a contributing factor, alongside other pressures that are factored into the $1 billion headwind.

David Vernon of Bernstein asked about the productivity benefits, challenges, and areas for refinement observed from the initial rollout of Network 2.0 facilities.

Answer

President and CEO Rajesh Subramaniam stated that the Network 2.0 rollout is progressing well, achieving its goal of a 10% reduction in P&D costs while maintaining solid service levels. He noted that by the end of FY'25, 12% of total volume will flow through these facilities, with that figure expected to reach about 40% by the end of FY'26.

David Vernon of Bernstein asked for the percentage of volume that has been touched by the Network 2.0 integration to date and inquired about the timeline for tackling the more complex integrations in major metro areas.

Answer

President and CEO Raj Subramaniam stated that 250 stations are expected to be integrated by the end of fiscal 2025. He clarified that the 'big lift' for the Network 2.0 rollout, presumably including the more complex major metro areas, is scheduled for fiscal year 2026, with FY26 and FY27 being the two most significant years for the initiative.

David Vernon asked about the expected earnings cadence for the remainder of fiscal 2025. He also inquired conceptually if the intercompany costs allocated to FedEx Freight accurately reflect what its burden would be as a standalone entity.

Answer

EVP and CFO John Dietrich declined to comment on the specifics of the Freight review, stating the ongoing assessment is comprehensive. Regarding cadence, he reiterated that Q2 seasonality would be below normal, with the second half being stronger, and that profits are expected to improve sequentially through the year, driven by DRIVE and other initiatives.

David Vernon of AllianceBernstein asked about the impact of tariffs, questioning if the negative risk to grain exports is being offset by any positive impacts in other areas, such as reshoring or redirected freight flows for metals and other domestic movements.

Answer

EVP of Marketing & Sales Kenny Rocker responded that the biggest positive is having a strong service product to handle the stops and starts caused by tariffs. He noted some 'green shoots,' such as customers shifting production from Asia to Mexico, and believes that while not immediate, there will be a long-term positive for metals and other domestic volumes.

David Vernon of Bernstein requested more detail on the 'best pricing in 10 years,' asking about the magnitude of improvement, specific drivers like service or commodity strength, and its sustainability.

Answer

EVP Kenny Rocker attributed the pricing success to the strong service product and network investments, which allow the company to price for value. CEO Vincenzo Vena added that investments in new facilities and network fluidity improvements, such as in Houston, also support better pricing by providing enhanced service and market access for customers.

David Vernon of Bernstein asked about the current utilization rate of Union Pacific's owned intermodal container fleet and whether the recent rise in natural gas prices could create a pricing benefit for its utility coal contracts.

Answer

EVP of Marketing and Sales Kenny Rocker noted that while the company's rail-owned fleet was deployed more in the second half of the year, there is still upside as the broader market has not fully recovered. On the second point, he acknowledged that higher natural gas prices should theoretically benefit coal demand but was cautious about forecasting the volatile commodity.

David Vernon of Sanford C. Bernstein & Co., LLC asked for help reconciling external data showing low intermodal train speeds with the company's reported improvements in service and efficiency.

Answer

EVP Eric Gehringer acknowledged the issue, attributing it to the network absorbing an unexpected 33% surge in international intermodal volume. Executive Vincenzo Vena added that while velocity was impacted, the overall supply chain remained fluid, with no ships held up at ports. He framed it as a success story in handling a massive, unplanned volume increase, proving the resilience of the West Coast ports.

David Vernon asked about the timing for a return to volume growth in 2026, considering that current tariff headwinds could persist into next year.

Answer

CEO Tracy Robinson stated that the timing of a tariff resolution is unpredictable. However, she emphasized that CN is actively working with customers to find alternative markets and that the fundamental growth strategy, particularly in resilient sectors like agriculture and energy, remains strong and intact regardless of the near-term trade environment.

David Vernon posed a long-term question about the competitiveness of the Prince Rupert port in a potential future with higher trade barriers, asking if it would gain or lose container share against U.S. West Coast ports.

Answer

CEO Tracy Robinson asserted that Prince Rupert has a competitive advantage in almost any situation, highlighting its growth in bulk and liquids in addition to containers. CCO Remi Lalonde added that Rupert's value proposition of being the fastest, flattest, and least congested route to the Midwest remains strong, making it cost-competitive and reliable on an end-to-end basis.

David Vernon asked for quantification of the incremental volume opportunity from two specific growth initiatives: natural gas liquids exports from the West Coast and the Jansen potash mine project.

Answer

Chief Commercial Officer Remi Lalonde clarified that significant growth from natural gas liquids is expected later in 2026 with the AltaGas Vopak project, with 2025 growth being more incremental. For the Jansen potash mine, he noted it is not expected to start until Q3 2026, and market share details are still pending.

David Vernon of Bernstein questioned why CN would not consider front-loading its share buyback program while the stock multiple is depressed, even if it meant temporarily exceeding its leverage target.

Answer

CFO Ghislain Houle acknowledged this as a 'conundrum' that is regularly debated internally and with the Board. He confirmed that for now, the company has decided to manage to its 2.5x adjusted debt-to-EBITDA leverage target but advised investors to 'stay tuned' as discussions are ongoing.

David Vernon of AllianceBernstein asked for a breakdown of the revised full-year EPS guidance and what assumptions about demand acceleration are baked into the second half. He also sought clarity on the key drivers behind the implied RASM improvement from Q3 to Q4.

Answer

EVP & CFO Mike Leskinen explained that the $9-$11 EPS guidance reflects their conservative philosophy of building in a contingency, which the prior higher range lacked. He noted the guidance could prove conservative if strong booking trends persist. EVP & CCO Andrew Nocella detailed that the Q3-to-Q4 RASM step-up is driven by lower published industry capacity, a rebound in higher-yielding business traffic, and a shift to positive domestic yields, creating a setup similar to the strong Q4 of 2024.

David Vernon of Bernstein questioned how United balances using its margin advantage to take share versus protecting margins, and how it plans to maintain brand loyalty leadership as competitors increase premium investments.

Answer

CEO Scott Kirby asserted there is no tension between the two, as winning brand-loyal customers is the core strategy that leads to top margins and resilience. EVP and CFO Mike Leskinen added that United maintains its lead through continuous innovation, a multi-year head start on investments like clubs and WiFi, and a pipeline of unannounced customer-facing initiatives.

David Vernon asked about the drivers of the Q1 2025 trend improvement and whether the full-year guidance reflects the current state or anticipates further improvement. He also sought clarification on whether the guidance includes potential new labor agreements.

Answer

EVP and CFO Mike Leskinen stated that United maintains a 'no-excuses philosophy' for guidance and expects 3 to 4 points of margin expansion in Q1. He acknowledged potential upside in the second half of the year beyond the current guidance and confirmed that the forecast does incorporate anticipated labor deals.

David Vernon asked about the rationale for United's unique international expansion, such as to Greenland, and the potential impact of the Boeing 777X delay on wide-body aircraft supply and demand.

Answer

EVP & CCO Andrew Nocella explained that United's strong global gateways enable profitable flights to a wide range of destinations, enhancing the brand. He also noted that wide-body production will likely not meet demand for the next 3-5 years, creating a favorable setup for global networks. EVP & CFO Mike Leskinen added that ongoing 787 delays would create a downward bias to CapEx.