Delta Air Lines - Earnings Call - Q1 2025

Executive Summary

• March quarter 2025 delivered adjusted EPS of $0.46, above Wall Street consensus $0.39, on GAAP operating revenue of $14.04B vs consensus $13.46B; adjusted operating revenue grew 3.3% YoY to $12.98B. Delta guided 2Q25 EPS to $1.70–$2.30 and operating margin of 11–14% while reducing second-half capacity growth to flat YoY, prioritizing margins and cash flow. Values retrieved from S&P Global.*
• Premium, loyalty and international remained resilient: premium revenue +7% YoY, Amex remuneration a record $2.0B (+13% YoY), international passenger revenue up mid-single digits led by Pacific (+16%) and Transatlantic unit revenue +8%.
• Costs were well managed: non-fuel CASM-Ex rose 2.6% YoY to 14.44¢; adjusted fuel price fell 11% YoY to $2.45/gallon; free cash flow was $1.28B with adjusted net debt reduced to $16.88B (−$1.10B vs 4Q24).
• Full-year 2025 guidance not reaffirmed amid macro and tariff uncertainty; management highlighted actions to protect margins (capacity and cost levers) and reiterated at least $3B of debt repayment in 2025.

What Went Well and What Went Wrong

What Went Well

• “Record March quarter revenue supported by diverse revenue streams,” with adjusted revenue up 3.3% YoY and nearly 60% from premium/loyalty/cargo/MRO; premium revenue +7% YoY; Amex remuneration hit a March-quarter record $2.0B (+13% YoY).
• International strength: Pacific revenue +16% YoY on double-digit capacity growth; Transatlantic revenue +5% with unit revenue +8%; Latin America +5%.
• Balance sheet progress: adjusted net debt $16.9B (−$1.1B vs 4Q24); gross leverage 2.6x; Moody’s upgrade to the highest credit rating in decades; free cash flow $1.28B in Q1.

What Went Wrong

• Domestic/Main Cabin softness: adjusted TRASM −1.0% YoY; load factor fell 130 bps YoY to 81.4%; management cited weaker Main Cabin demand and choppy corporate volumes (flattish YoY).
• Q1 delivered below January guidance: initial 1Q25 outlook was EPS $0.70–$1.00 with revenue up 7–9% YoY; actual adjusted EPS was $0.46 and adjusted operating revenue +3.3% YoY, reflecting a more challenging macro backdrop.
• Tariff and macro uncertainty: management expects to defer aircraft deliveries if tariffs apply and reduced second-half capacity growth to flat YoY to protect margins and cash flow.

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Delta Air Lines March Quarter 2025 conference call. My name is Matthew, and I'll be your coordinator. At this time, all participants are on a listen-only mode until we conduct a question-and-answer session following the presentation. As a reminder, today's call is being recorded. If you have any questions or comments during the presentation, you may press star one on your phone to enter the question queue at any time. I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Julie Stewart (VP of Investor Relations)

Thank you, Matthew. Good morning, everyone, and thank you for joining us. On today's call, we will hear from 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 please ask that you limit yourself to one question and a brief follow-up so we can get to as many of you as possible. After the analyst Q&A, we'll move to our media questions.

Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause 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 will 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 IR website at ir.delta.com. With that, I will turn the call over to Ed.

Ed Bastian (CEO)

Thank you, Julie. Good morning, everyone. We appreciate you joining us today. Earlier this morning, we reported our first quarter results, posting pre-tax earnings of $382 million, or $0.46 per share, which is flat to last year. Revenue was 3.3% higher than prior year, a new record for the March quarter, and operating margin was approximately 5%. We delivered free cash flow of $1.3 billion and a double-digit return on invested capital.

Despite a choppy start to the year, I'm proud of our team for delivering a solid profitability and strong returns that are expected to lead our industry. Operationally, we delivered leading on-time performance and system completion factor among our network peers. I would like to thank our people for their outstanding performance and hard work during the quarter, especially with the severe weather that we experienced across the country at the start of the year.

The Delta people will always be our number one competitive advantage, and sharing our success is essential to our culture and our values. In February, we celebrated their well-earned profit-sharing payout of $1.4 billion, recognizing 2024's performance. Fortune Magazine recently recognized our people-first culture, ranking Delta the number 15 company on their list of the 100 Best Companies To Work For.

Turning to demand, and consistent with our update last month, February and March reflected a much more challenging macro environment than anyone initially planned for. Coming into 2025, we are positioned for another year of strong growth. However, given broad economic uncertainty around global trade, growth has largely stalled. The impact has been most pronounced in Domestic and specifically in the Main Cabin, with softness in both consumer and corporate travel.

While not immune in this environment, we do continue to see greater resilience in International and our diversified revenue streams, including Premium and Loyalty, reflecting underlying strength of our core consumer. In this uncertain environment, our focus has taken action on those areas we can control, protecting margins and free cash flow. Our largest cost and lever is capacity, and we are making plans to keep our second-half capacity growth flat over last year, with Domestic Main Cabin seats declining as we align supply to demand. Cost management remains an important tool to protect margins, and we are aggressively managing our cost base to reflect the lower levels of flying and deliver on our commitment of low single-digit growth in non-fuel unit cost.

As always, the best way to ensure efficient and effective cost management is to deliver Delta's world-class reliability and premium service to our customers, at which our people are the very best in the business. The start of these actions is reflected in our June quarter outlook for double-digit operating margins and pre-tax income of $1.5 billion-$2 billion on revenue that is essentially flat to last year.

Given the broad macro uncertainty, it is premature to project the full year, so we are not providing an updated full-year outlook at this time. However, with the actions we are taking and where fuel prices currently sit, Delta is well-positioned to deliver solid profitability and meaningful cash flow in 2025. Over the last 15 years, we've worked to diversify our business and differentiate ourselves from the industry.

During periods of heightened uncertainty, our differentiators and structural advantages become even more apparent, helping to insulate our business and create durability in our financial performance. No matter the environment, we manage our business for margins, cash flow, and returns. With our bias to action and our position of strength, I expect our financial results will continue to lead the industry and this year prove to be another validation of our strategy as we create differentiation and demonstrate financial durability. Thank you again for joining us, and with that, let me turn the call over to Glen and Dan to go through the details of the quarter and outlook and the actions that we are taking.

Glen Hauenstein (President)

Thank you, Ed, and good morning. I want to start by thanking our employees for providing the best service and reliability in the industry to our customers every single day. March quarter revenue was $13 billion, 3.3% higher than last year, with unit revenues declining 1%. January unit revenue growth was solidly positive and in line with our expectations.

As consumers and business confidence moderated, unit revenue trends stepped down in February and again in March, with stabilization as we exited the quarter. Through the quarter, diverse high-margin revenue streams showed resilience, growing at mid-single digits year on year to reach nearly 60% of total revenue. Premium and Loyalty revenue were both up approximately 7% over prior year. Remuneration from American Express grew 13% to $2 billion, driven by co-brand spend and acquisitions. Revenue from our travel products portfolio grew by 7%.

Cargo revenue increased 17% year over year on higher yields and double-digit volume growth. MRO revenue grew 7% on heavier engine work scopes. From a geographic perspective, Domestic revenue grew 1%, impacted by demand softness in the Main Cabin. International revenue growth was 7% on solidly positive unit revenue over prior year. Transatlantic revenue grew 5% with unit revenue strength driven by premium products and network optimization.

Pacific also performed well, up 16% year over year, with modestly positive unit revenue growth on double-digit capacity growth, driven by strong demand to Japan and into Seoul as our partnership with Korean Airlines matures. Latin grew revenue 5% on modestly negative unit revenue. Now, turning to our June quarter outlook, given the recency of last week's policy changes and market moves, it is early to assess the impact on consumer and corporate travel demand.

For the June quarter, we expect Q2 revenue to be down 2% to up 2% over prior year. Consumers remain cautious, and corporate travel trends are choppy, with overall corporate volumes currently expected to be flattish over last year, similar to what we saw in March. Main Cabin demand softness in both Domestic and international is persisting, particularly in off-peak times.

Premium, Loyalty, and International are continuing to show greater resilience. Internationally, approximately 80% of revenues are U.S. point of origin, with bookings remaining strong for the peak summer period. The strength of our brand and quality of our offering are enabling us to drive strong load factors, attract new SkyMiles members, and continue to grow our valuable American Express co-brand program.

With more moderate demand growth, we are reducing expected capacity growth in the second half of the year to flat over last year to align supply with demand and optimize margins in this environment. We are prudently using our available levers to efficiently manage where and how we fly, focusing on where we have seen the most weakness. With these changes, our Main Cabin seat growth will be down year over year in the second half. At the same time, we are executing on our multi-year commercial priorities outlined at our November Investor Day that support our long-term margin expansion by continuing to make the right investments in the customer experience and diversify our revenue stream. Yesterday, we announced a significant milestone for our maintenance, repair, and overhaul business with a 10-year agreement with UPS.

This is an exciting win for our MRO team and supports long-term revenue diversification and growth. In closing, while this year has started differently than we expected, we are taking action and leveraging our advantages while staying true to our long-term strategy. With that, I'll turn it over to Dan to talk about the financials.

Dan Janki (CFO)

Thank you, Glen, and good morning to everyone. For the March quarter, we delivered pre-tax income of $382 million, with an operating margin of 4.6%. Earnings of $0.46 per share were flat to last year, despite a more challenging macro environment than we anticipated as we started the year. Non-fuel unit costs were up 2.6% over last year. It was better than our initial expectations and roughly one point better sequentially despite elevated winter weather early in the quarter, as the teams continued to deliver on efficiency.

Fuel prices were $2.45 per gallon, approximately $0.03 higher than our initial expectations, including break-even contribution from the refinery. We generated free cash flow of $1.3 billion after paying $1.4 billion in profit share to our employees and investing $1.2 billion back into the business. On debt, we repaid $530 million, ending the quarter with gross leverage of 2.6 times.

Recognizing the strength of our investment-grade balance sheet, Moody's further upgraded Delta's rating during the quarter, our third credit upgrade in eight months, representing Delta's highest credit quality in decades. Moving to the outlook, for the June quarter, we expect an operating margin of 11%-14% and earnings of $1.70-$2.30 per share. Non-fuel unit cost growth in the June quarter is expected to be up low single digit year over year, with performance similar to the March quarter.

As we reduce expected capacity growth this year, we are managing our cost base to deliver on our long-term target of up low single digit non-fuel unit cost growth. On the fleet, we now expect our net aircraft additions this year to be less than 1%, with 10 or fewer incremental aircraft as we manage both retirements and deliveries.

Lower growth and accelerated aircraft retirements will drive incremental maintenance savings. Additionally, we are adjusting plans around our workforce and supplier base to align to lower growth levels. For the full year, we now expect our workforce to be below levels of last year on natural attrition. While it's still early and there is much to play out for the year, we continue to adjust to the evolving environment by aligning supply and demand and managing our costs to protect margins and cash flow.

Durable cash flow is an important differentiator for Delta. It enables us to de-risk the business by further fortifying our balance sheet and growing unencumbered assets to the highest level in our history. We continue to expect to repay at least $3 billion of debt this year and will be opportunistic on our highest cost debt through repayments or refinancing.

In closing, Delta's decade-plus commitment to our consistent strategy, investment, and execution has created a differentiated and durable business that positions us to navigate periods of uncertainty. Over the medium to long term, we continue to see secular tailwinds for our industry and are confident in delivering on our three to five-year financial framework. With that, I'll turn it back to Julie for Q&A.

Julie Stewart (VP of Investor Relations)

Thank you, Dan. Matthew, can you please remind the analysts how to queue up for a question and then go to our first analyst question from Conor Cunningham at Melius Research?

Operator (participant)

Certainly. At this time, we're conducting a question-and-answer session, and if you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that all Q&A participants please limit to one question and one follow-up question. Once again, your first question is coming from Conor Cunningham from Melius Research. Your line is live.

Conor Cunningham (Director of Travel and Transports Research)

Hi everyone. Thank you. I was hoping you could provide some context just to the high and the low end of the guide in the second quarter. Glen, you mentioned stabilizing trends exiting the quarter, but then noted the policy changes. We are just trying to figure out how the weakness you are seeing in the price-sensitive U.S. domestic market does not eventually bleed over to International and Premium, as you guys highlighted those areas of strength. Thank you.

Glen Hauenstein (President)

Conor, I think that's something we're all watching very closely. We know that approximately $5 trillion of wealth has been wiped off the books, but we're still about $32 billion higher than we were in 2019 in terms of the affluent cohort's wealth factor. While we're watching closely, we haven't seen it yet, and we continue to see strong cash sales and continue to see strong cash sales for long-haul travel as well. We are cognizant of what's going on in the marketplace, and we're keeping a close eye on demand closer than we've ever looked before.

Conor Cunningham (Director of Travel and Transports Research)

Okay. Then bigger picture, does the slowdown change your view just on the long-term industry structure? Just trying to understand how your conviction level has changed with demand weakening and just if your priorities are shifting at all as you look like over the next couple of years. Thank you.

Ed Bastian (CEO)

Thanks, Conor. This is Ed. I'll take that. Obviously, in this environment, there's not a lot that you can say in the next year or two without having some better clarity as to how the tariff skirmishes end up. What I can tell you is that for the last 20 years, every time that we've had any level of economic dislocation, Delta has been advantaged. Delta has done the right things, has stepped forward, has been opportunistic. If you compare where Delta was 20 years ago to where Delta is today, there's no comparison. I would anticipate there will be opportunities during this bump in the road. We're not quite sure how long it's going to be, but I'm confident it's not going to be elongated. You can expect that the strong will get stronger.

Operator (participant)

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

Andrew Didora (Senior Equity Research Analyst)

Hi, good morning, everyone. Maybe first question, just kind of a few quick ones here just on the capacity cuts that you talked about. I guess first, when we look at the Q2 schedules, are those set right now? Should we expect any changes there? Then second, just on the back half cuts, should those start over the summer, or is this something that you're thinking about kind of post-Labor Day? Any color you can give geographically would be helpful as well. Thank you.

Glen Hauenstein (President)

We're working through these cuts as we speak, and I think what we would say is that Q2 is largely intact. There may be some trimming around the edges, but largely intact. Q3, we have a very different disparity in terms of what is traveling post-August 15th. With the South continuing to go back to school earlier and earlier, and with Florida being a big component of our network, August demands are much lower, and August is no longer a peak month for Delta's travel. We will be trimming starting in August and moving through the rest of the year, not waiting for Labor Day. Those trims in August will be concentrated in the Southeast where the schools go back earlier.

Other than that, I think that's all the color we're going to give right now, other than to say that we're monitoring this every day, and we're going to take out capacity that has high recapture and that will improve our profitability and our margins moving forward.

Andrew Didora (Senior Equity Research Analyst)

Great. That's helpful, Glen. Maybe as a follow-up, Ed, in a recessionary environment, can you maybe talk to maybe how the different demand cohorts have performed, maybe Corporate Premium, Main Cabin, International? I know every downturn is different, but what have you learned from history? Thank you.

Glen Hauenstein (President)

I'm going to take this one as well. I don't think we've ever had Premium as a larger % of our total revenues as we do right now, as expressed in our comments today. What I have been impressed by, through everything as we continue to develop and widen the aperture on our ability to sell those tickets, is that it has proved more resilient. More currently, it's sitting very resilient.

While parts of our business right now are challenged, and they're mostly on the Main Cabin lower end, we have not seen any cracks yet in the Premium. We're hopeful, again, we're going to go through this together, that those stay more resilient as we've offered more ways for people to get in the front cabin than ever, whether or not you use base fares and miles, whether or not you use miles themselves. The intent to repurchase is so high on those, we don't see people downgrading even in a recessionary environment.

Operator (participant)

Thank you. Your next question is coming from Catherine O'Brien from Goldman Sachs. Your line is live.

Catherine O'Brien (VP of Equity Research and Financial Modeling)

Morning, everyone. Thanks for the time. My first question is for Dan. You are cutting capacity in the back half, and based on 1Q actual and 2Q schedule, give or take, I think that means you will increase capacity closer to 2% this year. About one point below the low end of your initial guide makes a lot of sense given the uncertainty. You are maintaining your CASM ex outlook. You called out attrition and maintenance in your prepared remarks, but can you just give us some examples of where you have the ability to get cost out of the system this year?

Dan Janki (CFO)

Yes. As you go out and you look at capacity, we always are looking where Glen and the commercial team want to go, where there's demand softness, but we're also looking at where our highest cost capacity is. Immediately, the first things are your direct flying costs related to your crews, and those items come out as you take the flying out. You also look at your maintenance cycles, where those come out, but also the timing of maintenance, which ones might be heavier, which ones may not be. As it relates to airport operations, both with the Delta workforce and the contracted workforce, it's about lining labor hours to that new volume level. Wherever that may be, whether it's within the day or within the hour of the day, you've got to adjust that appropriately associated with it. We will continue.

We have a supplier base that you're more aggressive in this environment of lower growth, no growth, to really go after that. All the support activity across the company, you look at how do you also continue to find that non-value-added cost, you manage the workforce appropriately. There's discretionary spending there where we have options to manage it, and it's line item by line item. All those give us the confidence that as we take out the capacity, we will go after the incremental cost.

Ed Bastian (CEO)

Katie, this is Ed. One other thing tied out to Dan's comments is that we are announcing and making this decision now so that we have several months to make sure we get ahead of scheduling.

Operator (participant)

Ladies and gentlemen, please remain on the line while I reconnect the speaker to the conference room. Once again, ladies and gentlemen, please remain on the line while I reconnect the speaker to the conference room.

Catherine O'Brien (VP of Equity Research and Financial Modeling)

I guess something's wrong with the phone. We might as well start.

Operator (participant)

The speaker line is now reconnected to the conference room. Your line is live.

Julie Stewart (VP of Investor Relations)

Matthew, we can now go to our next analyst question. Duane Pfennigwerth from Evercore.

Operator (participant)

Certainly. Duane, your line is live.

Duane Pfennigwerth (Senior Managing Director of Equity Research)

Hey, thanks. Just on the capacity cuts, maybe you've touched on this, but what regions, if you had to guess now, will you be most focused on, and what fleet types, as we think about maybe retirements, would you be most focused on?

Glen Hauenstein (President)

Most focused on Domestic Main Cabin and off-peak time channels for Domestic Main Cabin. Those would be our first line of defense. Again, accelerating retirements on the older airplanes.

Dan Janki (CFO)

The older aircraft. Consistent to what we've been doing, the 75s, you'll see.

Glen Hauenstein (President)

76s.

Dan Janki (CFO)

76s and some of the older 319, 320s.

Duane Pfennigwerth (Senior Managing Director of Equity Research)

Okay. On loyalty, if you can disaggregate that a little bit for us, kind of on a same-store sales basis, how are you seeing card spend, and how much of the double-digit growth is being driven by card growth versus card spend in the current environment? Thanks for taking the questions.

Glen Hauenstein (President)

Good one. Most of it is driven by spend growth. Acquisitions accounts for probably three to four points of the double-digit improvement, but a vast majority is due from existing card members spending more on our cards. What's exciting about that is even though we have the swipes up through yesterday, and they seem to be holding up. We do not have the revenue associated with it, but the transaction numbers are still remaining at these elevated levels. Hopefully that stays intact as well.

Duane Pfennigwerth (Senior Managing Director of Equity Research)

Thank you.

Operator (participant)

Thank you. Your next question is coming from Mike Linenberg from Deutsche Bank. Your line is live.

Mike Linenberg (Airline Equity Research Analyst)

Oh, yeah. Hey, good morning. I got two here for Glen. Glen, can you just talk about how bookings have trended over the last week or so? Presumably, they took a hit. Are you actually seeing a notable increase in cancellations? Tickets that have been booked where maybe people are backing away?

Glen Hauenstein (President)

Yeah. I'd say initially we had a drop-off, but it was really only for a single day or a day and a half. We're back to, as of today, yesterday's sales were above last year's level. I think we're seeing close to strength. Last year, this time of year was the week after Easter, so the baseline was pretty high. Haven't really seen the impact to cash sales yet, but again, watching like an eagle on all this to see if the trends trail off. Refunds, no significant increase in refunds.

Mike Linenberg (Airline Equity Research Analyst)

Okay. Good. Just as you think about the booking curve and maybe how it could potentially shift, sort of two things on that. One, how much of, say, Transatlantic is on the books for, say, summer, right? Or maybe I should ask International more broadly. Last quarter, or I'd say earlier this in the March quarter, you made some tweaks to how you priced along the booking curve, given the fact that you weren't seeing strength close in. Are you seeing an improvement from some of those changes that you made on the pricing side, or is it still a work in progress? Thanks for taking my question.

Glen Hauenstein (President)

Sure. I think those are really the same question in different ways because, yes, the booking curve has changed and it's moved further out, which is what left us when it did that in February and March, which is what left us with empty seats at the end of the curve. We did reposition to take more bookings earlier in the process so that we could mitigate the close-in demand weakness.

We effectively went into April after going into February and March intentionally a couple of points behind. We entered April slightly ahead. We'd like to improve that as we move into May, June, and July. We're continuing to have a load factor bias right now until we get to the lowest to where we want them to be. Yes, we're in the process of correcting that yield. I mean, the booking curve changes.

Julie Stewart (VP of Investor Relations)

Okay. And then Glen, International on the books.

Glen Hauenstein (President)

International on the books. April is well over 90%. May is in the 80%. June is in the 70%. International is well booked for the early part of the summer and the spring.

Mike Linenberg (Airline Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Your next question is coming from Tom Fitzgerald from TD Cowen. Your line is live.

Tom Fitzgerald (VP and Equity Research Analyst)

Hi. Thanks so much for the time. There's a debate about trade down in this environment, and I think the low-cost carriers often say that they should see share gains. I feel like given your evolution with revenue segmentation and the carrot and stick that you have with the loyalty program and the global network, I feel like Delta and other legacy carriers are better positioned for the retained share in this environment. I'd love to get your view on trade down and the broader competitive environment in the demand slowdown.

Glen Hauenstein (President)

We're very excited because our brand is so strong, and demand for Delta is very high. When we have seats that become available at the lower end, I think we have what we call first call on those customers. As we think about that, that probably puts more pressure at the bottom-end carriers than you would think at the surface. We will run full. We might run, and as we did even through the Great Recession, but we might run at slightly lower yields, which I think puts a lot of pressure on them.

Tom Fitzgerald (VP and Equity Research Analyst)

That's really helpful. Thanks so much. Just as a follow-up, I'd love to get your perspective on the risk that tariffs could have in your cost structure. You have a big Airbus order book, but you called out a champagne partnership today. I'm just also curious on the food and the catering side, maybe on spare parts within tech ops, but then any color there and how investors should be thinking about how you'll manage that risk. Thanks again for the time.

Dan Janki (CFO)

Yeah. Thank you for that. As it relates to when you think about our procured supply base, right, it's about $20 billion in total. About 85% of that is service-related. Only the mid-teens is related to goods. The predominant amount of those goods are actually sourced in the U.S. directly. We are mindful of second and third-tier supply bases that we'll have to manage, and the teams will actively manage those.

Operator (participant)

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

Savi Syth (Managing Director)

Hey, good morning. I wanted to get a step back and just on the revenue expectations in the guide for the second quarter. Could you talk about how you're thinking about the four entities and what's reflected in that guide?

Glen Hauenstein (President)

Sure. I think the largest weakness, as we've talked about, is in Domestic, and it's in Domestic Main Cabin. Atlantic and particularly the Pacific is looking very strong into June. We'll see what happens with these new tariffs to China, but China is a small part of our Pacific, Trans-Pacific. Latin is looking as expected. It fluctuates from positive to negative throughout the quarter, but it's still hanging in there quite well. I think where we sit today, International continues to be a point of strength for us relative to Domestic.

Savi Syth (Managing Director)

Got it. Just to clarify, maybe Domestic getting a little weaker and the rest similar. I'm kind of curious, as you talk about more expensive capacity, does that mean you'd kind of see more regional capacity cuts in the second half as well, or am I kind of reading to that incorrectly?

Glen Hauenstein (President)

I think we are going to eliminate unprofitable flying wherever that is. When we eliminate unprofitable flying, we'll associate that with what type of airplanes it's on, what type of flying it is. As we said in the comments, we think that off-peak is going to have a disproportionate hit to peak-day flying.

Savi Syth (Managing Director)

Got it. All right. Thank you.

Operator (participant)

Thank you. Your next question is coming from Tom Wadewitz from UBS. Your line is live.

Tom Wadewitz (Senior Equity Research Analyst)

Yeah. Good morning. Wanted to ask you a little more on International. I guess what you've seen perhaps in Canada, U.S., and if you've seen something Mexico, U.S., how have those markets played out against the kind of bad news on tariffs came a bit earlier than April 2 with the kind of really high tariffs on the broader world. Can you tell us what you've seen on that, and does that inform what you think could be the risk looking forward on Transatlantic? That's the first question.

Glen Hauenstein (President)

Yeah. In Canada, we have seen a significant drop-off in bookings. In Mexico, it's kind of a mixed bag. Some of the markets are performing better. Some are performing worse. I think there's a lot of pressure on VFR more than business traffic to Mexico right now. We are navigating through those waters, and I think we will be looking at Canada and Mexico as places that we probably want to reduce our capacity levels as we move forward.

Tom Wadewitz (Senior Equity Research Analyst)

How do you think about the risk for Transatlantic? I know you skew pretty heavily towards U.S. point of sale. If that continues to be strong, but Europeans traveling to the U.S. fall off meaningfully, I guess that would affect your partner or the European airlines, but presumably that would negatively affect the market as well, just supply demand. How do you think about that if it is kind of one side of the equation falls off more sharply and the U.S. point of sale is strong? How does that affect the International? Thank you.

Glen Hauenstein (President)

One of the reasons we've biased towards U.S. point of origin is because the fares that we have been getting historically out of the U.S. are significantly higher than they are out of the rest of the world. Over time, we've continued to push the percentage of sales that come onshore to where we sit about 80% of our long-haul International now is onshore U.S. We have not seen yet a crack in the rest of the world to the United States, and we're mindful that that could happen, but we haven't seen it yet. That only represents about 20% of our International point of sale revenues.

Tom Wadewitz (Senior Equity Research Analyst)

Okay. Great. Thank you.

Operator (participant)

Thank you. Your next question is coming from Sheila Kahyaoglu from Jefferies. Your line is live.

Sheila Kahyaoglu (Managing Director)

Thank you. Good morning, everyone. I wanted to ask two questions. The first on Corporate. Delta is always on top of corporate demand surveys. Obviously, you talked about some of that changing. Maybe can you talk about how much risk there is given we're just getting back to pre-pandemic levels in the corporate and why corporate slowed? Was it just the volatility, or are they actually cost-cutting? If you want to talk about industries.

Glen Hauenstein (President)

I'm going to let Ed talk about his perception of how U.S. industry is dealing with this. What we have seen is that some of the sectors that have been impacted, like auto, have taken a disproportionate hit. When you think about the entirety of our portfolio being roughly flat year over year, there are banking, tech being up, offset by some of the more industrial companies that have been impacted on the front end of these tariffs being down more to get you to a kind of flattish. I'll let Ed opine on how he thinks CEOs are thinking about this.

Ed Bastian (CEO)

Sheila, in a period of maximum or potentially maximum uncertainty, all companies do what they can to make sure they protect their future. Delta is doing that, as we said, whether it's reducing capacity or finding other ways to save cash and protect our margins. Historically, corporate travel has been the first thing, one of the easiest things to minimize if you're a company.

Encouragingly, it hasn't gone negative. It's flat on a year-over-year basis. There is about a 10-point velocity rate change from where we were at the beginning of the year to where we are now, which is flat. I think a lot of companies are trying to figure out what the future is. If we continue on in this elongated sense of uncertainty, no question you'll see continued reductions in corporate travel. I think it's premature to project too far ahead at this time.

Sheila Kahyaoglu (Managing Director)

Got it. Maybe one for Dan. Dan, what do you need to see your flat capacity in the second half? What do you need to see to actually have reduced your fleet and increased your retirements?

Dan Janki (CFO)

With flat capacity, I talked about it a little bit in the prepared remarks. We are taking down our view from where we started the year as it relates to net additions. That is both managing the retirement side of it and also being mindful of the CapEx and cash side of it as it relates to additions to the fleet. We will be under 10. When you think about less than 10 additions in a fleet that is 1,300, you have got less than 1% net addition growth.

When we look at that and we look at retirements, we have always talked about we would operate in this range of 20%-30%. I think we will be at 30%, probably above, maybe here as it relates to retirements. We tie that back to where we are flying. As Glen talked about, the profitability of that flying, where's the ones that we can get at that are money-losing that tie both to the commercial side, but also have costs associated with them so that we focus on margins.

Sheila Kahyaoglu (Managing Director)

Got it. Thank you.

Operator (participant)

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

David Vernon (Managing Director and Senior Analyst)

Hey, good afternoon, and thanks for taking my question. All right. Good morning. Dan, when you think about the CapEx budget going forward, how should we be thinking about the impact of tariffs on new deliveries and what that might kind of do in terms of your appetite to maybe defer some aircraft that might be coming into the network?

Ed Bastian (CEO)

Hey, David, this is Ed. Let me take that. Obviously, in this environment, we're going to work, and we are working very closely with Airbus, which is the only airline we've got deliveries coming from for the balance of this year. They've been a great partner. They are a great partner. We'll do our very best to see what we have to do to minimize tariffs. The one thing that you need to know we're very clear on is that we will not be paying tariffs on any aircraft deliveries we take. These times are pretty uncertain. If you start to put a 20% incremental cost on top of an aircraft, it gets very difficult to make that math work. We've been clear with Airbus on that. We'll work through and see what happens from that.

David Vernon (Managing Director and Senior Analyst)

All right. Thanks. Maybe, Glen, just as a quick follow-up, when you're thinking about the buyouts that you're seeing between Main Cabin Delta Comfort, is there anything you're seeing in terms of how those are holding up in relation to this downturn in the Main Cabin? I mean, are the buyouts actually getting a little bit wider right now? Are you seeing them just kind of stay at the same absolute level? I'm just trying to get a sense for kind of how this new segmentation strategy is actually sort of acting in this weaker demand period.

Glen Hauenstein (President)

Right. The Premiums continue to widen the lead over Main Cabin. We are expecting the spreads and the yields to actually widen in this next quarter as opposed to converge.

David Vernon (Managing Director and Senior Analyst)

Do you think that's sustainable?

Glen Hauenstein (President)

I don't have a crystal ball on that. I can just report what we're seeing as of today. What we're seeing as of today is they're not converging. They're separating.

David Vernon (Managing Director and Senior Analyst)

Thank you.

Operator (participant)

Thank you. Your next question is coming from Scott Group from Wolfe Research. Your line is live.

Scott Group (Managing Director and Senior Analyst)

Hey, thanks. Good morning. As others expand their premium product and some make changes like bag fees and things like that, how do you think about the risks and the opportunities that that presents?

Glen Hauenstein (President)

I think it highlights all the investments we've been making over the last 20 years, whether or not it's the reliability of the airline, whether or not it's the Club network we developed, whether or not it's the stickiness of our card structure. It's one thing to be able to produce a premium seat, and that's probably the easiest piece of the equation. It's another to get customer loyalty, which is very, very difficult and takes a long period of time and a lot of investment. I look at our competitive set and say, in a more challenging environment, will they be able to make those types of investments, whether it's free Wi-Fi, whether or not it's Club networks, whether or not it's all those investments that we've made year after year in the last 20 years?

It seems to me that they're going to be more constrained in capital than they were probably just even a couple of months ago. Trying to get there is going to be more difficult for them, not less difficult, and that will widen our lead. As people continue to change their products to try and align more with full-service carriers, I think there are opportunities to go after some of their more loyal customers, which we'll be taking advantage of as we move through here. We've had some very successful programs that have gotten us a lot of new members in places that other carriers are operating as the largest carrier, but maybe not the one people want to align with.

Scott Group (Managing Director and Senior Analyst)

Glen, if you look at historically in a downturn, International can be down more than Domestic. I know there's been some questions about this, but that's not happening yet. Do you think that's just the longer booking curve for International that you talked about, and this is bound to get worse in the second half of the year? Maybe that speaks to the lack of full-year uncertainty, or do you think there's a reason why International just holds up better this time?

Glen Hauenstein (President)

I'm going to go out on a limb here and say the reason I don't see it right now is that we monitor cash sales by entity every day. Those cash sales that are coming in the door as of yesterday that we're recording today as cash are very strong for International through the summer all the way out to September, October. We're actually up significantly in Transatlantic, for example, in cash sales year over year. You would think that's the first line of it's not just the booking curve, it's people's intent to travel in the future. Again, uncharted territories, this is kind of, I think, what many people are characterizing as a self-imposed issue in terms of uncertainty. We'll see how it resolves itself.

The other thing I would say is that the cohort that is traveling right now has an average age in Delta One of in the 60s, which means the baby boomers are traveling. Being a baby boomer, I can say this without fear of retribution, there is only so much time to go to Europe or almost so much time to go see Australia or Japan. You have this wealth effect where this cohort of retirees is wealthier than any other cohort, even with the most recent rundown, and they want to go do things.

Ed Bastian (CEO)

A couple of things to add to Glen's comments on that, Scott. Since 2019, and we've used this stat several times, our core customer is, in fact, I'd say not just core, I'd say almost exclusively our customer has household earnings on an annual basis of $100,000 or more, which, by the way, represents 40% of U.S. households. It is not an elitist definition by any means.

That group of people has accumulated just since 2019, $35 trillion of overall wealth between their home, real estate, market, etc. When you look at where the market has pulled back, say, in the $5-$7 trillion range in recent weeks, that is a huge number. I can understand people's concern, what that means to them individually. On balance, what I think they're going to do is they're going to even further prioritize what they're spending on.

The demand set that we've seen for the last number of years, the desire to experience rather than acquire, I think is going to continue to stay strong. That is what you see in our booking data. That is what you've seen in our American Express data. That is what you see in the Premium product category. That is what Delta is the very best at. I appreciate we're talking our book a little bit here, and it's early days. We know we're not immune to the concerns of the overall economy. I think this time feels different a bit. We are going to be very close, as Glen said, in terms of monitoring it. I do think there will be some new learnings coming through this period of time.

Scott Group (Managing Director and Senior Analyst)

Thank you, guys.

Ed Bastian (CEO)

Scott, if I could add one more thing to the very end of that, the other thing we should note is that the market effect of the wealth effect of the market trade-off, the market is back to where we were a year ago. It is not as if the market has fallen off a cliff. I mean, none of us feel good about it, but this is where the market was a year ago. The demand set was very strong then.

Scott Group (Managing Director and Senior Analyst)

Thank you.

Operator (participant)

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

Jamie Baker (Senior Airlines Analyst)

Hey, good morning, everybody. Glen, does the booking curve for Premium differ meaningfully from that of Main Cabin?

Glen Hauenstein (President)

Not significantly.

Jamie Baker (Senior Airlines Analyst)

Okay. Perfect. Most of my RASM and CASM questions have been addressed. I do have a question for Ed. Obviously, there have been a lot of new hires post-COVID. That has put some strain on operations in the past. For some portion of your workforce, this is going to be their first crisis or downturn or bump in the road, however you want to characterize it. Does that change how you personally, Ed, think about managing the business day-to-day? I'm just trying to think through the implication of lower profit sharing this year relative to last year, whether that feeds through to operations or customer service, anything like that. Any thoughts on how you might be managing the workforce differently?

Ed Bastian (CEO)

That's an interesting question, Jamie. I don't think so. I mean, obviously, we will take action. We're not planning on any involuntary actions at all at this point. I think we have enough tools and levers in terms of manpower planning and schedule flexibility and opportunities as we demonstrated during COVID to get meaningful costs out in a relatively short basis using voluntary measures. A lot of the new hires that you refer to that joined us on the front lines actually came from the industry, from other airlines because they always wanted to get to Delta. These are people that do appreciate that this industry can get and bump into turbulence.

I can tell you virtually every time I speak with our frontline teams, and that's probably just about every day, I always, always remind them that while we may be doing well, this is a very humbling industry. All we know is what we can see for the moment. We always have to be prepared to make change. When change happens, that's the opportunity for Delta to differentiate itself. I don't look forward to this opportunity, but I'm confident the Delta team will rise to the occasion.

Jamie Baker (Senior Airlines Analyst)

Thank you very much, Ed, for fielding a question that was admittedly a bit from left field. I appreciate it. Thank you.

Glen Hauenstein (President)

I'd expect nothing different.

Operator (participant)

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

Brandon Oglenski (Director and Senior Equity Analyst)

Hey, good morning. Thanks for taking the question. Ed or Glen, I know this year is different with our self-inflicted liberation tariff wounds here. If I just rewind the tape for the industry, I feel like the last three years we've been talking about off-peak weakness, and that's through what's been pretty much a growing economy the past few years. I guess at what point does the industry say we really have to restructure the way we look at off-peak, or is that just too challenging from a cost perspective for a network like yours?

Glen Hauenstein (President)

As you pointed out, the last few years have been about revenue growth for the industry. One of the things we do when revenue is growing is we build up our off-peak time channels. If you look right now where we sit versus our competitive set, we are overbuilt, for example, on Tuesdays and Wednesdays versus where we were last year and higher than American or United in the mid to upper 90s. We try to do that so when we hit these environments or hit these air pockets, that becomes our first line of defense because the weaker time channels are always what suffer in terms of profitability first.

Right now, you'll see us go from over-indexed on Tuesdays and Wednesdays to under-indexed on Tuesdays and Wednesdays as we move into the second half of the year to align really where we think capacity, where demand is going to sit. The other great thing about Tuesdays and Wednesdays is they tend to have very high recapture. Those become the most accretive. When you think about what do you recapture on a Friday 5:00 P.M. flight versus what do you recapture on Tuesday at 11:00 A.M., it's a very different profile. We are excited about the ability in this more choppy environment to go after the things that have low margins to begin with and high recapture rates.

Brandon Oglenski (Director and Senior Equity Analyst)

Thank you, Glen. Dan, maybe just one quickly on the fleet because I think you guys mentioned maybe incremental retirements. Is that correct? How does that impact your maintenance planning and incremental maintenance spending outlook?

Dan Janki (CFO)

Yeah, I guess two things. Yes, we have talked about incremental retirements. I think in general, last year it was in the low 20s, 21. This year it will be 30 or above. We said less than 10 net additions. I think overall on maintenance that we've talked about is that we are in a unique period that we had a high watermark last year driven by our volume and the opportunity to bring that volume down over a multi-year basis, but also the proficiency of the workforce, the cycle times in the industry, the material availability and challenges that that drove as it relates to turn times. When you look at retirements and other items, we'll get additional benefit when we take out incremental flying. We'll look at that high-cost flying, and there will be an element that has maintenance-related savings associated with it.

Brandon Oglenski (Director and Senior Equity Analyst)

Thank you, Dan.

Julie Stewart (VP of Investor Relations)

Matthew we'll now go to our final analyst question, Ravi Shanker from Morgan Stanley.

Operator (participant)

Certainly. Ravi, your line is live.

Ravi Shanker (Managing Director)

Great. Thanks for fitting in here. Maybe just to wrap up the call, if you can take a little bit of a step back here, can you just help us with what the anatomy of a downturn usually looks like? Kind of is it normal to have growth slow to stalled growth and then flip to a decline? I'm just trying to get a sense of should we be pleased that it's not worse than being stalled here, or is that pretty normal for a downturn?

Ed Bastian (CEO)

Ravi, having been here for 26 years, I've lived through most of the, at least recent history, whether it's 9/11 or recession, the period of time we saw during COVID. They are all different. COVID, as you can remember, was dramatic. It happened overnight, and it spread quickly, and it affected every part of our business. One of the things that this team is quite good at is managing those positions of challenge. I've said oftentimes somewhat in jest that as airline managers, we're excellent in dealing with adversity. Managing prosperity tends to be a problem for us sometimes, but we're good when trouble hits. We are because we know where the levers are. We know what the actions to take. We close ranks quickly, and we make change.

This right now, it's hard to know how this is going to play out given that this is somewhat self-imposed. I'm hopeful that sanity will prevail, and we'll move through this period of time on the global trade front relatively quickly. We are prepared in any event to make sure that we protect Delta through this.

Ravi Shanker (Managing Director)

Understood. Maybe as a follow-up, sorry if I missed it earlier, but can you remind us what % of your Transatlantic is European point of origin? If you see that drop off in the coming months for non-economic reasons, kind of how do you consider kind of redirecting that capacity?

Glen Hauenstein (President)

Sure. It's only about 20% of our total Transatlantic revenues. The rest, of course, is from the rest of the world, whether or not it's through the hubs in London, Amsterdam, or Paris. What we've seen in the past is we're able to resell that maybe not at the yield that we want, but there's enough demand to the U.S. from the entire world that we can mitigate most of that softness should it occur. To this date, it hasn't occurred. We will keep a close eye on that.

Ravi Shanker (Managing Director)

Very helpful. Thank you.

Julie Stewart (VP of Investor Relations)

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

Tim Mapes (SVP and Chief Communications Officer)

Thank you, Julie. Matthew, while we change the queue to try to squeeze in a few members of the media questions, could you please restate just the process for queuing up and one question and one follow-up, please, so we get as many as we can in the few moments we have here?

Operator (participant)

Certainly. At this time, we'll be conducting a Q&A session for media questions. If you have any questions or comments, please press star, then one on your phone. Please hold while we poll for questions. Thank you. Your first question is coming from Mary Schlangenstein from Bloomberg News. Your line is live.

Mary Schlangenstein (Airlines Reporter)

Thank you. Good morning. I wanted to see if you could be any more specific on your discussion with Airbus on not paying tariffs on new planes that you're taking this year. Is that sort of a negotiation, or is that just a flat-out Delta position that you're not going to move off of? How does that play out?

Ed Bastian (CEO)

Mary, that only went into effect, that tariff this week. Obviously, it's early. We'll work very closely with Airbus, who are great partners, and they understand our perspective. Our point is pretty clear. I don't think I need to elaborate that in any great depth. We hope that this issue will be resolved through the trade discussions as compared to actions that either Delta or Airbus have to take. One thing that I learned I didn't realize is that when you think about our business in terms of export, import, balance, imbalance between the U.S. and Europe, for the aerospace industry, the U.S. exports six times to Europe the amount of trade that Europe imports into the U.S. That's a really important fact to know. I hope our leaders in Washington are paying attention to that.

Mary Schlangenstein (Airlines Reporter)

Great. Thank you. If I could quickly ask, I believe that you said earlier that you were seeing some decline in International, leisure in the Main Cabin. Is that correct? If that is, can you put in kind of a number or percentage on that?

Glen Hauenstein (President)

We would say of the International, the Premium is outperforming Main Cabin. We have not put a number on it, nor would we want to do that.

Mary Schlangenstein (Airlines Reporter)

Okay. Thank you.

Operator (participant)

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

Alison Sider (Reporter)

Hi. Thanks so much. I'm just to follow on Mary's question quickly. Are you looking at deferring any deliveries until there's more clarity about the tariff situation or just because of the growth slowdown?

Glen Hauenstein (President)

We will defer any deliveries that have a tariff on it.

Alison Sider (Reporter)

Got it. Okay. If I could ask one more, just I know the investigation is still ongoing, but I'm curious if there's been anything that's sort of come out that you've learned, I guess, after the Toronto incident, anything that you've reevaluated in terms of pilot training or your regional operation?

Peter Carter (Chief External Affairs Officer)

Hey, Alison, it's Peter Carter. That investigation is ongoing. I think you know we don't comment on ongoing investigations until the final reports come out.

Alison Sider (Reporter)

Thank you.

Tim Mapes (SVP and Chief Communications Officer)

Thanks, Ali. Matthew, if we could get one more in, maybe Leslie, we'll try to cut this right at 11:00 please.

Operator (participant)

Absolutely. Your last question is coming from Leslie Josephs from CNBC. Your line is live.

Leslie Josephs (Airlines Reporter)

Hi. Thanks for taking the question. Back in November, you had said that the incoming Trump administration was likely going to be a breath of fresh air compared with the prior. That was regarding some of the consumer regulations that the Biden administration put in. Have you had any response from the Trump administration on reversing any of those rules?

Peter Carter (Chief External Affairs Officer)

This is Peter again. In fact, the Trump administration has issued an order that, in essence, is freezing many of those proposed regulations. We are hopeful that many of those end up being put aside for the long term.

Tim Mapes (SVP and Chief Communications Officer)

Thank you, Leslie. Matthew, that'll conclude our session today. Thank you if you want to conclude the call.

Operator (participant)

Thank you. That concludes today's conference call. Thank you, everyone.