Q4 2023 Earnings Summary
- Strong International Demand and Revenue Growth: Delta Air Lines expects robust international performance in 2024, particularly in the transatlantic market, where early bookings for April show unit revenues up in the high single digits ( ). The company is also seeing positive trends in the Pacific and Latin America regions, contributing to improved profitability despite lower unit revenues ( ).
- Improvement in Corporate Travel Demand: There is a continued improvement in the corporate sector, with significant recovery in the technology, auto, and entertainment industries ( ). Corporate sales accelerated into year-end, and Delta is approaching 90% restoration to pre-pandemic levels in corporate travel, supporting revenue growth in the domestic market ( ).
- Operational Excellence and Premium Offerings Driving Revenue: Delta maintains its competitive advantage in operational reliability, expecting to maintain its premium lead in the sector despite increased industry focus on reliability ( ). The company is leveraging segmentation and pricing strategies to drive revenue growth, focusing on higher-quality products and improving yields as it moves through the year ( ).
- Delta Air Lines faces significant cost pressures from higher labor costs, inflation, and supply chain constraints, which may impact profitability. CEO Ed Bastian noted that "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" are causing a "little bit of pause for $7" earnings per share target.
- The competitive advantage in operational reliability is diminishing as competitors improve. Ed Bastian acknowledged that "the overall reliability in the industry has improved" and "the competition is definitely more focused on reliability than ever before," potentially reducing Delta's premium lead in that sector.
- Macroeconomic and geopolitical uncertainties, including volatile energy prices and upcoming elections, pose risks to Delta's performance. Ed Bastian mentioned that "the geopolitical front continues to be quite testing, including the fact that this is a political election season," and "energy prices... continue to be quite volatile," impacting their cautious earnings guidance.
-
Earnings Outlook
Q: Can Delta reach $7 EPS in 2024?
A: Ed Bastian expressed confidence in hitting the $6 to $7 EPS guidance for 2024, though he noted several macro headwinds like volatile energy prices and supply chain constraints. Internally, Delta aims to achieve $7 EPS, but is being prudent given uncertainties. -
Cost Control
Q: What caused cost creep in 2023 and risks to 2024 CASM ex?
A: Higher costs in 2023 were due to lower capacity flown and increased maintenance expenses. For 2024, Delta expects a low single-digit increase in non-fuel unit costs, with efficiencies building throughout the year as growth normalizes and maintenance investments pay off. -
Supply Chain Challenges
Q: Are supply chain issues, especially with engines, resolved?
A: Ed Bastian indicated ongoing supply chain challenges, particularly with engine suppliers like Pratt & Whitney. Delays in engine maintenance and higher turn times are increasing costs and affecting service entry. He anticipates continued issues in the next 6 to 12 months. -
Operational Efficiency
Q: What drives optimization and efficiency gains ahead?
A: Ed Bastian believes there's significant opportunity in optimizing both costs and revenues. With 10% more employees than pre-pandemic levels operating the same capacity, there's room to enhance productivity. Additionally, improved understanding of consumer behavior will aid in network and revenue optimization. -
Domestic Revenue Outlook
Q: What's driving the inflection in domestic RASM?
A: Glen Hauenstein highlighted improving corporate demand, with corporate travel nearing 90% of pre-pandemic levels. Capacity rationalization and enhanced segmentation and pricing strategies are also contributing to expected positive domestic unit revenue growth in the March quarter. -
Corporate Travel Recovery
Q: How is corporate travel, especially tech sector, performing?
A: Ed Bastian noted continued improvement in corporate travel, with tech companies starting to travel again. The auto and entertainment sectors have also rebounded, and overall corporate demand is accelerating into year-end. -
Cost Trajectory
Q: How will 2024 cost trajectory shape up?
A: Dan Janki stated that maintenance expenses will increase by $350 million, mainly in the first part of the year. Efficiencies are expected to build throughout 2024, with pilot hiring down over 50% from last year and normalized training costs in the back half, leading to a steady drumbeat of efficiencies. -
Fleet Retirement Plans
Q: Will Delta extend 767 fleet due to A350 delays?
A: Delta plans to retire the 767 fleet steadily through the back half of the decade, intending to remove them from international long-haul routes by 2028 and fully retire by 2030, while continuing to operate the 767-400s. -
International Demand
Q: What's the outlook for international regions in 2024?
A: Delta expects strong international performance, with transatlantic bookings for April up high single digits. Pacific capacity is being absorbed nicely, and the JV with LATAM is improving profitability in South America. Some oversupply in beach markets is expected to rationalize over time. -
Regional Operations
Q: Impact of reduced pilot hiring on regional operations?
A: With pilot hiring down 50%, Delta anticipates increased stability in regional operations. Potential for higher fleet utilization in the back half of the year could present upside to the P&L if more aircraft become available from decreased mainline hiring pressures.