達美航空 (DAL) 2005 Q1 法說會逐字稿

Good morning and thank you for participating in the Delta Air Lines conference call. (OPERATOR INSTRUCTIONS).

Moderating today's call is Ms. Laura Fuselier, Director of Investor Relations.

Ms. Fuselier, you may begin.

Good morning.

Please be aware that our call today is being transmitted live via the World Wide Web and is being recorded.

If you decide to ask a question, it will be included in both our live transmission as well as any future use of the recording.

Any recording or other use or transmission of the text or audio for today's call is not allowed without the express written permission of Delta Air Lines.

Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events.

All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements.

Some of the factors that may cause such differences are listed in Delta's SEC filings.

Also in today's comments we will include certain non-GAAP financial measures in the discussion of our Company's performance.

You can find the reconciliation of those measures to comparable GAAP measures on our Investor Relations website at Delta.com.

With us today is Jerry Grinstein, our Chief Executive Officer;

Michael Palumbo, Executive Vice President and Chief Financial Officer;

Jim Whitehurst, Senior Vice President and Chief Network and Planning Officer;

Joe Kolshak, Senior Vice President and Chief of Operations officer;

Paul Matsen, Senior Vice President and Chief Marketing Officer, and Hank Halter, Vice President and Controller.

Before we begin, I would like to ask that when we get to the Q&A portion of the call we limit each participant to one question and one follow-up.

And with that, I will turn the call over to our Chief Executive Officer, Jerry Grinstein.

Good morning, everyone.

Thank you for joining us today.

Let me begin with a brief recap of Delta's financial results for the March 2005 quarter as announced this morning.

Delta reported a first-quarter net loss of 1.1 billion compared to a net loss of 383 million for the same quarter last year.

Excluding special items, Delta's net loss for the March 2005 quarter was 684 million compared to a net loss of 598 million for the same period last year.

There is no question that our Company's continued high losses are disappointing.

The March quarter loss is especially disappointing since record-breaking fuel prices are masking the significant progress and change Delta achieved during the period.

The issue is simple.

Including fuel, Delta is not on plan, though we were very close.

Excluding fuel, we are better than plan.

We have implemented large-scale fundamental changes that are making Delta a simpler and more efficient Company.

In just the March quarter, Delta did the following.

Launched SimpliFares; restructured 51% of our network in a single day, including dehubbing of Dallas-Fort Worth and the increase in operational efficiencies and aircraft utilization through Operation Clockwork; announced new international service to Moscow, Berlin, Chennai and Rio de Janeiro; launched the "Good Goes Around" advertising campaign; announced an initiated outsourcing of our aircraft heavy maintenance visits with expected savings of at least $240 million over five years; reduced corporate overhead by $180 million annually; announced closure of Delta's reservations offices in Boston and Los Angeles; introduced new cabin interiors and employee uniforms; announced expansion of SONG's services from New York JFK to Los Angeles, San Francisco and Seattle, and in mid-quarter launched the OMNI and the revenue management system.

These initiatives already are helping reduce cost, though the full impact of some changes will not be evident until the second half of the year.

At the same time, however, oil prices climbed sharply during the quarter, reaching a high of $57 per barrel and causing Delta's fuel expense to jump 54% or $310 million year-over-year.

Including fuel and special items, year-over-year operating costs for the first quarter increased approximately 18% and unit costs rose almost 11%.

However, if fuel and special items are excluded, Delta's unit costs actually dropped by nearly 10% year-over-year and by approximately 13% for mainline only operations.

Also, even in the face of skyrocketing fuel and other challenges during the period, Delta's liquidity level remained unchanged from the end of the fourth quarter of '04 through the first quarter of '05.

Our Company ended the March quarter with $1.8 billion in unrestricted cash and cash equivalents and short-term investments.

As these comparisons show, the hard work and sacrifice of Delta people throughout the Company are helping maintain liquidity and excluding fuel drive down our cost structure.

And through our Shared Rewards program, Delta people already are benefiting from the improvements their efforts are making possible.

Eligible employees earn bonuses in both January and February based on monthly incentive goals linked to operational performance and customer service.

But despite our progress, the reality is that Delta cannot exclude fuel price from our operating costs.

To address the increased financial pressures, our airline is actively pursuing additional opportunities intended to further reduce cost and ensure adequate liquidity levels.

Michael will talk more on that subject, but I would like to take a couple of minutes to address one specific area where Delta is taking direct action, and that is in pursuit of pension reform legislation.

Through a coalition that includes Delta, Delta employees and retirees, the Airline Pilots Association, and Northwest Airlines, we have been working over the past few months to convince Congress and the Administration that a more sensible schedule for the payment of pension obligations is in everyone's best interest.

Delta wants to honor the pension benefits our employees have already earned.

For 2005 the Company's funding obligation is approximately 450 million. 220 million of that amount has already been contributed.

Looking ahead, while funding levels beyond 2005 will fluctuate and are difficult to predict, we expect significant increases over the next few years.

In order for Delta to meet future obligations and also continue making the changes that are crucial to our Company's survival, the minimum funding period must be stretched beyond the current five years to 25 years.

Late yesterday afternoon U.S.

Senator Johnny Isakson introduced a new Senate bill, the Employee Pension Preservation Act of 2005, that addresses these concerns.

Bill number is S-861.

The legislation which will receive a Senate bill number today and has it already is cosponsored by Senator Jay Rockefeller.

Additional co-sponsors are expected to sign on soon.

Delta and the other members of our Pension Reform Coalition fully support Senator Isakson's bill and his willingness to stand up for the interest of airline employees and the retirement benefits their hard work already has earned.

During the past several weeks, contingents from our coalition including frontline employees, Delta Chairman Jack Smith and me have made visits to Washington to discuss these issues face-to-face with Senators, congressional representatives and other officials.

You can expect these efforts to increase now that Senator Isakson's bill has been introduced.

Delta believes that passage of the Employee Pension Preservation Act of 2005 will provide the best outcome for Delta, our employees and retirees, the airline industry and ultimately the U.S. taxpayers.

Before introducing Chief Financial Officer Michael Palumbo, let me say again that our airline is continuing to meet its transformation planned target thanks to the Delta team.

And we are a stronger, leaner more competitive company as a result.

The March quarter results confirm that more change is necessary.

Delta is pursuing those changes and will address them with the same commitment and determination that allows us to make it this far.

Now I will turn the program over to Michael.

Good morning and thank you for joining us today.

While the $684 million loss reported this morning is significant, it is important to note that the results are consistent with our plan.

I would like to spend some time discussing with you our transformation plan and the improvements we have made thus far.

Thanks to the hard work of our entire team we are on track to meet our transformation plan targets.

The changes that we are implementing to this Company are on a scale that has never been seen before.

Last year we embarked on a comprehensive strategic review of our business, the results of which are now playing out in our transformation plan.

We have identified and have implemented initiatives intended to achieve 80% of the targeted benefits to support the transformation plan.

We expect to implement actions by the end of September to realize materially all of the additional 2.7 billion of targeted benefits.

All of these programs have been incorporated in our business plan.

However, due to the current fuel prices, we recognize the need to keep looking for additional opportunities and are doing so.

I will discuss this transformation plan in more detail later.

Now I would like to turn to our financial and cost performance.

For the March quarter, Delta reported a net loss of 1.1 billion or $7.64 loss per diluted share.

Excluding special items, Delta reported a net loss of 684 million or $4.89 loss per diluted share.

This compares to a loss of 598 million adjusted for the prior year's tax benefit.

Despite high fuel prices, CASM for the quarter excluding special items was down 1.9%.

Fuel prices rose 49% to $1.42 a gallon.

Changes in fuel prices accounted for 290 million of the $310 million increase in fuel expense.

CASM excluding special items and fuel was down 9.9% for the consolidated system and down 12.7% for the mainline, which clearly shows the tremendous amount of cost we pulled out of our business.

Now I will provide you with a brief revenue overview for the consolidated Delta system.

For the March quarter, system capacity was up 6% year-over-year, while passenger revenue was up 3%.

Passenger RASM was down 2.9% versus the last year.

Delta's RASM underperformance versus the industry is driven by two primary factors, mainline capacity growth outpacing the industry by 3.8 points for the quarter and yield weakness in Delta's markets along the East Coast.

As in recent quarters, traffic held up well, but yield continues to show weakness.

Although we did see some signs of revenue unit improvement during the month of March with the shifting of the Easter holiday, we expect year-over-year weakness again in April but better performance during the summer.

Turning to the SimpliFares initiative we implemented during the quarter, the initial results indicate that the program is meeting our expectations.

Generally speaking yield dilution is less than we anticipated; however, traffic stimulation is also less than we anticipated.

Overall the net results are on plan.

While we expected to see an impact in non-LCC markets, we are also seeing improvements in the LCC overlap markets.

Despite already having simplified fare structures, the results in these LCC overlap markets have exceeded our expectations.

Enhanced customer perceptions of Delta appear to be causing significant stimulation even in markets where fares were largely unchanged.

For instance, revenue in AirTran overlap markets is up as the small fare declined from instituting the fare cap is more than countered by passenger growth.

Additionally the revenue results from SimpliFares are better in long-haul markets than in short haul markets.

Specifically we have seen better traffic stimulation in long-haul markets and less yield degradation.

Turning to our transformation plan.

As I mentioned in my opening remarks, our plan remains on track.

The profit improvement initiatives delivered 2.3 billion of benefits by the end of 2004, and we are on course to implement actions by the end of September to realize materially all of the additional 2.7 billion of targeted benefits.

Clearly we are looking at significant changes throughout the entire Company and for the full year.

This is an undertaking that will require we hit our targets all along the way.

As you know, we have covenants related to the GE and AMX facilities surrounding minimum cash balance, EBITDAR, and capital spending.

At the end of the March quarter, we were in compliance with all these covenants.

We understand that the environment in which we operate is constantly changing, and fuel price is a good example of that.

Therefore, we are continuing to execute a model that can survive these fluctuations and achieve long-term viability.

As such, we are developing ways to further reduce our cost and capital spending, considering potential sales of noncore assets and pursuing opportunities to access the capital markets by issuing debt, equity or convertible debt securities.

Now let's talk about liquidity and our balance sheet.

We ended the quarter with 2.2 billion in cash and cash equivalents and short-term investments, 1.8 billion of which was unrestricted.

The unrestricted amount is equal to the level the Company had at the end of 2004.

During the quarter, we borrowed the remaining 250 million from our credit facility, contributed approximately 220 million in required pension funding, and made debt maturity payments approximating some $130 million.

Cash flows from operation for the quarter was positive 165 million, including the sale of short-term investments.

CapEx for the quarter was approximately 160 million, including 85 million for aircraft delivery payments, all of which was financed under pre-existing agreements for regional jets.

On March 31st, 2004, our total debt was approximately 20.5 billion, including operating and capital leases.

Turning to cost guidance, our transformation plan will show progress throughout the remainder of the year.

For the second quarter 2005, excluding special items, we expect consolidated CASM ex-fuel to be down approximately 11 to 13% versus prior year.

For the full-year, excluding special items, CASM, excluding fuel, is also expected to be down 11 to 13%.

With respect to capital expenditures for the second quarter 2005, we expect it to be approximately 350 million.

This includes approximately 210 million for regional aircraft delivery payments which will be financed under existing agreements.

In closing, the focus for 2005 will remain on execution, as we continue to implement our transformation plan.

We are implementing changes to a degree and at a rate that has never been done before, but we simply don't have a choice.

Outside forces, fuel competition most notably, will continue to necessitate us to extend further, and we clearly have more work to do.

However, I'm very proud to be of the difference this team is making and what it has accomplished thus far.

Now to discuss the network and specifically Operation Clockwork, I would like to call on our Chief Network and Planning Officer Jim Whitehurst.

Thank you, Michael, and good morning, everyone.

I would like to start off with an update on our continuous hub redesign in Atlanta, Operation Clockwork.

In 2004 our ability to operate the hub was constrained by operational issues.

Fully utilizing all gate space, we were peaked at 956 flights per day.

Our reliability was hurt by limitations on airport space, runway capacity and the traffic control system.

Our employee costs were driven by peak staffing requirements to handle as many as 88 flights per hour, and our aircraft utilization was hampered by long ground times on connecting banks and taxiway and runway congestion.

Clockwork was conceived as a solution to these constraints.

In Atlanta Delta was in the unique position of having the critical mass of departures to enable a continuous operation with minimal impact on connection integrity.

Clockwork successfully uses the continuous schedule design and improved processes to provide a better and more reliable schedule to our customers.

In total we have transformed 51% of our network, offering more flights to more customers in Atlanta, Cincinnati and Salt Lake.

We have strengthened Delta's preeminence in Atlanta with service every one to one and half hours to the top 37 domestic destinations.

With no additional capital outlay and existing resources, we freed the equivalent of 19 aircraft and eight Atlanta gates for growth, increasing daily departures in Atlanta from approximately 950 to 1050.

Aircraft flying utilization is up approximately 4.5% from 10.75 hours to approximately 11.25 hours.

Operationally we have achieved a three-minute year-over-year improvement in average taxi times, driving fuel savings and improved on-time performance.

This three minutes equates to 52 hours per day of potential aircraft time which can be redeployed back into the system as productive flying time.

We have reduced the security wait times during peak periods by smoothing our early morning peak departures.

We have also improved our ability to operate and recover quickly during irregular operations.

For example, we have decreased the dependence on ATC by reducing the number of flights scheduled per hour from 88 to 69, scheduled 92% of Atlanta's (technical difficulty) which pairs crews and aircraft to allow for quicker resetting of the airline when operational disruptions occur.

During February and March, Atlanta experienced an extraordinary amount of adverse weather.

Under challenging conditions, the Clockwork schedule performed an average of 5 points higher in both departures within 0 minutes or D0 and arrivals within 14 minutes or A14 than what we would have had under the previous 12 bank structure.

With over 50% of the month impacted by weather and air traffic delays, February year-over-year D0 improved over 12 points and A14 improved by nearly 6 points.

We achieved 9 of our 10 best D0 days since January of 2000, including a best ever mark of 82.5% on February 12.

In the DOT air travel consumer report for February, Delta improved from number 18 to number 11 of 19 carriers in A14 performance.

For the month, Delta was the top ranked among the 13 carriers operating out of Atlanta, 6.8 points better than AirTran, the next largest competitor in Atlanta.

Even SONG, operating in a difficult first quarter weather environment, achieved a 71% on-time performance.

While we still think there are growing pains associated with the massive transformation, thanks to the dedication and professionalism and expertise of our frontline employees Clockwork is working.

I would like to reiterate that this is just the beginning of what will be a multiyear effort to squeeze productivity from our operations.

Clockwork is a major first step, but we're still far from done.

You will see us continue to push turn times down and aircraft utilization up as we move to this in next year.

An important aspect of the transformation plan is that we're able to provide more frequency and better schedules to our customers while reducing the size of our mainline fleet.

We remain on track with our plan to reduce up to four fleet types in approximately four years.

As an update to our 10-K filing, we now plan to retire 28 mainline aircraft this year, 25 Boeing 737 Classics and three Boeing 767 200 Series.

Separately as per our agreement with GE,we have received notice that GE will lease to us 12 SRJ 200 aircraft beginning this year.

The addition of these aircraft was anticipated when building our 2005 plan so there are no changes to our previous capacity guidance as a result of these aircraft.

With this in mind, let me provide capacity guidance for the remainder of the year.

For the full-year 2005, we are expecting a 6 to 8% increase in the consolidated system.

We expect the international entity to be up 13 to 15% and the domestic entity to be up 4 to 6%.

Let me review this capacity increase by quarter.

We expect capacity to be up 5 to 7% in the second quarter, up 7 to 9% in the third and up 6 to 8% in the fourth quarter.

However, we continue to evaluate our plans in consideration of the current economic environment.

As I discussed, it is important to note that the mainline capacity increase required no capital investment as it is the result of increased utilization.

This growth is important to Delta because it allows us to maintain connectivity in a DP hub while providing efficiencies for our unit cost production goals.

This concludes our quarterly conference call.

At this time, we're happy to take your questions.

(OPERATOR INSTRUCTIONS).

Mike Linenberg, Merrill Lynch.

I guess two questions.

I guess one, the first one maybe this is to Mike, with respect to cost guidance for the year it looks like the year-over-year declines that you had in the press release are actually a little bit deeper than what we had in the past.

It looks like the year-over-year declines are maybe 2 to 300 basis points deeper.

I think last quarter you were looking at consolidated unit cost down 9 to 10%, now 11 to 13.

Can you just maybe talk about maybe what the difference is there and maybe what you have seen since then that has allowed you to come back with a maybe more favorable cost outlook?

I think the net reason for the change is a combination of acceleration of pre-existing planned programs into the first quarter, as well as Jerry had mentioned our anticipation for future initiatives.

I think those two together on net are what you are seeing in the first quarter.

Okay.

And them just my second question to Jim.

I think in some of the prepared comments I know Jerry mentioned about introducing a new revenue management system, a new O&D system OMNI.

If there is anything that you can tell us about maybe what some of the deficiencies of the previous system and maybe what the new system, what that will allow you to do with respect to revenue generation going forward?

I will let Paul answer that question.

OMNI gives us a true O&D revenue management capability, and as you know, Delta has more connecting traffic in its system than any other U.S. carrier.

So OMNI gives us the ability to really now take the maximum O&D revenue value, whereas in the past, the system had a difficult time discriminating between the highest value customers on the local segments versus the full O&D.

We turned the system on the first week in February, and it has been performing very well.

And what we do expect is that because this will give us the ability to more finely select the highest value customers, we also believe that it will improve our overall performance on traffic versus the industry.

The nature of the system as such that it has a bias a bit more towards traffic than our previous system.

Paul, I know with some of these systems in the past, is this something where you're not going to see the full effect of it for maybe 6 to 12 months as it becomes more familiar with the history of your network?

And then sort of secondarily, revenue upside, you know is this something where we could see revenue accretion on the order of maybe 2 the 3% which seems to be numbers that people throw out regarding O&D systems in the past?

There is clearly a ramp-up period for the new system.

As you know, we had a significant amount of structural change in the first quarter.

Jim mentioned that we essentially move 51% of our capacity in the first quarter.

We dehubbed DFW.

We moved to the continuous flow in Atlanta, and we had significant international expansion in the first quarter as well.

So what we have accelerated the forecast engine in the model such that it will give more bias to the (technical difficulty)-- as opposed to the 12-month historical data, to try to reflect the network changes that we have made so there is a ramp-up period with the new system, and we do anticipate a revenue benefit from the new system which we have put in our plan.

But we are not disclosing a specific target for that right now.

Ray Neidl, Calyon Securities.

It is not often that we get such a senior executive such as Jerry on the phone here, so I was warning if I could ask a general industry question depending on that.

And that would be going forward, what does he think of potential consolidation mergers, acquisitions, expanding partnerships?

I guess you would need antitrust exemption from Congress in order to do that, but, Jerry, I was just wondering if you could just comment on the overall trends that you think will happen in the industry over the next 12 to 24 months?

I'm not sure I would limit it to 12 to 24 months.

It may take a longer period of time, but I do think you're going to see consolidation.

You've already read about the activity going on between America West and USAir.

And I think if you have seen it with ATA and both America West and AirTran and Southwest jockeying for it, I think they are all looking at consolidation opportunities.

And I think that some things will come across.

But it strikes me also that this is a really difficult thing to do unless you are picking up portions of airlines.

But if you are picking up a whole airline you have got all of the labor issues, the integration of the seniority systems, and all of those barriers that in the past have caused costs to go.

Even though you may get rid of some overhead cost, your frontline costs tend to go up.

So I think that the industry has got to work its way through that.

I suspect that you are going to get less resistance from the administration because you have so many carriers on the ropes and taking a look at what their opportunities are, and because there has to be some rationalization of capacity, and so I think that this is going to take place.

But my feeling about it is that companies like America West -- Doug Parker is a smart seasoned CEO, and he has tested this a couple of times at US -- at ATA, and looked at it, and I think he is also doing the same thing at USAir, and I think he knows when to hold them and when to fold them.

And so he is taking a look at what their business opportunities are.

But in the immediate term I think it is going to really be hard to put these companies together because of pension obligations until that is taken care of because of the indebtedness and maybe most important because of the difficulty of integrating labor forces which don't come easily and as you know from your long perspective that they push cost up more than they do anything else.

How about partnerships, though, getting Congress to do antitrust to allow, say Delta, to work more closely with Northwest and Continental?

Well, I think you can make a very appealing case for several companies to work more closely together, and I do think you are going to see that because it does not run head-on into the labor issue, and it is a way of getting some revenue opportunities that won't exist individually.

And as you can tell from the reports that are coming in in the first quarter, in a fuel environment that is high and not much prospect of it going down, I think that Congress and the administration are going to have to look more favorably on joint actions.

So I would be, whereas on mergers and acquisitions, coming onto the Kentucky Derby, those are real longshots.

I do think joint actions and collaborative activities are more likely to be approved.

Jerry, thanks for your insights.

Gary Chase, Lehman Brothers.

In explaining the process that you went through to develop the transformation plan, you have often referred to it as a mathematical exercise that you did to make sure you had enough cash inflows to cover your obligations to recycle, and you have obviously publicly disclosed a plan that had lower fuel prices in it.

You have made a couple references in your prepared remarks to doing more on the cost side, and I am just wondering if you can give us a little color on that.

What types of things, what kinds of opportunities do you think Delta has, and in particular I'm curious if there is potentially a labor component associated with that as well?

I will try answering that question for you as best I can.

We are as I mentioned executing a plan that takes us to an unprecedented postderegulation competitive position by 2006.

We always understood that the plan was not a destination, but rather a change in our operating cost platform from which changes in our employee and physical asset productivity would be required.

Certainly the forward indications for fuel prices are reinforcing that focus on continuing need for change, and we are looking both to accelerate programs we had earlier identified but also to dig deeper into those overall efficiencies.

And candidly these programs have touched almost every area of our operation.

Our capacity to continue to more efficiently schedule this airline is going to be in large measure the longer-term key to us unlocking additional productivity.

But we continually look at additional infrastructure issues that we have and looking to find ways to accelerate and further strategically push on those changes, on the permanent side.

And then as we have said and has been publicly stated, we are looking to noncore asset sales to bridge if you will liquidity requirements, as well as circumstances permitting, potential access to the capital markets with an equity orientation.

A lot of these things are outside of our control, but we are in a very disciplined fashion I believe executing the sort of operational structural changes we can make at a pace that I think is both unprecedented, but I think responsible in terms of putting one foot in front of the other and making sure we stabilize the baseline operation into these very material changes.

Gary, also speaking from the network side, I still believe that there is substantial incremental value you will see us achieve over the next year to two years on doing things to further simplify our network both in terms of fleet, in terms of asset utilization, in terms of reducing turn times which reduces airport cost.

You know if you look at United, which is probably the king of going after factor costs, you know they have not made as much progress as we have made in terms of absolute cost reduction.

And that's because they have focused on factor costs.

Not to say that we won't continue to focus on factor costs, but we believe there is at least as much if not more value that we can extract by continuing to simplify our business model.

So you will come see us continue to do that as well.

As I said before, Clockwork is just the beginning.

We have a long way to go.

I think there is a lot of value you will continue to see coming out over the next 18 months.

I assume that in order to extract the value that you're describing, what you are really saying is you need to fly more with the same asset base.

I mean are you comfortable that there is enough revenue on the other side of these opportunities to really allow you to unlock that value? (multiple speakers) especially in a revenue environment like the one we are facing?

We will fly the same with less assets.

Obviously continuing to put ASMs out in the market right now given where yields are is a difficult thing to do.

We continue to work to look for ways.

Obviously this year we are taking out a lot of airplanes, so we continue to look for ways to do more of that to accelerate our fleet simplification using efficiency to do that versus just piling on more ASMs.

David Strine, Bear Stearns.

I have a question about pensions.

Jerry, I think you mentioned a new bill they came on the hill which allows for amortization over 25 years.

But I know that there are other proposals on the hill as well, like the Bush plan, for example, which I think will allow for a seven-year amortization which is far less favorable.

So I'm wondering two things.

One in terms of liquidity, what is the backup plan if the pension reform does not come through?

And then two, I think beginning in June you will have another earlier retirement program that will kick in.

Correct me, if I'm wrong, and I'm wondering if that has been baked into your projections for required cash contributions?

If more people than you expect take that, will those contributions go up?

I don't think we have another early retirement plan in June.

The only thing I can think you may be referring to would be some reduction in technical operations center.

But we don't have another one in sight.

Let me talk a little bit about the pension plan and where the legislation, where I think we stand.

In the aftermath of the administration legislation, it was very clear to the several senators and many congressmen that it was not possible to apply that directly to the airline industry and have all equally survive.

And particularly the two proponents of this, Northwest and Delta, need to get the legislation through because there will be some payment spikes in the system as a result of the deficit reduction legislation that passed last year.

So we have made calls on it on a variety of senators and explained the situation to them, and the response has been almost overwhelmingly favorable.

They understand the situation.

They see what the administration bill would do to it and understand that there has to be separate treatment for it.

And several people, one of the people that has not signed on yet as a co-sponsor, but has indicated strong support is Senator Trent Lott who is on the Aviation Sub Committee and the Finance Committee, and the Finance Committee is going to take initial jurisdiction of it.

They already have concluded the hearings on the administration bill and still are saying, no, we think that's separate legislation is going to have to be enacted to take care of the airline problem.

And beyond that, two companies, American and Continental, have already indicated their support for it.

So I really think that all the signs are very favorable, and I don't want to minimize the fact that the high-level of fuel price is probably helping us in that because they can see how serious the problem is when fuel is at that level.

And so I think we're going to get that legislation through, and I suspect it is going to be done sometime this year.

Bill Masduris, Bank of New York Capital Markets.

Michael, you mentioned that you expect to be in compliance with both the American Express and GE credit lines.

But given these persistently high fuel prices, much higher than your plan, are you renegotiating covenants to just give yourself a little bit of additional flexibility going forward?

Is that in process right now?

I think it is fair to say that in the ongoing coordinated communication between Delta and our main lenders, that we continually look forward into one, the execution of our plan, and two, the industry environment.

I think it's also fair to say that we continually focus on things like the forward fuel curve indications and how they might impact those covenants.

So yes, we continue in a very responsible discussion about making sure that our performance to plan, which as we said is consistent with our plan ex-fuel, and the covenants surrounding that facility which are based primarily on us achieving our plan, remain in sync.

Okay.

So in other words, there is a continuous dialogue, and part of that dialogue as you maybe get closer to maybe the cusp of potentially violating those covenants, those conversations would become a little bit more intense, and in fact, there probably would be some additional leeway that might be forthcoming.

Is that a fair statement?

I think that is a fair statement and a responsible approach to the industry circumstance and the sort of credit facility that we have.

Okay.

Michael, you also talked about some alternatives in the capital markets, and you talked about additional liquidity options.

Maybe you could drill down a little bit.

Would these involve debt extensions?

Would they involve the sale -- and you mentioned noncore assets -- and I'm wondering if Comair and ASA are considered a noncore asset?

And any other alternatives which you would care to offer up.

We don't comment on specific potential asset sale transactions until we are a point where it is fiduciarily responsible to do so.

As regards capital market transactions, similarly we don't quote any or comment on any particular plans until there is a particular transaction to talk about.

The implications from a liquidity standpoint for things like debt for equity exchanges would be included in the capital market transactions that we are -- as we think of them if you will.

I think as regards to debt deferrals, we, as a part of our overall viability plan in the continuing framework, are looking forward to manage our capital -- our structural capital expenditures, our debt maturities, as well as the pension funding that was earlier discussed to an overall consistent level with that viability plan.

That is to say we are in a continuum, just as we look to our infrastructure and the additional productivity from the operation, looking to manage a future flow of principal maturities that are consistent with the long-term achievement of viability.

So yes, as an ongoing matter, we will be looking to execute among other things refinancings that are designed around smoothing that maturity pattern.

Helane Becker, Benchmark Company.

Michael, I thought that I heard you say that the numbers for SimpliFares were not quite up to expectations.

So I'm kind of wondering is that because -- and I thought you said the demand was not there and the pricing was not there.

So I'm a little confused to why you wouldn't just raise fares maybe to cover some of the cost of fuel if the demand is actually not there?

And the second part of my question is, are you participating in some of the fair increases that have been taking place over the last couple of weeks, and is that helping the outlook at all on the revenue side?

If I left the impression that SimpliFares were not -- our net were not on target -- I misspoke because on balance SimpliFares are absolutely on target.

There are versus expectation net offsets that get us there as regards demand and price.

But no, we are performing against expectations on plan for SimpliFares and maybe I will ask Paul Matsen to be a little more specific on that.

Right.

I think what Michael was referring to was versus our planned stimulation was a bit less than we expected, particularly in markets that had not already been stimulated by LCC fares.

But the stimulation exceeded our expectation in LCC markets, which we think customer behavior and customer recognition of the fact that Delta has changed its fair structure is driving more traffic for us in those markets.

Similarly yields were better than our expectation against our SimpliFares forecasts.

If you look at it versus the industry, we had a very strong traffic performance.

Our RPMs on mainline and domestic were up 9.5% against the ATA carriers.

That is a 5.7 point gap versus the industry.

So we are clearly seeing on a strong capacity increase for the quarter our capacity in mainline domestic was up 6.3 points above the industry, 3% overall.

So on a strong capacity increase, we are pleased with the stimulation.

I would say that overall we are performing in line with the industry on East-West from a RASM perspective and the Northeast JFK Transcon saw double-digit RASM growth.

Cincinnati and Atlanta saw a strong RASM growth East-West.

Where we're having a challenge is in the north-south corridor on the East Coast as you know where we are struggling against independents' airfare sales that are 20% below the levels that AirTran had in their fare sales last year.

So the East Coast north-south environment continues to be more challenge.

East-West is strong.

On the issue of fare increases, we have matched all the fares increases led by the legacy carriers in the industry, and also fares increases that have been led by AirTran and JetBlue.

We've had several Delta-led increases during the period as well.

So we're anticipating we will get a positive impact.

On a gross basis annualized, the fare increases could be worth $150 million, but we have to net sale fare activity out of that over the course of the year.

Larry Taylor (ph), Credit Suisse First Boston.

A number of my questions have been addressed, but to two relatively separate items, Michael, I recognize you don't want to be too specific about asset sales or capital market transactions.

Is it fair to expect that we would see some kind of transaction this year?

I mean is that part of the plan given fuel prices and everything else going on, or is it just an alternative at this point?

I think in fairness, Larry, it is an alternative.

I think while the capital markets in general viewing the general market, the general state of uncertainty as regards such a cost component as fuel, would not be very accommodating for any commercial airline in the short-term.

So it really is a potential as opposed to an actuality in the short-term.

And on a different subject, the sort of question of not putting ASMs into the marketplace at this point in time given circumstances I understand.

How are you balancing the dynamic, and maybe if you can sort of segment it in some different areas of your business, including SONG and international?

How are you balancing market share and where you want to be in terms of market share versus action by competitors where they may be putting capacity into markets where you guys are?

Maybe Jim and I will tag-team this answer.

First, SONG had an excellent quarter.

SONG ran a record load factor in the month of March.

And customer demand for SONG on the north-south was strong, and the East-West performance for SONG, which predominately right now is out of Florida West, the RASM performance there was very strong.

The advanced early bookings on SONG for the new Transcon growth this summer look very promising.

And I would say overall all of our entities advanced bookings are up for the second half of April through July.

So we are encouraged by that.

We did take advantage as Jim said earlier of capacity that we generated entirely through efficiency to grow in the first quarter.

Some of that to facilitate the implementation of the Clockwork schedule, some of that to take advantage of international opportunity.

So, for example, we had strong growth in Latin America.

So on an ASM basis, we had very significant growth in the quarter, but that was opening new markets -- the full effect of Buenos Aires, the second Sao Paulo for example.

We are taking advantage of very strong international growth opportunities this year and then the efficiency of the growth from the Clockwork schedule domestically.

Yes, I mean obviously we have made it pretty clear where we are going to fight for market share and areas where we have decided we can't compete, and we have made major structural changes there.

In terms of relatively international versus domestic, virtually any plane we have that is domestic configured or can flight -- internationally configured or can flight internationally, we're flying internationally, and we will continue to look to convert planes for more international growth.

But that said, we are also going to defend our domestic market share in the markets we have decided to compete.

And so you can certainly see that a bit in some of the capacity numbers in the domestic system as well.

Glenn Engel, Goldman Sachs.

Can you please go over RASM by region, domestic and the various international regions?

Sure.

On a consolidated system basis, Delta was -2.7%, and that was a -3.6 GAAP to the industry.

But on an ASM basis, on a consolidated system basis, our ASMs were up 6.1%, so we had a 3.5 point gap on a consolidated system ASM basis.

We also grew our segment passenger miles 5% on a consolidated basis, and that was 4.9 points above the industry.

So that alone has a significant, could have a 2 to 2.5 point impact on our RASM versus the industry.

All of that growth, of course, came from the efficiency generated out of Clockwork and the closure of DFW.

And the closure of DFW also accounts for a lot of the (inaudible) increase that we are taking by putting that capacity in Atlanta and in international.

Mainline domestic RASM down against the ATA reporting carriers 3.1.

That is a gap of 3.9.

Atlantic RASM was up 3%.

That is a gap of 2.7 to the industry, but we grew 14.1% on ASM, 7.1 points above the industry.

Latin we had a RASM down 8.2%.

That was a gap of 8.8 to the industry, but that is on a 44% increase in capacity, a 33 point gap to the industry.

That reflects a lot of the long-haul deep South growth.

Those fruits are performing very well, but that is the effect of that increase in capacity.

And our connection carriers performed very well in light of heavy industry competition.

Delta's RASM was down 2.3.

OAs were down 7.5, so we had a positive 5.3 gap.

Our connection carrier capacity was up 3%, the industry up 22, so we had a positive 19 point gap.

So I think you can see we really made major structural changes to our network in the first quarter with the closure of DFW, growth of international and restructuring of Atlanta.

Obviously we also had the introduction of SimpliFares and our OMNI revenue management system in the period, so it was really a period where we were implementing the critical elements of our transformation plan from a network and revenue management perspective.

I know it is tiny, but can you give me Asia, please?

Sure.

That's a good news story.

Got to have some, right?

We were up 7.4% RASM versus OA of 1.6, so we had a positive gap of 5.8.

And our ASMs were down 1%.

Jamie Baker, J.P.

Morgan Chase.

It is actually Jamie's partner on the credit side, Mark Streeter.

Just a couple of quick questions for Michael.

With the strength in aircraft values and the fact that you have some older aircraft rolling off leases, is there any way that you can go back to GE or AMX and either increase the advance rate against the collateral or add some collateral in order to squeeze more cash?

Mark, I think it is fair to say that that would be part of the earlier dialogue that I referred to that is sort of a continuum, yes.

Great.

Any update on credit card process, any agreement holdback?

We have as you know in August a, end of August, natural expiry to our MasterCard/Visa credit card arrangement.

Our business plan anticipated holdbacks.

We anticipate holdbacks under the current market and fuel circumstance, and we are in negotiations with that credit card processor, as well as alternative processors that are designed around having an answer to that question.

But at this moment in time, it is premature.

Great, thanks.

And last question.

Have you have had any discussions with any of your foreign partners about any sort of capital infusion in the Company?

The answer to that is no.

Thank you for joining us today.

This concludes today's conference.

You may disconnect at this time.