達美航空 (DAL) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Delta Air Lines March 2010 quarter financial results conference call.

My name is Cynthia and I will be your coordinator.

As a reminder, today's call is being recorded.

At this time all participants are in a listen-only mode until we conduct the question-and-answer session following the presentation.

I would now like to turn the conference over to Jill Greer, Director of Investor Relations of Delta Air Lines.

Thanks, Cindy and good morning everyone and thanks for joining us to discuss Delta's March quarter financial results.

Joining us from Atlanta today are Richard Anderson, our CEO, Ed Bastian, our President, and Hank Halter our CFO.

Also here for the Q&A session will be Mike Campbell, EVP of HR and Labor Relations, Ben Hirst, our General Counsel and Ned Walker, our Chief Communications Officer.

Richard will begin the call with a Delta and industry overview.

Ed will then address our March 2010 quarter financial and revenue performance, and give an update on our merger, and Hank will conclude with a review of Delta's cost performance and liquidity.

We've allocated about 25 minutes for management comments.

After their comments we allocated for 25 minutes for questions with the analysts and then we'll conclude the call with a 10 minute Q&A with the media.

When we get to the Q&A, I'd like to request that you limit yourself to two questions.

That should allow us to get to as many questions as possible during today's call.

Today's discussion contain 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 described in Delta's SEC filings.

Also, we'll discuss certain non-GAAP financial measures, operating expense, operating margin, and unit cost results exclude special items unless otherwise noted, and you can find the reconciliation of non-GAAP measures on our Investor Relations website at Delta.com.

With that I will turn the call over to Richard.

Thank you, Jill.

Good morning everyone and thanks for joining us on the call today.

This morning we reported a net loss of $192 million excluding special items for the March quarter, which is an improvement of more than $500 million compared to March quarter, year-on-year.

We're encouraged by the improvements we're seeing in the revenue environment and expect to be solidly profitable in the June quarter.

The strong momentum we built through successful merger integration, investments in our product and network and a pretty solid financial foundation, position us to take advantage of the economic recovery that we see taking shape around the world.

I first want thank the Delta team worldwide for the great job they've done, their achievements are a testament to our culture - Hard working, collaborative and focused on achieving common goals.

It's been a monumental effort over the last 18 months to integrate two airlines into a single operating carrier, and the team has been successfully executing the integration while running a solid operation against the backdrop of a really difficult recession.

So I want to thank all of my colleagues worldwide.

So we're a bit optimistic as we head into the busy summer travel season.

Loads are strong and building, yields continue to improve across all geographies and business travelers are clearly back on the road.

Ed and Hank will give you a fair amount of detail so that you can have good visibility going forward into the second quarter.

At the same time, we're keeping a cautious eye on rising fuel prices and will continue to manage our fuel price risk through a systemic hedging program and Hank will talk a bit about that as we progress through the call.

We're committed to our strategic priorities.

We have to deliver the merger synergies we've promised you and that we've targeted for 2010.

We will continue to be disciplined about capacity.

We will make investments, prudent investments to improve the quality and consistency of our product.

We've got to maintain cost discipline and we have to delever the balance sheet.

The merger provides an important platform for the airline and we're in the final stages of a smooth integration.

Actually, in the month of April, we completed the final cutover to a single dispatch system.

With more than $200 million in incremental merger synergies realized in the March quarter, we have now achieved $1 billion in annual run rate synergies from the transaction.

We also believe capacity discipline is pretty important.

We're committed to keeping capacity in check.

We're expecting to fly essentially the same amount of capacity as last year but we're reducing our fleet by 71 aircraft.

And that's important, because we have to make the machines as efficient as we can.

We began work on $1 billion in product investments we're making over the next three years, but we're cutting our historical run rate of CapEx by more than half.

With no significant refleeting needs, we're able to take a portion of the cash our business is generating, put it back in the product to help drive a revenue premium and improve our efficiency and productivity, but at the same time we've got to delever the balance sheet and Hank will talk a bit about how we're taking down our net debt quarter to quarter.

We continue to build a well-balanced global network and the SkyTeam alliance is a key part of that effort.

We were pleased to be in China last week and announce that China Eastern, under the very capable leadership of Chairman Liu, will be joining SkyTeam.

China Eastern coupled with our strong relationship with China Southern gives us the leading position in China as we look forward and grow our alliance relationship in that most important market.

With the broad network that China Eastern brings, a growing hub in Shanghai, China Eastern and China Southern will provide our customers access and the ability for Delta to grow in the most important growing market in the world.

This future membership as well as Vietnam Airlines joining in June further enhances Delta's presence via SkyTeam in the Asia-Pacific region.

We're also expanding the network through co-chair relationships.

We recently applied to codeshare with Brazil's GOL Airlines which, if approved, will complement our expansion in Brazil and give us easier access to Uruguay and Paraguay.

We've also reached an alliance agreement with WestJet in Canada, and of course, continue to build the industry leading alliance with Air France and KLM.

We have a strong financial foundation and we expect to improve it significantly through the course of this year.

As I said earlier, we expect to be solidly profitable in the second quarter.

Our results in the March quarter demonstrate our disciplined approach to cost on a 4% reduction in capacity.

Our consolidated ex-fuel unit costs were up only 1% year-over-year and for the full year we expect to have about flat non-fuel CASM.

We maintained a healthy cash position, generating $1 billion in operating cash flow in first quarter, and ending March with $5.6 billion in unrestricted liquidity, while significantly reducing our net debt position.

In conclusion, we continue to see the right trends in the revenue environment and we are optimistic about the balance of the year.

We are proud of the work we've done to position Delta to capitalize on the recovery, but we have a lot of work left to do.

Our goal is to generate a sustainable 10% to 12% operating margin for the business.

We have the right strategic pieces in place, the leading global network, excellent reliance relationships, a strong and improving product offering, fantastic employees, and now we've got to execute, deliver to you the merger synergies we promised, and then ultimately take that cash flow, strengthen the balance sheet, and get this business model to work for all of our constituencies.

Thanks for your time today.

Of course we'll be available for questions.

I'd like to turn the call over to my friend, Ed Bastian.

Thanks, Richard.

Good morning everyone, thanks for joining us this morning.

I want to echo Richard's comments about the Delta team and the great job they've done with the integration as well as taking care of our customers every day.

On a GAAP basis, we reported a net loss of $256 million for the March quarter.

Excluding special items, Delta reported a net loss of $192 million, or a loss of $0.23 per share on a base of 832 million shares.

This compares to FirstCall consensus also at $0.23 of loss per share.

Special items for the quarter totaled $64 million, including $46 million in merger related expenses, a $10 million charge related to the Venezuelan currency devaluation and $8 million in severance expenses.

Our merger related expenses will be winding down over the next couple of quarters.

We expect roughly $70 million remaining over the balance of this year.

As previously announced, our March quarter results were negatively impacted by a net $30 million from cancellations due to the severe winter storms in February along the east coast.

EBITDAR was $619 million for the March quarter.

As Richard said, our liquidity balance continues to be strong with $5.6 billion in unrestricted liquidity at the end of March.

We generated $1 billion in operating cash flow in the quarter, and $600 million in free cash flow.

Turning to revenue, Delta's operating revenue for the March quarter was up $164 million, or 2% growth year-on-year.

Consolidated passenger unit revenues increased 8% year-over-year, the first quarterly increase we reported since the fourth quarter of 2008.

Yield was up 5 points and load factor was up about 2.5 points.

Domestic passenger unit revenue was up 7% on a 2% capacity reduction, driven by yield improvements.

Domestic corporate volumes improved steadily throughout the quarter and leisure demand and yields showed strength, particularly during peak travel periods.

Our international passenger RASM was up 9% year-over-year, with yields up 3% and load factor up 4 points on a 7% capacity reduction.

The passenger RASM improvement was driven by Atlantic operations as both yield and load factor recovered from last year's economic downturn.

Despite a $9 million decline in cargo revenue for the quarter, we are improving the profitability of our cargo operation.

Shutting down the freighters generated savings yielding over $60 million in expense savings in the quarter, and a net $50 million of operating margin improvement.

For the March quarter, other net revenue was $866 million, down 4%.

Baggage fees were up $55 million year-over-year, and totaled more than $215 million for the quarter.

However, other net revenue was pressured by lower MRO revenue and volume-driven declines in passenger fees and charges.

We expect positive year-over-year growth in other net revenue for the remaining quarters of 2010 and estimate our full year growth in other net revenues north of 10%.

Turning to our revenue outlook, we continue to see solid advanced bookings, strengthening yields across all geographic regions as we head into the peak summer months.

While the sequential improvements we're seeing clearly reflect better fundamental revenue trends, our year-over-year comparisons also become increasingly favorable in the second quarter as unit revenues for us bottomed out in the month of June last year, down 23% compared to June of 2008.

We expect our consolidated passenger RASM growth of 17% for the month of April, and we expect continued improvement from those levels in both May and June.

On the corporate side, momentum continues to build and we're gaining ground in pricing.

Our corporate contract revenues as of last week, we were up 50% year-over-year.

Looking at the network, our domestic and Transatlantic entities continue to show the greatest improvement.

Strong domestic advanced bookings continue, and we expect double-digit yields year-over-year in the June quarter.

Our hubs are performing well reflecting not only the improved economy but also our initiatives to optimize schedules and capacity across our hub structure.

JFK and the greater New York Metro are particularly strong, reflecting the return of financial sector travel to and from major worldwide business centers.

Advanced yields for the Transatlantic are up more than 20% year-over-year reflecting easier comparisons as well as higher coach yields.

Transatlantic business bookings are well above last year's level but the front cabin is still not running full.

Our Transatlantic operations have clearly been impacted by the European air space closure due to the volcanic ash this past weekend.

We cancelled roughly 400 Transatlantic flights through yesterday and net of revenue recapture and variable savings such as fuel have experienced a loss of approximately $5 million a day or a cumulative net impact of roughly $20 million through last night.

The good news is that the air space has been reopened and that we'll be operating 50% of our westbound schedule today and expect to operate 100% of our eastbound schedule tonight as well as adding extra sections to accommodate our trapped customers.

Pacific should have a very strong June quarter.

TransPacific advanced bookings are solid and look especially strong on our new routes from Detroit and Seattle.

H1N1 and the recession hit the Japanese resort markets hard during the second and third quarters of last year and that travel is recovering very well.

Of all the geographic entities, Latin America has probably shown the slowest momentum in the economic recovery due to capacity growth within the Caribbean and Brazil as well as the impact of the Venezuelan currency devaluation.

We'll also continue to manage capacity prudently.

For the June quarter, we expect our system capacity to be flat to up 1% year-over-year, with the flat consolidated domestic picture and with consolidated international capacity up slightly.

The merger generated more than $200 million in incremental synergies this quarter.

We are now at $1 billion of annual run rate synergies.

As Richard noted, we are largely complete with respect to the merger integration.

Our reservation systems cut over at the end of January and we recently completed migration of the fleet to a single flight planning system.

Another big milestone for this quarter was that the first joint Delta and pre-merger Northwest cockpit crew flew together in March and pilots are now fully integrated and bidding together on schedules.

However, we still have work to do.

We need to resolve the employee representation issues with our flight attendants and our airport and reservation employees, and we hope to have that resolved this year.

We need to close some of the gaps in technology and operating functionality as we're now operating on a single technology platform and we also need to generate the revenue premium that the combined network can now create and we're confident that we'll be able to generate those revenue synergies now that we're operating as a single carrier with the heavy lifting of integration behind us.

Thanks for your attention this morning and with that I'll turn the call over to Hank.

Thanks, Ed and good morning everyone.

For the March quarter, operating expense decreased $340 million year-over-year, reflecting $145 million in lower fuel expense, in addition to lower capacity related costs, synergy benefits realized and productivity.

Consolidated nonfuel unit costs were up only 1% year-over-year in the March quarter despite a 4% capacity reduction and impacts from the February storms.

We expect Delta's cost performance to be the best among US airlines in the March quarter.

I want to thank the Delta team for continuing their efforts to be diligent about costs every day.

These efforts ensure Delta maintains the most competitive cost structure of the network carriers.

In the June quarter there will be some cost pressure from investments in customers and employees, as well as higher maintenance expense but we expect to largely offset those incremental cost synergies in productivity.

As a result, we are targeting consolidated and main line non-fuel unit costs to be flat to up 2% during the June quarter as compared to last year.

Turning to fuel, in the March quarter we hedged 49% of our fuel consumption, and our consolidated all-in fuel price was $2.23 per gallon.

For the June quarter, we've hedged 50% of our anticipated consumption with about half of that in call options.

Our current hedge portfolio is in the money.

Based on the forward curve at Friday's close, we expect our consolidated fuel price for the June quarter to be $2.37 per gallon.

For the back half of the year, we've hedged almost 40% of our fuel consumption to date which at Friday's forward curve would imply an all-in fuel price of $2.50 and $2.57 for the September and December quarters respectively.

While fuel prices remain volatile, we believe we have the right hedging program in place to reduce the risk to our business.

In terms of earnings performance for the June quarter, we expect to be solidly profitable with an operating margin in the range of 8% to 10% including the impact of profit sharing expense.

Shifting to liquidity, we ended the March quarter with $5.6 billion in unrestricted liquidity which included $4.9 billion in cash and $690 million available in undrawn revolving credit facilities.

Our liquidity balance was up $200 million from the end of last year.

As noted, operating cash flow was $1 billion, reflecting strong advance ticket sales.

Our operating cash flow for the quarter is net of $225 million in pension funding, so we were able to make investments in our employees and still generate strong operating cash flow during the quarter.

Capital expenditures for the March quarter were approximately $355 million which included two Boeing 777LRs and four MD-90 deliveries.

$600 million in free cash flow allowed us to strengthen the balance sheet in March quarter.

We made $375 million in debt in capital lease payments and grew our liquidity balance.

At March 31, our adjusted net debt was $16.4 billion, down from $17 billion at the end of 2009.

During March quarter we modified our 2008 agreement with American Express.

Under the amended contract, Delta will begin repaying American Express' $1 billion advance purchases of SkyMiles in December 2011 instead of December 2010.

The repayment will also now happen over a three-year period instead of two years.

These changes reduce our debt maturities by $31 million in 2010, and $480 million in 2011.

Looking at projected June quarter liquidity, we're targeting an unrestricted liquidity balance of $6 billion at the end of June quarter.

We contributed an additional $440 million to our defined benefit pension plans in April, and have completed our 2010 funding requirements of $665 million for those plans.

The $6 billion ending liquidity balance for June quarter factors in the pension funding we contributed in April.

For the June quarter, our net CapEx will be approximately $350 million, which includes deliveries of one 737-800, and six MD-90 aircraft.

And beyond the second quarter we have only two aircraft deliveries remaining this year.

One 737-800 and one MD-90, both of which are expected in the September quarter.

We expect to remove 86 aircraft from our fleet in 2010, 36 mainline aircraft including DC9-30s and -40s, and 757s, and 50 regional aircraft including 15 Saab 340s and 35 50-seat CRJs.

Net of our 15 aircraft delivery we'll be removing 71 aircraft from the fleet.

In terms of net debt maturities they will total approximately $250 million in the June quarter.

So in closing, Delta strengthened its hand considerably this quarter.

We are in the final stretch of the merger integration and have hit $1 billion in annual run rate synergies.

We're making targeted investments in our product and network that will drive a revenue premium.

We're maintaining cost discipline and improving the balance sheet, and we'll continue to execute on our plan and ensure Delta takes full advantage of the economic recovery.

Thanks, Richard, Ed and Hank.

Cindy, we're now ready for questions from the analysts so if you could review the process for asking a question and again we ask everyone to limit themselves to a question and a follow up.

Thank you, Ms.

Greer.

(Operator Instructions) We'll the take our first question from Gary Chase of Barclays Capital.

Good morning, everybody.

Good morning, Gary.

Just a quick clarification and then a question on revenue.

I'm going to go ahead and assume that the guidance doesn't have much in the way of continued disruption from the volcano implicit in it.

Is that fair?

That's fair, Gary.

Okay.

And I guess with the year-on-year stuff being very complicated because of what was going on last year, is there any way for you to give us a little bit more color for what's going on in terms of corporate and leisure demand?

I know you said there's sort of two things going on, things are strengthening and the comps are getting easier.

If we could take the first part of that and talk a little bit about where you're seeing it and what you think the prospects are later in the year, that would be helpful.

Clearly, the strength we're seeing on the revenue front is coming from the improved travel picture from our corporate travelers.

Our latest year-over-year snapshot has our corporate revenues up 50% on a year-over-year basis and for the first time over the course of the last several weeks, revenues are actually outpacing volumes.

So making fairly significant traction with respect to net pricing as well.

We're seeing the corporate travel demand improve across almost all geographies, certainly strong in New York, strong across the Transatlantic, but we've seen good performance across most of the hubs.

As you look across our second quarter, one of the big comp changes and benchmark changes that will make it somewhat easier for us going forward is that H1N1 didn't start until the end of April last year.

So we have no impact of H1N1 yet in our comps and we'll start seeing that in May and then running through the summer schedule.

So we expect the year-over-year improvements to continue to pick up pace.

Gary, this is Richard.

Just two statistics we track, corporate sold revenue and passengers week to week, YOY, and our last snapshot which we take once a week, our total corporate revenue was up 61% and our tickets were up 46%.

So we continue to see, if you look at the trend line over the last year, it's a steady upward slope to the right.

Now, admittedly we're on top of some pretty easy comps, given that a year ago heading all the way into June we were on a decline.

So are you now up in actual revenue?

Because with numbers this large, the math gets a little difficult.

It's hard to know if you're actually up now in dollars.

Yes, we are.

In other words, versus, say, two years ago.

Obviously you're up in dollars versus last year but versus two years ago are you close to where you were a couple years ago?

We're now quite to 2008 levels.

We're close to 2007 levels.

And we expect to be close to 2008 levels probably by the end of the year.

Okay.

And then just as a quick follow-up, I mean, anything in the transactions that you think could dent some of that momentum you were describing?

Is there anything that would potentially concern you about the speculation about further consolidation in the industry?

No, nothing concerns us about that.

I think the biggest concern you have right now in terms of the outlook is pretty clear now that the economy has pretty good strength.

The issue I think we have ahead of us is fuel, because it's been pretty volatile but we feel pretty comfortable on the revenue side and the demand side.

Even though there's still some issues out there with unemployment and there's still some issues with respect to commercial real estate, it appears that the economy has pretty good legs under it now.

We'll take our next question from Jamie Baker at JPMorgan.

Jamie Baker, your line is open.

First time I've ever heard him be quiet.

Please check your mute function.

We can get back to Jamie.

We'll take our next question from Hunter Keay at Stifel Nicholas.

Thanks.

Good morning.

You guys talked a lot about obviously balance sheet deleveraging and cash deployments of that nature, but stretching out the SkyMiles repayment I guess in my view doesn't really jive with that.

You guys have obviously a lot of cash that you're sitting on so maybe a little bit of color on the rational for pushing out the SkyMiles repayment.

Are you trying to maybe free up cash for other uses like maybe some strategic asset acquisitions or an industry M&A scenario?

Any kind of color would be helpful.

Hunter, it's really all about deleveraging the balance sheet.

And I think Hank touched on that and we've got to get less debt on the balance sheet and that's really what we're focused on.

Yes, the specifics around the AmEx deals we haven't disclosed the full terms.

We've restructured our arrangement with AmEx and it's going to provide some benefits to our card holders that will be announced soon.

We'll be announcing this summer, so that you know, Hunter, the $1 billion dollars of prepaid miles that AmEx gave us is at a zero coupon rate so we're not paying any interest on that money.

So the fact that we spread it over another three years, actually, was a benefit to the balance sheet, not a deferral or a detriment.

Well, that fully explains it then, I guess, if that's the interest rate situation.

Thanks for that color.

We like zero interest rates.

That's always good.

How long, just hypothetically, how long will it take you to digest Northwest to the point where you can maybe see yourself as a potential acquirer again?

Obviously totally hypothetically.

Without hazarding any opinion about ever being a potential acquirer, we're completely done on the IT side now.

We have some investments to make because the last 18 to 24 months have been focused on integration and not continued improvement of our systems, but we're essentially complete in terms of the integration.

Okay.

That's great.

And I guess maybe a little more color on that, in terms of if there were to be a consolidation scenario that involves you guys, what type of assets or what kind of a partner would you look for, ideally, should you participate?

Hunter, I'm not taking that bait.

All right.

Good enough.

Thanks for the color.

We'll take our next question from Helane Becker at Jesup & Lamont.

Thank you very much, operator.

Hello, everybody.

Thank you for taking my question.

I guess at the end of last year you had grounded all of your cargo aircraft with the idea that you had been losing about $150 million annually.

So could you talk to what's happened since then in terms of the revenue?

Have the revenue matched your expectations and what are those losses looking like now?

Yes, Helane.

This is Ed.

We mentioned during the materials, despite the fact that we grounded the freighters, our net cargo revenues are only down $9 million in the March quarter over the same period last year, yet our expenses are down over $60 million.

So we had a net $50 million margin improvement in cargo.

Part of that clearly is the recovering economy, but the greater part is the fact that the benefits from shutting down the dedicated freighters.

Okay.

Great.

Thanks.

That was my only question.

And we'll take our next question from Jamie Baker at JPMorgan.

Okay.

Can you hear me now?

Yes, we thought there was something seriously wrong.

I continue to blame Bear Stearns for all telephony issues - nice building, crappy phones.

Just a quick question on the proposed slot swap between yourselves and Airways.

Are there any breakage penalties associated with that and under what scenario might they be triggered, or can either side simply unilaterally withdraw if they so choose?

You know, Jamie, we haven't made the terms and conditions of that agreement specifically public.

Jamie, this is Ben Hirst.

I would say at this stage, both sides are fully committed to seeing it through to conclusion.

Okay.

Fair enough.

We'll continue to dig on that.

Richard, do you technically still have 787 deliveries planned?

Are you still a 787 customer, I should say.

Technically, yes.

Care to elaborate?

We've been in negotiations with Boeing to figure out what's going to happen with those positions.

In the meantime, we've gone ahead and extended the leases on the 747-400 fleet and we're going through the process of putting flat-beds and new seats in those airplanes and have gotten significant lease reduction payments on those airplanes.

So we've extended those for probably an average life of about five years, and so from a fleet perspective, our wide body fleet, we have probably about 180 trans-ocean airplanes.

We're in good shape.

It's a pretty young fleet, probably an average age across that fleet of about eight to ten years and so we're in good shape in terms of trans-ocean airplanes right now.

Okay.

Fair enough.

And if I could just squeeze in a third one.

Looks like you're living with about a $300 million negative carry on your cash.

Is that simply a figure you're comfortable with?

Should we assume that that continues in perpetuity or -- ?

We took a little different tact.

We did not in the course of the last year and-a-half, two years, we didn't dilute the equity holders.

The cash raise that we did last year was on the debt side and so it does give us a little bit of a disadvantage.

We're not comfortable with the non-op being where it is.

And I think you're going to see us continue to work to take that non-op expense down, Jamie.

And we'll take our next question from Bill Greene at Morgan Stanley.

Yes, hey, good morning.

Richard, I'm wondering if you can shed maybe a little light on how your Department of Justice review process went for the merger with Northwest, because I think at the time you had mentioned that it was kind of key that you had an expeditious process and you got that done with some speed and if I look at sort of the slot transaction and some of the challenges that you had there, I'm just wondering if you think we're in a much less favorable environment for doing the same transaction you've already done, kind of how should we think about what this political environment looks like for mergers now?

I'll give you my opinion on that piece and then turn it over to Ben Hirst who was General Counsel on the other side of the transaction.

Obviously, the transaction that we did was probably the quickest transaction of its size, that's ever gone through the Justice Department and it did go through smoothly and in the end, we had an endorsement by the Justice Department, that the transaction was pro competitive.

I don't think that this environment is the same, because our slot swap transaction with US Air has actually I believe been pending longer than the merger of Delta and Northwest.

And there were a number of reasons why I think it moved as quickly as it did, is number one, I think we had at one time almost 270 lawyers between Northwest and Delta working on gathering documents.

So we essentially complied with the second request with the Department of Justice within 90 days.

So we were ready and I think we produced 35 million documents and had some really good economists that were doing the econometric analysis from the beginning, so we had a very open process.

But obviously a Justice Department that was more inclined to base their decision on the econometric evidence that it was pro-competitive, which in fact it has been, because I think that the result now is that no one can say that the merger caused any anti-competitive effects.

And I think it's a different environment now, based upon our experience with the transaction that we're undertaking with US Air.

Maybe just sort of along those lines, one of the things that Continental mentioned when your transaction actually took place is they said that if they saw that they were losing market share, particularly in the corporate markets, they would reconsider a transaction with another carrier and so we hear they're thinking about this again.

Do you have any tangible wins or market share color on the corporate side that you could share with us to sort of give us a sense for whether the Delta/Northwest merger actually is winning real share out there in a way that would, because you mentioned that you didn't see much in the way of negative competitive effects, so is it sort of just muted in this sense or is there real tangible wins?

I don't know how to reconcile that with your prior comment.

This is Ed.

We clearly are having significant wins.

We're not in any kind of position to give you any names of any customers or specifics to any of the transactions we've negotiated, but we have seen over the course of the last year, we've picked up a little over $100 million of new corporate revenue share, just in the negotiations we've held in the last 12 months.

So where that's coming from, I can't tell you.

And you'll see the effects of that I think continue as we move forward.

Obviously, those deals are forward-looking, so those should be indicative trends that we'll be realizing on the revenue front over the course of the next year.

Bill, understand that when I say anti-competitive effects I'm talking about it from a Clayton Act perspective which is a legal econometric perspective, not necessarily a market share perspective.

I'm just talking about what the legal standard is for analyzing a transaction like this.

And it's clear that we met the legal standard in the Northwest/Delta merger and there would be no basis on the merits, set aside the politics of these kinds of decisions, but on just the pure merits of an injunctive action by the government, there wasn't any basis for that in our case.

And we'll take our next question from Dan McKenzie at Hudson Securities.

Good morning, everybody.

I'm wondering if you can talk about any specific marketing initiatives under way currently that might help drive revenues relative to your peers?

And I guess specifically, I'm wondering what might help Delta win say a bigger slice of the wallet spend from existing corporate travelers?

Well, that's the challenge that we're in the market with now, to take the pre-merger Northwest and pre-merger Delta marketing campaigns, combine them, bring that expanded network scope and breadth and added service and frequency particularly to our corporate customers and we're clearly seeing it on the corporate side.

We've been hamstrung as I think you know, Dan, until just literally the last 60 days in terms of being able to market and sell as a single carrier.

We've been operating two technology platforms.

We've had two codes.

We've had clearly a fair bit of disruption and impact on displays where two web sites were not able to display each other's product accordingly.

That's all behind us.

I think the technology integration will be a significant part of that campaign to make certain we're getting our rightful share.

We're going back around and adding some incremental functionality as we merge the two technology platforms so you can expect to see improvements in our website, expect to see improvements in our delivery of services in the airport, particularly in our kiosks.

I think you'll also see the benefit as we now go and can truly leverage the international operations with an improving economy, to get the value.

One of the things I mentioned at the investor conference last year was that given how poor the revenue environment was, it was hard to find revenue anywhere last year, not the least of which were synergy revenues.

In an improving economy there's no question we think we will be well positioned to garner our fair share.

Okay.

Good.

Thanks.

Just as a second follow-up question here, this one might be a little bit tricky but I'll take a stab, just because it is the pink elephant here sitting in the room and I guess if Glen is there, I've recently been looking at pricing on connecting traffic itineraries, found some walk-up fares that are pretty remarkable.

Just as an example, I found a walk-up fare from Chicago to South America with a connection for about $348, and again that was a round-trip.

So I thought the pricing might be sort of a JetBlue, Southwest combination through Orlando, but they were charging closer to $900 so I believe the pricing perpetrator was a legacy airline.

Not you guys, of course, but I won't name it.

This is just one example and I've noticed this in a number of other markets.

I guess my question is first, is this something the industry can fix?

And how, I guess?

Just wondering if you can provide any perspective.

You know, Dan, we just can't talk about future pricing activities on these calls.

Understood.

Okay.

So maybe I can just ask one quick house cleaning question, then.

I think this would be for Hank.

If I got this right, I think you mentioned Delta's getting rid of 15 50-seaters and 30 Saabs this year, and 50 50-seaters next year.

And since contract carriers are a $4 billion line item, I'm wondering if you can talk about to what extent the removals impact regional non-fuel unit costs?

Yes, Dan.

I think you've got the numbers flipped.

It's 35 50-seaters and 15 of the Saabs going out this year and then next year we would expect another 50 regional aircraft going out.

But what we were striving to do is make sure that our regional business remains cost competitive.

So as we get the aircraft out, we're still targeting to continue focus on that unit cost line.

It's not just a mainline initiative, it's consolidated.

But the full year, as we take down aircraft, we're getting the costs out just like we do at mainline.

So I think from your perspective, you should expect to see that continue.

Dan, we have sufficient contract flexibility over the next 18 to 24 months to right-size that 50 seat fleet.

There's no question that's the least productive aircraft we fly today.

And you should continue to see us reduce those shells.

And we'll take our next question from Duane Pfennigwerth at Raymond James.

Hi, thanks, good morning.

Just in terms of March, can you give us the March unit revenue number and did it close the way you anticipated?

Yes, it did close, Duane, where we anticipated.

Hank, do you have the specific March unit revenue number?

I don't have that number specifically in front of me.

We can follow up.

It's up about 16%.

Duane, the number was for the month of March we were up 16% year-over-year and that passenger RASM number was about 11.77 cents.

And I think we mentioned at the investor call, the conference we did in March, that we expected a 16% number and it came in just around that number, maybe slightly up to that.

Okay.

Great.

Thanks.

And then just in your press release you talk about not financing two 777s that you took delivery of.

Should we interpret that as you were a cash payer and then how should we think about sort of the level of financing for your deliveries going forward?

Thanks.

Well, we do not have any deliveries of any consequence going forward so you should not read anything into that.

And we very well may include those two 777s in a future financing that we do.

And we'll take our next question from Justine Fisher at Goldman Sachs.

Good morning.

The first question I have is about the 757s that you're taking out.

What do you plan on replacing those with?

Because I think an interesting question on the aircraft side is that there's not a 'real' replacement for the 757, so which aircraft are you guys going to use on those routes?

Justine, I think if you look at the overall mix of our fleet, we are taking out the majority of the aircraft we take out this year is on the regional side but we do have some less efficient aircraft, DC9-30s and -40s and just a handful of 75s.

But if you look at the deliveries we took this year, we do have the two 737-800s which are very capable and have similar operating dynamics to backfill that and then just the overall mix of the markets.

We also take the two 777s, we completed those deliveries this year and then just the flow through the system, that's how we backfill those 75s.

There's only three of them.

That's right, the 757 will stay a workhorse for us.

When we went through the bankruptcy, a lot of our lease terms had a five year extension on them, so you'll see us negotiating extensions and to the extent we can't reach a good settlement, you might see us drop a few more, but we're committed to the 757 fleet.

Okay.

And then just on the capacity front, with load factors up and obviously traffic rebounding, is there some particular factors such as maybe trepidation about the traffic trends toward the end of the year that is making you guys not add capacity and just as a reminder, what's the lead time that you need in order to increase capacity in your schedule if you chose to do so this year?

We think capacity right now is in a pretty good place for us.

We've added back some of the capacity for the summer that we took out last fall.

We think maintaining a discipline around capacity is going to be important because we need to get our unit revenue performance up.

That's going to wrap up the analyst portion of the call.

You can turn it over to Ned.

Thanks, Jill and thanks, Cindy.

Cindy if you could once again go over the process for asking a question for the media.

Once again we would like to request that you have one question with a quick follow-up.

Hopefully we'll be able to accommodate everyone.

Cindy.

As you mentioned, we will now take questions from the media.

(Operator Instructions) And we'll take our first question today from Harry Weber with the Associated Press.

Richard, I had a question for you.

Given what you said about the current regulatory environment, I'm curious, would Delta have pursued its acquisition of Northwest if those talks had continued into 2009?

Or was it do it in 2008 before the election or not at all?

That's pretty hard to answer, Harry, because it's so theoretical.

What we were intent on doing was continuing to build Delta into a leading carrier.

And we're committed to doing that, regardless of which administration is in the White House.

If I could add, Harry, this is Ben Hirst.

The legal standard is the same that governs mergers, whether you've got this administration in place or the last one.

And ultimately, it's not the Justice Department's call; it's the court's call.

And the way the process works, after the Justice Department has reviewed the documents that are submitted, the parties are free to close the merger and the only way it gets stopped is if Justice decides to sue and is able to persuade the court that the merger is anti-competitive.

And I think those are hard cases to win in the current competitive environment that we operate in, because of the expansion of low cost carrier competition in the industry and because it's become clear that when you combine end-to-end networks, they generate very substantial consumer benefits and competitive benefits that tend to outweigh the narrow effects on individual routes.

So at the end of the day, the courts will decide how the standard is applied, not the Justice Department.

Thanks.

We'll take our next question from Jad Mouawad with New York Times.

I was interested in getting a little bit more detail on the chaos in Europe.

You mentioned that half of your flights going to Europe today were expected to operate.

Can you kind of provide a little bit of color on how long it would be before we come back to a normal situation?

Are you guys planning extra flights for your passengers in the next week or so?

Jad, this is Ed Bastian.

Yes, we are.

We've begun the recovery process.

We have roughly 50% of our schedule from Europe to the states that we're operating today.

And we expect tonight to be operating a full schedule to Europe out of the states.

We are flying extra sections where possible.

We have been flying over the last several days into Southern Europe, into Spain and into Italy and Greece, and we had some extra sections we were flying there over the course of the last several days to get people out of Europe.

But we expect to be in full recovery mode over the next three to five days.

Do you have any airports or any countries that are particularly challenging?

I think Heathrow is still going to be closed most of the day today.

I'd say Heathrow and Frankfurt are probably the two challenging air spaces for us right now.

Thank you.

We'll take our next question from Mary Jane Credeur, Bloomberg News.

Hi, gentlemen.

Can you talk a little bit more about the slot swap and how that would be affected in the event that US airways participates in a merger in the next few weeks or month or so?

This is Ben Hirst.

We think that first of all, the DOT, more accurately the FAA, will act on the application before any merger-related decisions could be made.

We don't see any reason for them to delay and the matter's ripe for a decision.

If there were to be at the end of the day, a merger agreement involving Airways, again, there would be no reason for the slot swap transaction not to go forward.

Because if any kind of excessive concentration level resulted from the two transactions, the Justice Department and the courts would have the ability to require divestitures to deal with any competitive issues.

So our view is that the slot swap transaction is independent of any merger discussions that may be under way now and that the FAA and DOJ to the extent they're involved shouldn't be mixing the two.

Might that complicate, though, any divestitures down the road, given the criteria of the deal, that regulators have set out right now as far as the 5% or less current participants?

No, that would be independent because in a merger analysis you would look and see whether or not there is undue concentration resulting from the merger in any market.

And then the Justice Department would typically, if they have that view, negotiate some kind of divestiture to be made by the merged entity.

And do you guys favor one of the reported tie-ups over the other?

We're not going to take that bait either.

I've got to try.

Thanks very much, guys.

Nice try.

We'll take our next question from Dan Reed at USA today.

Good morning, fellows.

Hi, Dan.

Looking at your forward fuel price expectations, that's implying if you back out a reasonable crack spread, that's implying oil going somewhere from the low to high $90s by the end of the year -- maybe low 90s late in the second quarter and all the way to the high $90s late in the year.

Given that, do you see any potential for, on a broader perspective, a double dip recession, second wave coming through, or just higher oil prices reducing the resurgence in demand that you're seeing right now?

Dan, this is Ed Bastian.

The guidance we gave on fuel price really only covered the second quarter, and it was only at where the forward curves are at the present time.

So the forward curves are not into the high $90s, certainly not for the end of this year.

I think the forward curve gets up to around $90 a barrel by the end of the year.

We are managing that with our fuel hedging strategy.

We have 50% of our fuel purchased over the next six months, and that trails down over the balance of the fourth quarter and into next year.

We do see there is risk to rising commodity prices, and we are prepared to deal with that through our hedging strategy.

We don't necessarily see a follow-through in terms of its broader impact, though, necessarily on the overall impact in the economy.

And we'll take our next question from Mike Esterl at Wall Street Journal.

Good morning and thanks for taking my question.

I wanted to ask how confident you are about being able to book a profit for 2010?

You talked about solidly profitable in the second quarter.

Are you confident that the final year number will also be in the black?

And then secondly, just to make sure I understood, could you give a little bit of color about your revenue forecast and growth for 2010 versus 2009?

Mike, this is Ed.

We have not given guidance on the full year beyond the current quarter.

We do expect to be profitable in the second quarter.

But obviously with volatility in fuel prices and economic demand, we're not yet ready to declare a full year outlook with respect to profits.

Our revenue guidance for the second quarter, we gave April today on the call at 17% in terms of unit growth, and we expect that number --

That was RASM, to make sure I understand, right?

That was RASM for the month of April, and we expect that number to improve in both May and June off those levels.

Okay, thank you.

And we'll take our next question from Kelly Yamanouchi with the Atlanta Journal-Constitution.

I'm wondering how many job cuts have you made this quarter and last year with the severance charges?

The severance charge was something that we previously announced and it primarily related to the regional affiliates, primarily in Cincinnati.

I think we announced that back in March.

Okay.

And then I was also wondering what the WestJet partnership will gain for Delta?

It will give us presence in Canada, in the Canadian markets.

We have a very strong presence, given our Northern tier hubs, in many Canadian markets.

And partnering with WestJet will give us feed within Canada and give us the ability to feed traffic to WestJet.

And then internationally, it will be important for our new alliance partners -- our newest alliance partner in China --in terms of feeding their Vancouver routes.

Cindy, we have time for one more question.

We'll take our last question from Matt Helms at Detroit Free Press.

Thank you.

Just a quick question.

You mentioned that most of your hubs are seeing an improvement in performance.

Trying to find out if you can say much about which ones are not performing as well?

Well, we don't break it out by hub.

I would say that specifically with respect to Detroit, Detroit's performing well.

We've added a significant amount of new service.

You've probably seen that we want to now connect Detroit to South America.

Yes.

We've added the nonstop to Hong Kong.

We've added nonstop to Shanghai.

And I believe nonstop to Seoul.

So, Detroit has seen significant international growth, and we're pleased with its performance.

Thank you.

Okay.

Thank you all very much.

Do appreciate it.

We'll finish on time.

That concludes the first quarter earnings call, and we'll talk with everyone back in July.

Thanks so much.

Appreciate it.

And as a reminder, that does conclude today's call.

Thank you for your participation today.