Delta Earnings Take Off on Travel Rebound

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00:00They beat consensus expectations despite having sold a lot of inventory back around Liberation

00:04Day earlier in the spring when demand was much more uncertain. 4Q results exceeded expectations

00:10and they met where investors that we speak with were looking for. And I think they painted a

00:16really constructive and optimistic outlook for 2026. And we believe that, yes, to your point,

00:21the haves and have-nots, this airline divergence is just set to continue.

00:24How does this dovetail with a weaker consumer, a government shutdown, a job market that is

00:33spurring the Fed to cut rates? I mean, what's going on at Delta with its customers that's

00:37different than the rest of America? Well, Delta's customer base skews more affluent than I would

00:42say that the typical airline or maybe the average, the median consumer in the United States. And I

00:48think with the stock market rebounding very strongly since the second quarter, that buoy's higher

00:54income spending due to the wealth effect. We've seen a lot of corporate traffic getting back on

00:59the road, tech and banking in particular, but that strength seems to be broadening now.

01:04Delta's got a lot of exposure there. There's been an interesting dynamic on the elongation of the

01:09Atlantic summer travel season. A lot of baby boomers who are a little more flexible with when and where

01:14they travel, they prefer to go in October when it's less hot, less crowded. So that raises the floor

01:20on 4Q revenue performance. That's something other airlines, you know, a domestic focused leisure

01:24carrier is not going to have exposure to. So they, I think the main takeaway for investors is that the

01:30breadth of Delta's revenue streams are really just, you know, they're firing on all cylinders and they

01:37build so much more resilience into them than just an average airline relying on main cabin.

01:44Tom, what happens if we do get a shutdown that continues to stretch into week three, week four,

01:51if TSA starts to get more impact, if air traffic control starts to get further impacted, what would

01:56be the repercussions for this industry?

01:59It's certainly a risk that we're monitoring. I'm encouraged that policymakers on both sides of the

02:05aisle understand how critically important air travel is to the broader economy. I also think it's

02:11important to note that the industry itself has gotten much more adept at navigating these shutdowns.

02:16You know, they didn't used to be that commonplace, but they're much more frequent occurrences over

02:20the last 12 or so years. And they've gotten more used to it. You know, if you look at the,

02:24there's obviously a lot of concerning headlines, but we've mainly seen delays tick up a little bit.

02:30We haven't seen cancellations in mass or, or, or any, you know, major disruptions that are,

02:34they're curtailing broader economic spending.

02:37So the two biggest costs for an airline are always labor and fuel. I can never remember

02:41which is first and second, but those are the majors. Do those look good into the future? I mean,

02:48oil prices are low and there doesn't seem to be a lot of competition in the market for jobs.

02:56Is that the case?

02:57Yeah, I, I think to your point, oil prices are low, which is always favorable for the industry.

03:01Delta has done a great job at managing their costs and, you know, a lot of undulations in going on

03:07this year and in different rates of capacity growth in different quarters, but, but they've

03:11executed on their goal of, of targeting low single digit non-fuel unit cost growth this year.

03:16So, um, we've been really encouraged at how they've been managed, been able to manage through

03:20that and, and execute on their non-fuel cost control. I think part of that is they've, you know,

03:24they continue to lead the industry in really strong operations and the best, one of the best ways to

03:28keep your cost in line is to run an on-time airline. Hey, what about capacity? Um, are they

03:33able to get new planes? Uh, recently flew to Seattle and noticed even in business class for

03:40$5,000, I couldn't lie down as the plane felt like it was two decades old. Yeah. I mean, that's

03:47going to be, I would say if you, if you're looking for a live flat, those are more often going to be

03:50in LA or San Francisco on the transcon market. But I think that the diversity in Delta's fleet

03:56has been an advantage, um, similar with United having some of those older aircraft, it gives

04:00you much more flexibility and optionality and when and where you fly because the fixed costs

04:05are so much lower on an aircraft that's, that's fully depreciated. That's maybe 15 or more years

04:10old and they're not, um, you know, they can go into a, maybe a riskier market that, that if you

04:15were buying a brand new airline or aircraft, you wouldn't be, you probably have a higher profit

04:18hurdle on. Um, but the capacity outlook is very favorable. Just to circle back on that question,

04:23the industry laggards, um, the domestic, the low cost, the leisure focused airlines continue to

04:28retrench. Um, Delta has been pulling back on the, on their main cabin seat supply. So they should

04:33have a nice, a nice mixed tailwind. I think supply is kind of going to be growing in line or below

04:37nominal GDP, um, or real GDP below nominal GDP. And, um, I think it's a favorable outlook that the tier

04:44one airlines like a Delta United, they're always going to be Airbus and Boeing want to keep,

04:48keep those customers happy.

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