Delta Earnings Will Take Hit Due to Shutdown, CEO Says

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Watch Delta Earnings Will Take Hit Due to Shutdown, CEO Says - Bloomberg on Dailymotion

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00:00I'm here with the man of the moment, CEO Ed Bastian, CEO of Delta on the 100th Centennial

00:06celebration here at the New York Stock Exchange. It's also a wonderful day,

00:10not just because of that, Ed, and welcome. It's also, there seems to be a light at the

00:14end of the tunnel. How relieved are you about what's going on in Washington, D.C.?

00:17Well, more importantly, I'm glad we got to our 100th Centennial and so proud of our people,

00:23first U.S. airline to reach 100 years of age. But yeah, we're hoping that the vote

00:28comes back tonight and we get everybody paid, most importantly, all those essential workers,

00:35controllers, the security agents, the regulators, everyone in the system. They do such amazing

00:40work. They're heroes doing this for a month and a half without pay, showing up every day,

00:45and we appreciate them. So I'm happy about that as well. How long will it take before

00:49we don't see any delays or any unexpected delays tied to the shutdown? I think it'll happen pretty

00:56quickly. I think once people start getting paid, and I know Secretary Duffy is committed

01:01to getting those paychecks out right away. So over the next couple of days, I think you'll

01:06see things starting to turn to normal. Yesterday was actually a pretty good day. The weekend was

01:10tough. We had weather. We had a lot of staff shortages in many of the ATC towers that caused

01:16delays and cancellations. Looking ahead, weather holds, and I think the outlook for the weather is

01:22not too bad. It should be by Friday. I think we should be back pretty close to normal.

01:26Do you think Thanksgiving will also be back to normal?

01:28Thanksgiving will be great.

01:29Okay.

01:29We know the importance of Christmas and Thanksgiving and the holidays. That's our Super Bowl,

01:35and that's what we rehearse and plan all year long. We're going to be in really good shape for

01:39that.

01:39Have you seen anybody make any cancellations or not make plans? Anything that sort of highlights

01:45the concern around some of the delays that we've seen from the government shutdown?

01:48Yeah, and it's understandable. We've seen some reduction in bookings, not material, but maybe

01:545% to 10% from where we would normally be. One of the frustrating things to me is that heading

02:00into this period when they decided on Thursday to start canceling flights, we had tremendous

02:07momentum. The revenue base, business going double digits, premium categories, all going double

02:15digits, if not more, we're going really strong. And then you get into this situation, all those

02:21travelers say, well, maybe I'll wait and see what's going to happen here. So we did see some

02:26refunds. We did see some, we were very flexible in refunds. If people wanted their money back,

02:31we were happy to, not happy to, but we wanted to make sure they were being taken care of.

02:36But I think as soon as people see it's ready to go, they're going to come right back.

02:40Do you think there's going to be any permanent hit to the fourth quarter earnings because of

02:44the shutdown?

02:45You can't make up one week of Delta. We had a little over 2,000 cancellations. You can't

02:51make that up within the quarter. So yes, there was an impact like there's going to be in all

02:56the airlines. It's transitory. I think everyone understands why it wasn't our doing. It was

03:01something that we were used almost as a political hostage to get the government back together. So be

03:06it. But the good news is that, you know, the outlook is really strong and the holidays will

03:11be a good, a good test of that.

03:13You talked about how July, you really started to see things pick up and accelerate. And we've

03:16heard that from a lot of the airlines. Do you have visibility into the first quarter that this

03:21could continue and that this is just gaining steam?

03:23Yeah. Yeah. We, our visibility is about 90 days out. So you're going into January. So we

03:28would see the return traffic from, from Christmas and New Year's looks really good. So I see no reason

03:33to think that this thing is going to slow down. And again, it's in our category, which is our

03:38sweet spot is our premium traveler. So whether it's our international traveler, our business

03:41traveler, a higher end people that wanting a premium service and premium product, we're

03:46in the experience economy. And the one thing we've learned over the last several years is

03:50that the greater the experience, the more people want to pay for it. And the demand is even higher.

03:55The more commodity your experience is, the less people are willing to evaluate. And so we're,

04:01we're in the sweet spot. We're leading the premium experience in the airline category.

04:05And I think we're going to have a really good next year.

04:08I'm glad you mentioned that. We often talk about Delta and how this is the Delta economy,

04:12how you guys are leading in the airline space. You also highlight how different it is with respect

04:16to the premium offerings and some of the profitability there versus the rest of the business.

04:21I know that premium and loyalty accounted for about 60% of revenues so far this year versus 57%

04:27last year. How far can this go? Is this sustainable?

04:31I think it is. As long as you're giving people value and they get great value from us because

04:36we unlock those opportunities. You know, as long as people want to go and explore Riyadh where we,

04:42I was just at a couple of weeks ago and we announced a direct flight to Riyadh from Atlanta next year or,

04:46you know, Australia or the Maldives or anywhere you want to go within our country to reunite with

04:52friends and families and have a getaway. If you're a premium traveler, Delta is your first call.

04:58And we love that.

04:59How much is international increasingly a part of that? I know that Korea Air was something

05:03that Delta has a partnership with and increasingly these new routes are coming out.

05:07How much is that the expansion plan? Very much so.

05:10Well, today about two thirds of our revenues are U.S. One third is international.

05:13In the second century, which starts January 1, I think we're going to see that start to get closer

05:20to 50-50 and eventually international overtake the domestic system. One of the things I tell

05:25people wherever I go is that we're a growth industry. Only one in five people in the world

05:30have ever stepped foot on an airplane. When you think about that, it's pretty, pretty amazing.

05:34We take it for granted here. And if you told someone here in the U.S. you haven't been an airplane,

05:38you'd think you were living in a cave somewhere, right? But the world hasn't experienced air travel

05:43and we got to find ways to make it affordable, to make it sustainable, to make it accessible.

05:47And that's what we're focused on. How much have you seen? I know the international

05:51inbound travel to the United States took a bit of a dip after Liberation Day.

05:55Have you seen it really coming back or is this primarily U.S. travelers going overseas?

06:00It's still mostly U.S. travel heading overseas. And we've supplemented with more U.S. point

06:04of sale versus there. But the international travelers are coming back. People want to be here.

06:10So I think once the trade uncertainties were starting to lift, once people saw that,

06:15you know, what immigration was about and where people, you know, were potentially vulnerable

06:21as compared to people that have passports and have normal, normal, you know, business. Those

06:25are the people we want coming into our country to be able to spend time with them and invest in our

06:30economy. People are getting much, much, much more comfortable. And the place you see it the most,

06:34the most important is in the international business. Because international business is really

06:38picking up a lot.

06:38I love that you're celebrating the 100th centennial because it highlights how big of a moment of change

06:44we're in currently, too. And I would love to take some time to look forward in next two years,

06:49next five years, next 10 years, next century, what air travel is going to look like given some of

06:55the massive changes that we're seeing just technologically as well as societally.

07:00Well, I think you'll see the demand strength continue to build. We know through our history,

07:05people just want to travel. They want to go. As long as, again, you do, you make it accessible,

07:10affordable, sustainable. Those are our priorities in order to do that. That means the new planes need

07:15to come in much more fuel efficient than the planes that we've taken, looking for new form factors in

07:21terms of what that airplane looks and what the body, the aerodynamics of the planes of the future are.

07:27We're doing it with a small carrier today called Joby, you know, with the electric vehicle takeoff.

07:31It's not going to replace Delta, but it's going to be able to get people moving quickly from home to

07:37airport to their destination. And that's going to be, I think, with electric and battery power,

07:43it's going to be an interesting innovation that we face. But we have so many ways in which people

07:47want to continue to move and continue to explore. We need to have the technology advance. So we spend a

07:52lot of time at Boeing and Airbus and the engine manufacturers and understanding where they're headed

07:56because they really drive those opportunities. But then looking also at the partners we've built

08:01with Uber, which I'll be back here at the exchange this afternoon with. We've got an exclusive

08:05relationship with them. With YouTube TV, we announced this year an exclusive relationship

08:09with them. With DraftKings, with Starbucks, so many brands kind of want to sit next to the premier

08:17travel leader because we draw hundreds of millions of people and opportunity and we draft off each other.

08:24And so you're building an ecosystem and that ecosystem will increasingly get, and people love loyalty.

08:29They love brand experience. They love their points. They love acknowledgement and recognition on both platforms.

08:34Do you think that there's room for more than the handful of the premier airline brands at the top?

08:39Do you think that for the low cost airlines, there's enough room in that future vision of the airline space?

08:44Well, I know they're all trying to get there. This is hard. This is hard. And it takes years of investment

08:51in reliability, product category, the consistency at the service level. It's the people on the plane.

08:56I always tell people, we may have great hard product. It's the soft product that matters.

09:01And it's the consistency and the delivery that our people make that make the difference for the experience.

09:05That's going to take years to know. I think some of them will improve, but I think it's a long,

09:10it's a tall ask for some of the lower end carriers to find price points where they can actually compete with us on.

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