Delta Air Lines, Inc.

Operator: Morning, everyone, and welcome to the Delta Air Lines June Quarter 2026 Financial Results Conference Call. My name is Matthew, and I will be your coordinator. At this time, all participants are in a listen-only mode. Until we conduct a question-and-answer session following the presentation. As a reminder, today's call is being recorded. If you have any questions or comments during the presentation, you may press 1 on your phone to enter the question queue at any time. I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations and Corporate Development. Please go ahead. Julie Stewart: Thank you, Matthew. Good morning, everyone, and thanks for joining us for our June 2026 earnings call. Joining us from Atlanta today are our CEO, Edward H. Bastian; our Chief Operating Officer, Daniel Janki; Chief Commercial Officer, Joe Esposito; and our Chief Financial Officer, Erik Snell. Edward will open the call with an overview of Delta's performance and strategy. Daniel will cover the operation, Joe will provide an update on the revenue environment, and Erik will discuss costs and our balance sheet. After the prepared remarks, we will also take analyst questions, and we ask that you please limit yourself to 1 question with a brief follow-up so that we can get to as many of you as possible. As a reminder, 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 actual results to materially differ from forward-looking statements. Some of the factors that may cause such differences are described in Delta's SEC filings. We will also discuss non GAAP financial measures, all results exclude special items unless otherwise noted. You can find a reconciliation of our non GAAP measures on the Investor Relations page at ir.delta.com. And with that, I will turn the call over to Edward. Edward H. Bastian: Thank you, Julie. Good morning, everyone. We appreciate you joining us today. This morning, we reported our June quarter results, and it is clear. That Delta's brand and industry position are stronger than ever. Generated record revenue which grew 14%, increasing more than $2 billion over last year. This reflects sustained strength in demand and momentum across our diverse business. Delivered pretax profits of $1.4 billion earnings of $1.56 per share and an operating margin of 9%. All better than the guidance that we provided at the start of the quarter. Return on invested capital was 11%, well above our cost of capital. So through the first half, we generated $1.4 billion of free cash flow. Fortified our investment grade balance sheet, and announced a 15% increase to the dividend. And most importantly, we kept investing to make travel safer, easier, and more enjoyable for our customers. Our people are what truly set Delta apart. Delivered industry leading performance across key operational metrics, and also earned Delta recognition from the points guide as the best US airline for the 8th consecutive year. Our people are our number 1 competitive advantage, and I want to thank the Delta team for their commitment to delivering for our customers every day. Particularly during the busy summer travel season. In May, we announced a 4% pay increase we have accrued nearly $500 million towards next year's profit sharing payout for the first half of the year. Both reflect our long standing commitment to sharing success with the people who drive it. Turning to the current environment. The US economy remains resilient. Supported by strong employment, rising household incomes, and significant wealth accumulation. Our customers are prioritizing experiences, investing in the moments and connections that matter most to them. Driving sustained strength and demand for air travel. These trends align well with Delta's strategy. Demonstrating the loyalty that we are seeing across customer segments, and powering high margin diverse revenue streams that enhance the resilience of our business. Our Delta American Express partnership is a clear example of the strength of our loyalty ecosystem. Card spend has grown double digits for the past 7 quarters with particular strength among our premium reserve cardholders. Continued momentum in both new card acquisitions and spend, we expect remuneration of $9 billion this year. up 10% over 2025. As I stated in April, high fuel prices have proven to be the most powerful catalyst for change in our industry And this year, that has once again been the case. Coming into the recent fuel spike, most US carriers were already struggling. To earn their cost of capital. Against a backdrop where industry airfares have meaningfully trick-trailed inflation, costs have reset higher, and consumer preferences have evolved. As we predicted, structural change has accelerated enabling the industry to recapture this year's fuel cost inflation at the fastest pace of any recent cycle. Even after recent fare increases, airfares remain 10 to 15 points below overall inflation since COVID. With continued fuel volatility, and much of the industry still earning returns below its cost of capital, we believe current revenue momentum should remain sustainable even if fuel prices moderate. That is an important step towards improving the industry's financial health, and earning sustainable returns over time. For Delta, we are executing on our strategy from a position of strength. With continued revenue momentum, measured capacity, and a more stable fuel environment, we expect to return to earnings growth on double digit operating margins in the second half of this year. For the full year, we are affirming the guidance that we set at the start of the year even with a multibillion dollar fuel headwind. Our outlook for earnings of $6.50 to $7.50 per share represents growth of 20% year over year. And our free cash flow outlook of $3 billion to $4 billion brings our 3 year cumulative total to over $11 billion. Looking beyond 2026, we are confident in our long term financial framework and path to mid teens margins and return on invested capital. The strength and consistency of our results give us the ability to keep investing, and innovating to extend Delta's lead. Elevating the experience and creating a more seamless and personalized travel journey. As we invest in the areas that customers value the most, loyalty to Delta continues to grow. Last month, we opened our 2nd Delta 1 lounge at LAX. Bringing the Delta 1 lounge network to 5 locations and expanding the industry's largest club, and lounge footprint. Our Delta Amex co brand card continues to lead the industry, and our recent portfolio enhancements are strengthening the value proposition. For both existing and prospective cardholders. We are also making the journey more seamless through Delta Sync Concierge. Our AI powered digital assistant is now available to more than half of Fly Delta app users with a full rollout later this month. In the year, we continue to set the standard on connectivity. Fast, free Wi-Fi is already available to members across nearly our entire fleet. Satellite upgrades coming online in the months ahead to deliver even faster speeds and broader global coverage. Starting in 2028, Amazon Leo will unlock the next generation of onboard connectivity, reach, and personalization. In closing, our performance now with reinforce the durability and the differentiation of the Delta business model and our investment thesis. Looking ahead, I am incredibly optimistic about Delta's future. And our opportunities to deliver even better performance for our employees, our customers, and our owners. Now, Daniel, will cover off on our operational results. Daniel Charles Janki: Thank you, Edward. I want to begin by thanking the Delta team. For the outstanding service they provide to our customers every day. Operational excellence is core to the Delta brand, and it is the experience our customers expect. Our culture of continuous improvement that spirit of keep climbing, drives us to get better every day. This combined with the continued investment in technology and data better position our people to run a great operation, improving reliability, and efficiency. During the quarter, extended our industry leadership in on time arrival, and departure performance while strengthening operational metrics across our system. Completion factor improved through the quarter. We expect continued progress into the second half as targeted actions we have taken to improve resilience gain further traction. We delivered record baggage performance led by our largest hub in Atlanta, where performance has improved meaningfully from last year's strong baseline. Supported by enhancements to our baggage handling system and processes, and our patented baggage AI technology. Delta's continued to lead large US carriers in domestic net promoter scores. Improving over last year. This was driven by outstanding service of the Delta team. With people interaction scores reaching all time records across this global system. This includes year over year improvement across airport customer service, reservations and care, flight attendants, and our pilots. This performance reflects the focus of our people, reinforces how we are making travel easier, and more reliable for every customer. We are continuing to invest in technology, while empowering our people to deliver more proactive communication directly to customers. We are also enhancing digital tools with a simplified rebooking process expanded self-service, and continued rollout of Delta Sync Concierge. Our customers are noticing. This has driven more than a 25 improvement in NPS during periods of irregular operations. A more reliable customer experience starts with a more reliable fleet. And our Delta TechOps team is central to that. Key fleet reliability metrics including aircraft out of service levels, maintenance related delays, and cancellations all improved versus prior year. Benefiting from predictive maintenance capabilities and the investments we have made in fleet resilience over the last few years. Beyond supporting our own operation, TechOps represents an exciting opportunity to further diversify our revenue through growing our third party MRO business. This year, we remain on track to generate approximately $1.2 billion in revenue, up nearly 50% from last year. With low double digit margins. And over the next several years, our technical capabilities coupled with our strong customer relationships, and record backlog position, us to more than double MRO revenue while expanding margins. Now I will turn it over to Joe to cover our commercial results and outlook. Joe Esposito: Thank you, Daniel. June quarter results reflect strong execution and our clear prioritization of managing for margins. Total revenue of $17.7 billion was at the high end of our expectations up 14% over prior year on approximately 1% capacity growth driving total unit revenue growth of 12.4%. We are focused on continuing this revenue momentum to fully recover this year's fuel cost pressure and improve margins as we move through the back half of the year. Domestic led unit revenue growth up 12.4% driven by higher yield international growing 8% over prior year led by Latin. Importantly, main cabin trends improved through the quarter, with main cabin unit revenue growing mid teens in the month of June. Across corporate sales, all sectors posted double digit growth. Performance was strong across core and coastal hubs, where sales rose more than 20% versus prior year. Diverse revenue streams represented 61% of total revenue in the quarter, up 2 points over last year with premium and loyalty revenue both up nearly 20%. Cargo revenue grew 39% primarily on volume, and MRO delivered revenue growth of more than 30% year over year driven by legacy engine platforms. Now turning to outlook. Demand remains strong and broad based. Cash sales improved through the quarter across the entire booking curve, in both premium and main cabin products. These trends combined with our measured approach to capacity growth, support the sustainability of yield strength. We expect September quarter revenue to grow mid teens versus last year. Total unit revenue growth is expected to improve sequentially even against more challenging prior year comparisons. And while it remains early, December quarter bookings are coming in strong giving us confidence that this revenue strength will extend through the fourth quarter. Capacity for the third quarter is up 1%, while fourth quarter, we planned 2% to 3%, led by international. Our integrated commercial strategy is how we will continue to deliver a revenue and margin premium to the industry. We are expanding our global network. Through new routes and JV partnerships, while continuing to renew our fleet. Enabling us to grow the network more profitably. We are also improving the product and giving customers more choice. The rollout of basic, classic, and extra offerings in Delta Comfort+ is now complete and will be expanded across all premium cabins this quarter. These offerings increase flexibility for customers while driving improved revenue performance. Loyalty remains 1 of Delta's most valuable assets. SkyMiles membership growth is outpacing capacity, led by double digit gains among Gen Z members. That engagement is translating into durable revenue best illustrated by our industry leading co brand performance. In closing, these investments reinforce our competitive advantage and give us more ways to grow revenue, deepen loyalty, and expand margins over time. I will now hand it to Erik to discuss our financial performance. Erik Storey Snell: Thank you, Joe. I want to start by recognizing the Delta team for delivering strong Q2 results. We generated $1.4 billion of pretax profit with an 8.8% operating margin despite the highest fuel costs in our history. Reflecting the structural advantages we have built in the business. Total fuel expense was $4.4 billion up nearly $2 billion versus last year. Fuel price per gallon averaged $3.93, including a $0.11 refinery benefit. net of a $0.05 impact from a temporary outage. Fuel price came in better than guidance as lower crack spreads more than offset the reduced refinery benefit. The refinery is a strategic advantage for Delta. Providing a meaningful offset in a high crack environment. And we expect 2026 to be 1 of its most profitable years. Nonfuel unit costs increased 6.8% over prior year in the June quarter. Reflecting higher crew and revenue related costs on capacity growth several points below our initial plan. Through the first half, we generated $4 billion of operating cash flow, and $1.4 billion of free cash flow after $2.6 billion of reinvestment. Investments we are making are further compounding our advantages. The durability of our performance allows us to invest year after year in our employees and in elevating the customer experience all while continuing to pay down debt. Our balance sheet is the best in Delta's history. Investment grade ratings from all 3 major credit agencies and a substantial and growing base of unencumbered assets and secured borrowing capacity. We ended the quarter with adjusted net debt of $13.6 billion down from year end. While much of the industry raised additional capital. Debt reduction remains a top priority and we expect gross leverage to reach 2x by year end. As we move toward our long term target of 1x, we remain committed to increasing shareholder returns. Turning to our outlook. We expect September quarter nonfuel unit cost performance to improve modestly. With further progress in the December quarter as operational investments continue to gain traction and capacity growth begins to normalize. This puts us back on a path toward our long term framework of low single digit unit cost growth. Our outlook assumes an all in fuel price of approximately $3.50 per gallon including a $0.05 refinery benefit. Total fuel expense is expected to be about 40% higher than last year. Combined with our mid teens revenue growth outlook, we expect a Q3 operating margin of 11% to 13% and earnings per share of $2.20 to $2.50 up meaningfully from $1.70 last year. In closing, the affirmation of our full year outlook from the start of the year and ability to grow earnings despite a nearly $4 billion increase in fuel cost reinforces that Delta's durability continues to improve. Relative to prior cycles, and to the industry. Delta's differentiated strategy and consistent execution across dynamic environments give us confidence in delivering our long term financial framework and creating sustained value for our owners. We will now move to Q&A. Julia, please open the line for analyst questions. Julie Stewart: Matthew, can you please remind the analyst how to enter the call queue? Operator: Certainly. At this time, we will be conducting a question-and-answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. We do ask that all Q and A participants please limit to 1 question and 1 brief related follow-up question. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Connor Cunningham from Melius Research. Your line is live. Conor Cunningham: Hi, everyone. Thank you. Joe, I was hoping to start with you. can you just talk a little bit about the progression in unit revenue throughout the second quarter? I am just trying to get a sense from the difference between the revenue production that you saw in April versus June, just given the mix dynamic as you were more exposed to the higher fares. And I am not asking for monthly. Just trying to understand the spread a little bit as we get a little bit more comfortable with the second half outlook on revenue? Thank you. Joe Esposito: Yes. Connor, it is 1 of the things that gives us confidence as we go into the back half and especially the third quarter. Our exit rate on TRASM was significantly higher than our entry rate. And that goes to, you know, how the our fuel recapture strategy moved the quarter. I forget, we started it in May. And in April, we were already 70% booked. And so each month, you get more and more of new revenue new priced revenue, that comes through the system. So, again, it was significantly higher as the exit rate for both premium and main cabin. And that is what gives us towards our guide for third quarter and our confidence in the back half of the year. Conor Cunningham: Okay. Thank you. And then, Ed, maybe bigger picture. A lot of comments around, if we boil it down, it seems like you guys view the industry being a little bit different on how they price going forward just given the changes that we have seen out there. So I mean, you did not explicitly guide to fourth quarter, but rough math suggests that you expect pricing to remain firm from here. So just I am just trying to understand what gives you confidence that. I know you have talked a little bit about it, but was hoping to broaden out the conversation a little bit more. Thank you. Joe Esposito: Yeah. I think it is gives us a lot of confidence in the back that we are going to hold on to the pricing environment and the revenue momentum the industry, has no other choice. I mean, the inflation that is going through both on fuel and nonfuel is significant, and fuel prices are still elevated. So that is why we have confidence in holding on to the revenue under a modest capacity increase as well. So that would that would imply good confidence in the back half. Our forward cash sales, if you look at cash and bookings, are higher than our close in. that is what we wanna see when we think about confidence for the back half. For the greater than 90, greater than a 120 days. Then as you get into fall for Delta's network, we are much more of a business oriented network in a post summer environment, not only for domestic, but for international. So that is where we that is where our confidence comes from in the back half. Great. Thanks. Operator: Thank you. Your next question is coming from Mike Linenberg from Deutsche Bank. Your line is live. Mike Linenberg: Oh, yeah. Hey. Good morning, everyone. Hey, Edward. This 1's for you. I think, you know, by all measures of market share, it does look like the low cost, low fare carrier group, I guess, what I would call it, is in a bit of a secular decline. Look, you have been around for some time. Sort of thought about that. And the reason I am also bringing it up is that, you know, as we think about the industry's ability to hold on to fair increases, I think 1 of the concerns among investors is that it is going to be carriers from that group that, you know, come in and undermine the structure as maybe as energy prices come off. Just your thoughts around that. Edward H. Bastian: Sure, Mike. Thanks for that. The what we have seen is not just this quarter. it is been building for the last several years. Is that we have seen some fairly significant structural changes to the overall industry landscape. Probably the last time that we saw the element of, you know, fuel moving around with a lot of volatility was maybe 9, 10 years ago. And back then, the low cost carriers were the darlings. Of the industry. They had the highest margins. They had the highest growth rates. They looked at fuel as a competitive advantage because they had lower cost in other areas. Some of them, such as Southwest, had fuel hedges in place, which they used. To try to take market share. None of that exists any longer. All that world has changed completely. Entirely. No 1 has fuel hedges of any note. The cost of production, not just for fuel, is up. But the cost for labor is up, the cost for airports are up. The cost for technology is up. Planes, you cannot get. And if you can get them, their costs are higher And so what that tells you is that you need to figure out a change to the business model that will enable you to build resilience in your pricing durability. And that is what we have done. Over time. And that includes not just getting higher airfares. That includes the diversification Of the revenue stream. that is why our American Express relationship is so important to us. that is why our corporate, you know, the leader for the last 15 years in business travel across The United States is important to us. that is why our international growth has been important to us. that is why the MRO and cargo are important to us, all of which are growing double digits. So we have been building this. And you wrap that around an experience that is substantially better in terms of the premium experience that we offer today versus 10 years ago and the opportunity now that we have with technology to become true world class merchandisers and retailers. 10 years ago, we were a blunt instrument. You know, we had, you know, just a couple handful of price categories on the shelf. Today, we are we are continuing to add to that. So what we are seeing here is no surprise to Delta. The fact that you have got others in the industry following our lead is no surprise as well. But, you know, I mentioned a point on the call this morning that even with the improvements we have seen in pricing for the industry, the low end of the market still has to increase fares by another 5% by our estimate just to get to breakeven. At today's today's fuel environment. And, there is nothing to be gained by trying to grow in that environment. What the opportunity has to be in finding ways to secure higher revenues, not higher market share. Very helpful. Thanks. Mike Linenberg: Just a quick 1 for Daniel. Daniel, you talked about committed actions that you were taking to improve the op and you talked about how the numbers had improved to the quarter. I know I saw that there was some talk about maybe on the staffing side. Anything there or on the fleet side? Any particular fleet giving you any problems this quarter? Daniel Charles Janki: I would say, Mike, thanks for that. I would say on the fleet elements, you just have to be systematic across the board about continuing to invest and put resiliency in it. And our teams have continued to get better. We have opportunity to get better on that front. A lot of that is just capturing your data, more predictive maintenance, staying out in front of it, and continuing to work it. And we have seen that, and you talked a little bit about those stats that we are seeing improvements in, but we wanna continue to make progress there. And then the other 1 that we have talked about is the actions that we are taking around the resiliency and capability around our crew resourcing. And continue to put more people process technology around that and get better utilization out of those resources. And continue to make progress on that front. Great. Thank you. Thank you. Thank you. Operator: Your next question is coming from David Vernon from Bernstein. Your line is live. David Vernon: Hey, good afternoon or good morning, and thanks for fitting me in here. So I guess the 1 question I had for you with regards to the CASM ex outlook. Obviously, you made some comments in the prepared statements around cost moderating as you get to more normalized growth. Can you just talk about what that means kind of for 4Q, maybe beginning of next year, ASM growth, where in the network you are looking to maybe add capacity and maybe just stepping back from that, where do you see in the marketplace an opportunity to put capacity to work that is compensatory, just given the state of affairs and where oil is. Thanks. Edward H. Bastian: Yes, David. it is premature to be out giving guideposts for 2027. it is and I know that is not what you are asking. But you know, the we have come through a period here over the last this quarter certainly, the third quarter, looking forward with muted AO capacity. It was an obvious response to the fairly dramatic fuel spike that we saw. Fuel continues to stay elevated. Fuel today is 50% higher than where we started. The year at. I think you are gonna find the crack spreads are gonna continue to be sticky. I think they will come down. But I think it is gonna be sticky. You know, coming down given the questions that are that sit out there and in The Middle East and other parts of the world about what kind of damage was done to the refineries and the value, the amount of production capability that you can find. So I would anticipate that in the fourth quarter for Delta, you will see us kind of return to a little bit more of a normalized capacity run rate, that 2% to 3% that we have historically, you know, looked at. it is kind of keeps us around in par with where economic growth is. And then as we go forward to 2027, there is there is probably the mindset that we have had. You guys follow us well, and you have seen, you know, how this team thinks about this stuff. We try to stay in our lane in terms of our strategy. We are not we are not out there trying to compete on someone else's strategy. We are focused on Delta's strategy. The growth that we are seeing here for the back end of the year going into the next couple years will largely be in 2 areas. It will, first of all, obviously, focused on profitable growth but it will be up gauging. We have taken a holiday over the last couple of years from upgauging, as we have had some fleet resets here. We will get back in the next year or 2 as we take delivery of the max 10 and some additional narrow body opportunities to get mid-gauge going. that is a very efficient way to grow And secondly, international. And the international areas we are going are in line with our strategies going into some new markets in The Middle East, such as Riyadh, bringing Tel Aviv back, as well as expanding in Asia. But that is that is kind of the outlook for growth as I see it for the next year or so. David Vernon: All right. that is helpful. And then maybe just quick follow-up. You mentioned the MAX 10 out there and max 7. It sounds like we are getting a little bit closer to the end of the tunnel. Do you think that the delivery of some of those aircraft that have been constrained can upset kind of what is a better structural environment? Or does that not factor into your consideration? Edward H. Bastian: Oh, it absolutely does add to the structural changes. 1 of the fuel that powered the low cost evolution was being able to grow faster than your costs were. Where all the with all the aircraft availability from both Airbus and Boeing on the narrow body side. That has dramatically changed. And by the way, it is not it is not the question whether Boeing and Airbus can even produce the aircraft as much as the engine produce and the lack of durability that we have seen in the quality of the new engine technology is not anywhere close to the preexisting technologies that we had previously. So I think availability of aircraft is a fairly significant. Constraint as well. And for us, we are looking forward to getting the max 10. We expect to see that in Delta colors next year. Which will be great to have, but it is also gonna enable us to release some older narrowbodies and whether it is 717s and 757s that it will be a replacement. Alright. Thanks a lot. Thanks a lot. Operator: Your next question is coming from Andrew Didora from Bank of America. America. Your line is live. Andrew Didora: Hi. Good morning, everyone. So Joe, just question on international. Just curious if we were sitting here in May. Much of your Q2 international was on the books versus Q3? I just ask because international, and particularly Atlantic may be a little bit below what we had thought, but I feel like it could be something with the booking curve. So should we be expecting a better sequential improvement internationally because of that dynamic And any thoughts you can provide on the international geographies would be helpful. Joe Esposito: Yeah. Good morning. Yeah. And that is exactly right. Typically, your long haul international has about 15 points of bookings more than domestic does. So when you were in May, April was very much booked and customers booked their travel, especially Transatlantic for the summer. They actually start in January and February with that with that booking curve where domestic's closer in. So, yeah, you will see sequential improvements as we go through the next quarter and into the fall. In terms of that. So that is, so that is a good thing. And then also business improved significantly in the Transatlantic as you get into September and October in the off season. So around the world, Transatlantic for us will still have a very solid summer. Demand has been very strong as we have been talked about for the past In the past, our foreign our point of sale has been a little bit softer, but we have transitioned to more of a US point of sale. We are over 80% now for U.S. point of sale in the Transatlantic. And that falls back to our strengths. The fares are higher. The and the strength of our brand in The US is much higher. So the Transatlantic will have a great summer. The good thing about the Transatlantic is it is smoothing out. The seasonality has been flattening, which is good for us, and people are moving their trips more into the shoulders and all in the traditional off season. Pacific has kept up with capacity. We are actually growing the Pacific, so unit revenues were up about 8% on similar capacity. And you have seen us with 2 new markets this year, Hong Kong, and we are annualizing Melbourne and Los Angeles, Shanghai, and Salt Lake City-Incheon. Asia and The Middle East will be the focus for the next couple of years. Latin is a little bit of 2 different 2 different stories. South America has been very strong. This year and for the past really 18 months, and the forwards look really good. Based on our partnership with LATAM, aligning ourselves with their connecting bank structures in South America. Mexico had been a little bit weaker. As the incidence of violence this earlier this year. So Mexico had been a little bit softer as well as short haul. But we will expect to see improvements in that as we get into the fourth quarter of this year. Our capacity also reflects that. We were down 7% in Latin America with mostly most of that is in the short haul category. And we will bring that capacity back based on demand. And it is not assured it comes back. it is slowly coming back. But we will see we should see a strong winter for leisure travel. Edward H. Bastian: And, again, South America has really been the bright spot. Joe Esposito: Just getting back to domestic. and that had been the lead the lead in unit revenue performance. And really strong performance as you exited the quarter on unit revenue versus when you enter And it is good that the participation of all the carriers come in on fuel recovery the fastest in the domestic system and the fastest we have ever seen historically. So domestic is on a on a really good trajectory, especially corporate sales, traveling, in The US. And a couple of bright spots that while we said 20% for corporate, big cities like Los Angeles and Boston were actually closer to 30%. So really good really good progression in the domestic system. Andrew Didora: that is great. Very, very helpful. And then as a follow-up, actually, I just wanted to ask, you know, about the cabin segmentation you announced earlier this week. I know you have teased a bit about wanting to give your customers a little further choice but I am just curious on, like, how far you think this can go. So are there further opportunities to continue to maybe expand this a la carte option And just any comments on how you view those options over the next 3 to 5 years would be helpful. Thank you. Joe Esposito: Yeah. Thanks. I mean, we are really still in the early stages of segmentation and we have gone through main cabin several years ago. We just recently expanded into Comfort+, and right now, we are launching into our premium products. I think there is lots. it is a great benefit for the consumer. it is a great benefit for revenue upgrades. It gives the choice to the customer. And I think what you can see and I think you are in the early stages because I think what you can see for the future is how do we retail all of our products in those categories and actually reward our best customers, better and better products into those categories for the future. Today, it looks very much like a typical revenue management type merchandising. But I think with all the great brands that we are associated with, you can see a world where you are you are merging the retailing with it. Thanks so much. Operator: Your next question is coming from Tom Fitzgerald from TD Cowen. Your line is live. Tom Fitzgerald: Hi, everyone. Thanks very much for the time. Just curious on cargo was wondering if you could unpack some of the strength in Q2. I do not know if that was just obviously spot prices have surged, and there is fuel charges, but I do not know with some of your fleet investments, there is a cargo turnover that as well. And then I do not know if we should expect that cargo number to decelerate into the back half or kind of continue to show some pretty good strength? Joe Esposito: Yes. Thanks, Tim. Most of what we saw for Cargo revenue, it was a great quarter. We are really proud of the team. Was on volume. And you have had some rerouting of cargo that typically goes through The Middle East and other areas that we have been able to recapture. it is also the structural improvements we have made internally, which depending on where we are expanding. Asia is 1 of the largest cargo markets from The US. And we have been expanding in the Asia market. We have been getting greater capability of our airplanes that we have been investing in. And we have got a lot of internal restructuring in how we approach cargo and made it much more of a priority. So we will see strength throughout the year in cargo, probably not the 39%, but we are going to have a really strong back half in our cargo sector. And that will play a bigger role as we continue to invest in international Cargo is a big part of international and goes towards the profitability of our international entities. Tom Fitzgerald: Okay. Thank you. that is that is that is really helpful to hear. Really encouraging. And then I guess this would be on the MRO side. Would you mind just providing us your latest thinking on the kind of margin trajectory of that business in the back half and the next couple of years? I know you are longer term of a target of mid teens, but we have seen some nice growth year over year in the first half. Thanks again for the time. Erik Storey Snell: Sure, Tom. What we have talked about is that mid-teens is the target. We expect to expand a couple hundred basis points a year The first half of this year was better than that We got a lot of volume leverage given the revenue growth that we expected. But I would as you think about this business going from 10% to 12% to the mid-teens with the high with the double digit revenue growth, that would be the progression that I would look at. And, so we have been out there. We believe, and the team believes that they got the backlog. That they get technical capability and market position to not only grow the top line, but to grow the margins double digit, and I would expect about a couple of hundred points a year. Thank you. Julie Stewart: Matthew, we can now go to our next question. Operator: Certainly. Your next question is coming from Jamie Baker from JPMorgan. Your line is live. Jamie Baker: Hey. Good morning. Probably for Ed. So I am curious what internal analysis you have done to assess what peak pre tax margins might look like for Delta in the coming year. Obviously, that analysis would have to make a number of industry assumptions as well. I mean, hypothetically, the industry was doing a 30% pretax margin. You know, you see a new round of startups and that sort of thing, and I am not expecting that outcome. But my point is there is bound to be some structural peak as to what delta margins can accomplish. So I am curious what sort of thought and analysis you have put into this and what you are willing to share? Edward H. Bastian: Well, thanks, Julie. I am not sure what peak looks like. We are not there yet. But our framework that we brought to the investors a couple of years ago, you know, outlined a pathway to mid teens margins and sustainably mid-teen margins. So arguably, a peak environment might be a little bit higher than that. But when you think about what had to happen, when we laid that scenario out, you know, a lot of what we-- some of the assumptions around is what you are seeing happen. You know, the structural change in the industry is the most important part of it. Respect to the discipline that the industry needs to take in light of high cost. Whether it is fuel, whether it is labor, whether it is aircraft availability as well cost of aircraft, whether it is the airports themselves. Incredibly high cost business. Second, you think about the value proposition that we are creating for consumers. We are no longer competing on price as much as competing on value. Experience. Service, and that is where Delta wins. that is where Delta has always won. We are we are going to continue to lean in there. You look at the efficiency opportunities that we know we have sitting in front of us, upgauging was a key on my back last decade. To getting out of the small regional jets and, you know, introducing the A321neos and the up gauge narrow body strategy, got a long ways to go there. Still. On upgauging opportunities and fleet efficiency, which candidly is the only way you can grow. In the domestic network given how much congestion there is. So there will be it will be tempered. It will be modest, but I think it will be very profitable. And then you and you also you know, kind of think about where the where the world is and while there will be ups and downs and bumps along the way, The sustainability of what we are building because we are building it through a greater experience and consumers having an affiliation for the Delta brand. is going to be, you know, far more durable than anything this industry ever saw. I tell groups all the time, I started here almost 30 years ago. You were asking you were there. You know? Yeah. As someone why they picked a specific airline, you know, 8 at least 80% of the time is whoever had the lowest price. Yeah. Today, if you ask a consumer why did they choose Delta, tell you it is because it is Delta. And those are the changes. And I think those are durable. Advantages. And, yes, there will be more you know, more unexpected surprises ahead, which is also why our balance sheet strategy is so important here. Continue to pay down debt and enable us for the first time maybe in our history to play offense once in a while. When deficits and challenges occur rather than always having to play defense. And get our debt levels down to such low you know, much lower levels than they are today. So that is the view, and that is what yeah. there is other things as well, but those are the reasons why I think that kind of that mid teens. And the last 1, was struck by the strong-- I knew there was 1. This technology. With AI and, you know, I know that technology is going to enable us to grow our business. I think that is probably true across most businesses, they will tell you today, but it is certainly gonna enable us to be more efficient and smarter. About how we do business. So we already see some early signs in it may take us another year or 2 before you really start to see a meaningful imprint from that. that is coming, and that is not gonna be small. I think that is gonna be pretty large. Good. So those are the reasons why I think getting to that mid teens level is durable and sustainable. And, you know, it is led off also in the marketplace. You look at our domestic domain cabin performance. I saw a stat recently that we grow, we have got to get our margins anywhere close to where they were back in 2019. that is easily 2 to 3 points on the overall margin for our business. So it just gives you a sense of the leverage we have here too. The opportunity. Very, very helpful color. Jamie Baker: Edward. And then just a quick follow-up question on segmenting DPS and D1. Obviously, 1 thing that made basic economy such a success was that the majority of corporations forbade consumption by business travelers. I think it was Glen once said like 90% of your managed corporates had walled off basic economy. I know it is early in terms of unbundling the premium cabins, and I have not actually had time to check how JPMorgan is gonna handle this. But do you expect a similar broad based corporate response in terms of kind of walling off the basic premium fares. Is the success the 6 of that product predicated on corporates doing so. Joe Esposito: Yeah. Well, we you know, when we rolled it out to Comfort+, we did exactly that. Of what we did with the with main cabin. And so that is and we are moving that through the other categories as well. So we do expect that to be very similar And all those fares will not be allowed on each and every single flight that we have either, so we will we will use that based on where demand is by flight and by market. So I would expect this to be a positive for the top end consumer of first class as you get more and more as you add more and more flexibility. Because the basic still, even in the premium cabins, are restrictive, and that does not really work with our corporate customers. Jamie Baker: Precisely. Yep. Alright. Very helpful. Thank you, gentlemen. Appreciate it. Thank you, Julie. Thanks. Thank you. Operator: Your next question is coming from Brandon Oglenski from Barclays. Your line is live. Brandon Oglenski: Hi. Good morning, everyone, and thanks for taking the question. So, Erik, maybe this 1's for you because I think if we just translate your RASM in the fourth quarter and, obviously, expectations for low single digit CASM, you know, we are getting close to that mid teens operating margin goal that you guys have long term. Obviously, you wanna hit that annually. So how do you think about unit cost inflation in 2027 and beyond? How are you going to manage through new labor contracts and things of that matter? Erik Storey Snell: Thanks, Brandon. Appreciate the question. Yeah, we will continue to have progress on unit cost as we go forward. We are expecting modest progress mainly on some of the actions that Daniel has talked about and getting our resilience better. We saw exit rate in the quarter, some improvement there. So feeling good about modest progress there and then into the fourth quarter. And as we get back to normalized capacity growth and see those operational improvements, that is when we will hit our long term framework of low single digits. So it will depend on the setup next year in terms of where our capacity is. Other thing I would say is that we are already we have all the costs in our baseline. We are we are top of the industry. In our in our pay scales. We have got our generational airport improvements in our baseline. So our ability to outperform going forward, is going to be strong when we get back to the low single digit chasm. Brandon Oglenski: And Eric, just a really quick follow-up there because I think you guys have talked about resiliency in staffing this year. I guess, is that potentially a tailwind as you look into 2027? Erik Storey Snell: Yeah. I think it is. We have we have certainly put in quite a number of actions. Some of those take some time to mature. We are seeing the fruits of that labor. But it is not just in our crew resilience. We have got efficiency actions across our system. And as we are as we continue to gain growth, you will see that leverage. Right? During the second quarter, with growth below our plan, we were about flat in terms of our resources versus growth. You start to gain really real leverage, and I would expect, you know, 2 to 3 points of our ability to leverage the resources we have and the investments we have made, you know, under the growth that will be coming our way. Thank you, Erik. Operator: Thank you. Your next question is coming from Ravi Shanker from Morgan Stanley. Your line is live. Ravi Shanker: Great. Thanks. Good morning, everyone. Daniel or Joe, can you give us some color on load factor by cabin and how you are thinking of balancing load factor versus preserving RASM kind of as we go into the back of the year? Joe Esposito: So, Ravi, load factor just in terms of where we have come out? Or sorry. What are you asking? Both for how it trended through Q2 as well as kind of how you think that trends into the third quarter kind of maybe given some of the seasonal changes in Q3 vs Q2? Yeah. Well, we are going through peak summer. So loads are these are the highest for the year. When we get into you know, then we are then you are moving into a if you break it down by premium versus main cabin, our premium paid load factor has been very strong and growing. If you think through this time period, you know, some of the some of the big bright spots has been our paid premium load factor. While main cabin is fairly consistent in what to what it was last year. So our capacity that we are putting out, we are seeing load factor improvements through that. So we kind of break it up by both. Both cabins. Ravi Shanker: Of course, we are going into peak summer as we said. Transatlantic is peak summer. As we get into September and October, load factors generally moderate as your business traffic replaces leisure. And then you have got higher load factors as you are going through the holiday season. Joe Esposito: So we expect our load factors where we are putting seats and creating seats Do not forget our capacity and premium is up low single digits. Our capacity in main cab is actually down 2% to 3%. So that mix is changing. And the great thing about the mix changing is we are actually able to sell a higher load factor in our premium cabins. Got it. That is very helpful. Ravi Shanker: And maybe as a quick follow-up, forgive me if I missed this, but what is the current status of the refinery after the outage? And if it is not fully back up yet, what is the timing for it? Hey, David. Erik Storey Snell: Yeah. The refinery had an outage about a couple weeks ago. That was a $0.05 hit. To us in the second quarter. We are back up now to approximately 75% throughput of the product that goes through the refinery but there still will be a tail of the outage into the third quarter. that is gonna be a $0.05 to $0.07 hit on the third quarter. Net of that, we still expect the refinery to have a $0.05 benefit in the third quarter. That based on where the forwards are now, that benefit would increase into the fourth quarter. Net Very helpful. Thank you. Sorry. Yep. Thanks. Thank you. Operator: Your next question is coming from Duane Pfennigwerth from Evercore ISI. Your line is live. Duane Pfennigwerth: Thanks. Good morning and nice results. There were resumption of the guide, etcetera. Just a question on if you think events like the World Cup are benefiting the domestic entity disproportionately? Do you think it kept more demand in The U. S. This summer including maybe some premium demand? And then longer term, understanding it is very, very early, as you think about next summer, what entities are best positioned in your view? Joe Esposito: No. The World Cup, like there are lots of events that occur throughout the year. World Cup is obviously pretty big. We are the beneficiary of World Cup. that is not significant. Significant enough to, make a huge difference to the quarter. We see it flight by flight. It depends obviously where the games are. And now that you have got unscheduled games, you will see closer in demand as people are trying to get to that specific city for the game. I am sorry. Duane Pfennigwerth: Your second part was where the bright spots are for next year. Yes. Just if you think it tilted demand more to The U. S. And how you think that might play out next summer? Joe Esposito: No. I do not I do not think it is gonna make a significant difference of how we deploy capacity next year. We really did not deploy a lot of capacity this year for World Cup. We will we will do some additions, but it is actually very small on the on the grand scheme of the size that we are. Edward H. Bastian: You know, I would I would add an addendum to Joe's comment there. You know, at a at a much higher level, though, I think The US has done a wonderful job of showing what a great country we are and welcoming visitation and getting the international inbound back again both visually as everyone has watched the world. You could not have asked, I think, for a better advertisement to come to The USA. And I do think it will have a an impact on the on the mix in terms of having greater inbound participation in the next year. And while it may not change our specific market choices, I do think it will it will enhance the mix. Thanks for that, Edward. Duane Pfennigwerth: If I could sneak just 1 more in on the co brand card acceleration that you noted. Can you talk about the drivers of that? And is there any sort of geographic push behind that acceleration? Thanks for taking the questions. Joe Esposito: Yeah. I think, you know, American Express is a great partner, and we are very aligned on our strategic vision about where we grow. And, you know, when we go to market, whether wherever we are expanding, American Express is a critical part of that of that ecosystem. And so the growth in cards and the growth in spend is very complementary to how we are both growing. And, both for experiences, you know, whether we are expanding internationally or Los Angeles or Boston or wherever we are, Austin, we are bringing that part with us. it is not just the transactional. it is really a true commercial partnership. So we are happy to get it. You know, we have got another million cards per year that should be in our sights this year as well as $9 billion of remuneration, but it goes with a very tight partnership of Delta and American Express approach to marketplace. Edward H. Bastian: I think 1 of the wonderful benefits of our relationship with American Express is we are 2 companies that are first exclusive with each other. And to the leading consumer brands in the country who have the exact same strategy, the exact same demographic in terms of who we are looking to reach. Incredibly complementary and building on each other's strengths. And that is why you see the compounded effect year after year after year We are not just the largest contributor. To the overall distribution of Amex product and cards as well as revenue spend, we are also their fastest growing. And they are our number 1 partner in the world, and we are theirs. And the value you create when you when you have like mindedness in the marketplace you know, it is it is really it is really powerful. And that is you see that continuing. And whether you put out new benefits as we did, with replatformed some of the cards earlier this year, there are other opportunities to leverage lounges back and forth. it is a it is it is a wonderful, wonderful strategy. That we love our partnership, and I know the MX people feel the same way about Delta. Thank you. Operator: Your next question is coming from Catherine O'Brien from Goldman Sachs. Your line is live. Catherine O'Brien: Hey, good morning, everyone. Thanks for the time. I just wanted to dig in a bit on the corporate strength you have been seeing. I think back in January, you were seeing a little bit of a pickup in corporate volumes. What felt like a really long period of, you know, pretty stable volumes post pandemic recovery. Can you break down how much of the double digit corporate sales is fair growth versus volume? And if we were to see volumes pick up, like, how meaningful could that be to premium cabin pricing, you know, given there is been continued strong demand from high end leisure travelers to these products since the pandemic? Thank you. Joe Esposito: Hi, Catherine. Most of what we saw in the 20% has been on the fare side. We have seen some improvement in passengers. A lot of it has been in international. It depends on the on the specific city that we are that we are focused on. Some cities are growing faster than others. But most of it is been through the through the fair environment. So there is lots of upside for the future on additional volumes. it is been great to see the resiliency of the of the corporate demand. Catherine O'Brien: Okay. Great. And just maybe a quick follow-up on premium and main cabin trends. I guess, first, could you just you know, you give us some color on the seats. But could you just tell us what premium versus main cabin RASM growth in 2Q? And then given the tougher comps in premium and the reduction in low cost capacity over this year, are you anticipating main cabin RASM could outperform premium underlying your 3Q guide? Or, you know, obviously, I know Delta's been cutting main cabin seats that maybe looks a little bit different than the rest of the industry. Any additional color there would be helpful. Thanks so much for the time. Joe Esposito: Yeah. Well, actually, in the second quarter, our unit revenue in main cabin did exceed premium because we are down in capacity. And, you know, the industry has removed significant amount of unprofitable capacity. If you look at the ultra LCC category, that capacity is down about 30%. So main cabin has gotten significantly healthier. This year. I mean, last year, it was 1 of our biggest objectives to improve the main cabin. And, also, we are not growing main cabin seats. This is a multiyear-- several years in a row that we have not grown this cabin. We will not be growing it next year either. But our premium revenue has been up 17%, and unit revenue is below main cabin, but our growth in that category has been up high single digits. While revenue is outstripping the capacity and premium revenue. So I think we are getting into a really good balance between main cabin and our premium cabins. Operator: Your next question is coming from John Godyn from Citigroup. Your line is live. John Godyn: Hey, guys. Thanks for taking my question. Edward, you are the longest tenured CEO in the industry. You have seen a lot, over that time. So I know that you do not take guiding to what will be a historic and record Q4 earnings number lightly. And if you hit that guidance, I think the bigger ideas would be set up for a major 2027 breakout year, just based on the simple math. So I know people have come at this in different ways on the call. But just to kind of have everything in 1 place, can you talk about how the slow and consistent changes in the industry net delta compounded to set this situation up And why should we all have confidence that this inflection we are seeing is not a head fake and is sustainable beyond the end of the year? Edward H. Bastian: Sure, John. Thank you for that. You know, the results you are seeing here in the forecast into the back half of the year 2027 and beyond. Is entirely consistent with what we have previewed. To the street over know, on quite a few years. And we talk about getting out of the commodity cycle, you know, many years ago. And the pathway to doing it, I think we used to call it decommoditization. Today, we are up to premium strategy, and maybe tomorrow we will find a more elegant term for it to the future. But it is about building a sustainable business model that generates great returns for all of its constituents-- great rewards for its customers, who are loyal to the airline, great value to its employees through profit sharing and the rewards of working at Delta and the working for the world's best airline. Great for the community and certainly great for our investors. And you know, this is a this is a pathway that I see continued growth. I do not think we are anywhere close to where we will eventually stabilize at. And even when we get to stable, there is there is always gonna be a next. Beyond that. So I think the consistency of the strategy, the alignment, fact that you have got a leadership team who is been here for not just me, but everyone around this table has been here for a lot of years. We all we all think alike. The 100 thousand people of Delta understand the strategy, and they are all focused on service. And it is it is about what you can do when you put people first, and you make service your goal. it is not about trying to outsmart somebody on some network strategy or trying to undercut somebody on a lower point price point. This is about who serves best and who creates the best experience. that is Delta. And it is Delta, you know, objectively, not just not just that I am obviously biased. And that is what generates the returns. that is what generates the premium revenues, and that generates our opportunities to continue going. And I do not see any end in that. John Godyn: Well, that is fantastic. I think we might be at the end here, so I do not wanna hold up the call. I will leave it at 1. Thanks. Thank you, John. Thank you, John. Julie Stewart: We will now go to our final analyst question. Operator: Certainly. Your final question is coming from Savanthi Syth from Raymond James. Your line is live. Savanthi Syth: Hey. Good morning. Just to clarify with your kind of focus on international over the next few years, just taking a longer term view how do you see the capacity growth in this kind of domestic market versus opportunity in international market Just wanted to put a finer point on that as you think longer term. Joe Esposito: We think longer term, you know, the domestic market is, you know, moves with the economy. International has and international for us will grow faster than average just because there is a lot of economies that we still do not serve. And we will grow faster. Than the domestic market. So I kind of look at our domestic You know, we think about becoming more efficient on the you know, a good part of capacity for the future in domestic will be efficiency, as Edward said about gauge. Growth and getting back to a positive gauge growth. Because we do not we do not have a problem with demand. So larger airplanes make us more efficient. And give you that extra capacity. I think there is gonna be parts of The US that we are focused on where it grows faster than average, where we can find premium markets like Raleigh-Durhams and Austin's and Los Angeles's and places like that. That, we can continue to enhance the ecosystem for domestic. So I see a lot of efficiency in domestic. based on utilizing our current hub structure. International, most of is going to be Asia and the Middle East. As we continue to add economies that we do not serve. A lot of it is looking at our customers have a high demand go to those destinations we do not fly to. You know, like Hong Kong that we just that we just started or Melbourne or other places in South Pacific and Southeast Asia. And we have got a great anchor partner in Asia with Korean with Korean Air, that allows us to expand ourselves throughout the in know, through 70, 80 destinations through Asia and now, we have access from all of our hubs. So I think you will see international grow faster than average. Domestic will be the theme will be much more of efficient that is helpful. Savanthi Syth: Just to follow-up on that. Does so does that put Europe and Latin America kind of somewhere in between? Joe Esposito: I see Europe also as efficiency when you think about, the aircraft we have got coming online with 787 that re-think about a 787 that replaces a 767, that is a significant amount of efficiency and margin. Premium you know, you are going from 30% premium seating in a 767 to over 50% in a 787. It can handle twice the cargo. So I think Europe falls in Europe the continent of Europe falls into the bucket of domestic of efficiency, but on the wide body side, which actually is a multiplier on gauge in long haul international because of fuel burn and top line revenue that you can generate. So I kind of put the continent of Europe in the in the domestic bucket. South America, we still have some opportunities with LATAM. They have got fantastic hubs that they are developing like Lima, you know, Santiago, Sao Paulo, Bogota, that we are that we are working. And we are in the early stages with LATAM and Korean. On our development of our hubs. But typically, our JV partners is the is the foundation of our profitability and our strategy in those regions. And we have got great partners to launch to work with. Appreciate the color. it is for squeezing me in. Thank you. Thanks. Julie Stewart: Okay. With that, that will conclude our second quarter earnings call today. Thank you everyone, for joining us, and have a wonderful weekend. Operator: Thank you. That concludes today's conference. You for your participation today.