Below are the transcripts from the third quarter earnings call.
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OPERATOR
Good morning everyone and welcome to the Delta Air Lines September quarter 2025 financial results conference call. My name is Matthew and I will be your coordinator at this time. All participants are on 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 Star one 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 (Vice President of Investor Relations and Corporate Development)
Thank you. Matthew. Good morning and thank you for joining us for our September quarter 2025 earnings call. Joining us today from Atlanta are CEO Ed Bastian, our President Glen Hauenstein and our CFO Dan Janki. Ed will open the call with an overview of Delta’s performance and strategy. Glenn will provide an update on the revenue environment and Dan will discuss costs and our balance sheet. After the prepared remarks, we’ll take analyst questions. We ask you to please limit yourself to one question and a brief follow up so we can get to as many of you as possible. After the analyst Q&A, we will move to our media questions. 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 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. Will also discuss non-GAAP financial measures and all results exclude special items unless otherwise noted. And with that I’ll turn it over to Ed.
Ed Bastian (Chief Executive Officer)
Thank you Julie Good morning, everyone. We appreciate you joining us today. This quarter’s results reinforce that Delta’s competitive advantages and differentiation have never been more evident. In the September quarter, Delta’s revenue growth and earnings came in at the top end of our expectations, delivering performance that we anticipate will lead the industry. Across all key financial measures, revenue grew 4% led by premium corporate and loyalty, reflecting the power of Delta’s brand, the financial strength of our customer base and improving industry fundamentals. We reported pre tax income of $1.5 billion and earnings of $1.71 per share with an 11.2% operating margin. Free cash was $830 million, bringing our year to date free cash flow to $2.8 billion. We generated a return on invested capital of 13%, five points above our cost of capital and in the top half of the S&P 500. Operationally, Delta once again led the industry on reliability and customer experience. Through a busy summer, our teams delivered for our customers and I want to thank them for their outstanding work and dedication. Their professionalism and care create the trust that consumers have in the Delta brand. Sharing success with our people is core to our culture. We’ve accrued nearly $1 billion year to date towards next February’s profit sharing because when Delta succeeds, so should our people. I also want to recognize the essential aviation workers, the controllers, TSA officers, federal air marshals and many others who are keeping our system safe and secure during the ongoing government shutdown. Thank you for your professionalism and your commitment to the traveling public. We’re hopeful that Congress will act to reopen the government as soon as possible. Now, turning to our outlook, our fundamentals are improving and the positive momentum is continuing. Since July 20, travel demand has strengthened led by a rebound in business travel which was up high single digits in the quarter. The US Economy remains on solid footing and our customer base is financially strong with rising preference for premium products and services. SkyMile’s membership is expanding, particularly among younger consumers, and engagement is strong across all cohorts. Consumer spending on the Delta Amex Co brand card is up double digits year to date with a recent acceleration in travel and entertainment that mirrors the improvement that we’re seeing in bookings. Premium revenue growth remains robust and main cabin trends are improving. Structural change has taken hold across the industry as unprofitable flying is rationalized and carriers not earning their cost of capital adjust strategies to prioritize returns. Against this backdrop, we expect to deliver a double digit operating margin again in the December quarter with earnings comparable to. What we earned in the September quarter. This would be at or above our all time fourth quarter earnings performance. This brings our outlook for full year earnings to approximately $6 per share which is in the upper half of our July guidance range. Free cash generation remains a key differentiator for Delta and we are updating our full year outlook to 3 and a half to 4% billion growing our cash generation over last year and consistent with our long term framework as we build a forgers balance sheet. At the heart of our position of industry leadership is a relentless focus on elevating the customer experience. We’re investing across every phase of the journey to make travel with Delta more seamless, personalized and premium, growing our value proposition to customers on the ground. We’re harvesting the benefits of generational investments in our airport infrastructure. This includes upgraded airport facilities, modernized sky clubs, the launch of Delta one lounges in JFK, LAX, Boston, and Seattle. By year end Delta One check in will be available across all of our hubs. We’ve also partnered with Uber, excuse me to begin streamlining the airport pickup and and drop off experiences, enhancing convenience from curb to gate in the air. We’re continuing to expand premium seating and enhance service offerings, ensuring more customers can experience our most elevated products digitally. We’re delivering a connected experience for SkyMiles members with nearly 1,000 aircraft equipped with fast free Wi-Fi, well more than all of our US competitors combined with our integrated platform is setting the standard for inflight connectivity and personalization. Exclusive partnerships with American Express, Uber and most recently YouTube extend SkyMiles further into our members daily activities, deepening engagement and preference for the Delta brand beyond the flight. And it’s all powered by our people, delivering welcomed, elevated and caring service that reinforces our industry leadership, sustains our durable revenue premium and underpins our strong financial foundation. In closing, our financial focus remains on profitable growth, margin expansion and disciplined capital allocation. All aligned with the three to five year framework that we shared last November. As we enter the final stretch of our centennial year, I’m more optimistic than ever about Delta’s future. Thank you for joining us today and with that I’ll hand it over to Glen to discuss our commercial trends and demand, followed by Dan with the financial details.
Dan Janki (Chief Financial Officer)
Thank you Ed and good morning. I want to begin by thanking the Delta team for their outstanding commitment throughout the busy summer season and to our customers for their continued loyalty to Delta. For the September quarter, revenue increased 4.1% year over year to 15.2 billion, a third quarter record and ahead of our guidance. As momentum built through the quarter, trends across our business are improving and customer preference for the Delta brand is showing up. In our results, total unit revenue improved by 0.3% over last year. Importantly, domestic unit revenue turned positive with sequential improvement as the quarter progressed. This was supported by a main cabin inflection as industry supply moderated and demand improved, materializing earlier than our initial expectations. Internationally, profitability across all entities was strong with premium continuing to bolster results. Corporate sales trended positively throughout the quarter, up 8% over prior year with sequential improvement across all sectors. Domestic corporate sales grew double digits including mid teens growth. In our coastal hubs, we see opportunities for further growth as corporate confidence rebuilds, reinforced by 90% of our most recent corporate survey respondents anticipating that their 2026 travel volumes will increase or remain steady year over year. Diverse high margin revenue streams grew double digits year over year and contributed 60% of total revenue within that premium revenue grew 9% with improvement across all products driven by a strong demand and consistent investment in premium offerings. Loyalty revenue improved 9% and travel adjacent products grew mid teens as SkyMiles members engaged beyond the flight and throughout our loyalty ecosystem. Fargo revenues increased 19% driven by the Pacific maintenance, repair and overhaul. Revenue grew more than 60% on higher volumes and timing of shipments. Delta’s loyalty ecosystem continues to be a powerful driver of enterprise value anchored by the attractiveness of the SkyMiles program, a financially healthy, highly engaged member base and our exclusive CO brand partnership with American Express. Co brand holders are among our most valuable customers traveling more often and spending more on Delta while roughly 1/3 of active SkyMiles members hold a CO brand card today we have further Runway as both engagement and member penetration continue to rise. A key proof point is the sustained momentum on spend growth which has outpaced other consumer credit cards by 2x over the last few years. During the quarter, spend grew at double digit pace with new card acquisitions up year over year and a record mix of customers choosing the premium cards. With that, remuneration from American Express increased 12% over prior year to 2 billion in the quarter, keeping us on track to deliver over 8 billion this year and advancing towards our long term goal of 10 billion within the next few years. Turning to the outlook, the environment continues to improve over the past six weeks. Sales trends have accelerated across all geographies and in every advanced purchase window positioning Delta to close the year from a position of strength. While we are monitoring potential impacts from the US Government shutdown, we have not seen a material effect to date. For the December quarter we expect total revenue to grow 2% to 4% year over year on top of last year’s record performance with solidly profitable unit revenues. Passenger RASM is showing healthy improvement sequentially reflecting continued strength in domestic and a step change improvement in the transatlantic on firmer main cabin trends and corporate demand. At the same time, financial divergence across the industry has never been greater as carriers prioritize earnings, their cost of capital and eliminate unprofitable flying. Competitive capacity in our hubs is down year over year and we expect a very healthy supply demand balance across the industry into 2026. In closing, I’m very optimistic as we enter the final quarter building our momentum and positioning Delta for continued top line growth and margin expansion into 2026 and with that I’ll turn it over to Dan to cover the financials.
Glen Hauenstein (President)
Thank you and good morning to everyone. Delta’s competitive advantages drove another strong quarter as we continue to set the pace for the industry our teams are delivering operationally for our customers and driving efficiency. Year to date we are outperforming the industry across on time performance completion factor and net promoter score. Our premium offerings, industry leading loyalty programs and elevated experiences we provide across the entire travel journey is driving increased customer preference for flying Delta and underpins our differentiated financial results. In the September quarter We delivered record third quarter revenue of 15.2 billion with an operating margin of 11.2% and earnings of $1.71 per share. Non fuel unit cost growth was approximately flat to prior year bringing the year to date non fuel unit cost growth to less than 2% consistent with our low single digit guidance at the start of the year even as we’ve reduced capacity after the summer peak to align to demand. I want to thank the entire Delta team for their hard work to achieve these results. Delta generated third quarter operating cash flow of 1.8 billion and after reinvesting 1.1 billion into the business we generated free cash flow of 830 million on our capital structure. We continue to take an opportunistic approach. Last month we successfully repriced our SkyMiles term loan reducing the rate by 225 basis points. This demonstrating the strength of our balance sheet and the attractiveness of Delta Credit. Strong cash generation is able debt pay down of nearly 2 billion year to date with gross leverage ending the quarter at 2.4 times. Now turning to the outlook for the December quarter as Glenn shared, we expect revenue growth of 2 to 4% year over year with positive unit revenue. On the cost side, disciplined execution supports non fuel unit cost growth in low single digits in line with our full year guidance. With that we expect fourth quarter earnings of $1.60 to $1.90 per share and an operating margin of 10.5 to 12%. For the full year. This brings earnings per share of approximately $6 in the upper half of our guidance range we provided in July. On free cash flow we are updating our guidance to 3 1/2 to 4 billion. This outlook is within our long term target range enables us to pay down debt while returning cash to shareholders. Our capital allocation priorities remain unchanged, reinvesting where returns are strong, reducing debt and maintaining our fortress investment grade balance sheet which was recently recognized by Fitch with a revised outlook from stable to positive during the quarter. Our investments are focused on the customer experience as Ed and Glenn spoke about and on driving efficiency through technology and our fleet. We continue to advance our fleet renewal Strategy with approximately 40 aircraft deliveries this year and next. These additions drive meaningful value for our customers through expanded premium seating and for our shareholders through increased efficiency and greater scale among our key fleets. Looking into 2026 and beyond, our focus is on profitable growth and delivering long term financial targets outlined at our Investor Day last November, including earnings growth, durable free cash flow, debt repayment to drive sustained value for our shareholders. In closing, I want to extend my sincere thanks to the entire Delta team for their commitment to one another and to our customers. And with that, I’ll turn it back to Julie for Q and A.
Julie Stewart (Vice President of Investor Relations and Corporate Development)
Thank you, Dan. Matthew, can you please remind the analysts how to enter the call queue and go to our first question from Dwayne Fenningworth of Evercore isi.
OPERATOR
Certainly everyone at this time will be conducting a question and answer session. Once again, if you have any questions or comments, please press Star then 1 on your phone at this time. Your first question is coming from Duane Pfennigwerth from Evercore. Your line is live.
Evercore Analyst
Hey. Hey. Thank you. Good morning. With respect to the strong improvement in cash flow year over year and operating cash flow, can you just expand on the drivers of that improvement? How much of that is just the working capital benefit of maybe the booking curve normalizing versus earlier in the year? Maybe there’s some dynamics around MRO? Any thoughts you have would be helpful. Yeah, certainly. Dwayne, thank you for the question. Year to date, we’re on track to where we were last year on similar earnings and that even with actually a headwind as it relates to the booking curve, as we talked about over summer, that spring and summer, that compressed, it’s starting to expand, we haven’t yet gotten all that back. We expect more of that to materialize here in the fourth quarter. And the underlying improvement to offset that is coming out of working capital we built up, you know, a lot of just, I won’t call it inefficiencies, but excesses, we are rebuilding the airline and now’s our time as we drive efficiency to work that off. And you’re seeing that in working capital. Thanks. And then maybe, Glenn, for my follow. Up, one of the questions we got. From a generalist this morning was can you put the corporate recovery in context, excluding any benefit from a CrowdStrike comp? In other words, are we fully back how would you put this corporate recovery in context? Thank you.
Glen Hauenstein (President)
Yeah, I think we’re well beyond where the crowdstrike impact was from last year and we’re seeing similar results to what we disclosed in the third quarter. Earnings moving into the 4Q and I’d just remind you and other people on the call that while corporate revenues have recovered to 2019 levels and are actually slightly above those now that the number of passengers that are booking because fares are higher are still in the high 70s. So we think as business continues to normalize, we have a lot of Runway to continue to expand the corporate demand.
Evercore Analyst
Thank you.
OPERATOR
Thank you. Your next question is coming from Tom Fitzgerald from TD Cowen. Your line is live.
Equity Analyst at TD Cowen
Hi everyone. Thanks very much for the time. I was wondering if you could unpack. The improvements you’re seeing in the domestic. Market and how much that might be unique to you just given your exposure. To higher income households.
Glen Hauenstein (President)
Well, certainly I think our exposure to higher household income cohort has enhanced our relative position versus carriers that are catering to a more stressed lower to middle income environment. So we’ll see. As everybody else reports, I can only speak for Delta and the strength that we’ve seen and continuing to accelerate as we head into the fourth quarter.
Equity Analyst at TD Cowen
Okay, that’s really helpful. And then just kind of on the same topic, I was wondering if you could unpack some of the mix shift benefit that you might see as we move into 2026 and 2027 as you. Take on delivery of new aircraft.
Glen Hauenstein (President)
Thanks again for the time. Well, we continue to invest in the higher end products, whether or not that’s opening up new Delta One lounges or check in areas. And so as we continue to take delivery, they come with a higher mix of premium products. And if you look next year, well, we haven’t given any guidance but most of our growth, if not almost all of it will be in the premium sectors.
Equity Analyst at TD Cowen
Yes.
OPERATOR
Thank you. Your next question is coming from Catie O’Brien from Goldman Sachs. Your line is live.
Goldman Sachs Analyst
Hey, good morning team. Thanks for the time. Maybe one for Dan. You know, not asking for 2026 guidance, but this year your unit cost performance benefited from efficiency gains from growing into your workforce and your fleet and your airport assets. I guess. What inning are we in in that efficiency growth and are there further tailwinds from this into next year?
Dan Janki (Chief Financial Officer)
Yeah, we talked a bunch about this at the investor day last November and all those trends are intact. We certainly ...
