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Delta CEO Ed Bastian on Q2 earnings: ‘Reliability is back’

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Delta CEO Ed Bastian joins Yahoo Finance Live to discuss company earnings, operation improvements, the travel boom amid inflation, and the outlook for growth.

Video Transcript

- Delta airlines missed earnings estimates in its latest quarter, feeling the pressure of higher fuel costs as airlines also navigate a wave of elevated demand. I spoke with Delta CEO, Ed Bastian. And here's what he had to say on how Delta is faring amid the travel boom and the challenging year for airlines. Take a listen.

ED BASTIAN: In fact, the month of June, we had our highest revenues in our history at 104% of June of 2019 levels. So that's very, very encouraging. We delivered a meaningful profit for the quarter, an operating profit of $1.4 billion. 12% operating margin despite the fact fuel prices are almost twice what they were at that point.

With a massive surge in demand, there was a pretty rough six week spell for Delta, as well as the industry. We are in a much better light. All the improvements we've made are resonating in July-- first 11 days of July have been exactly on schedule with what we were able to deliver operationally in the same period July of 2019, a completion rate of 99.2%. And in fact, in the last seven days, we only had 25 cancellations in total on over 30,000 departures. So it's doing a great job and the reliability is back. And we're going to make sure we do our best to keep it there.

- We saw one of your competitors revise their cost per available seat mile upwards. They had cited lower than planned capacity and higher expenses associated with lower than planned completion factors. Would you kind of attribute that similarly to Delta in the near future or current quarter even in forecasts? Or is there something else that's also at play that we should take into consideration?

ED BASTIAN: Yes. Our non-fuel unit costs were higher than we thought at the start of the quarter. They came in at about 22% higher than June of quarter of '19, largely due to the fact that we are only 82% restored. So we carry the lion's share of the airline, the cost base, but dividing it over a much smaller number of ASMs is a much higher cost number as we return to scale and the efficiencies improve, as well as our people are all trained. We have a lot of people in training. And we get the utilization levels of the airline back.

Our non-fuel unit costs will come back in line fairly close to where we thought we'd be in '19. So this is a work in process as we reestablish the industry, and Delta specifically. The revenues have been great, over 20% improvement in unit revenues, but the costs are also up.

- This has been a challenging year for airline operators. But from the Delta perspective and your perspective, what's the most significant thing that you believe has already been enacted perhaps to continue to return value to shareholders, even in a volatile equity market landscape?

ED BASTIAN: Well, the biggest thing that we've done is not only the profits that we've generated over the last quarter, in fact, we've been profitable now. The only major that's been profitable over the last 12 months, which is a very important distinguishing fact. But also, the cash that we're generating, in the quarter, we generated over $1.6 billion in free cash flow. And that's value to shareholders in the form of reducing the leverage that we have on the business.

So we're already continuing, we're really reducing the amount of debt we have. Our net debt is down below $20 billion. We're on a march to get that down to about $15 billion over the next couple of years. And at that point, we will consider ourselves to be at investment grade quality metrics. And the business continues grow and it sounds so we're investing in the business. That $2.6 billion I mentioned to you, Brad, has already net of about over $800 million capital that we invested in new airplanes, new terminals, new facilities, new technologies. So we're paying cash for those. And all of that's ensuring good value for shareholders.

- We'll be keeping tabs on Delta shares after the earnings. And here on the day, we're still seeing them down by a little more than 8% right now intraday. We've got much more of that interview coming up in the next hour as well.