Good morning everyone and welcome to the Delta Air Lines March Quarter 2021 Financial Results Conference Call. My name is Travis 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. I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead ma'am.

Thank you, Travis. Good morning everyone and thanks for joining us for our March quarter 2021 earnings call. Joining us from Atlanta today are our CEO, Ed Bastian; our President, Glen Hauenstein; and our Interim Co-CFO, Gary Chase. Ed will open the call with an overview of Delta's performance and strategy, Glen will provide an update on the revenue environment, and Gary will discuss cost, fleet, and our balance sheet. Similar to last quarter's call, we scheduled today's call for 90 minutes to make sure we have plenty of time for questions. For analysts, we ask you 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's Q&A, we will move to our media questions, after which, Ed will provide a brief closing statement. 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. We'll also discuss non-GAAP financial measures and 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'll turn the call to Ed.

Thank you, Julie. It's been a little over a year since the onset of the pandemic and our customers are gaining confidence in air travel and beginning to reclaim their lives. Reflecting on what it's been in a year like no other, I'm tremendously proud of the progress that we've made and the agility that we've demonstrated. I developed an even deeper appreciation for Delta’s strength, and firmly believe that the pandemic has served as a catalyst for us to find new and better ways to serve our customers and our communities. Thanks to the incredible dedication and sacrifices of our people, Delta has weathered the storm with our culture, our brand, and our values stronger than ever before. And I want to thank every member of the Delta family for your incredible efforts over the past year. Collectively, you've carried us through and shown that unique spirit that we call the Delta Difference. I also want to thank the administration and Congress for continued payroll support, which has protected thousands of airline jobs throughout the industry, and will help speed the U.S. economy in the recovery. Thanks to that support, we've been able to return our people to full work schedules, despite running an operation that will be at 65% to 70% of 2019 levels in the June quarter. The first quarter had two distinct periods, with the first half feeling very much like an extension of 2020. This demand was slower than expected. But as case counts declined and vaccinations accelerated, demand picked up meaningfully later in the quarter, allowing us to achieve $4 million of daily positive cash generation in the month of March, the first positive cash generation since the onset of COVID-19. This marks a critical milestone in the path to restoring our financials. It is truly a great accomplishment, especially considering that our middle seat block limited the inventory that we're selling in business and international travel remain muted. It's also important to note that this metric takes into account all expenses that we're incurring as we rebuild our business. Turning a true net positive cash flow position within a year of the biggest crisis ever seen in the history of this industry is a real testament to the resilience of the company that we have built. Consumer confidence in air travel continues to increase with the pace of vaccinations in the U.S. rapidly accelerating, and predictions of herd immunity as soon as the summer. We said throughout the pandemic that one of the most important objectives was to restore confidence in air travel. We are now seeing more normal booking behavior as customers make plans for spring and summer travel. In fact, our daily net cash sales in March were twice what they were in January. As volumes grow, keeping our employees and customers safe and healthy will always be our top priority. We've taken a science-based approach to cleanliness, and are being guided by our own Chief Health Officer, Dr. Henry Ting, as well as by medical experts at the Mayo Clinic in Emory. And earlier this month, the CDC confirmed that it is safe to travel within the U.S. for those who have been fully vaccinated, an important step forward for the recovery of our industry. We are aligning with the recommendations of health professionals and government officials who continue to ensure the safe and effective distribution of vaccines and listening to our customers. Based on our survey work, 75% of our customers expect to be vaccinated by Memorial Day. With improving demand and vaccine trends, we announced that we'll start selling middle seats on May 1st, providing a powerful tool for improving our financial performance. We also launched other customer experience and loyalty enhancements to increase confidence in travel and maintain the trust and loyalty that we've built over the last 12 months. Looking ahead and assuming that these recovery trends hold, we expect to cut our pretax loss by more than half in the June quarter to between $1 billion and $1.5 billion, and we see a path to returning to profitability in the September quarter. Delta's resilience has helped us navigate the worst days of the pandemic driven by the competitive advantages that are core to our DNA. Those advantages are our people, our brand and loyalty program, our reliable operations, our network, and our balance sheet will be even more important as we accelerate through the phases of recovery. These modes were tested like never before, and I'm proud of the resilience that they've demonstrated. Our people and our culture of service remain our most strategic asset. Loyalty to the Delta brand has never been stronger. Thanks to the outstanding service that our people provide. They are truly the best professionals in the business. This is evident in our domestic customer Net Promoter Scores, which have been in the low 70s throughout the pandemic, a full 20-point increase over 2019. We've also seen our customers continue to invest in the Delta brand using their American Express co-brand cards, demonstrating the resiliency of this unique revenue stream. Despite a large reduction in T&E categories, March co-brands spend on the card overall was up relative to March 2019 levels. Our operational performance remained strong. During the quarter, we led the industry in all on-time metrics including A0, D0, and completion factor, which was more than 99%. And our network rebuild leverages the strength of our core hub structure in our international partner gateways. At the same time, we are renewing and simplifying our fleet, improving the customer experience, driving efficiency, and reducing emissions as we push toward our carbon-neutral goals. And finally, the strength of our balance sheet enabled us to manage through the worst crisis in our history with no dilution to our shareholders other than warrants related to the Payroll Support Program, something that continues to set us apart in the industry. We've begun our journey of de-levering, and by the end of the June quarter, we will have reduced financial obligations by nearly $10 billion through a combination of paying down debt and accelerating pension funding since last fall. This reflects an unprecedented turnaround in the health of our pensions over the last decade, securing the future of our retirees. Later this year, we expect to make one final contribution to the plan of up to $1 billion, which should enable our pension to reach fully funded PPA status by the end of this year, largely mitigating the need for any additional cash contributions going forward. And finally, as we look toward the future, it's important to acknowledge that the commitment we made last year to achieving carbon neutrality is as strong as ever. The only future for Delta and our industry is a sustainable future. This is why we're accelerating our fleet renewal and balancing near-term needs for verifiable offsets with long-term investments in sustainable aviation fuels, carbon sequestration advancements, and clean propulsion technology. And because we can't do this alone, we are collaborating with corporate customers as well as large energy producers in order to address aviation emissions together and work to scale up sustainable aviation fuels. We're excited about the progress that we're making to combat climate change, and enable a cleaner, more sustainable world. These steps are vital to Delta's long-term future, and we owe it to the next generation of customers and employees to continue down this path. The time for action, not talk is now and I'm proud of the steps our team is taking. As the recovery takes hold, glimmers of hope are now optimism for the future. Demand for air travel is accelerating in a meaningful way and we are well-positioned to build a stronger Delta, as demand recovers to pre-pandemic levels in the next few years. With our competitive advantages having been fully tested, we have built the platform to extend Delta's leadership position in the years to come. More than ever, I am confident in the future of Delta and our people. Over the last year, we've taken meaningful actions to become a better, more sustainable, more inclusive company, driven by our mission to connect the world. And with that, I'll turn it over to Glen.

Thanks, Ed, and good morning everyone. As Ed mentioned, the pace of demand recovery accelerated throughout the quarter. With increasing confidence, customers are now booking travel further in advance, which is speeding up our cash recovery. In March, daily new bookings improved 50% compared to the average in January and February, well above the usual seasonal trends. As customers book further ahead, our booking curve has lengthened and our air traffic liability has risen for the first time in three quarters, increasing by over $800 million since December. In my January call, I discussed three distinct phases for the year and our strategies for each. To move into the second phase, we need to see higher vaccination rates, relaxed travel advisories, and growing consumer confidence, which are all currently evident in the U.S. Approximately 50% of the adult population in the U.S. has received at least one vaccine dose, and by May, all states are expected to lift mandatory domestic quarantine restrictions. We are also observing significant pent-up demand, with domestic leisure bookings at 85% of 2019 levels and Latin leisure markets fully recovered. In addition to our own bookings, we see positive trends in the broader economy, including increased savings, higher restaurant dining, elevated credit card spending, rising hotel occupancy rates, and more companies announcing reopening plans. In response to these developments, alongside the decline in COVID-19 cases and rising vaccination rates, we will end our middle seat blocking policy as of May 1st. This will allow us to add capacity in a cost-effective manner, generating a significant margin boost. With the removal of the middle seat block, our available capacity will increase from 46% of 2019 levels in April to 67% in June, coinciding with strong customer demand for our services. We anticipate our passenger unit revenue will improve by 20 to 25 points during this period. With the added capacity and the continued leisure recovery as we approach peak season, we expect our June quarter revenues to increase by about $2 billion compared to the March quarter. The recovery in corporate travel has been gradual but steady. Corporate volumes in March were nearly 20% recovered, up from 15% at the end of 2020. Small and medium enterprises are outperforming larger corporations by around five points. Due to our investments in customer experience, we have expanded our lead in domestic corporate market share, which is now significantly higher than pre-pandemic levels. To advance to the next phase of recovery, we need corporate travel to pick up significantly. While we expect continued improvements in business travel through the summer, we foresee substantial increases occurring after Labor Day as we transition into the traditional business travel season, aided by widespread vaccinations and office reopenings. We anticipate operational and sales-related travel will lead the way, while travel for large conferences and internal meetings is likely to be the last to return. Our outlook on corporate demand recovery aligns with findings from our recent quarterly corporate survey, which indicated that one-third of our accounts expect to increase travel volumes in the June quarter, and most corporate customers plan to return to the office in the latter half of the year. Vaccine distribution and the easing of government travel restrictions remain the top two factors influencing corporate willingness to travel. International travel still lags, with long-haul international booking volumes recovered at only 15% to 25%. However, we are seeing some initial signs of recovery in Europe, particularly as Iceland opens to vaccinated U.S. travelers and there is rising demand for Israel and leisure destinations this fall. Nonetheless, Europe is behind the U.S., and the Pacific is expected to be the last region to recover. We do not anticipate significant improvements in international demand until later in the year when borders reopen. Once these segments start to recover, we expect them to be key drivers for cash flow and profitability, similar to what we anticipate from lifting our middle seat blocks—an opportunity I am very excited about. In the meantime, we will continue to benefit from strengthening demand in domestic and short-haul Latin markets as well as from our more resilient non-ticket revenue streams. Our cargo revenues in the March quarter rose by 5% sequentially and are up 12% compared to the same quarter in 2019. The performance of our loyalty program demonstrates Delta's strong brand loyalty and our customers' desire to return to travel. As Ed noted, co-brand spending in March exceeded 2019 levels, driven by solid growth in non-travel and entertainment spending, along with continued momentum in travel and entertainment, which is now down 35% from its previous 55% decline in December. Card acquisitions are rebounding well, and our attrition rates are lower than pre-pandemic levels. In March, co-brand acquisitions reached over 60% recovery, with less than half of our customer base idle. Our long-term partnership with American Express strengthens our two brands, enhancing customer loyalty while providing a high-margin revenue stream that has proven its resilience. We have seen stronger engagement through our digital channels, fostering direct relationships with our customers and achieving record high digital satisfaction scores. Over the past year, we've enhanced our direct channels, increasing self-service options and making it easier for customers to do business with Delta. Digital adoption is rising, with online channels like delta.com and the Fly Delta app accounting for 66% of our sales in the March quarter, a 15-point increase since 2019. While we expect this to normalize as corporate travel rebounds, direct channels will remain preferred, especially among medallion members and younger customers. As we restore our business, we're also rebuilding our industry-leading network with a simpler, younger, and more fuel-efficient fleet while maintaining flexibility to adjust our capacity depending on the recovery trajectory. We aim to leverage our strong domestic hub structure, which offers the highest return potential. The combination of our prime core hubs and coastal positions enables us to utilize cost-efficient gauge with large narrow-body aircraft, creating efficiency and scale advantages. Moreover, we now see a significant opportunity to enhance our international returns beyond pre-pandemic levels, driven by a stronger competitive position, a more robust cargo business, the acceleration of our fleet renewal, better partnerships, and improved product offerings. Reflecting on what has been the most challenging 12 months in the company's history, I am incredibly proud of our team's accomplishments. I want to extend my gratitude to them for their dedication to prioritizing customer satisfaction. Looking ahead, I am optimistic about Delta's promising future. We have a strong loyalty program that has proven resilient; we are continually enhancing our customer experience both in the air and on the ground while expediting a range of robust airport projects. Our focus on health and flexibility has instilled confidence among our travelers, and we are well-equipped with our younger, more eco-friendly fleet and streamlined cost structure. Now, I’d like to hand the call over to Gary.

Thanks, Glen. And good morning, everyone. I'm excited to see our recovery begin to take root and our focus shift from stabilizing the company's financials to creating value by returning to profitability, generating cash, and restoring our financial position to its pre-COVID strength. Let me start with some highlights from the quarter, and I'll address the upcoming quarter, our fleet strategy, and the beginnings of our de-leveraging journey. Our first quarter pretax loss of $1.5 billion includes a $1.2 billion benefit related to the Payroll Support Program. Net of this benefit, restructuring items, and extinguishment charges associated with the prepayment of debt, we reported an adjusted loss of $2.9 billion. Our people out in the operation along with the commercial and finance teams came together nicely to produce great cost performance. Adjusted operating costs of $6.3 billion were 33% lower than 2019. Slightly higher than we anticipated at the outset of the quarter was half due to higher fuel expenses and the other half due to recovery and COVID-related items. Non-fuel CASM was up sequentially as expected on 10% higher capacity as we restored our employees to full work hours and incurred costs to prepare for the recovery. Adjusted fuel price of $1.91 per gallon was 33% higher than 4Q, driven by market prices and losses at the refinery, which drove a $0.23 per gallon headwind in the quarter. On the consumption side, we realized the 12% fuel efficiency gain compared to 2019 with nearly half of that a direct result of our fleet renewal. Daily cash burn averaged $11 million in the quarter, improving from $12 million in the December quarter despite stepped-up expenses. Improved receipts in March drove $4 million of daily positive cash generation. We ended the quarter with $16.6 billion in liquidity and adjusted net debt of $19.1 billion, roughly flat with the December quarter though above where we expected to be due to aircraft financing decisions. Let's now look forward into the June quarter. We expect a nearly $2 billion improvement in our pretax results. If the recovery progresses in line with our expectations and fuel remains at current levels, we expect to narrow our pretax loss to between $1 billion and $1.5 billion, with progressive improvement through the quarter to breakeven in the month of June. The key driver of improvement will be the sunset of our middle seat block, increasing our inventory available for sale at minimal cost. We also expect continued strong performance on our non-fuel cost and still target levels below 2019 by the fourth quarter. In 2020, the team delivered strong cost performance by baselining aggressively. In 2021, we are focused on driving cost leverage as we rebuild the network and revenue returns. We are seeing that leverage materialize in the June quarter, with a small increase in costs on a 20% increase in capacity, driving a 12% to 15% improvement in non-fuel costs sequentially. Compared to the same period in 2019, non-fuel CASM is expected to be 6% to 9% higher, including three to four points from rebuild items. Adjusted fuel price is expected at $1.85 to $1.95 per gallon, and fuel efficiency for the quarter is expected to remain better than 2019 by more than 10%. Bringing these items together at the midpoint of our guidance, June quarter total operating expense is expected to be down approximately 35% from June quarter 2019. We expect daily cash generation in the June quarter as demand further improves. Now, let me comment on our fleet strategy, a key enabler of our cost performance. Our accelerated fleet transformation drives more than $400 million in annualized cost benefit relative to 2019, driven by fuel efficiency, simplification, and gauge. These benefits have enabled excellent cost performance and will support further inflection in our financials as the demand recovery accelerates. Since the pandemic began, Delta has taken a measured approach in matching supply with demand. That discipline, combined with the great work of our fleet and tech ops teams, have positioned us to capture fleet efficiencies, while preserving optionality on upside capacity levels for the future that will utilize a flex fleet if demand warrants additional capacity. As Glen said, we have the ability to flex capacity in either direction based on the demand. The teams have plotted a path to invest in our fleet with maintenance that will either support higher flying levels if warranted or largely offset costs we'd otherwise incur in the future. Let me now move to the balance sheet. With our cash flow and earnings close to inflection, we've begun to reduce our debt levels and chip away at our $4 million daily interest burden. In the March quarter, we set in motion our first phase of debt reduction. Using $3 billion of our liquidity, we are paying down debt, funding our pension, and acquiring aircraft in the June quarter with cash. Combined, these initiatives drive $240 million of annualized savings and free up $2 billion of lending capacity. On April 1, we contributed $1 billion to the pension. This accelerated contribution, along with strong returns produced by our pension team, position the funds to be more than 95% funded by year-end under the Pension Protection Act that determines cash funding obligations. On a GAAP basis, we expect to be more than 85% funded by year-end. We are now assessing an additional contribution of up to $1 billion to achieve fully funded PPA status by year-end. It is really exciting to see our long-term pension vision crystallize. The combination of contributions and strong returns over time now position us where we expect no material contributions to the plan beyond 2021, freeing up an average of more than $1 billion annually of our cash flow. Adjusted net debt is expected to be $19 billion to $19.5 billion in the June quarter as we draw down liquidity to fund the pension plans and pay cash for aircraft deliveries in the June quarter. We expect normal amortization of debt, including the $600 million unsecured maturity in April, to be approximately $850 million in the June quarter. We're also working on a longer-term vision to restore and improve upon the strong financial position we enjoyed pre-COVID. Our financial foundation has greatly helped us to weather this crisis, while investing in our future and avoiding dilution for our owners. In closing, I am proud of what the Delta team has accomplished over the last year. The Delta Difference that Ed mentioned has never been more important, nor has it been more pronounced, thanks to all 75,000 of you for protecting each other, our customers, and our future. We have exciting opportunities ahead. And with that, I'll turn the call back over to Julie to begin the Q&A.

Thanks, Gary. Travis, we are ready for the analyst questions if you could give the instructions on how to get into the queue.

Yes, ma'am. Our first question comes from Duane Pfennigwerth with Evercore.

Hey, good morning. Thanks. I wanted to ask you about restart bottlenecks. As we travel more, it feels like staffing levels are very tight. And that's just not an airline observation, but really across service providers, hotels, car rentals. It feels like there's understaffing right now relative to demand. I think there's been some anecdotes about a hard time filling open positions. Obviously, the airline industry is in a different position given PSP, but I wanted to ask you, as you gain confidence in the demand recovery, what are the bottlenecks in getting spooled back up? Are you short-staffed today relative to any of your workgroups or is it really just a pilot training exercise?

Hi Duane. I believe the issue you're mentioning in the wider hospitality sector doesn't apply to the airlines. However, I understand that hotels and rental car companies are facing challenges in bringing staff back due to unemployment levels and economic stimulus. At Delta, we aren't experiencing that problem. Our employees have been working throughout this period. The main challenges we have are related to getting our pilots through training and into the right categories so they can fly, and ensuring that our aircraft and engines are maintained and ready for a quick rebound. We had some cancellations on Easter Sunday, around 100 in total, and while there have been similar trends on holiday weekends, we've seen significantly fewer challenges recently compared to past holidays like Thanksgiving and Christmas. This is due to our focus on managing costs and being prepared to respond to demand as it returns. I feel optimistic about our position for the upcoming spring and summer. We've invested considerable time in understanding this situation. It's also important to note that the virus is spreading at different rates in various parts of the country, which has affected pilot availability somewhat since they need a few days of recovery after vaccination shots. Overall, I think our team is well-prepared and ready for the rebound we anticipate this summer.

Thanks. Thanks for that Ed. And then just for follow-up and I think Gary touched on it, but how do you think about the range of outcomes on June, whether it's capacity or revenue? What ability do you have here in Q2 to flex up if demand plays out better than what your guidance assumes? Thanks for taking the questions.

The biggest advantage we have is the middle seat, which will be available starting May 1st. You will notice a significant increase in capacity from April to May due to this addition. We are not expecting a large number of additional schedule requirements. The main uncertainty lies in the international sector, and we are collaborating closely with international authorities to be prepared to fly as soon as travel is permitted, particularly in the transatlantic markets. However, I do not foresee any major challenges in securing seats in the market for June.

Our next question comes from Brandon Oglenski, Barclays.

Yes, thanks for taking my question. Gary, you walked through a lot of changes on the balance sheet there, but I think you said you're going to end the quarter or 2Q that is with about $19 billion to $19.5 billion in net debt. I guess, could you just talk to, again, the priorities on the fleet and the pension pay down, as well as, like where you'd like to see that net debt number by the end of the year and then maybe a longer-term goal around the balance sheet?

Brandon, we won't provide specific projections for the end of the year. However, our long-term objective remains clear: we aim to return to an investment-grade quality balance sheet. Since the end of 2019, our net debt has increased by approximately $8.5 billion, so a straightforward way to approach this is to reduce that to the $10 billion range. Regarding our immediate priorities, as you mentioned, we made a $1 billion contribution to the pension plan on April 1st, and we've talked about the possibility of an additional $1 billion to achieve fully funded PPA status. You can also expect us to continue purchasing our aircraft with cash, which helps us avoid taking on debt and increases our unencumbered collateral. Furthermore, we have ongoing debt maturities; this quarter alone we will make a $600 million payment on an unsecured maturity. Throughout the quarter, we anticipate around $250 million in regular amortization and another $400 million in the second half. Consequently, you will see our debt levels decrease for these reasons.

Appreciate that. And has the pandemic made you rethink your minimum liquidity threshold that you're comfortable carrying going forward?

Well, we've looked at this a number of different ways. We're thinking about it on an interim basis. We've looked at it a number of ways and they're all kind of pointing to the same zip code. So, we've sketched out about a $10 billion to $12 billion interim floor for liquidity that we want to see. I think it's important to note though, that we don't have that thought process in isolation and I'll just repeat one of the things that you see us very deliberately doing is consciously building the unencumbered collateral base as we go. So, in addition to thinking about where we want to be with liquidity, our mind is also on continuing to build that unencumbered asset base so that we've got the flexibility.

Our next question comes from Jamie Baker, JPMorgan.

Hey, good morning, everybody. First question for Ed, or maybe for Glen, I appreciate the endorsement of the third quarter profit. From a high level, can you expand on what it's going to require? I mean, can you get there solely on domestic leisure recovery or do you need some percentage of international reopening or corporate to improve from down 80 to down 60, that sort of thing?

Hi, Jamie. Obviously, there's still a ways to go between here and there to get to the third quarter. Clearly, the number one dependency is the vaccination rate and getting to herd immunity in our country. All the experts we talk to, including our own doctors, tell us that early summer is when we should expect our country to be in some form of early herd immunity and that will continue to inspire additional travel. Yes, we're working on reopening international corridors. The one that is most likely to be open for the third quarter, hopefully, is the U.S.-U.K. travel corridor and we're spending a lot of time with the authorities both here in the U.S. as well as the U.K. so what's going to be required to get that done. I hope to see this corridor open by early summer, which will then bring some pressure on other markets to follow similar suit and protocols. The middle seat opening is another huge leverage point. The fact that we've been carrying such a significant amount of our capacity deliberately not selling, it's going to be a big add on there. So, when you think about all these factors, you need to think about the additional scale that we have from better utilizing our fleet. Our fleet is still somewhat probably 10% to 15% underutilized as we're operating it today. These are the types of things we look at to give us some real optimism that there's a pathway to get into profitability this summer.

Okay, that's helpful. Second question for Gary and I suppose this builds a little bit on Brandon's question. But you cited the build in the ATL in the release in the prepared remarks, that was helpful. Thank you. A competitor of yours has said that one of their most important lessons learned from the downturn is you just can't count on the ATL anymore. Is that consistent with how you're thinking and how it ties back to how you manage liquidity going forward?

Jamie, I think I'll answer it this way; there are a number of factors that we put into the thought process about liquidity. It is safe to say that that was one of the stress points that we consider.

Our next question comes from Helane Becker, Cowen.

Thank you, operator. Hello everyone, and thank you for your time. I have two questions. Ed, you mentioned sustainability and the initiatives you are undertaking for carbon sequestration. We discussed this last month as well. I am curious about how we should approach achieving net carbon zero by 2040 and the associated costs. Do you believe this will enhance your corporate market share in the future?

Sure, Helane. As I mentioned in my opening comments, sustainability is a significant issue for our business that needs immediate attention. We are committed to investing in verified carbon offsets with the highest certification, which represent the most viable solution currently available in the market. We understand the concerns about effectiveness, and we share those concerns; hence, we are specific about our investments. There is substantial evidence that supports their impact, and we cannot afford to wait for long-term investments to materialize to reduce our footprint in the meantime. We are collaborating with various providers, including those in the energy sector and other technology firms, to find solutions to decarbonize our operations and reduce our footprint. We have dedicated $1 billion over this decade to such investments. As this issue gains more attention from the current administration, which prioritizes sustainable aviation fuels, we hope for government support in this area. Although we do not yet have a clear path to achieve net carbon zero by 2040, it is crucial for us to adopt the mindset that we will take the necessary steps to invest in a better future for everyone.

That's really helpful. Thank you. And then just on another subject. When we were down there for investor day in 2019, one of the things that we saw was the Delta tech ops and the maintenance operation, and so on. And I'm just wondering how you guys are thinking about that business going forward, given the huge reduction in older aircraft that exists out there in the world now. And your non-Differentiated customers, and how they're thinking about renewing contracts or whatever and how you're thinking about that business? Thank you.

Well, we're excited about the MRO and its future. In 2020, there was a dip in volumes as airlines reduced flight levels and retired some older fleets globally. However, our MRO revenues have not decreased at the same rate as the decline in flying levels. We still have a good backlog of opportunities to pursue. The team is doing a great job, especially in taking care of the Delta fleet while also seeking ways to expand. The MRO will be essential for us in supporting Delta and helping other airlines around the world get their operations back on track as quickly as possible.

Our next question comes from Hunter Keay, Wolfe Research.

Thank you. Good morning, everybody. With so much liquidity and demand including, is there a better than 0% probability Ed that you do not participate in PSP 3?

I'm sorry, Hunter, are you asking if we will participate in PSP 3 given the liquidity we have?

I guess, yes. I'm just wondering if there's a chance that you turn down PSP 3 if things continue to improve like this or ask not to participate in it.

We don't anticipate turning that down though.

Okay, thank you. And then Glen, as you talk to the corporates, and I know it's early, do you think about 2022 spending, are you starting these conversations from 2019 spend and working it down? Or are you starting at zero and sort of building it up?

Yes, I think we're looking at what we have today and building it back up again. And we don't know the outcome or when, but we do see is that slow and steady build. And we think as we get to the end of the summer, as we said in the script as the vaccination rates continue to improve, and officers continue to return that we will see an acceleration as we head into the fall. And I think still unknown where we'll wind up this year and where we'll wind up in the summer of 2022. And that's I think we're going to work on the flexibility of our fleet to flex up or down depending on what we see in the market at different points in time.

To build on Glen's remarks, we updated the corporate survey we discussed last quarter, and the results remain promising. 36% of our large corporations expect to return to pre-COVID travel levels by 2022, with another 16% hoping to do so by 2023. This means 52% anticipate a full recovery. Only 8% of the surveyed corporations believe they’ll never return to pre-COVID levels, while 40% are uncertain about their future flying levels. If we take a cautious approach to the uncertain and the 8% that will not fully recover—assuming only 50% of that segment returns—we expect 75% to 80% of our corporate revenues to come back over the next few years. I believe this outlook is conservative, and we are actively working to regain business volume as confidence in flying returns.

Thank you both.

Our next question comes from Ravi Shanker, Morgan Stanley.

Thanks. Morning everyone. I have two questions from me, one near-term and one longer term. In the near-term, how would you characterize the current competitive environment are out there? Obviously, early days yet and everyone's trying to do obviously, add capacity to places the people want to go. But are you encouraged by what you're seeing right now? And do you think it gets better or worse from here as we open up more?

I think there are two main points to discuss, which represent different scenarios. Firstly, internationally, as we emerge from the pandemic, the competitive landscape looks significantly improved, with many ultra-low-cost and low-cost competitors in various regions either weakened or no longer present. As we see Europe, Latin America, and the Pacific rebound, I believe we'll experience a much more favorable environment for years to come. Secondly, domestically, people are traveling differently compared to the pre-pandemic period. Although we are recovering to 85% of demand, that demand is shifting to different destinations. We're seeing an increase in capacity in areas that are currently attractive to travelers, such as open spaces, Florida, and leisure markets in Latin America. We've adjusted our capacity to align with where people want to fly, and I believe we will continue to prioritize that direction. While I can't predict how our competitors will manage their capacity, we feel confident about the trends developing in the U.S. market.

Great. And just looking at it longer term, I don't know how much of your time is spent thinking about 2022 and even 2023 at this point, but look everyone's looking at 2019 as a baseline, but given the huge pent-up demand and the huge amount of excess savings with the consumer, do you think there's a likelihood that we significantly surpass 2019 levels of travel in 2022, 2023 and beyond? And if so, do you have the ability to service that without bringing on significantly more resources? Thanks.

Ravi, I wish I had a crystal ball that was clear to know with some degree of confidence. Certainly, there's enormous pent-up demand. Consumers have built up a lot of wealth over the pandemic, people have really lost the connection that they look to recreate and get back together, whether that's for leisure, purpose, or business. I think over the course of the next 12 to 18 months, we're going to see a strong surge as markets reopen for different categories as well as different borders. Looking out into the next couple of years, does that mean we'll be beyond 2019? I think it's possible. We have flex in our fleet, in our order book to address that. We're not going to be limited. If there's demand out there, we're going to be positioned to be able to service.

Our next question comes from Savi Syth, Raymond James.

Hey, good morning. This is actually Nat on for Savi. Thanks for the time. A couple quick ones for me. Being we're just on the international topic, in terms of leveraging your international partners, how do you plan on positioning your domestic network for that? Or are there any changes necessary or priorities to your coastal hubs?

I think one of the things we're excited about as we come out of this pandemic is the strength of our international partners, as I mentioned earlier, is, international is taken much more of a reshape than domestic given the fact that a lot of international carriers didn't receive government support through the pandemic and are going to either be much smaller or not be there as the pandemic eases off. And so we are very encouraged about continuing to leverage our partner hubs as the first wave of pre-pandemic international travel comes back. And that's really what we've done so far. And I think, yes, there will be opportunities for us to reshape our domestic to better feed our internationals coming out of this than we had going in. But we'll deal with that as it occurs as opposed to anticipating.

Okay, thanks, Glen. And then one quick one on the fleet, fuel efficiency is impressive, it seems like that's taking hold well, but do you expect that kind of level to hold back to full utilization? Thanks again for the time.

Yes, well, as we said, about half of the 12% improvement that you saw in the quarter versus 2019 is really structural change driven by the fleet renewal that we've been talking about. So, you can think of the remainder as conditional on where we are on the system. We did say, however, that as we look into the second quarter, we expect at least a 10% improvement on where we were for the same metric in 2019. So, do expect continued fuel efficiency certainly through the June quarter of significance.

Next question comes from Andrew Didora, Bank of America.

Hi, good morning, everyone. Glen, I'm curious about your commentary on the booking curve and how it is continuing to lengthen. Can you provide any data points on this? Perhaps you could share how much of your budgeted revenues for the second quarter are already secured compared to how that normally looks. Anything you can quantify would be helpful for us.

Through the pandemic, our booking curve compressed and starting about the middle of last month, for the first time ever, we saw advanced bookings outside of the 60-day window is actually surpassing the percentage of bookings that were in that category in 2019. So, hopefully I can give you some context that people are feeling much more comfortable booking further out in the curve. I think we're looking at several things. One is I think in the U.S., they're feeling much more comfortable in domestic flying, knowing they'll get their shots, knowing they'll be able to travel, still waiting for more and more events to open and places to open and kind of one of the things that continues to accelerate the domestic demand and then really waiting for the internationals to reopen in earnest. I think people are now looking at it, the fall and making some speculative bookings that Europe will be open in the fall. There are not a great number of those out there yet, but certainly, there's interest out there. And I do believe that in the next month or two, we'll see at least some of the European countries attempting to reopen, and that will hopefully put pressure on the others to figure out ways to reopen their markets.

Got it. It makes sense. And then my second question here just for Ed, I guess, more bigger picture here. I mean coming out of the pandemic after past downturns that meaningfully affected the industry, there have been some pretty big changes out there, right. But this time around, we really haven't seen that, there's plenty of liquidity; airline survived, no consolidation, no hub closures. Has any of this surprised you? And why do you think a lot of these have not happened this time around?

Sure, Andrew. No, it doesn't surprise me at all. And it's primarily because of the government support that the U.S. airlines have received in terms of PSP. When you think about the significant levels of support and ensuring that that support goes to retaining employment across the industry as a national priority, there really isn't a lot of structural change. You use that money to try to get your business back up, which was what they were intended to do. Certainly on an international level, we're seeing a lot of change. There's been a lot of international restructurings, bankruptcies, liquidations, changes, which I don't think we really fully appreciate the full extent of that. It's going to take some time yet to play out. I think it'll help and benefit the U.S. industry because we're going to be competitively stronger than in the international landscape than we were previously. So, we'll see how that plays out.

Thank you. Our next question comes from Mike Linenberg, Deutsche Bank.

Hey, good morning, everyone. Hey, just two here. The first one to Glen. Glen, have you come up with an estimate of what you think the net revenue hit that you incurred because of the middle seat block, and I would be most focused on the month of March where you actually had pretty good demand and were probably spilling traffic?

Yes, we've considered that. For March, in particular, as traffic continued to increase and confidence returned, it became a more expensive decision. We likely missed out on between $100 billion and $150 million in gross revenue by not blocking the middle seat, but we believed it was important to ensure demand returned and to strengthen our brand. If we had the chance to make that decision again, we would do it in a heartbeat because prioritizing consumer confidence and health and safety was crucial for how we invested in our brand during the pandemic. The resurgence of confidence we observed in the April-May period further confirmed it was the right time to move on.

Thanks for the color there. And then just my second question to Gary, on the $1.85 to $1.95 fuel guide, is there an embedded refinery loss in there? What is, if there is on a per gallon basis? And sort of a part two to that, as I recall, I believe the voluntary participation in the CORSIA program was supposed to commence I believe in 2021. In fact, is that true? And where's that going to show up on the Delta P&L is in fact that does kick in this year. Thank you.

Good morning. It's Peter Carter. So, from the CORSIA perspective, this is the year where we benchmark. So, this is the year where our use will be determined for future years.

Yes, and Mike on the first part of your question, the $1.85 to $1.95, it does contemplate a loss at the refinery. It's not as substantial as what we experienced in the first quarter. The fuel curve that we're using is generally what you see out there, crude in the low $60s and cracks in the $5 to $6 range.

Great, very helpful. Thanks. Thanks both. Thanks, everyone. Our next question comes from David Vernon, Bernstein.

Good morning, guys. A couple of questions for you on the contours of the revenue environment, if we look at kind of where average fares are sort of trending based on some of the arc data and other sources out there, it looks like the average fare levels lower than we were in 2019. Can you talk to how much of that is sort of mix and loss of business travel demand? And what maybe like-for-like leisure yield would look like today versus 2019?

Maybe I'll take a stab at that and give you a little bit of a forward look. We have clearly in the month of May, we're calling May a transition month because we are putting the middle seats back in which gives us a substantial increase in our capacity levels. And we're expecting that May will come in with an absolute load factor of 75%. As we get into June, and the more peak travel season, and with those seats being absorbed into the marketplace, we believe that we will move from the 70s into the mid-80s, that gives us a little bit of an opportunity to start to manage yield a little bit more than we have in the past. And so structurally, we think we're in a pretty good space in terms of the structure of leisure travel and fares being within the range of where we were in 2019. As we head into the summer, we believe that the real pressure on domestic yields will come primarily from the lack of business travel, not from the structure themselves or not for leisure travelers paying significantly less than they did in 2019. Does that help answer your question?

It does. I guess and maybe just as a follow-up as you think about getting the yield management sort of levers to work in the revenue optimization systems. How long do you think from a domestic standpoint, like when do you think you'll actually be at a level where you're not just starting that process, but you're kind of more at a run rate of getting that full benefit of managing appeals?

Well, keep in mind that the yield curve operates by catering to last-minute business travelers, but this year there are significantly fewer of them compared to 2019. Therefore, I don’t expect to see the complete effects of yield management reflected in our revenue until later, likely in early fall. This summer will focus on managing leisure demand, which offers fewer opportunities to reserve the last seat for a business traveler. As the year progresses, particularly in September and October, we should be in a better position to effectively manage yield through our traditional revenue management systems.

Great. Thank you. Next question comes from Catherine O'Brien, Goldman Sachs.

Good morning. Thanks so much for your time. So, a little bit of those shorter-term take on Ravi's question earlier, regarding your plans to get to 75% of 2019 capacity in the fourth quarter, is that the structural maximum based on your fleet and crew retirements? And if we do see that wave of pent-up demand that you discussed in your CNBC interview this morning, Ed, would you consider sourcing additional aircraft to be able to add more capacity back sooner or is that capacity plan that's really in line with your views on the piece of the recovery through year end? I realized a couple of questions in there. Thank you.

As you probably have seen or read the NMA is not being actively discussed at Boeing at the present time, but they certainly do have alternatives and new designs that they're thinking about, and we're engaged with those conversations. Nothing imminent or on the short horizon here, but we are looking at the longer-term opportunities with our friends in Seattle.

Got it. And then maybe one on the cost outlook. You know you previously announced expectation that the company can achieve 2019 CASM on just 75% of 2019 ASM. I guess for that's still the expectation? And then second, is inflation contemplated in that figure or is that a like-for-like a year assuming 2019 labor maintenance costs, and the like that typically do see some annual inflation? Thank you.

Katie, that's the number that we expect to hit this year. And I would say I'm really pleased with where we are, I mean, we are on the trajectory. The 6% to 9%, as I mentioned that we're achieving in the second quarter, I mentioned the four points of rebuild that are included in there. But you heard Glen talk about some of the international flying that we're not doing now. Our international mix is down quite a bit. In particular, we're not flying a lot of the long haul international network yet. If you look like-for-like in what you're seeing in the second quarter, that's also about a five point headwind. So, kudos to the team here, everybody has really embraced it. They've just done a great job. The whole company really has come together around it. As I mentioned, in 2020, it was really about aggressively attacking the cost base, we understand the mission this year is really getting that incremental leverage as the network rebuilds. And you're really seeing it in the second quarter, if you take a look at how the ASMs are coming on and the cost incurred to do that. It's really nice operating leverage. So, very happy with where we are and fully expect to be on that 2019 number by the time we hit the fourth quarter.

Great, thank you.

Katie, one other thing I'd like to add to the point. People probably don't appreciate the fact that for the last couple of quarters, Delta has actually been flying the most scheduled service of anyone out there. So, when people worry whether we were going to have the capacity and the seats in the market to fill it, we're flying more scheduled service because we're blocking so many of the seats on the individual airplanes. As we open that inventory up, we're going to be raised with anybody in terms of being able to provide service and strength into some of our key hubs and markets domestically. So, we're not concerned in the short-term that we're going to be short aircraft or short staffed.

Next question comes from Sheila Kahyaoglu, Jefferies.

Good morning, everyone and thank you. I guess, somewhat related to the last question, how are you thinking about international markets coming back up here, relatively upbeat guidance on that international capacity for summer 2021? How are you thinking about that in terms of geographically? Are you seeing any dispersion in booking so far?

On the reopening of international borders, I think there's still many more questions than answers. We are focused on trying to get the U.S.-U.K. travel corridor open. I think that's the most logical and has the greatest value to us. And I think those are the markets where we'll start to see demand grow quickly when we can get that open and we're working with our partners at Virgin from the U.K. standpoint, as well as across not just the airline industry but within the broader travel and hospitality sector too, figure out how we can get it open for summer. And we're making progress in that regard. When you think about other parts of Europe, there may be some occasional markets open this summer based on Southern Mediterranean leisure traffic that people will be interested in, but I don't think you're going to see Continental Europe open in any meaningful way till later in the year. We'll probably unfortunately miss much of the summer for most of Continental Europe. On the other end extreme, I think Asia is going to be the long pole in the tent. I think that could take a year or more to start travel back up at scale. When you think about China, Japan, and many of the other Pacific markets, the one market that we will be spending a lot of time trying to support is Korea, with our partner at Korean. And South America is going to be somewhere in the middle. It's really going to be based on the success they have in trying to get the virus under control in their countries, which we all know right now is a very difficult spot that they sit in. So, that's probably late this year, into the winter when you start to see South America open up.

Thank you for that color. And then how should we think about progression of yields, particularly given that you guys have been successful in doing so. You mentioned summer's all about leisure and limited capacity. So, how are you thinking about that progression on yield?

I think we're really focused on the unit revenues. And I think we outline the progression and of course, there's a yield traffic trade-off that we're always monitoring. But when you think about getting 20 to 25 points of unit revenues sequentially between the end of March and June, that's a huge improvement and one that I think is indicative of what we'd be looking at for summer travel. And I outlined earlier we think that the traffic will be in the mid-80s for peak summer domestic, and that presents opportunity to manage yield.

Thank you. Our next question comes from Joseph DeNardi, Stifel.

Good morning. Thank you for fitting me in. Ed or Gary, I was looking at the fleet, and prior to COVID, you mentioned NMA as a potential replacement for the 757. Is that still part of your strategy, or do you have updated thoughts on it? Are there new options available in the used aircraft market that could affect your approach? Also, when do you need to place an order for that?

As you probably have seen or read the NMA is not being actively discussed at Boeing at the present time, but they certainly do have alternatives and new designs that they're thinking about, and we're engaged with those conversations. Nothing imminent or on the short horizon here, but we are looking at the longer-term opportunities with our friends in Seattle.

Okay. And then you talked about March co-brand spend being up versus 2019, seems very bullish to me. Can you talk about the longer-term target and your ability to get to the $7 billion that you talked about pre-COVID? Can you do better? And then specifically, how sensitive is that to corporate demand or not? It would seem more tied to leisure but just interested in your thoughts there. Thank you.

So, clearly, the co-branded cards are an array of purpose, including a lot of small and medium-sized enterprises, where we're seeing a lot of success with the cards right now. And so I think we feel very, very confident that we can get to the $7 billion and clearly the crisis has put a little delay on that. And we're sizing up how significant that delay is and how we can shorten that delay by new and innovative programs to stimulate demand for the card. I think we feel confident coming out of this that the card performed at or above our expectations of how it would do in a recessionary scenario. And so we think a very bright future for that card.

Now, we'll go to our final analyst question.

Yes sir. Our next question comes from Myles Walton, UBS.

Great. Thanks. Ed maybe a reflective question, given the level of government support and assistance the U.S. airline industry has gotten in the last 12 months, does it reframe how you and others in the U.S. will look at subsidization of international carriers that was clearly a complaint pre-crisis? And is there a potential for almost a turning of the tables as they look at us and the level of support we've gotten in the U.S.?

That's an interesting question Myles and certainly, we've depended upon the support from our government here to be able to sustain an essential service for our economy. I don't know what that means, in terms of long-term. Clearly, the Middle Eastern subsidies were not there as a support tool for essential service; they were there to grow their economies and grow their businesses. So, I think fundamentally, the nature of the intervention, not just in the U.S. but around the world that we've seen over the last year is of a very different character. And we'll see on the other end of this where the international market slant and the level of subsidies that that continues. So, yes, we've been appreciative of that. But no, I don't think it changes the character of what our issues were in the past.

Okay, Glen, regarding the quarter in June, obviously Q1 covered January and February compared to March. Was the April to June period more linear in its recovery profile?

The significant increase from April to May occurs as more seats become available, and June shows an even better trend. This reflects a typical seasonal pattern, with an emphasis on how the middle seat capacity plays a crucial role in the second quarter's performance. In the initial weeks, there may be some disruptions as travelers go in and out, leading to a slight imbalance. We anticipate the first half of May to be somewhat subdued, but expect the latter half, especially around Memorial Day and the usual peak leisure season, to show much stronger results.

Okay. Thanks.

I'd like to thank you all for your participation and joining us this morning. As we sum up the call, it's clear that at Delta, we've reached an important inflection point, as we navigate the pandemic and move into the recovery phase of 2021. As the pace of vaccinations accelerates, our customers are reclaiming their lives. Air travel will be central as people reconnect with loved ones and business colleagues, replacing their screens with real human touchpoints as they venture out of their homes and communities to experience the world again. Looking forward, with customer demand steadily rising, there is a lot of runway ahead of us. As we open our middle seats to booking and corporate and international begin to recover in earnest. And once the recovery of those segments is underway, we expect they'll prove to be a powerful cash and profitability lever to get our business back to where we needed to be. The strength of our balance sheet has been critical and I'm excited that we're shifting our focus to delivering, which will also be an important accelerator in our recovery. But with all of this, I have great confidence that Delta is well-positioned to lead the industry in the months and years ahead. I thank all of the people at Delta for your tremendous job, particularly over these last 12 months in positioning us for success. And we look forward to welcoming all of you back aboard our flights in the days and months to come. Thank you all.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.