Good morning, everyone, and welcome to the Delta Air Lines September 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.
Thank you, Matthew. Good morning, everyone, and thanks for joining us for our September quarter 2026 earnings call. Joining us from Atlanta today are our CEO, Edward H. Bastian; our Chief Operating Officer Daniel Charles Janki; our chief commercial officer, Joe Esposito; and our chief financial officer, Erik Storey 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 take analyst questions.
We ask that you please limit yourself to 1 question and a brief follow-up so we can get to as many of you as possible. 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 will 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 will turn the call over to Edward.
Thank you, Julia. Good morning, everyone. We appreciate you joining us today.
Our results demonstrate the structural durability that we have built, and the strategic decisions that we have made over many years to reduce earnings volatility and enable us to navigate today's high fuel costs. The September quarter, revenue grew 16% we delivered pretax profits of $1.5 billion consistent with last year, while absorbing $1.6 billion of higher fuel costs. Earnings were $1.72 per share, on an operating margin of 9.4%.
Our earnings are continuing to translate into strong cash generation, and attractive returns for our shareholders. Year to date, we have generated $1.9 billion of free cash and our return on invested capital is 11%. Well above our cost of capital.
These results reflect disciplined capital allocation, and the durability of our business model. Operationally, Delta delivered another quarter of industry leading performance across key metrics, including on-time, customer satisfaction. Continue to strengthen the resilience of our operation with good progress on weather recovery despite challenging operating environment of this summer.
We expect to further improve recovery performance through the end of the year and into 2027. I want to thank the 100 thousand members of the Delta team. They remain our greatest strength and deservedly are the most awarded aviation professionals in the world.
Most recently, their efforts were recognized by the Skytrax World Airline Awards, where customers named Delta the best airline staff in North America for the 5th consecutive year. Consistent with our philosophy of sharing our success, we have now accrued $900 million towards next year's employee profit sharing payout. Looking at the current environment, demand remains strong.
Supported by a secular shift in consumer behavior. The top 40% of US households which make up the majority of Delta's customer base, are nearly $40 trillion wealthier than they were just a few years ago. Increasingly prioritizing experiences including travel.
At the same time, air travel remains 1 of the best values in the consumer economy, with airfare still well below cumulative inflation over the last several years. That demand is evident across leisure and business travel, and across all cabins. Premium growth remains robust, and main cabin trends are continuing to improve.
Reflecting our measured approach to growth, and broader industry actions to reduce unprofitable capacity. This year's fuel spike has accelerated change across the industry. Resilient demand and greater focus on profitability are enabling the industry to recover higher fuel costs more quickly.
Even when fuel prices eventually moderate, and they will, we believe our underlying revenue strength is sustainable. Given strong preference for the Delta brand, and the diversity of our high value revenue streams. Regardless of the next move in fuel prices, the forces reshaping The US airline industry will continue.
With many carriers struggling to earn their cost of capital well before the run-up in fuel. Against this backdrop, Delta is operating from a position of strength. In the December quarter, we expect revenue momentum to continue and nonfuel cost performance to improve.
Supporting pretax profits of $1.2 billion even with fuel prices expected to double over last year. For the full year, we expect to deliver pretax profits of roughly $4.5 billion fairly close to last year's profitability. Even with our fuel bill expected to increase by 60%, or $6 billion. that is a picture of structural durability you have not seen in prior cycles or fuel spikes within this industry.
We also expect to generate $2.5 billion of free cash flow funding more than $2 billion of debt reduction and bringing our 3 year cumulative free cash generation to over $10 billion. These results are expected to lead the industry by a good margin. The consistent strength of our financial performance allows us to keep investing in our people, products, and partnerships.
Compounding Delta's differentiation and extending our lead. Our growing loyalty ecosystem is 1 of the most important drivers of our structural durability. The Delta American Express partnership continues to deliver strong momentum and we now expect remuneration of more than $9 billion this year on the way to 10 billion.
The strength of the co brand portfolio was recently reflected in J.D. Power's customer satisfaction survey last week of all airline co brand cards. Where the Delta American Express SkyMiles cards swept the top 3 positions. With our reserve card, ranking number 1.
Hats off to our collective teams. What a remarkable achievement. We are also bringing more value to our customers through partnerships with leading brands.
During the quarter, we announced a new strategic relationship with Hyatt. Bringing together 2 leading premium brands. Customer response has been strong.
Ahead of the launch later this year. Same time, we are investing to extend the reach of the Delta brand through the global network. We recently announced new service to The Philippines, and expanded service to Tokyo, Paris, Athens, and Venice from key US gateways.
Investments are elevating the customer experience throughout the travel journey. With connectivity an important point of differentiation. Delta pioneered fast free Wi Fi on a global scale. 4 years ago and established it as the standard that the industry has been required to adopt.
Today, fast free Wi-Fi is available across virtually our entire fleet. far more than any other airline currently offers. We continue to work closely with ViaSat and Hughes on meaningful enhancements to service we will see this quarter. And are excited to launch Amazon Kuiper, beginning in 2028.
In closing, the durability that we have built is differentiated and difficult to replicate. We are delivering industry leading returns today, and confident in our ability to deliver strong growth in earnings and cash flow in the coming year. Now I will turn it over to Joe.
To cover our commercial performance and outlook. Thank you, Edward. September quarter results demonstrated sustained demand strength, clear preference for the Delta brand, and the benefits of our measured approach to capacity.
Revenue grew 2.4 billion up approximately 16% over prior year on flat capacity. Total unit revenue growth of 15.4% accelerated 3 points from the June quarter with gains in domestic and international. A key highlight was Main Cabin, where unit revenue grew in the high teens marking the third consecutive quarter of improvement.
Domestic unit revenue grew 16%, driven by healthy yield growth on load factors that were 1 point higher than last year as we closely align our capacity growth with demand. International unit revenue grew 12% led by growth of 22% in Latin America. Transatlantic unit revenue growth accelerated 4 points sequentially, to 11%.
Corporate sales were strong across all sectors, cabins, hubs, and entities, with each growing double digits over last year. The week after Labor Day was the highest corporate sales week in our history, underscoring the strength of business travel. Our diversified high margin revenue streams remain a defining strength of Delta.
Enhancing the quality and durability of our earnings. Diverse revenue represented 61% of total revenue, and premium and loyalty each growing nearly 20% over prior year. Cargo and MRO revenue both grew nearly 30%.
Our loyalty ecosystem is growing in scale and value, SkyMiles membership is growing faster than capacity. And members are engaging more with Delta in the air and beyond the flight. That deeper engagement is driving growth across brand partnerships such as Uber and Starbucks, in addition to travel products and our industry leading co brand card portfolio.
Card acquisitions and spend both grew double digits. Keeping us on track for a 5th consecutive year of 1 million new card acquisitions and double digit growth in AmEx remuneration this year. Now turning to outlook.
Demand remains strong and broad based as we enter the final quarter of the year. That strength is reflected in forward cash sales, which grew nearly 20% during the September quarter the highest quarterly growth since 2022. These trends support our outlook for December quarter revenue growth of approximately 20% year-over-year on roughly 3% capacity growth, With seat growth below 2%, including a year over year reduction in main cabin seats, our capacity positioning supports another sequential improvement in unit revenue growth as we continue to cover higher costs.
This approach keeps our capacity decisions focused on margins, returns, and cash generation. Our results and outlook reflect an integrated commercial strategy that is extending our leadership. Investments in our fleet, global network, customer experience, and loyalty ecosystems are strengthening our revenue premium deepening engagement, and creating long term value.
Angeles is a clear example of our integrated strategy driving profitable growth. Over several years, we have built a leading position through investments, across the airport, network, and customer experience. We are also expanding our global reach from Los Angeles.
Adding service to the South Pacific, Hong Kong and Manila, while enhancing connectivity across key U. S. Markets. This has been enabled by generational airport investments at LA to create a modern connected complex with additional gate capacity and seamless access to the international terminal. We now have the most premium ground experience with a dedicated curved to launch path for Delta 1 customers.
Together with our leading position at LA, 2 Delta 1 lounges and our award winning Sky Club, These investments are strengthening customer preference in this high value market. And further opportunity ahead of the LA28 Olympics. Now I will hand it to Daniel to discuss our operational results.
Great. Thank you, Joe. Running a great operation is foundational to Delta's brand.
And I wanna thank the Delta team for the outstanding service they provide our customers every day. With a culture of continuous improvement, and our investment in data and technology, our people keep raising the bar. Strengthening reliability and while delivering better outcomes for our customers.
Over the summer, we widened our industry leadership and on time performance, and delivered record baggage results and better disruption recovery. Those results were meaningfully important, given persistent ATC delays that our people navigated during the quarter. More than twice the number of disruption days compared to historical averages, These targeted investments are strengthening our resilience and recovery.
In September, we delivered our best mainline completion factor. Month of the year. And we expect further progress through the fourth quarter and into 2027.
We are scaling new technology and process improvements across the operation. To strengthen reliability, accelerate recovery, enhance the customer experience. Atlanta is an important example.
Where these investments are driving record baggage performance improving connection and making our largest, most profitable hub even more reliable and efficient. The Delta people remain our most important differentiator. New tools, technology, is giving them more time to do what they do best, care for our customers.
We are pairing these technology investments with new training, that equip our people to deliver even more consistent and personalized service. 1 example is new hospitality certification program across our network of 60 lounges and clubs. The only program of its kind offered by a US carrier. Today, operational reliability, people, and technology deliver better outcomes for our customers and support Delta's leadership in Net Promoter Score.
Domestic NPS continues to strengthen, driven by record interaction scores with our people, expanding digital capability, and more proactive customer communication particularly during disruptions. During the quarter, we further expanded self-service options in the FlyDelta app, and completed the rollout of Delta Concierge to all SkyMiles members. Customer adoption is growing, and new capabilities are scaling rapidly.
Our operational expertise also creates value beyond the core airline. I am proud of the tech ops team for delivering $1 billion of maintenance, repair, and overhaul revenue year-to-date, an increase of nearly 60% over last year. While expanding margins and growing our customer base.
And over the next several years, we are positioned to more than double MRO revenue while expanding margins. Now I would like to turn it over to Erik to cover our financial performance.
Thank you, Daniel. I wanna start by recognizing the Delta people for their commitment to our customers through a busy summer travel season. In the September quarter, we delivered earnings of $1.72 per share, and an operating margin of 9.4%.
Pretax profit of $1.5 billion was in line with last year even with a $1.6 billion in fuel expense that was more than $500 million higher than guidance. For the quarter, our fuel price averaged $3.61 per gallon, including a refinery benefit of $0.13. With our refinery now fully online, following the temporary outage discussed on our July call, We expect a greater benefit in the December quarter.
At roughly 3x the September quarter level. Nonfuel unit costs increased 7.3% over the prior year on flat capacity. The primary drivers were higher crew and revenue related costs, on capacity growth several points below our original plan.
And nearly 1 point of impact from the disruptions that Daniel spoke about. We generated free cash flow of $460 million during the quarter, bringing the year to date total to $1.9 billion Our financial performance allows us to continue investing while making meaningful progress on debt reduction. We ended the quarter with adjusted net debt of $13 billion and plan to pay down more than $2 billion of debt this year.
Positioning us to end the year with gross leverage of 2.2x. Delta's balance sheet is a strategic asset. We are investment grade at all 3 credit rating agencies, and recently received a Fitch upgrade to BBB flat.
We also ended the quarter with a $3 billion pension surplus and a substantial and growing base of unencumbered assets. Turning to our outlook. Based on the full fuel curve as of October 2, our all in fuel price for the fourth quarter is projected to be $4.25 per gallon.
Including a refinery benefit of approximately $0.40 per gallon. With slightly higher capacity and continued operational efficiencies, we expect nonfuel unit cost growth to improve 1 to 2 points sequentially. Looking to next year, we remain on track for low single digit unit cost growth as capacity normalizes operational improvements continue, and we lap higher costs in our baseline.
Combined with our revenue outlook, we expect fourth quarter earnings of $1.15 to $1.65 per share, and an operating margin of 7% to 9%. For the full year, we now expect earnings of $5.10 to $5.60 per share with free cash flow of approximately $2.5 billion Our outlook includes a refinery benefit of more than $700 million underscoring its unique value. Delivering this level of performance despite a roughly $6 billion in fuel expenses this year, reflects the power of Delta's strategic advantages and demonstrates financial durability that is meaningfully stronger than in prior cycles and differentiated from the industry.
Looking ahead, our focus remains on profitable growth and achieving our long term financial targets. High value revenue growth, fleet renewal, and a more efficient cost structure provide a clear path to expanding both margins and returns to the mid teens. Our capital allocation priorities remain unchanged.
We invest in high return opportunities and continue strengthening the balance sheet. As we move toward our long term gross leverage target of 1x, we remain committed to increasing returns to shareholders. Now I will turn it back to Julia for analyst Q&A.
Thank you, Erik. Matthew, can you please allow for analysts to now queue up questions?
Certainly. At this time, we will be conducting a question-and-answer session. We do ask that while posing your question, please pick up your handset if you are listening speakerphone to provide optimum sound quality.
We do ask that all q and a participants please limit And once again, if you have any questions or comments, please press 1 on your phone. Please hold while we poll for questions. Thank you.
Your first question is coming from Andrew Didora from Bank of America. Your line is live.
Hi. Good morning, everyone. Thanks for taking the questions.
Erik, I guess just on fourth quarter CASM, we were modeling some more sequential improvement than you guided to just given the IROP issues this summer. But I know where. I know capacity is not where you wanted to, you know, wanted to be and you have been investing back in the operation.
But can you maybe just help us quantify know, why CASM-ex just kind of continues to deviate from that low single digit target as we end the year here?
Yeah. Hey, Andrew. There are 3 buckets, of investment versus the low-single-digit target.
Number 1 is operational investments and improvements that we are making. Number 2 is capacity discipline. And number 3 is we are seeing higher revenue related costs.
And on our operational investments and capacity discipline, these have been deliberate choices and the right decisions We are improving reliability and supporting revenue quality. And the third is just a function of stronger revenue that Joe and team are delivering We are managing the business for profitable growth and returns as capacity normalizes and we continue to see the improvements in our operational reliability, specifically controllable completion factor, we have a path back to low single digit cost growth. I guess, on that, just in terms of 2027, on that low single digit cost growth, But if we are in an environment where maybe fuel stays higher for longer and maybe capacity takes longer to normalize.
How should we think about capacity and that type of I am sorry. How should we think about CASM that type of environment? Thank you.
Well, we will continue to be disciplined on capacity and we will we are going to manage the business for margin. So we will take out costs that we can if capacity wanes, but we will be focused on continuing to elevate returns.
Your next question is coming from Savi Syth from Raymond James. Your line is live.
Hey. Good morning, everyone. Maybe the exploration in the year over year revenue and RASM is quite impressive here based on the guide.
And especially kind of given that you have some tougher comps and the industry capacity stepping up, Could you talk a little bit about what is driving that strength and your confidence around that outlook?
Hey, Savi. Good morning. Thanks for the question.
Yes. When you look at where we are in closing the third quarter, we saw a very strong demand from our customer base. When you look at the fourth quarter on the sequential improvement and 20% revenue growth, we are already greater than 60% booked for the quarter.
Our demand in premium products continues to be high teens. And that is leading us also to our corporate pulling our corporate travelers see no cracks in that demand for the fourth quarter. And the economy is really strong.
So we are set up for a really strong fourth quarter. And I think the improvement in unit revenues and revenue is well within our reach.
that is helpful. And, Joe, if I had asked on the loyalty program, that has been really strong. We are also within that revenue guide.
You know, it is been stronger than past years and stronger than some of your peers. Curious, you know, what is driving that and the ability of that momentum into 2027.
Yeah. We have got, you know, you have got fares that have gone up. You have got greater engagement from our customers.
And you look at how they engage through not only our own SkyMile program, but the AmEx and partnerships and products you are really seeing a very strong ecosystem of spend in all categories. And so I think it is and especially in premium products from our loyalty program, our capacity in premium was up 6 to 7%, and our load factors actually were up almost 2 points. You have got really strong engagement in premium cabinets and products.
Got it. Thank you.
Thank you. Your next question is coming from Mike Linenberg from Deutsche Bank. Your line is live.
Yes. Just 1 question here, kind of multipart, for Joe. Just on competitive capacity, what are you seeing in the domestic market?
And as energy prices rise, do you anticipate further cuts by your competitors? And if you can sort of touch on international because I think 1 of the things we are watching closely is that hedge books are rolling off from many of your international competitors. And likely to see changes on the capacity front there.
So overall, just kind of what you are seeing capacity, both domestic, international from competition?
Yes. Thanks. When you look at the domestic system, quite a bit of capacity has come out as carriers have worked to improve their own margins and operations.
So and in our hubs, competitive capacity is actually positioned down. And we are not seeing any impact from capacity in other airlines' hubs across the domestic network. So all in all, very positive.
And Atlanta's down competitive capacity. Detroit is down. And the.
You have seen the lower end improving quite a bit. On the international front, you are right. Hedges will start coming off and I think you know, while we have had a strong international performance this quarter, think that is only gonna get better as we as we see carriers or globally have to get.
Have to manage their businesses for margins as well. So I see that the competitive environment in a really positive light as we go into the fourth quarter.
Mike, this is Edward. If I could add 1 other data point for Joe's summary. As we were pulling our materials together, there is 1 data point really stood out for me.
You know, the importance of generating a proper return in this business, and ROIC is probably the most important measure that we all should be held accountable to. Our ROIC, as I mentioned earlier, is 11%, you know, well above cost of capital and moving towards 15%, which is our goal here for the business. If you look at the rest of the domestic industry ex Delta, that number is 3%.
Oh, wow. That means every day, there is a fair bit of the industry continues to destroy its shareholders' capital and that cannot sustain. So when you ask about competitive capacity, know, it is great to have little skirmishes in other people's markets but in a high cost environment, you cannot grow your way out of it.
Mhmm. You must actually take action. And we have seen some action.
But there is obviously more to come particularly next year. Right. Thanks for that, Edward.
Thanks for that, Joe. Thank you.
Thank you. Your next question is coming from Connor Cunningham from Melius Research. Your line is live.
Everyone, may. Maybe piggybacking on that on that answer there, Edward. I was hoping we could just take a step back and talk a little bit about the long term targets.
Over the past couple of years, obviously, earnings has been range-bound. there is been a ton of talk of the structural change in the industry, but macros obviously eroded some of that. So as you look into the future, what changes do you see that give you confidence in this mid-teens framework going forward?
Hi, Conor. I think the biggest 1 is a bit what I just referred to. And what we have seen over this last year, the ability of the industry to get much greater value for the product that we offer.
And unfortunately, it took a fuel spike in a short order to move people in that direction. But as we see the customer response, candidly, the limited amount of resistance that we see, the fact that our product continues to be seen in a consumer basket as reasonably affordable even at a 20% price increase, which largely we. We have taken this year.
I think that is a very good sign. For the future. If fuel prices will recede.
Now how much? How fast? I do not know, but they will.
And the test for us at Delta and I think for the industry is to ensure that we sustain the revenue that we have created, and I do not see any reason why we should And so I think that. And this week, we said in our remarks that, you know, that is masking. Today.
You know, high fuel prices are masking some of that, yeah, inherent margin improvement. But it is really hard to show margin improvement when fuel prices are doubling on you. We will get to the other end of this, and I think you are gonna see a different environment.
And I think you will see structural changes that will continue to occur because they. there is no other there is no other option here, but carriers are even gonna have to justify why they are putting capacity and supply out into the marketplace. On the other hand, we have a lot of things that are within our control. We have invested heavily getting our reliability and our resilience back. it is been costly.
And the changes we are making operationally, the investments we are taking, both in technology and in people and process, gonna make a difference. So I think you are gonna see. Also see a more sustainable non.
Nonfuel cost from us too. The last year has been a bit painful. And I think we are I know we are at the peak of that.
We are gonna start coming down. So those are 2 of the things I see over the next several years that give me reason to believe that mid double digit margin target and a 15% ROIC for Delta is a framework that we should hit.
Right. And then maybe Joe, I was hoping you could talk a little bit about the importance of striking balance between you know, load factors and yields. I suspect you are gonna be 1 of the few, if not the only 1 with the load factors flat to up.
So if you could just talk a little bit about how you view that and just do you think it is important for the industry to make the right choice on protecting yields right now? Rather than going after investors in general? Thank you.
Yeah, no, I think-- thanks. Yeah, it is always a balance. And you know, I said we are managing the business for margins.
I really think that if you keep your. If you keep centered on that, you will supply and demand then will come in as how we look at the markets. I think it is also where we are supplying the marketplace.
We are supplying it in premium seats, not main cabin seats. Getting. And getting even improvements higher than average improvements in the main cabin average fares and load factor.
So I think it is also where you are supplying it. When we are flat in capacity for the third quarter, I think the outcome was really favorable for us. We how we manage through it.
So, yeah, absolutely. You have to kind of look at where it is going for the future And running an 86 load for the quarter we still have a little bit of room to put people on our planes as well. So there is there is a.
So I think we have struck the right balance between yield and capacity. Even you look at the fourth quarter, with 3%, it is still, like, it is. When you look at real absolute seats, that is below 2%.
And half of that capacity is going into long-haul international which has been very resilient as well. Awesome. Thank you very much.
Thank you. Your next question is coming from Tom Fitzgerald from TD Cowen. Your line is live.
Hi, everyone. Thanks very much for the time. I am curious if you could speak to how you are thinking about the mix across your cabins next year in terms of premium seats and main cabin seats, and just any impact of the delivery schedules on how the mix could change next year?
Yes. Thanks, Tom. We will see, very similar balance between the premium cabins and main cabin.
Will be-- we are not announcing any capacity yet for next year. But that balance of growing premium and keeping main cabin at a modest level will be similar to how we go into the future. And we will see where deliveries are Right now, we are always flexible, and those move around.
And we have pretty good line of sight as to as to what is being delivered next year.
Okay. that is really helpful. And then just as a quick follow-up for Daniel. You mentioned MRO doubling over the next several years.
I am just curious, any early thoughts on how you are thinking about the MRO business in 2027? Thanks again for the time.
No. I think if you just look back, 2024, 2025, 2026, accelerating revenue growth, and margin expansion. And when we think about the team, we always wanna run it where we believe with their backlog at record levels, and what our commercial pipeline has, you should see really good double digit revenue growth.
And a continued focus on steady margin expansion. We would like to always see at least 100 basis points in a year. We are getting outsized amount this year.
Some of that is a little bit depending on your customer and engine mix that you are dealing with in any given quarter or year. But that is a focus with an eye to the long term that really has the opportunity to double and then keep growing from there. Thank you.
Your next question is coming from Duane Pfennigwerth from Evercore ISI. Your line is live.
Hey, thank you. Good morning. Just a short-term and a longer-term 1 for me.
First, as you think about the fourth quarter playing back last year, mid November had a pretty big headwind from the government shutdown, forced cancellations. Lots of crazy media coverage around that. Can you speak to maybe the acceleration that you expect to see and more interestingly, maybe exit rate on RASM relative to the guide that you are giving for the entire quarter?
Yes. Thanks, Duane. For the for the noise we had last year, last year, we had said we.
It was about 2 points. Of headwind for the quarter. So we expect to have unit revenue progression from third quarter to fourth quarter.
Even net of that headwind. So as we exit so November will obviously be a very strong month as we lap the government shutdown. We saw the pressure from the government shutdown. it went from October 1 to mid-November.
Really in the in the top of November as we as the cancellations went in place. So we will see some good exit rates for the end of the month of October and into November.
Great. And then longer term, I know it is always tricky to use a term like algo, but if we think about the growth of nonticket overall for things like travel products, MRO, which has come up a few times on this call, You are increasing nonairline partnership revenue. How do you think about the growth of these buckets overall relative to capacity?
And is there any way to link that to say, you know, maybe a point or 2 of RASM expansion independent of what PRASM might be doing. Thanks for taking the questions.
Yeah. I think you are seeing that today. You know, right now, we are you know, 60% higher than 60% of our revenue is coming from diversified revenue streams, which we call premium and other. and main cabin is now at 39%.
And those revenue streams have grown in the very high teens that we are going through. When you look at you know, cargo up 29% and loyalty up 18% in this quarter, Insurance, while it is a small amount of money, those are growing at much higher rates than capacity. I think you are seeing that embedded this year in our in our revenue performance as the as we continue to diversify those streams and getting even stronger as you keep bringing better partners and products into the into the fold and the ecosystem.
And, Duane, it is important to note that those revenue streams that Joe mentioned all come at much higher contribution margins, not just RASM. To the business. And so that is also very important for us.
Thank you.
Thank you. Your next question is coming from John Gaudin from Citigroup. Your line is live.
Hey, thanks for taking my question. On capacity, you guys used the phrase normalized capacity growth next year. I am just hoping you could talk a bit more about the contours around that, given how depressed it was this year, you guys did a great job reacting quickly to the market.
You know, the normalized for next year could be interpreted as a pretty wide range if we are catching up on 2 years of growth, but I do not think that is what you are suggesting. So may. Maybe anything you can clarify there would be great.
Hi, John. it is Edward. I know, normalize in a abnormal environment. it is kinda hard to make too many comments around. Obviously, we are running the business for margins.
And so that is that is always the. 1 of the first considerations. So we will have, hopefully, a better view in a few months' time as to the direction of oil prices. I think that is it is a really important part of our deliberations, and to the extent that these product prices are here with us for longer than we were thinking.
You can expect our capacity is not gonna be normal by past measures, but it is gonna be adapted to the environment. We are going to continue to pay close attention to the underlying health of our consumer, the health of the economy, gonna be mindful of looking at the international picture. I think you are gonna probably see more of our growth international than domestic.
And, of course, going forward, you are gonna hopefully not beginning of next year, but mid to late next year, you will start to see some gauge return. To the domestic system, which will be welcomed because that is the most efficient capacity that we can create. So you put those things into the hopper.
I think the in the environment we are in, we are gonna yeah. there is there is. We are gonna be adaptive. To what we are seeing happen.
We are hoping that things will normalize and then you will get back to a rate of growth from Delta that you could look at historically as much tied to GDP. But we are gonna be you know, we are gonna be cautious, I would say, going into the next year until we see the all clear sign. Particularly on fuel.
it is great to hear that. And if I could just ask 1 more You alluded to some of the capacity hotspots that are out there. You have been able to avoid those.
But now in Seattle, your Seattle based competitor is talking about quite a lot of growth. Product investment, international expansion. Sort of channels the battle for Seattle teams from 10+ years ago.
I was hoping maybe you could just plug us into Delta's long term plan in Seattle and how you see this developing.
Yes, thanks. We have been very pleased with Seattle, especially the business atmosphere of the Pacific Northwest, the corporate environment. Our products sell very well up into the marketplace.
And, you know, Delta, we do our own strategy in Seattle. It has both a domestic purpose as well as a great transpacific gateway. So we are gonna continue to do, invest in that marketplace, not only from capacity, but also in the products we put out.
We have a know, a Delta 1 lounge. We have 2 Sky Clubs. And continuing to focus on that premium traffic for Seattle is really our Northern star.
And we are gonna continue to add in international because it is a great gateway for us.
And I would. John, I would not I would not suggest there is a battle for Seattle. Seattle's a big and growing market. it is certainly a market that is large enough for us and our principal competitor out there.
And you see the changes they are announcing, I think they are smart. I think that is where the future's going, and but, you know, we do not have to own every market we fly in. I think you can collaborate a little bit too, and I think that is about being disciplined.
Great color. Thanks, guys.
Thank you. Your next question is coming from Chris Wetherbee from Wells Fargo. Your line is live.
Hey, thanks. Good morning, guys. I maybe wanted to get sort of your updated thinking on sort of stickiness of the fare increases we have seen so far this year.
Obviously, fuel is elevated and maybe will be for a period of time from here. But I guess as you think about the gains you have gotten versus what your other parts of the leisure market look like? Generally speaking, how do you think about that in 2027, assuming at some point, Edward, like you said, we do get normalization of fuel?
I will I will start, Chris, and I will turn to Joe for additional color. Our consumer is really healthy, and yes, fuel has been the impetus for the industry to move quickly, to adjust the pricing environment But given the fact that, you know, it has the market has accepted, these price points and we still consider. In the overall basket of consumer product and service that air travel is reasonably affordable.
Certainly below the rate of inflation going back either pre or post COVID that you have seen in the consumer economy more broadly. The health of our targeted consumers, the thing we mentioned about top 40% of US households has accumulated $40 trillion of wealth. And travel is 1 of their very top priorities.
I think where we are at is various sustainable. We will work at it. But when you think about loyalty, when you think about growth and experience economy, when you think about the opportunities that we have to continue to invest to make the products stickier and the relationships even more powerful.
I think we are gonna be fine as you as you look forward, and, hopefully, we will see fuel recede into the next year at some point, and that is when I think you will see the real earnings power of this franchise be amplified. Very helpful. Appreciate that.
And then maybe just a quick follow-up on the CASM ex commentary, particularly for you as you think about next year, the operational investment you are making this year. This something where we could see sort of the absolute cost come down as we think about 2027? Or is it you sort of maintain the cost and so the growth rate is normalized next year?
Yes. I think we are certainly seeing improvement. We are at the peak of our CASM right now.
But we will begin to lap the investments we have made These investments and costs are in our baseline. So I would be planning on a low single digit kind of number for now. As we continue to make the right investments to take care of our customers.
I do not think you will see the absolute number of CASM come down. That would be pretty hard, but I think you will see the utilization of that absolute dollar value in terms of efficiency and productivity, certainly. Have a, hopefully, an outsized impact.
Appreciate the time. Thank you.
Thank you. Your next question is coming from Michael Goldie from BMO. Your line is live.
Good morning. Just the 1 question for me. Corporate continues to be very healthy.
Can you talk a bit about where the corporate franchise sits today in respect to the Trans Pacific and how you think of that opportunity, but also competitive intensity for business travel to Asia as you expand in the region?
Yes. Thanks, Michael. The corporate demand, yes, has been very resilient.
And we are we are great to see that there is no cracks in it as we go into the future. And the economy is very strong. So business wants to travel.
I think when you think about the Transpacific, there is a there is a. there is been quite a few economies that we do not participate in. So that corporate piece and there is our customers you know, are forced to take other airlines in that space in the corporate side. So as you add these economies on, that moves that corporate traffic to Delta, and we have seen really good our corporates move over to us when we go to markets like Taipei and Hong Kong and continue to expand. that is what our corporates are asking for.
So it is good to be able to make sure we offer the biggest economies in the world. Thank you.
Your next question is coming from Jamie Baker from JPMorgan. Your line is live.
Oh, hey. Good morning. So, Edward, by our estimates, you know, a fair Canada's loyalty program is valued at $10 billion, you know, I am sure you saw the recent transaction there.
Then given Delta's size, scale and margins, you know, SkyMiles is an I do not know. Let's call it a number more than 75 billion. Okay?
Any new thoughts here on why it does not make sense to pursue some sort of partial monetization. I have not asked you about this in a couple years, but you know, Air Canada has gotten us thinking about this topic again.
Hi, Jamie. Yeah. I have not heard that.
No bet. So I to pause before I respond here. The most important thing that we have is the brand premium that we deliver to the marketplace, and it comes from lots of lots of avenues, whether it is the reliable service great service of our people, or the strength of our commercial network and technology.
And 1 of the other things, as you know, that is really important to us is that the loyalty itself arrangement with principally American Express, but we have other partners that we are increasingly building out of a bigger ecosystem of experiences as well. And if you think about that question just back a few years ago and whatever values were being discussed, my guess is the value that was ascribed to the Delta loyalty plan was meaningfully less than it is today. Which means we have grown the franchise, both our own market cap as well as the value of loyalty, and we will continue, I think, doing that going forward.
I am I am really reticent to put a third party, a financial investor, between us and our best customers and preference. And when you think about the world of AI, about the agentic economy where you know, to me, at some level, it sounds like the OTA is returning. To the scene here trying to commoditize your product and your premiums.
Think it is even more important that we hold tight and continue to ensure that we are focused on premium. We are focused on service. And not getting distracted by trying to cash out along the journey.
At some point in time, this company very well may. Consider that as the best opportunity for shareholder value creation. But we are we are doing a pretty good job, I think.
To date. Shareholder value creation. We see a lot of controllable improvements that we can make to get to our framework.
And should we get to our framework in the next couple of years as I hope we will, think that this question will answer itself that we have made the right decision to keep that in house. Okay. Perfect.
Thanks for revisiting that topic.
And then just quickly for Joe. Sort of a key pricing question, if you will. I have noticed that some of your international competitors are beginning to levy different fuel surcharges based on the day of the week So, you know, higher surcharges on peak travel days. 1, I am just curious if you consider this to be widespread in 2, and I am not asking about future Delta price pricing.
But at an industry level, there is this represent sort of another pocket of untapped pricing power. I just do not recall seeing this in the past. Thanks in advance.
Hey. Hey, Jamie. No.
I do not recall seeing it in the past, and, you know, it is a rather new phenomenon on peak days know, fuel surges. We have not have not moved in that direction. So I will I will think we will see where the industry where the industry moves on it, but it would it would be something very different than what is happened in the past.
Okay. Thanks for that. Thank you.
Your next question is coming from Atul Maheswari from UBS. Your line is live.
Good morning. Thanks a lot for taking my questions. 2 questions. So 1 long term, 1 short term.
First, the longer term question, Edward, I wanted to follow-up on your recent, you know, comment that you made in an answer to 1 of the previous questions about the emergence of these AI powered shopping assistance. Well, this has become a bit of a topic in the investment community. What is your overall take on it?
Do you think this is a net positive or a net negative for airlines? And how do you ensure that you are present in that space if needed while also protecting the Delta brand that your customers are.
Well, you know, we will see. I think it is early days but I. You probably gathered from my comments we are gonna be a little cautious. About who we give access to our inventory.
With. We have think, done a good job of getting out ahead of it when we built out the concierge we announced a year and a half ago. And it is fully up and running today, which is our agentic solution to taking care of our best customers and we have are.
We have got a lot of work still to go to make it even more adaptable and more useful. Our to our customers, but letting our customers engage with our agents to handle their needs and have the agent that are our customers put steps. I do think the this question of brand will be very important in the agenetic economy for the future and brand loyalty.
And preference is gonna be 1 of the ways in which strong will stay strong. And the agents who are looking to shop you and continue to try to try to you know, compete us all against ourselves. We will be will be a danger.
That we need to be mindful of and nice I think you see it across, you know, many aspects of the consumer economy, and I think all companies of our size and focus are looking at it and being careful know, I think there is opportunities when you are working maybe in the corporate space directly, with our with our corporate customers where it is a known agent. That. To provide access and provide opportunity.
But broad speaking, I am I am not a big fan of the idea, and we will be we will be very cautious as we think about it for the future. Got it. that is very helpful.
And then as my second question, Joe, if you can provide some color on what you are seeing out there for the early 1Q bookings, that would be very helpful.
Yes. Thanks. Atul.
I said, fourth quarter is booking very well. Early indications from 1Q are very similar to 4Q. And so we are we are continuing to see good strength We are assuming the economy is strong, and it is.
And our corporates continue to book. So be very you know, feel very good about forward bookings. We have good visibility probably for the next 90 to 21 days.
Which gets into the first quarter, and all indications are very positive. Thank you.
Your next question is coming Brandon Oglenski from Barclays. Your line is live.
Hi, good morning, and thanks for taking my question. I guess I wonder if I could follow-up on the operational reliability issues this year and the cost that you guys are adding into that baseline, especially as you think in the 2027 It sounds like maybe you are having more reserve crews, but I am not quite sure what is driving that baseline increase. And then maybe as a follow-up to that, and longer term, and maybe this is for you or Edward or Daniel, but, you know, as we think back to, like, the last round of negotiations with labor and specifically your pilot group and others as well, that is been pretty here for airline cost inflation, which for the industry has been pretty much above the average, across the economy.
So I guess how do you balance, you know, the need for service, for employee pay, as well as, you know, getting margins back in line, especially in light of CASM?
Yeah, Brandon. Good to hear from you. Good morning.
As it relates to operational reliability and that resilience and Erik mentioned it, that controllable completion factor has been the focus. And certainly been investing and taking actions across the system. But the real focus has been on that crew resiliency.
How do we ensure that we improve that, and we improve it especially in periods of disruption. So been a focus around investing around the process, the technology, the data, and the resources associated with that so that you ensure that you more effectively manage the demand and the churn and resources as you go through those operational disruptions, and you better marry it with supply. And, the actions that the team has been taking, you are seeing consistent improvement from in second quarter from first quarter than again in third quarter.
We anticipate that transpiring here as we go into fourth quarter and next year. Related to that. So that is been the primary element of the investment and the areas of focus.
For us and the teams.
And on the question of negotiations, obviously, we are not gonna comment on that, Brandon. But I can tell you our priority is getting the resilience that Daniel mentioned and the reliability of the crews back and it is hard for us to even think about you know, just getting too far out into a contract negotiation till we have the base baseline of reliable operation that we have confidence in established. Thank you.
Thank you. Your next question is coming from Catherine O'Brien from Goldman Sachs. Your line is live.
Hey. Good morning, everyone. Thanks for the time.
I just wanted to start with a bit of a follow-up to Savi's question. So loyalty revenue growth has really stood out the last couple of quarters. And you noted, that engagement, particularly in premium cabins, is driving a part of that.
But I was just wondering, could you provide some further color on how, you know, maybe changes in the car portfolio or some of these partnerships are also factoring in or how, you know, market share gains, maybe uptick, it is in wallet share might be contributing. Just trying to get a more detailed look at what driving this growth and how sustainable these trends are or if we could even expect further acceleration?
Yep. Thanks, Catherine. No.
I think when we start out with talking about the strength of the consumer to. As the as the foundation for this, and how much wealth they have. We have seen great spend on the Amex card and great.
When you look at the awards of being 1, 2, and 3 on the most valued card, there is a lot of value in what we are offering our consumers, and that relationship comes back to their spend which has been incredibly strong this year. You think about the environment everybody's in, with over double digit spend. And really strong remuneration back to back to Delta.
So the engagement with the customer is has never been stronger. And I think, you know, when you add up know, any individual 1 is good. But when you put the portfolio partners, we are working together now adding Hyatt, those are just.
Those are really concrete products and partnerships that drive that ecosystem even faster. So not only are we providing the right level of capacity in the cabins they wanna spend, but also wrapping it around great partnerships. And so the wealth the spend, the engagement with us is really what is driving an outsized growth in the loyalty program.
Jamie, if I could add to Joe's comments. 1 of the things about loyalty that is really important, and I think it is changing as we go. Is that we are trying to broaden the aperture across all demographics. We.
And, obviously, very focused on our younger generations and Gen Zs and millennials and those that look to loyalty aspirationally. And in doing that, I think you are going to see a move afoot I am certainly a delta, and I think you know, maybe other leading consumer brands to be more at least as focused on the experiential as the transactional. Because loyalty historically has been very transactional. it is been very commercial, and that is important in I do not see that changing.
But I think the consumers of tomorrow and the people that are attracted to loyalty and preference wanna feel that they have some level of ownership in the experience and the relationship at a deeper level. Which is why we are bringing more brands. To the table, and we are creating more opportunities for our loyalty members to not just experience the brands, but you.
Utilize. The brands that are open by include Starbucks, DraftKings, include many other brands that are within our ecosystem. it is 1 of the reasons why Amazon is really important to us out into the future. So the core loyalty and Jamie's question in terms of the value of our portfolio.
I do not I do not dismiss the not the notion that our loyalty plan could be $75 billion or higher. that is really important that we continue to grow that. And so it is not just pumping out more cards to actually the quality of the experience that our customers are getting. And that is what we are very, very focused on here at So it is kind of a higher level consideration set, but I think you are gonna see that play more and more into our into our thinking.
As we roll out. New partners and opportunities.
that is really interesting. Thanks for that thanks for that color, Edward, and maybe just last quick 1 under the wire here, but, you know, you have got a number of commercial initiatives, including the loyalty discussion we are just having underway. Aircraft delivering over the next couple of years that should drive, you know, further benefits to the p and l, and then, you know, you are always involved in the network.
Just high level as we look into 2027, could you walk us through what you see as the key puts and takes on margin progression from here? Obviously, fuel is a huge question mark maybe putting that aside if we can.
Yeah. Yeah. We have a lot of tools in our arsenal.
For 2027 and no, we are not gonna do a walk for next year's margin. I would love to, but I am not going any of your system. But the biggest thing is trying to get to the other end of this volatility that we have seen in fuel and see where that normalizes.
I do believe it is gonna recede. I do not know at what level it recedes or the pace. I did not really hope it happened sooner rather than later.
But that is gonna be the, I think, the overarching question on 2027 margins, and I think for that, we do not have any crystal ball better than you do or anyone else does. But when we start to see a break there, I think the value of the revenue and the new baseline that we have established in sustainability is important. We intend to hold that.
And whether it is upgauging, whether it is new fleet, efficiencies, whether it is operational improvements with crews, there is a long list of opportunities within our control that we are working regardless of fuel. That will also help our forward view. So I am bullish.
About hitting our long term framework of double digit operating margin bit double digit. And you know, you can you can see the you can see the threads really starting to come into alignment, but we do need little bit of assistance on fuel along the way to accelerate and amplify that. that is great. Thanks so much.
Thank you.
Your next question is coming from David Vernon from Bernstein. Your line is live.
Hey, good morning, guys, and thanks for having me on here So, Joe, can you maybe talk about how paid premium demand in the premium demand cabin and fare differential is evolving as you are adding more premium seats into the mix? I am just trying to see if you have seen any evidence that the premium for premium is having an impact on buy up.
Yes. Thanks for the question. Overall, we have seen very strong demand in premium.
As we said, as we are growing capacity, 6%, 7%, our loads went up almost 2 points. And fares were going up as well. We were not discounting fares.
So fares continue to move in the right direction, and the value that we are offering I think, has been well received in the marketplace, especially when you now when you are rolling out merchandising not only in the main cabin, but also into the, into first class. And Premium Select and Delta 1. The upgrade take is.
Has been very positive. Especially what they perceive as the value that we are offering for the extra and classic off of off of our basic fares. So.
And we are really in the early stages of those. Of that upgrade revenue. So been very positive from an overall and it is also now as we have merchandised all of the cabins, we will continue with that and annualize it as we get into 2027.
And as you think about sort of like load factor, like when a when a passenger sort of buys the main cabin and goes to main cabin extra, does that all stay in Main Cabin, or does the portion of that go into premium? I am just trying to get some a better understanding of how the math works when you consider premium versus main cabin and kind of what is a true premium sale versus an upgrade sale.
Yeah. All Main Cabin at all 3 merchandising sets. Stay in main cabin for recognizing that revenue.
So the premium the premium is clearly different cabins. Okay. Thank you.
Matthew, we will now take our final analyst question.
Certainly. Our final question is coming from Daniel McKenzie from Seaport Global. Your line is live.
Hey. Good morning. Thanks for squeezing me in, you guys.
Joe, if I can go back to your commentary around the upsell revenue, it seems like a really big revenue bucket, but I am wondering if you can provide some perspective, you know, put some size around it.
Is it 10% of total revenue? Is it 20%? It just.
It seems like a fast growing segment, of course. It is a fast growing. Thanks for the question.
Is a fast growing segment, and we are really early in this process of understanding the cabin. So I am going to stay away from giving you an exact number as we but it is very powerful in the early indications on the premium side of upgrading. Has been very strong.
So we are we are really pleased with it. And, and we really have only started the premium side only this past quarter and getting into full scale. By the time we get into the first half of next year.
Yeah. Okay. A second question here on the POS side of the business. it is really Delta as an it is a Delta as an IT company question.
Is there a cost savings opportunity to say update legacy system or potentially to go in house with some of your outsourced software needs. And I guess I am just, you know, wondering if that is a you are looking at. And if so, what those savings might look like 2 years from now, of course, software has been a big topic in the market.
And, of course, AI and, you know, programming. You know, self programming software is a big topic.
Daniel, this is Edward. We moved to the cloud a few years ago, and so that is been a very significant source of savings in terms of efficiency and productivity. On our software development and technology.
We do work with outside contractors and development companies and we have partners in that space. So key, I think, in this AI generation is to continue to drive at faster speeds and more efficient and effective solutions. And our team's doing a good job of that.
Okay. Thanks, guys.
Alright. Well, thank you. That will wrap up today's call.
I hope everyone has a great day. Appreciate you joining. That concludes today's conference.
You for your participation today.
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