Delta Air Lines, Inc. 2026 Q3 Earnings Call

Good morning, everyone, and thanks for joining us for our September Quarter 2026 earnings call. Joining us from Atlanta today are our CEO, Ed Bastian, our Chief Operating Officer, Dan Janki, our Chief Commercial Officer, Joe Esposito, and our Chief Financial Officer, Erik Snell. Ed will open the call with an overview of Delta's performance and strategy. Dan 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 you please limit yourself to one 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. With that, I will turn the call over to Ed.

Thank you, Julie. 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. In the September quarter, revenue grew 16%, and we delivered pre-tax 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 and customer satisfaction. We continue to strengthen the resilience of our operation with good progress on weather recovery, despite a challenging operating environment this summer. We expect to further improve recovery performance through the end of the year and into 2027. I want to thank the 100,000 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 fifth 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 U.S. households, which make up the majority of Delta's customer base, are nearly $40 trillion wealthier than they were just a few years ago and increasingly prioritizing experiences, including travel. At the same time, air travel remains one 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, giving 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 U.S. 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 non-fuel cost performance to improve, supporting pre-tax profits of $1.2 billion, even with fuel prices expected to double over last year. For the full year, we expect to deliver pre-tax 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 three-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 one 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 card swept the top three positions, with our Reserve card ranking number one. 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 two leading premium brands. Customer response has been strong ahead of the launch later this year. At the same time, we're 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 U.S. gateways.

Our 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 four 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, which we will see this quarter, and are excited to launch Amazon Leo beginning in 2028. In closing, the durability that we've 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 years. Now I'll turn it over to Joe to cover our commercial performance and outlook.

Thank you, Ed. September quarter results demonstrated sustained demand strength, clear preference for the Delta brand, and the benefits of our measured approach to capacity. Revenue grew to $17.6 billion, up approximately 16% over prior year on flat capacity. Total unit revenue growth of 15.4% accelerated three points from the June quarter, with gains in domestic and international. A key highlight was main cabin, where unit revenue grew high teens, marking the third consecutive quarter of improvement. Domestic unit revenue grew 16%, driven by healthy yield growth on load factors that were one 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. Transatlantic unit revenue growth accelerated four 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, with 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 fifth consecutive year of 1 million new card acquisitions and double-digit growth in Amex remuneration this year. 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. Los 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 L.A. 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 curb-to-lounge path for Delta One customers.