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Delta CEO on Q2 earnings

Yahoo Finance's Adam Shapiro sat down with Delta Air Lines CEO Ed Bastian to discuss the company's latest financial quarter, how Delta is slowly recovering a year into the pandemic and what business travel looks like post-COVID.

Video transcript

ED BASTIAN: It was an encouraging quarter. Obviously, we still have a long ways to go to get our business back to where we need to be. We need to get international markets opened. Need to get business travel fully returned.

We make good progress, but we're still a long ways to go there. But the data point in addition to the cash flow point you mentioned that I was most encouraged, was in the month of June. We posted a very solid pre-tax profit, close to 10% profit in the month of June despite the fact that our revenues were still 40% lower versus the same month in 2019.

So that gives me encouragement as we go into the summer that the profitability is going to continue to improve. And if you think about posting a profit and positive cash in the month of June, just a little over a year from the worst crisis this industry has ever seen, it's the start of the pandemic, it's pretty remarkable and it speaks to the resilience of our company, our people and our brand.

ADAM SHAPIRO: Well when you talk about the turnaround in the same quarter, 2020, and I realize that's an anomaly year, but the adjusted operating revenue was a loss of 3.9 billion. This year, it's 6.3 billion to the right side. That's almost double what it had been in the previous quarter. But to put it in perspective, the second quarter of 2019 your adjusted operating revenue was 12.4 billion. So it seems like there's still a lot of runway to go.

ED BASTIAN: We're only in the quarter-- the June quarter, we're only 50% back in terms of recovered revenues. We expect in the third quarter we're going to be 70% back, in terms of recoup. So that's a big jump, going from 50 to 70.

In context, in the month-- Excuse me, the March quarter, we were only 35% recovered. So we've gone from 35 to 50 to 70. So almost doubling the revenues in just these last six months. So we're making really good progress.

ADAM SHAPIRO: Yeah. The progress, obvious, you've pointed out that you are fully recovered when it comes to leisure travel but. You also pointed out that business travel is roughly 40% recovered from what it had been in 2019. If that's accurate, how much further do you expect that to go as we go into the third quarter and then the rest of the year?

ED BASTIAN: We expect business travel in the September month, as a data point, should be about 60% recovered. So we were 20% recovered in March month, 40% in June month. And I think we'll be close to 60% in the September month.

We surveyed all our big corporations. Over 90% of our corporations tell us that they're going to be meaningfully increasing their corporate travel in the third quarter from where they were just in the second quarter. And that's a big data point for us.

ADAM SHAPIRO: Before we jump into the rest of this, I just got to ask you personally, are you breathing a sigh of relief? I was told you took your first day off in more than a year recently.

ED BASTIAN: I took some time off last month. I took a week and went out to the mountains in Utah. And it was refreshing. I did take a couple of days within that off.

I was working other days, but it was good. And yeah I've always had confidence, Adam, that we're going to get through this. My confidence was never shaken. You just don't know how long it's going to take and what's it going to take to get it back.

But when you know you have a great team of people around you, that the mission you fulfill on this planet is something that provides real value to people. And we've all seen how much people miss travel. When you look at the pent up demand and how many people are traveling now, it gives you that strength to keep going.

ADAM SHAPIRO: You were in contraction mode during the worst of the pandemic. Now, I don't know if expansion is the right word, but you're going to lease seven new Airbus A-350. I think that was part of the deal with Latam.

But you're also going to take on 29 previously owned Boeing 737 900 ERs. The planes you retired, wouldn't it have been-- made more sense just to keep those in service? Especially like the 777's, because you would refurbish the cabins on those.

ED BASTIAN: The 777's were a small fleet. We had less than 20 of those. And so as a result, they weren't efficient to operate. They were heavier, they didn't have as good cost performance and certainly not as good fuel performance.

The Airbus 350s or the long range airplanes that we've decided for some time are going to be our future. And as a result of that, we are-- we're pleased to acquire seven. It wasn't a deal with Latam, it's coming from Latam.

But they are airplanes that fit right in. They're the same vintage of 350's we already operate. And it's the same thing true with the seven 3-900's.

We are picking them up or buying them from Lion Air. The same vintage of-- We fly over 100 of those same planes. the 739's allow us to increase our Boeing fleet.

ADAM SHAPIRO: When you talk about rebuilding the airline, did you cut too much during the pandemic? Because now you are hiring several thousands of people. And there were about 17,000 who got early retirement.

For instance, the pilots, 1,800 I believe it was, got early retirement. But now you're hiring back 1,000. You need to find 1,000 new pilots. Did you go too deep?

ED BASTIAN: I don't think so. You know, it's easy to Monday morning quarterback. And if you knew when the recovery-- If we knew when the vaccine was going to be discovered, right?

All those decisions were taken before we even knew when the vaccine was going to be discovered or the effectiveness, which has been a miracle for all of us. And I think it's come probably faster than any of us had thought. You know, we've never attempted to vaccinate the world or a country.

And the fact that we've been able to do it in our country at the levels we have has really been the big driver in that. So I think it's a good problem to have. We got more demand than that we can serve and we've got to hire more people to serve it.

ADAM SHAPIRO: Can you get back to that 12.4 billion you saw in revenue from 2019 in the second quarter without international? What are the plans? Because Europe seems to be slow to get up to speed.

ED BASTIAN: Well we got-- we've got to get the world back up again. About 35% of our-- of that number that you quoted, the 12 billion second quarter '19 was international. So right now, that number is very low.

It's less than a quarter of our international revenues today. In fact, I think it's even lower than that. So we need to get Europe, which is our biggest theater of operation, open.

Working very closely with the White House, working very closely with the European authorities. US vaccinated travelers can go to Europe, can go to the EU countries, southern Europe throughout. They can't go to the UK yet.

And as a result of that, we're unable to take travelers to the UK, which is our biggest international market. And secondly, we can't bring any Europeans or UK nationals into our country because the White House still has had them on a restricted list. We've given all the data, all the science to the White House that suggests--

That's done by our scientists at the Mayo Clinic, that suggests it is safe to travel between the US and Europe, between the US and the UK, given the high vaccination rates in both continents. Unfortunately, the administration, I think, is focused on continuing-- Not unfortunately, but it's a reality. Continuing to increase the vaccination rate in our country before opening up the borders to other nations.

ADAM SHAPIRO: So as we look to the future, we should point out that the airline ranks number one among US airlines among customer satisfaction according to JD Power, right?

ED BASTIAN: That's right.

ADAM SHAPIRO: Congratulations on that.

ED BASTIAN: Thank you. Congratulations to our people, yeah.

ADAM SHAPIRO: Yeah. What do you expect in the third quarter? Will we be using the word profitability or profitable for the entire quarter?

ED BASTIAN: For Delta, I think we will. We're guiding in the third quarter of profit in the mid-- the mid single digits. Hopefully it gets better than that, but I feel pretty comfortable in that range.

And then continued profitability in the fourth quarter and beyond. It's really going to be a function of getting business travel back. The continued growth there as well as international markets, which right now are very hard to predict when some of those markets will be open.

ADAM SHAPIRO: And the last question for you. You rank among the top 10 CEOs in the United States according to Glassdoor. I certainly don't want to put you out of a job, but do you have a succession plan? You've been in the CEO seat for about five years and certainly plenty ahead of you, but is there a plan in place?

ED BASTIAN: Yeah. I'm in my sixth year, Adam. I've got I've got more juice in the tank for a number of years to go. But yes, all CEOs and all boards have to have succession strategies.

It takes time to develop a future CEO in any business. And we have some great candidates here at Delta over time who I spend a lot of my time with, that could be very viable successors. You know, it's a great company. It's not about any one person.

We're 75,000 strong. I'm honored to sit-in the CEO chair. But it's really about the work our 75,000 do that makes a difference every day.

ADAM SHAPIRO: Delta CEO, Ed Bastian. Thank you very much for joining us.

ED BASTIAN: Thank you, Adam.