Delta Air Lines, Inc. (DAL) Earnings Call Transcript & Summary

[Audio Gap] covering from a pandemic. Technology investments, just across the board. We've put so many new opportunities to not just having weathered the storm for the last 3 years, but actually coming out of this stronger as a result of that. Our international partnerships that we retained, and we're coming out even better positioned as a result of having weathered this together really strong. And the management team that we have here at Delta, some new leaders that we brought in to the company over the last few years that have brought some great new talent. But as a team, I don't -- I know there's not a better team in this industry than the leadership team, the management team of Delta. And I dare say, I've never worked at Delta, and I've been here for 25 years and have been CEO now finishing my seventh year. I've never worked with a management team collectively that's more talented than the team here at Delta. So the momentum that we have is we're exiting '22 going into the new year is very, very palpable. And hopefully, you saw that with our guidance upgrade in terms of fourth quarter performance and what we're looking at for '23 that we issued this morning. Against that backdrop, in my 25 years at the company, I also -- while it was the most challenging environment I ever saw in '22, I've never seen a more constructive industry backdrop than we have today. And you're all familiar with many of these factors. The constraints that we have around supply chain, around the OEMs, the capacity challenges that this industry always struggles with is a very different outlook than ever before. You see the demand drivers. I'm going to spend some time talking about these this morning in terms of -- it's not just pent-up demand. I think this is sustainable, strong demand that we're going to see for an extended period of time like never before. When you look at the new travel patterns, everyone is hyper-focused on corporate travel. Everyone wants to know what's your corporate travel number, and our corporate travel number is around 80% return. By the way, we said all through the pandemic, we never expect it to come back as it left in 2019. We may only get to 80% to 90%, and that's okay because we have so many new forms of travel by those same individuals because mobility means you can actually work wherever you are. It doesn't mean that you have to be in the office to do it, and we find so many new ways in which people are traveling. And the pandemic lessons that were learned over this course of time. We are all -- as I said, we're all running a pretty good industry right now and the numbers I mentioned at Delta. I'm pleased to say our competitors are also doing a pretty good job on that, but it's fragile because we all have new people. We all have new processes, and the risk of overshooting your capabilities is too high for anyone to take. And so we are not going to continue to grow into these operational opportunities until we're confident, we have the skills, the experience and the talent in place. So while you've heard across the industry, many of the forecasts for industry growth, we're all looking to restore, we're all looking to get back, I'd say that's largely aspirational as compared to substantive. Hopefully, we'll be able to get there by summer. But I'm not certain. It's not something I wore out. We're not going to grow there until we're confident we can deliver against that. And finally, that leads into strength in financial momentum. And before I get into the financial numbers, I know you all want to know what's going on. Does this include new pilot agreement? Does it not? How are we thinking about this? We've embedded in our key financial metrics the assumption that the AIP does go and gets ratified. Of course, that's up to the pilots, and I'm not going to talk about the AIP for that reason out of respect for the process. We'll let our pilots decide what's best for them. But the assumption is that the agreement that was made, the AIP with the negotiating committee of ALPA is embedded there. So the EPS guide that you see growing next year from $5 to $6 from $3 in '22 assumes that the deal is approved, and it's in that number. The -- as well as the '24 number. The double-digit operating margin that you see in these materials assume that the pilot deal is approved. Our leverage metrics assume it's approved. And free cash flow also assumes it's approved with one slick caveat is that the signing bonus, the upfront payment, we're going to treat as an off item, as a nonrecurring because it relates to an unusual factor. It's not in the normal operating course. So put that aside, that's what you'll see the free cash flow numbers, so north of $2 billion, that we're providing. But that's about as much detail as we're going to give you, okay? So don't ask Janki about what is the CASM or Glen, what it means to revenue. We understand the questions. We'll answer the questions when we know if we have a deal or not. But the metrics that really matter that we want you to focus on, profitability, leverage, margins and cash, that's embedded in these assumptions. I'm going to spend most of my time this morning -- and I won't spend 30 minutes. I promised, really. So I'm just going to move. Glen and I already have a private bet what my over-under is going to be. Talking about the industry, okay, because, yes, we have a great story here at Delta. And I'm going to leave most of the discussion of the great Delta story to Glen and to Dan to describe. But I want to step back and look at the industry because we all operate in a large ecosystem. And there's factors at play that I think people are still having a hard time either coming around learning about this industry for the first time where they forgot or they kind of dialed out during the pandemic. And there are some reasons why, first and foremost, the top question that many of you have as to how sustainable this revenue demand picture is. We think it's sustainable. This is a picture that many of you have seen over time. This portrays how much air travel spend is of GDP on an annualized basis, and it goes back for the last 40 years. And there is one number that jumps off the page, actually, it's 1.3%. And that's the average year in and year out of air travel spend. And it's domestic travel, it's international travel into our country, out of our country. So it's not just the U.S. airlines, but it's all travel related to our country is of total GDP. It was 1.3% through the '80s. It was 1.3% through the '90s. It broke on 9/11 for obvious reason but came back relatively quickly. You see a little bit of a downtick in 2009-2010. That was the recession that we had. You saw it overcorrect in the out-years. In fact, for the last decade, the average number was 1.4%, wasn't just 1.3%, and there's various reasons why it might have ticked up just a touch. But if you look at the last 3 years in terms of what the inherent demand for travel would have been absent the pandemic, what people wanted to do and what they actually could do in terms of travel, there's a massive gap. There's $300 billion of missing demand that we've had over these last 3 years. And when people say, where is the strength coming from? Is this just pent-up demand? Are people going to -- when they're going to get tired of going on trips? And when is this going to run out? I don't think it's going to run out for an extended period of time. And I'm saying that based on history. We all have our views. We got our crystal ball. But candidly, our crystal ball is not much better than the next 90 to 120 days. And Glen will talk about that, and it looks pretty good. But as you look out over the course of next year, and I think for several years to come, this $300 billion of missing demand, not all of this coming back, obviously, but some of it will. And it's going to be a big number, whatever that number eventually turns out to. And just in '22, if you look at what the gap is to '23, and we're making the assumption for '23 that there -- it's a flat GDP picture in the U.S. I'm not sure if that's conservative or not, but that's the assumption we used in this model. There's $30 billion just for 1.3% of travel spend in an incredibly hot market for travel. That's $30 billion that will come in next year for the industry. Delta is 15% to 17% of these numbers, so you can do your math for Delta. But that's assuming no catch-up, just travel demand consistent with past practices. So this has sustainability. And this is one of the -- I think, the core reasons why people are looking at what's going on here and why is this different. Well, this chart is different because people love to travel. And this is part of our behavioral opportunity going forward to continue to capture not just the travel, but the premium in the higher-end portion of that travel. Secondly, there's a lot of discussion on capacity. And you all hear us, as I said, aspirationally talking about bringing our system. We're aspirationally planning to get back by summer to 100% of 2019 capacity. And people rightfully say, wow, this is the -- airline is doing some of their old bad habits. They're starting good times and they grow too fast, and it turns into bad times. This is not the case, okay? Look at this chart. This chart is a depiction of where we were at the end of 2019, basically the start of the pandemic. What the analysts, forecasters, there's a couple of analysts here. I can't read small print as to who we use, but whoever you are, thank you for contributing your report. But at the end of 2019, the expectation was the industry by the end of '22 would have grown capacity to 116% of 2019 level, so a 16% growth. Where we actually are is we're at 91% of 2019 in 2022. It's a 25-point gap between what expectations were, and by the way, where demand is because demand based on GDP is 18% to 20% higher than 2019 and where actual capacity sits. And you say, okay, well, how quickly is that going to close? Well, you look at the constraints we have. These constraints are substantive. And as I said on the [indiscernible] interviews, we tried, we tried to grab it. And we broke this spring. I mean it just -- we just can't move faster than we are. We're all working. So pilot constraints obviously being the chief of those. When we had 2,000 pilots at Delta retire in the summer of 2020, we knew at that point it was going to take us 3 years to get back. We were okay with that because we didn't know how long this was going to take, and we'd rather be cautious and disciplined. We knew it would take us to the summer of '23 just to get back to where we were in 2019. It's proving largely to be the case. We'll see if we can get there. As I say, it's a bit aspirational. Hopefully, we can do it. And you have -- but you have that same issue all across the industry. And the further downstream you go within the industry, the more challenging this is because the musical chairs and pilots continue to jump. You see the -- you saw what our AIP was in terms of price. That price -- the size of that price tag just grows the further down the chain you go for the regionals and some of the lower-fare carriers in terms of their ability to hold on to their pilots because they're all making moves for the future. You think about the hiring and training needs, not just for our pilots but for all of our staff, our mechanics, our reservationists, our airport workers, our flight attendants. We're still hiring flight attendants. It's a significant gap between where we need to be and how quickly we can move than where we sit today. You look at the rising input costs. With the fuel volatility we've seen going from the highest jet fuel prices we've never seen back down. And there's a pretty significant amount of volatility that we're seeing in our input cost, labor, fuel, inflationary pressures, all of which tell you to be cautious. There's red flashing lights. Be disciplined as to how you're thinking about this. And then, of course, the impact on industry infrastructure. We've all heard the discussions that's going on, on air traffic control and do we have enough staffing and is the system working, and it's a challenge. So the industry is very fragile. Next couple of years, hopefully, we'll all be in a much healthier place to kind of start to absorb some growth. But for the next couple of years, this gap is not going to close a whole lot. And demand growth, I think, will continue and the ability to supply it will be strong. This is unique. My 25 years, some of you have been around a lot longer than me, never seen anything close to this. This is real. And the third chart I want to depict, which is a little different message, is that there's a lot of old tapes that haven't died yet. And one of the old tapes is growth in the airline industry is bad. And just as a general theme, growth is -- can be good, growth can be bad. But if you're not disciplined, it is bad. Look at what this shows for the last 30 years. Where did the growth in this industry? How was it sourced? It was sourced from better utilization of assets, not just growing for the sake of growing. In 1991, some of us remember this. I'll admit, I was a business traveler back in 1991. I remember this. 60% was our average load factor, 60%. In 2000, it was 70%. It wasn't until we got to north of 80% did we actually have a sustainable business model, okay? And I'll give you just Delta's numbers on that. In 2010, we were about at break-even profitability. And by the way, it didn't have -- yes, there was a recession going on, there was a merger going on. But put that aside, we were about a break-even business. The latter half of the decade from 2015 through 2019, our average operating margin was 14.5%. You ask me why. Yes, we did a bunch of things. The main thing we did was we utilize the assets a heck of a lot better. And we no longer have that overhang of seat capacity that continues to suppress the pricing in this industry. So this is a factor, again, as you think about the other side of this, we are just trying to get back to that plus-30%. And these are seats, by the way, not capacity. And as Glen always reminds me, we don't sell ASMs. We sell seats. These are seats. We're just trying to get back to that 30% by the end of '23. And that revenue picture that I showed you for 2019 is even higher in terms of that demand picture. So to the extent that we bring back our assets and we return to service, I think it's the right thing to do and certainly what Delta's going to do, but it's going to take us a while to get there. But we're adding those seats into a highly -- high asset utilization model that is at the crux of the strength of our pricing model. So you put those 3 charts together and you say, wow, I think this could be an interesting few years for this industry. And these are some of the thoughts and the discussions that we've had internally as we've developed the plan that we're showing you relative to '23 and to '24. So in 2022, I already mentioned, hard year, challenging year. I can say in my 25 years working in this industry, I've never seen an operating environment like 2022, just absolutely crazy. You say, well, geez, you around for '20 and '21, they were pretty -- yes, they were tough but it wasn't like '22. I mean '20 was very -- was a tragic year with COVID and the loss. You were just trying to protect people. In '21, you had a lot of stops and starts and the vaccine coming and not and trying to -- it was kind of -- it was a frustrating year. '22 was a hard year. It was a good year, but it was a hard year. And the team did a magnificent job. Best performance in the industry, profitability. Why is best performance in the industry reliability-wise? We had our best customer satisfaction scores in our history in '22. We've gained 5 points of Net Promoter Score in '22, even against the crazy backdrop we've been through versus where we were in 2019 as we exit '22. Our Net Promoter Scores are in the mid-50s. Our premium products continue to outperform. The diversity of our revenue streams continue to expand. The investments that we're making in our people are great. The investments that we're making in our facilities, investments we're making in our technology. When the pandemic hit, we didn't pull back, we pushed forward. And we've taken years off the development cycle on a lot of the long generational investments that you see this company making. And the reason why it's all showing up this year, that wasn't the plan. It was because we moved fast. We had confidence in the team that was making this happen. The strength of the financial performance, Dan will talk about that. While we are ahead of plan, certainly, there's cost pressures that we experienced that are one of the things that didn't go as we anticipated. Dan will talk about that, a bunch of reasons why. But when you think about the overall revenue environment, the cost backdrop, the margin performance, we think that '22 is a great table setter for '23. This is a picture of our operating margins and income over that period of time. And you can see that for the last 3 quarters, and this is updated for the guidance that we just issued for the fourth quarter, we're operating back to a double-digit operating margin in a recovery year with a lot of challenges attached to it. You can see at the bottom that we've narrowed that gap to 2019 performance from 6 points below 2019 down to 1.5 points below in the fourth quarter. And this is something that we're going to take again into '23 as we continue to look to grow that operating margin. The outlook for '23 and '24 are on the page. These are the key metrics that we're going to embed and speak to. One of the things that's critical to '23 for our company is that we move out of this hiring, training, kind of continue to push resources around into a production mindset, and we're there. We have the assets to deliver this 15% to 20% revenue goal. Yes, we have some planes on order. And whether they all show up or not, I can't be sure, but I think the majority of them will. But we have the people, we have the assets, we have the capabilities. Can we pull this off is going to be really a question of confidence in execution. But '23 for us is going to be a year. We're slowing the hiring, we're starting to move more into production. You're going to see that the cost profile starting to come in. You're going to see the productivity levers continuing to return. You're going to see people that will now have 2 to 3 years under their belts, they've seen the hardest time they'll ever see. It's just going to continue to get better from here. And that's not just true on our frontline side. That's true on our leadership front as well. The operating margin guidance that we're expecting in '23, the midpoint of that, 11%, that's about a 300 basis point improvement over where we were we came out in 2022. EPS of $5 to $6 per share, that's almost double because we're closing '22 with a little over $3 a share, close to double that in '23. And again, that embeds the assumption that we -- the pilot deal was ratified and those costs are included. Free cash flow. One of the differentiating factors of the business plan you're seeing today at Delta versus many of the other airlines in the industry is the return of free cash currently. We're not waiting for some time. We're delivering that now. We committed to you a year ago that we're going to have in excess of $2 billion of free cash flow in '23, and we're continuing to reiterate that commitment to you this morning. And by the way, $4 billion in '24. We have -- yes, we have assets. We're managing our CapEx to somewhere between $5 billion and $6 billion a year. As I tell our team, there's a lot of things in this industry you can't control. CapEx you can control actually. And we're going to manage that because we know is a key factor in making sure we hit these free cash goals, which will drive the leverage ratios down to -- by the time we get to the end of '24, we're going to start to be spitting distance from investment-grade metrics, which is our plan. And finally, you've heard me talk many times about Delta's competitive strengths, its advantages. I call them our moats. Our lawyers don't like that. So I've started to call these are superpowers. But this is what makes Delta who we are. And this is the same slide I showed you 5 years ago and I'm showing you today. And when you think about the power of the moats, they've never been more tested than going through a pandemic. I got asked a question on the set this morning, can you save to -- save for a rainy day? Rainy is kind of a silly question. Of course, you can't. But what you have instead is you have really strong moats that protect you and get you through tough times. The people of this airline are the reason why we are as good as we are. Their service ethos, even with the 25,000 new people we have, they love this airline. They love the purpose of the airline. They're working hard to continue to deliver the productivity, efficiency, the service levels that's known in this industry. And it takes time to learn what that is, but we're on the path to get there. The operational prowess of this company is legendary. And while we move different people into different roles, that operational prowess is back. number one in on-time arrivals for the year, number one in completion factor, number one in mishandled bags throughout the summer, these are numbers that are going to continue to only get better looking forward. Glen is going to talk a lot about what we did with the network. We are so thrilled with the approach we took. I'll say, I'm thrilled around the network, particularly making certain that any growth you see coming into next year is coming into basically our backyard into our strength markets, our core hubs. We deliberately went out and put our capacity the last couple of years in the most competitive markets, New York, L.A., Seattle. Wanted to build up those investments we had made in the coast kind of once-in-a-generation opportunity to really establish, and we're number one now in many of those markets. But this is the year we come back home. We come back to Atlanta, we come back to Minneapolis, we come back to Detroit. And this is where we make our money. And they bring more growth in. It's just going to have the opportunity to continue to grow the performance of those. The JVs I've talked about, we have awesome JV partners, all of whom went through a tough time, all of whom have emerged, I think, in pretty good shape that we're going to continue to invest in. Loyalty, the brand is strong. Our American Express relationship is powerful. I think the co-brand spend is over 40% up versus 2019 levels on that card. I think we're looking at a $5.5 billion contribution from Amex a year ago. Remember, I brought Steve Squeri, and there was a lot of questions. Can Delta get to $7 billion? And he said, not only can they. I want them to. And we're on path to get there by 2024, if not hopefully exceed that. And the financial foundation is -- we took bullets, we took water in during the pandemic, but one thing we did not do is dilute our equity holders. And I'm proud of that. We were able to borrow. We took on about $10 billion of net debt. But our equity holders, people have stood by us. We didn't think it was right to dilute. We were able to get through this without doing that. Hopefully, it will be a testament that you will find on the other side of this was one of the things Delta strategically did that was very, very important is to a statement as to who we are. So you put that whole picture together, you've had a company I think that's really poised. And listen, I've just been through a pandemic. I'm not coming at you. I sound like a little bit of a rose-colored glasses and I'm a born optimist, I appreciate. But this company really is poised for some great growth. I think the demand picture is healthy. Glen is going to talk about that. I think the cost opportunities are real. I think the performance in terms of the brand, performance of reliability, performance of the airline, what matters to customers that drive the connection that we have is just going to continue to grow over the next year or 2 or 3. And this is going to be a great opportunity, very unique in terms of industry macros generally. But sometimes when you're different, it's time to pay attention. I think this is one of those times. So thank you for that. And I'm going to turn this over to my good friend, Mr. Glen Hauenstein.

Well, good morning, everyone. And I'd like to add my thanks to all of you for being here today, whether you're virtual or here in person. It's great to see everybody, and it's great to tell our story of '22 and what we see shaping up for '23. It was really, as Ed pointed out, an incredibly challenging year. And if you go back and think we were here -- well, we were down at Wall Street, but we were here on stage telling you what we thought '22, our next 3-year plan would be. And we didn't know how bad Omicron would be. We didn't know how bad fuel price would be. We didn't know that we have 30% of our regional fleet sitting on the ground. We didn't know that we'd miss our production targets by 5 to 6 points. We didn't know a lot of things that were going to get thrown at us. But to be here today and to be coming in at the upper end of our revenue range and being able to sit here and come at the upper end of our guidance, I think, is a really exciting. And it proves the durability and the flexibility of the model in general and Delta in particular. So I want to call out the team, I know they're watching at home, and I want to make sure that I thank them too because they did an incredible job. And they did an incredible job producing the products. They also did an incredible job forecasting the revenue. So I'm going to call out the revenue team. I got a lot of questions this morning because some of our competitors have been talking about maybe a weaker-than-expected December and how that rolled in. And I will say that back in September, when we were looking at guidance to issue for the fourth quarter, of course, this is always a discussion because these are numbers we see 30 days out or 90 days out, and that's a little bit of some guesswork there. But the team had from the very beginning said that December was going to be the off-trend month that has relating to the calendar. And I think they did a fantastic job forecasting that early in the curve. And so as we sit here today, I think being above the midpoint of guidance and talking about where we see first quarter revenues, the December month was the off-trend month as we go into January. January will be significantly better than December. February, we think, will be better than January. And March, we think, will be better than February. And that's all versus '19. And I'm going to point that out here. I don't know about you, but we're all getting really tired of this 2019 number. It's getting to be quite stale. And if you think about our year, as we went through the year to get to the $2.6 billion profit that we are talking about today and having lost almost around $1 billion in the first quarter, that means the last 3 quarters of the year, we produced that about 3.5. So when we get to the end of the first quarter and we get past Omicron, we're going to sunset our relationship to '19, and we're going to move it to '22. So I think we can give an applause to '19. It's been a very good benchmark year, but we are all looking forward to retiring '19 as our benchmark. And then last before we leave this slide is that we are in the middle of our corporate survey. I know many of you were asking me this morning about what are we hearing from corporates. We have about -- usually, we get about 400 surveys back. We launched it last week. We have about 200 back today -- as of today or as of yesterday, when I last checked. And what we see is a 93% response rate that they expect to spend more in 1Q than they did in 4Q, which is the highest number in sequential that we've had all year. So that's another very exciting point we want to hit on that what we're seeing from corporates is we're expecting a very good step-up as we head into 1Q. I talked about '22 being a very difficult year, but I think it really does prove out the real competitive advantages that Ed talked about. Deepen network advantages, I'm going to talk about that in another slide or 2 from last year. And I think it's paying big dividends. And I think it's going to pay dividends, not in '23 but in '24 and beyond. And I'll talk a little bit about that. Exceeded all our commercial goals. We have Dwight James in the room here. I'm going to give my applause to his loyalty team. Let's give them a round of applause. They did an amazing job. And we had another year of record acquisitions. We crossed 1.1 million acquisitions. I have a slide on that later. So I'm going to save the rest of that punchline, but expanding premium revenue. We, of course, put more premium seats into the marketplace. We're going to do that again in '23. And as we've talked all along, premium has led the recovery. And I think if you asked us in the beginning how would premium do in a pandemic, I don't know that, any of us in this room would have thought that, that was the leader in terms of profitability and in terms of getting us out. But it's been very, very resilient. It's been very resilient, not only with the corporates but with leisure, and it's very, very sticky. I'll talk a little bit about that later. As once you start sitting up there, you tend not to go back. And I think we all -- we have all experienced that. Once you're sitting up front and traveling upfront, hard to go back into the Coach product. And then increased revenue diversification. That's been one of our key themes. I think we've made a lot of great progress this year, but we've got a long ways to go still and a long runway. So with that, talk a little bit about our capacity restoration here. And this is a really exciting story. When -- we knew we would be constrained when we were coming out of the pandemic and the question is, well, what did you want to service and what were your goals? And I think our goals were that we wanted to maintain our share in our core hubs. And as we look through second quarter DOT data, we have increased our share in our hubs. I'm going to talk about that in the next slide because that was a little tricky thing to do. We -- and so when we think about where we need to go from here, it's about restoring back to '19 levels. And what I want to talk about is the fact that Ed talked about is ASMs versus seats. A lot of you in this room have historically used ASMs as the precursor. And I used to give this example to our team is if we add one flight to India, we had about 1% of ASMs, and we add like 0.1% in seats or 100% in seats. And so really filling up those 200 or 300 seats, if you add something very long haul is very different than filling up more seats in the domestic or North American marketplace. So if you look at the key slide here, I think this is even more important that our seats in '22 were only 86% restored. And in 2023, we will not get back to full seat restoration for the year. So we will be selling 2% fewer seats in our most current estimates than we sold in 2019. So still not getting to the number of seats we had in 2019. Now that is a very different by quarter. And by fourth quarter, we hope to be actually slightly ahead. But throughout the first 3 quarters of the year, we will be below our seat counts in 2019. And of course, departures being way down, and I'm going to use the next slide to talk about the efficiency of the fleet. The last thing I want to point out is the comment I made earlier about our regional jet fleet being underutilized. We have between 80 and 100 regional jets out of our 325 2-class RJs that are now underutilized or not being utilized. And so that is one of the things that we're going to carry through most of '23. We do not think that this is going to resolve itself until '24. In other words, that the regional jet pilot shortage will be with us throughout this entire year. And we're expecting it to start to loosen up, and we look at how many people are coming through the schools and what the demand is at the major carriers. And then the last thing I want to hit on, on this slide is, of course, fleet efficiency. And I'll get to that in a few minutes, but I have a very exciting factoid for those of you who fly on us, and I know most of you in this room do fly on us. So thank you for your business. But we will be the first carrier in the United States, we believe this summer, to be the only airline with first class on every seat, every flight, every day. Every seat, every flight, every day. That deserves a round of applause. That takes us a long time to get to, but I think we'll be very appreciated. We think America deserves a first-class airline, and we think that first-class airline is, of course, Delta. I want to talk a little bit about how we restored the network and what we accomplished and what we have still to go. When we knew we would be constrained coming out of the pandemic, we had 2 things that we wanted to accomplish. We wanted to take advantage of a generational opportunity to solidify our positions in our coastal gateways. And our coastal gateways include Boston, LaGuardia, Seattle, Los Angeles. And we wanted to maintain our core hub share. And if you look at the previous slide and you say, you had 86% of your seats restored in '22. And we were actually larger in terms of seats in every one of our coastal gateways except New York, which was pretty much flat. But a large expansion in Boston, a large expansion in Los Angeles and a moderate expansion in Seattle. Then what happened to the core? The core had really constrained seats. So Minneapolis, Detroit, Atlanta, in particular, Salt Lake being a little more restored than those 3. But our core engine, the core engine that fuels the profits of Delta, was the least resort. So if you take the 86 and you say the coastals were stored at 100% or more, that meant that your coastals were below 80 -- well below 80. And then they said, okay, if you're actually actively managing your revenue management systems to favor the local because the reason local was important to us is we didn't want to seed our most loyal customers and open up opportunities for low-cost or ultra-low cost in our hub markets. And so we needed to maintain that, and we did. We have actually gained 2 points of local market share throughout the pandemic from where we exited versus where we came in, in 2019. So that meant somebody didn't get on the airplane. And the people that didn't get on the airplane were the people who are in the outstations who saw fares that were significantly above our competitive fare structure. And these are high-yield customers, and we saw this not only in our traffic numbers, but we saw it in our corporate shares. We gained corporate shares in our hubs. We gained corporate shares in our coastal gateways, and we lost corporate share in key business markets across the Southeast in particular and the Upper Midwest. And so as we look to rebuild our network back in 2023, people this morning had asked me, well, why do you think yours is easier? And everybody says theirs is easy, right? Nobody is going to say theirs is hard. But what I think we did, we did the heavy lifting during the pandemic. It would have been much easier for us to say, let's shrink the coastal cities and we'll concentrate on our core, and we'll drive the maximum profitability through 2022. We chose not to do that. We chose to take a longer view and say, we wanted to maintain and increase our shares in the coastal gateways because without that, our opportunity for growth in the future is somewhat limited. And so we wanted to do that, and we wanted to make sure our core was maintained. So this year is about 3 things: it's about increase in gauge, getting those customers back and then ensuring that we have adequate capacity in the coastal cities. And I think that is a much easier setup for '23 and beyond than had we done it the other way and that this year, we were starting to build back Los Angeles or Boston. We didn't go into the recession or the pandemic with the number one share in revenue in Boston. We went in with a distant number two. We didn't go in with the number one share in Los Angeles. We went -- came in as number two, coming out of the pandemic with number one in those 2 key cities, which are both, of course, Los Angeles being the largest single airport revenue market in the country and Boston being in the top 10. Those are really important for not only today but for tomorrow's development as well. So I'm really proud of the team. We set those objectives up. We executed on them. When we look back in the rearview mirror, we can put a big check mark on having accomplished what we set out to do and really, I think, setting us up incredibly well for '23 and '24. Another thing I just want to point out is that we have a relative revenue headwind by doing what we did. Our coastal gateways have a lower RASM, and our interior hubs have a 20% higher RASM when you take that. So as we look towards '23, we'll be looking at getting some of that RASM premium. We still have the highest RASM in the -- of network carriers, but getting some of that premium back that we had in 2019. So that's my thesis on why ours might be easier or should be easier than our competitors, mostly being driven by gauge and frequency in the core hubs. Of course, we also had a lot transpire with our global networks and our partners over the pandemic period. And I want to stop a little bit and say how excited I am with where we sit with our partners. And I think the most exciting one, I'm going to go to LATAM right away because this is new. In 2019, we announced it right before the pandemic, and it took us through the entire pandemic. And thanks to Peter and the team for getting us the ATI. We got that a couple of months back, and we are hitting the ground running with LATAM. And of course, this is the region that we had, we had the number three position historically. And we really -- with our previous partners in GOL, we really didn't have a way to get to be number one. We like to be number one. We think there's a lot of benefit in that in terms of distribution and presence. And so switching to LATAM and getting that approved is a great, great accomplishment for things that we did during the pandemic. And we're hitting the ground running. We actually have a meeting with them in Miami this Thursday, where we're going to celebrate the initial wins. I think we've -- our teams have been together for the last 2.5 months, creating checklists and work plans. And we see some great opportunities to continue to expand our number one position in South America as we move forward with LATAM. The other one I'd like to talk to, which also transformed during the pandemic, was Korean. Korean, of course, as you know, was the largest transpacific carrier in and of itself. And they're now able to join forces with Asiana. That's in the process of being approved globally now. But once you put them together, they will have, by far, the largest hub in Asia and one that we can connect to and really funnel most of our Asia traffic that we're not going to serve nonstop over their hub. And for those of you who have used it, and hopefully, you have, if you travel at all to Asia, we believe, by far, it is the best customer experience and the best connecting complexes. And those are only going to get better over time. So really something that's transformed during the pandemic. Of course, our industry-leading relationship with Air France and KLM continues, and we expect to have a very, very strong 2023 with them. I'm sure in questions and answers, we're going to get a lot of questions about how we see European demand shaping up, but I'll give you the teaser on it. We see it very good through the winter and accelerating as we get into the -- back into the peak season of spring and summer. And then last but not least, Aeromexico, not to mention that of these carriers, both LATAM and Aeromexico, had to go through a bankruptcy restructuring because they got little if no government support. So -- but they're both out. They're both in very strong positions. And Aeromexico now producing consistent profits and very robust. And we're hopeful. The one thing we have to get to with Aeromexico is -- for those of you who track this, Mexico is a category 2 country right now, which prohibits expansion between the 2 countries. They're meeting this week. So we're hoping that those -- that gets resolved in the first half of this year, and we can go back to a category 1 and continue to grow that franchise with them. Last but not least, I'm just going to say, we were not without challenges in '22. Ed pointed out to a lot of them. And I want to acknowledge that our European hub partners, both had very, very difficult years in terms of getting the staffing right, in terms of getting those models right. And we've been working very hard. Alain and the team have been doing a great job. And I think we feel very confident that we will not repeat some of the issues with connecting travel or even local travel in Amsterdam and Degaulle that we had this coming -- this past summer. So great plans in place to improve that moving forward. As we think about our opportunities internationally, and I talked about leveraging our partners a little bit, but I think the other is, well, how are you going to get your returns up in the international arena in the medium and long term? And we've been very honest with you and with ourselves that we have lagged internationally in terms of domestic -- in terms of international returns versus our historical domestic returns. And this slide is just illustrative of it. And I think there's a theory, even internally, at Delta is that the next flight that we serve, the next market that we serve, whether or not it's Papeete or whether or not it's Cape Town, that's going to reverse our fortunes. And the reality is that on the margin, those are a very small percentage of our total international marketplace. And so what we really need to do is to do better in the 95% of the core that was flying in 2019 that's flying today and that's going to be flying tomorrow. And I think when you think about what we've done domestically, and maybe we've been a little bit ahead of this domestically in terms of our investments in domestic fleet renewal or in terms of domestic premium products, now we're really focused on international and the international rebuild and flying the same things and getting better returns. And you say, well, how do you do that, right? That's how do you do the same thing you did last year and do better at it. And it's really the same theories that we've used domestically. And it's improving premium product revenues, and that's really been a highlight of 2022, not only domestically but internationally. And so what are the key levers that we're going to pull there? And that is the full implementation of Delta Premium Select, the upscale coach product. The returns on those, we're getting fares that are generally double what we get for a regular coach product. And it's -- if you haven't tried it, it's fantastic. If you're a company or you don't want to spring for the flatbed and the Delta One and -- it's a really great alternative. And you think of where we started back just in '18, your choice was flatbed, direct aisle access or coach, right? And we weren't really satisfying very well the needs of different customer bases. So now this year, we have basic economy, of course, is similar to what we have domestically and nonrefundable, nonchangeable limited bags. We have Main Cabin, which is the traditional coach. We have Comfort+. We have Premium Select. This year, we'll be on all transatlantic and all transpacific by the end of the year; and then, of course, Delta One. So getting better at selling those, improving the selling proposition, improving the value proposition, getting paid for the premium products, introducing the premium products. And I'll tell you, these things, I hate to say this because it's -- they're flying off the shelf. We don't have to try really hard to sell them. They're selling themselves. And as we continue to bring them and continue to refine our models, get better at the pricing, the relative pricing between those, I think we have incredible upside there. Then the second is improving the cost structure, right? So we've got to improve the revenue base. The revenue base is going to get improved by improving the premiums. We don't see a whole lot of momentum in coach, and that will be based on supply and demand, but really focusing on premium products driving the upward momentum in unit revenues and then having the fleet drive our cost down. By this time next summer, we will have 30% to 40% of our capacity in new generation airplanes, lower fuel burn, more eco-friendly, much lower carbon emissions and more premium products on those airplanes and just generally a significantly lower cost structure, similar to what we've done domestically with a slight up gauge. So every time we retire a 767 and replace it with an A330-900, that is many margin points in terms of CASM that we improve. And then last but not least -- well, I have 2 more, actually, is our cargo performance. We did a self-assessment, and I think it's -- we came to the obvious conclusion that we have historically underperformed in cargo. And for long-haul international, this is a key component of profitability, one we knew we're going to have -- I think as we close '22, you'll see significant relative improvements. And in '23 and beyond, I think we're going to get even better. And that goes back to the fleet improving as well. One of the reasons we weren't as good of a cargo carrier, and there were many reasons, but not the least was we had the lease cargo capability because the 76 is not a very cargo-capable airplane. And every time we replace them, not only do we get more premium seats, but we get a lot more cargo capability. And the more you have of anything, the better you are at selling it. So we have a lot of opportunities, we think, as we move forward in the cargo space. And then last but not least, counter-seasonal flying. I think one of the things that we did that is underappreciated is we did a huge international fleet restructuring during COVID. And coming out, if you think about having 17 777s, which is the number we had pre-COVID, getting rid of subscale fleets that we didn't have a future in. And if you think about how we flew that 777 fleet, we flew it every -- we had 1 spare, we flew -- of the 18 airplanes, we flew 17 of them in the summer. In the winter, we were flying 11 or 12. And having your crews sit home, having your maintenance done in winter, we just weren't getting production and cost structure out of those small fleets. So flushing the small fleets, getting into fleets, so we can have scale on and then working to create counter-seasonal opportunities. Has anybody in this room been to Papeete? All right. Did you enjoy it? Yes. Okay. So markets like Papeete that peak in the winter and counterbalancing then with Europe so that we create full year-round airplanes that are much more flexible and can have us get better -- drive better asset utilization, not only in the short run but in the long run as well. We talked a lot about the -- I've talked a lot about premium products internationally, but this really illustrates the difference in, a, where we're growing, how we're growing and the margin and how we're approaching this. We want to be America's first-class airline. We want to be known as the best in class. We worked very hard operationally to get there. We work very hard in terms of the amenities that are on the plane. We know we have the best people but continuing to feed that as we move forward. And if you look since 2009, almost all of our seat growth, and this is a slide that went back to last year, has occurred in the premium product space, which has driven the differential and the improvement in our margins as we move forward and continue down this path. Our latest -- the latest arrival, even in the narrow-body space, the 737-1000, which we have on order for arrival in '25 and beyond, we'll have the highest component of premium seats as a percent of total of any fleet. So you see us continuing to move down that path, eliminating 1 class 50-seat airplanes. Those are the kinds of things that we are continuing to evaluate as we move forward. 15,000 more daily premium seats in 2023 versus '19. Growth in '24 continues. Premium will represent 30% of seats and a higher percentage of our revenue, we'll get to that slide in a minute. And people always ask, where do we feel that we are in the middle in terms of the innings, right? Are you at the end? Are you at the beginning? And I think we continue to see opportunities. And I think one of the things that is really underappreciated by investors is that these are relatively new products. And the way we brought them to market is not really best in class yet. So if you look at what underpins our premium offerings, it's an infrastructure that has been kind of put together not really organized for sales or for servicing. And as we think about the integration of how do these products price against each other, how do these products avail themselves in the market, are all your distributors selling them the way you want, we have so many more opportunities to continue to open the aperture and the relative value of the products versus each other even within Delta. So really excited about what we have coming over the next several years and the opportunities that, that presents. A little bit about SkyMiles and -- well, not a little bit because SkyMiles is one of our superpowers. Is that what you're calling it? Superpowers.

That's what the lawyers say.

That's what the lawyers say. One of our superpowers. And when we said -- Ed was the one who set the $7 billion goal back in 2017 or '18. And we all looked at each other and thought, oh, my gosh, how are we going to get there? And through a lot of hard work and a lot of value creation, I think that I would be really upset if we missed any of these numbers. I think there's upside to every number in the future on this chart. And really, the question that we have to ask ourselves and one that I'd be asking us, if I were you, well, okay, you're going to make the $7 billion in '24. What's next? And I think we owe you that is -- and we're doing that internally as we're saying, okay, how far can we take this? And I think one of the things that I'll point out here is that only 29% of our SkyMiles members hold the card today. And that's been our most fertile ground for how we grow the card program is through SkyMiles acquisitions. And one of the reasons we are continuing to get record numbers of SkyMiles through the front door because not only is it great economically, but the more you're engaged with Delta, the higher your NPS scores are. And so if you're a nonmember, you have a score. And then if you have SkyMiles, you have a score that's higher than that. Then if you have all the way up to -- is if you're a SkyMiles members and a Diamond or -- and a Medallion with a card, you have the highest NPS score. So the more we can engage you, the more we can actually surprise and delight you, please you and engage you as a customer and have you be a part of our ecosystem. And so it's got so many benefits to continue to drive that acquisition for SkyMiles and for the card moving forward. So we have a lot of exciting things we'll be talking about in early '23. And when we get to Investor Day in June -- so I gave the month anyway. When we get to Investor Day in June, we'll have a lot more details for you about where we take this next. But I think it's very exciting. Big things are coming in '23. And investing in customer value. I think we've just started scratching the surface on things like small business, where we've got an incredible traction with American Express. Non-air partnerships, these are things -- I was looking at the window here. If you look at the window, it says Delta fashions. Well, that's not our next one. But we have a lot of things on the travel ribbon. We sold -- we will sell next year $0.5 billion of car rentals through -- on the site, right, $0.5 billion of car rentals. So $1 billion of vacation packages and continuing to grow those ecosystems. So there's a lot more to do here. We talked about our success of our premium loyalty. We talked about expanding the ancillary businesses, cars, cruises, vacations. But our goal here is to continue on our journey for revenue diversification, and I think we laid this out pretty well in last year. And I just wanted to give you the update of where we sit today with 55% of our revenues to be premium products and nonticket. And by 2023, 57%, our goal is 60%-plus. And when you think about it, and this is one that I think continuing to make the airline more premium, we think is resilient, not only in good economic times but in challenged economic times as well. And I think when you think about what we're facing right now with inflation, and we see who -- where the savings sit, who's planning on traveling more, we see that the premium sector is the one that is the most resilient, that the people who have a lot of wealth in this country plan on continuing to travel next year. And when we look at what our mix is, we have really not that many seats for the lowest end, the commoditized. And if we go back to 2019, we had probably 10% to 15% of our seats were sold in basic economy. Today, that's less than 5%, less than 5% sold at the commodity side of the business. And everything else is a value-add to that. Everybody else is selecting something that is not at the bottom end of the spectrum. And I think that just demonstrates that we are continuing to move our products and services to be designed for those customers who are willing to pay for something other than just a seat. And we do think that through the pandemic, through a recession, through all cycles, all parts of the cycle, that this will be the more resilient. And they may pay for it differently, but we're indifferent to that. I think the model that we're creating in there is that you can get into those premium products many different ways, right? You can -- if you're wanting to -- once you get there, 70% intent to repurchase, so pretty sticky. And say, you're a little bit strained on your budget, but you've got a bunch of SkyMiles, and you want to get to seat domestically first. Okay, you buy the ticket and coach and then you use your Miles to upgrade. So we've created an ecosystem that we think is resilient and that we're indifferent to. We don't care whether you use your SkyMiles or whether or not you're buying in cash because it's the same transaction to us in terms of revenue base. And last, I think we've done a great job this year. We had some really big announcements with partners like Starbucks, Instacart, and of course, our historic partner left, but continuing to grow our ecosystem. I think other big brands like Starbucks are seeing value and partnering with Delta and the SkyMiles team to -- for us to drive more revenue to them and for -- vice versa. So I think we're in a very exciting position. We have a lot of upside in this space and really is about our future years. So with that, I'd like to turn it over to my good friend, Dan Janki, to run you through what does that mean to our financials.

I didn't get to see his timer and I think he hit the over. Well, welcome. It's great to be here with you again, a year from when we were last time together. What I want to do is take you through our financial framework, our progress on that as it relates to our 3-year plan. Really want to focus on 3 key items: first, cost, cost execution; two, the opportunity in front of us as it relates to margin expansion; and then cash, cash generation and capital allocation and being disciplined about reinvesting back in the business, but also driving down towards our leverage goals while enhancing the return on invested capital. Those will be the 3 primary focus. But let me start with how we're closing out the year. We're really pleased and proud of how the Delta team is performing here as we close out the year ahead of our initial guidance. Operating margins of 11%, earnings per share to $1.35 to $1.40. That puts us for the total year over $3 as the first year of our 3-year plan. As Ed talked about, 3 consecutive quarters of double-digit operating margins and continuing to close that gap to 2019. Now it certainly didn't go as we expected and as it came out, but strong results. We lived in an environment of elevated input costs both as it relates to fuel and nonfuel costs that I'll talk about. So I feel like the momentum is building here at Delta. First year of the 3-year plan, on track, the third year of having EPS greater than $7 per share. So I want to start with cost, talk a little bit about where we are, where we're going. As we talked about throughout this year, our nonfuel costs were higher than we anticipated. They're higher than our plan. There are 3 primary drivers to that: one was the pace of restoration; two, the intensity of the rebuild effort; and then the third one was broad-based inflation. So let me first start with rebuild. Hired over 25,000 people here. Tremendous amount of resources that consumed. That was effort both formally and also informally related to that. And it also created a lot of inefficiencies. As we talked about on the third quarter earnings call, we're carrying over $1 billion of excess costs in 2022 related to this rebuild and related to those inefficiencies. The second driver was the pace. And as Ed talked about, we made intentional decisions in the second quarter to slow the pace intentional investments to protect the operations to ensure that we run it at industry-leading what we expect of ourselves, but more importantly, what our customers expect of us. That resulted in our capacity being 5 points lower than we planned. The third one, industry-wide inflation, predominantly in 2 areas related to our purchased goods and services, more on the service side than on the goods side. Contracted labor was a key driver there. And then the other one was the reset that we're seeing in the regional industry as it relates to regional cost drivers. So those were the drivers that kept us above plan. Those costs, you can see on a comparison basis, 2019 peaked in the summer period. As we run this reliable operational performance, it's allowing us to put in relative capacity restoration. You see the step-up in capacity of being in the low 90s versus low 80s. And you also then see the benefit that we're getting sequentially as it relates to scale and efficiency here as we close out the year. So 2022, the work is not done. It was a heavy-lift year. It took a lot of effort and intensity as we built the capabilities to fully restore with an eye to the summer of 2023. So as we get into 2023, it's about a year of growing into that infrastructure that we've built and completing the final components of rebuild in the first half of the year. We expect our nonfuel cost to be down 5% to 7% on a year-over-year basis. Certainly, this is predicated, just like what Glen took you through, as it relates to the commercial strategy and where we're going on running industry-leading operations. That enables both the commercial strategy. It also enables the ability to drive cost and cost efficiency. Cost comes from 3 categories. First, the scale and growth. Glen walked through a lot of components of that. I'll also share kind of where we're doing that, how we're doing it and why it's cost-effective. Second piece is on efficiency. Starting to make progress, but the real marker that we have as we go through the year is to get our -- have our operating groups at or near their historical productivity levels as we execute through the back half of the year. And then the other one is completing the rebuild. We will have rebuild costs down, $350 million year-over-year, '22 to '23. And the rebuild that we do have left to do will be substantially completed in the first half of the year. So maybe if I just give you few examples to give us confidence both in the capacity but also the drivers of efficiency and the completion of the rebuild. First, crew resources, pilots. This past year, hired record levels, 2,500. We completed over 6,000 qualification events, both of those at historical levels. As we progress through and into the second quarter, that May time period, those will revert back to historical levels. That allows us to take 1,000 resources out of training and put them into production. That's 2 things: one, it gives you the confidence and ability to deliver a fully restored network in the summer, but also it completes the rebuilt in the reduction of those rebuild costs. Another place you can look as it relates to those operating metrics of getting efficiency is where we're putting this capacity. Take our airport operations. They're effectively staffed. On the most days, we staff to the peak to ensure operational reliability at the peak. As we add this capacity in, we're adding it into those, giving it breadth and depth into those morning banks, into those valuable afternoon banks that Glen talks about both for local traffic and for connecting traffic. That allows our hours per departure to be down mid-teens year-over-year, thus creating those types of efficiencies. That type of -- that is the drivers of the operating leverage. You get the scale, you get the efficiency, you get the completion of the rebuild and reduction in rebuild cost. That operating leverage more than offsets the cost that we have in here as it relates to the increase in supplier. We expect another year where we'll take some inflation related to our supply base. It also anticipates a full year run rate related to the step-up and reset of the regional flying cost. And it has our traditional Delta labor escalation in there for our work groups. But as Ed pointed out, it does not include the agreement in principle that we have with our pilots. And continuing to make those investments that we talked about last year as it relates to our Sky Clubs, our airports, technology and clean. So we certainly know what it takes to deliver this improvement. We expect to prove here, improve in 2023 and then again in 2024. So this is a little bit about -- a lot of this ties into exactly what Glen talked about. It's where do we get that efficient low-cost growth. What are the drivers of it? Part of it is the how. That's the increase in the utilization of assets that we already have in place. This is getting the utilization out of our fleet. You see it returning close to 2019 levels. We're doing that with greater gauge and fewer departures, making it more cost-effective. The other piece of this is we're rebuilding. And Glen went through details as we go through the international piece. That's low-cost line that we're putting in place as we restore that network. We're also doing it with the next-generation aircraft that he talked about, its competitive advantage versus the current fleet. And then the third piece of this really ties into the next component, which is the domestic element of this, where over 75% of our growth is going into those competitively advantaged core hubs that are extremely cost-efficient, higher margin than the coastals. And why is that? That scale, right? High local passenger share, 6 out of 10 passengers connecting through that. And those are our lowest cost per employment hubs that we have, lowest cost in the system and also competitively advantaged versus our peers. The other thing that gives me confidence is almost half of that growth is going into Atlanta. That's our biggest, most profitable hub, deep operational capability, has got a deep team and advantage from it. So not only does this work from a commercial strategy, but it enables the cost and the cost efficiency associated with it. And this is what drives the improvement in 2023 year-over-year. So with that, we run the business. You can hear everyone talk about for margins. We certainly look at the unit revenue and we look at the unit cost, but you always put them back together as it relates to where are we as it relates to margins. To execute that commercial strategy that Glen talked through, whether it's premium, loyalty, where we're putting the growth, how we're putting it in with the operating leverage that we get from scale, efficiency and the completion of rebuild. That, coupled with the fleet renewal, allows for 3-point step-up as it relates to operating margins next year, 10% to 12%, significant, and then additional step-up as we go into 2023. And this is important here because I think Ed had that slide that showed what has transpired over time, and this isn't new to the Delta team. When you look at what the Delta team did from 2009 to 2019, it was foundational to that. Efficient growth but with efficiency with expanding margins to the mid-teens, outpacing the industry by 400 basis points. So team's got a track record of it. This is the focus. This is what drives the earnings power and the cash flow of the company. So first year, over $3 a share here as we close out the year on path for the $5 to $6 next year and greater than $7 in 2024. Certainly, as I talked about, margins as a fuel that drives that earnings growth, but also importantly, it drives cash. And that cash is what allows us not only -- generate free cash flow. It allows us to invest back in the business, be disciplined about it around fleet in the air, on the ground, our ground capital, our airports, but at the same time, continue to drive this journey of deleveraging, strengthening the balance sheet. We expect to move -- and this year at 5x leverage. Next year, we'll be at 3 to 3.5x, well on our way to where we want to be a strong investment grade of 2 to 3x. Maybe a couple of points to talk about related to that, one that's not intuitive as it relates to the pension too over this period of time, about the pension from where it was. You could go back a decade, but you can also go back 3 years. And you can look at it on a cash-funded status, it's just around 90%. Today, it's over 100%. 2019-'20, if you added that to your debt metrics, you'd be adding in $5 billion to $6 billion of liability. Today, where we sit, it's 0. So pension-adjusted, our leverage number without the pension to 1.7 in 2019 with the pension of 2.3. We'll be within 1 turn next year of that. And we've done that. As Ed talked about, this didn't -- we didn't dilute shareholders during the pandemic. So this is, again, heated disciplined capital allocation, continuing to build a strong balance sheet for the future. Now with that, when you do that, you have efficient growth, drive productivity, expand margins, power earnings, power is cash, right? You grow return on invested capital, all those elements work. That's what we're focused on. I'm excited. I see -- I'm confident in the future in regards to where we're going as a company. It's certainly mindful that the economic environment -- we sat here last year. A lot of things ended up happening differently than we expected. I'm sure that will be the case. As Ed and Glen remind me, there's always punches in this business. But we will be nimble, we'll be agile and adjust to it and continue to deliver, continue to deliver for our customers, our employees and importantly, our shareholders. So with that, we're going to convert the stage here a little bit. I think, set up the chairs, and we're going to go to an active Q&A. So thank you.

All right. Are we managing this running right there.

It's Michael Linenberg here from Deutsche Bank. I have 2 questions. I guess first one to Dan. It's great to see that your pension is fully funded. I mean you said a few years ago, it was $5 billion or $6 billion headwind, so that's much closer to the investment-grade metric that you aspire. Was that -- is that benefit a function of a step-up in the discount rate this year? Or have you yet to do that? And as we think about pension expense next year, it seems like almost every asset class has had a negative return unless you were long in Brazil or something or cash. When I think about the returns of your -- in your pension versus that discount rate, like how should we think about pension expense in 2023 and the cash versus noncash component?

Yes. I'd say the -- it's not just about this year as it relates to the pension performance. If you put this up 10 years and look at what John and the team have done in regards to how they've managed it and manage the returns over time, along with the company's commitment of putting cash in is throughout here leading up to 2009 and during the pandemic. We contributed to cash to it. That is really what happened. If you go back and just look at last year, that net liability was just below $2 billion. So it's continued improvement. Certainly, rates help as it relates to liability side. As it relates to pension expense, pension expense will be up year-over-year. It's a function of the returns in the current year and the asset base you snap at once at the end of the year. And it will be up between $500 million and $550 million. I remind you that's noncash as it relates to that. Also in the other item, you have the interest expense down and others down about $150 million. So in that non-op piece, you can expect to be up about $400 million, and that's in what we've laid out for you.

Okay. Great. And then just my second question to Glen. I think we've had, what, about 1 year, 1.5 years now of no change fees. I think now it's both domestic and international. I think maybe it's across your entire network. How has that -- how do you think that has influenced customer behavior? And also the fact that now you're that much more competitive against some of the carriers out there with maybe the lowest fares, but they have still pretty significant change fees. Can you just talk about how things have evolved in that?

I think we had to do it in the pandemic is that we needed to get confidence back in travel. And with the spikes and the different strains, people needed to feel secure that they -- if they book that they were not going to get, put in a bad position. And I think what we have seen is that we don't want to be punitive, right, is that -- that was one of the genesis. We were on a process to morph them anyway because they had just become punitive. And what we want to do is we want to give people choices at booking. And so whether or not it's the flexi fares that we offer today that are fully refundable on top of just about any fare except per basic that you can buy or whether or not it's the products that we sell, that we want to better meet the needs of our customers. And that's our driving force between all these decisions. And so as we look, we think that we've been able to make up a good chunk of that, but still, it creates churn that is not what we would want ultimately. So I think on the margin, we're looking at things that could slow or prevent churn but never change fee again, right, is that we're -- we've crossed that bridge. And look at how well we're doing without it. So why put that annoyance back into the purchase path and lack of confidence. So it's more now to create things that people want to buy rather than things that threaten them if they change their mind or want to make changes.

Sheila Kahyaoglu from Jefferies. In terms of your cost guidance, maybe, Dan, for you. In 2021, you gave some buckets that are contributing to the increase in CASM-Ex, whether that was investments, inflation. How do you think about that breakout with the 10% to 12% nonfuel costs and some of the pilot assumptions you have embedded in there?

Well, just to be clear, we said that the pilot AIP is not in the cost guidance. When you go back and as it relates to CASM, you think about the same elements, right? As we think about going from 2022 to 2023, that scale and efficiency, that gives you the vast majority of the driver, right, of the improvement. That's 11 points of your improvement. If you compare it to '19, somewhat similar on a year-over-year basis. The rounding might be a little bit different. And then that -- and that's all from the scale and efficiency. You get the benefit of your rebuild, your transition being down 1. And that's all -- that's in that 11 points, right? And then you have the 4 points going against you, which is what you would expect. It's the element of our Delta-specific investments, and we're talking about airports Sky Clubs technology that we laid out in those buckets, plus the inflation and labor escalation, which is the supply base, the regional reset and then also the component with the nonpilot Delta wage increase escalation in there.

And then just on international, as you think about your international playbook, how do you think about what regions and partnerships are contributing most of that and the biggest opportunities?

Want to take that?

Well, clearly, the transatlantic gives our largest entity by far. And so that -- we're planning on having a very solid summer. And I think a lot of questions this morning I got at breakfast were about a recession in Europe. I think, for all intents and purposes, we're in the recession in Europe. How bad it gets, I don't know, but we're already there. And we've seen that the travel patterns have held up well during off-peak and advanced bookings for peak summer travel, which are 80% U.S.-based anyway. So the winter is the one that's more European. So if we make it through the winter as we see, which is a positive in terms of our total capacity, positive in terms of our unit revenue, I think that sets up really well for our summer peak.

It's Scott Group from Wolfe. Can you guys maybe just start -- just to clarify, I think, Dan, you said that the pilots excluded from CASM. I thought, Ed, you said that it was included in earnings. So I'm not...

Just to be clear, we're not going to discuss pilots -- so I'm going to hand off your question. What I'll clarify is I said in the big earning -- the guidepost in our margin, in our EPS, in our leverage ratios, it embeds the assumption that the pilot contract is approved. We've not drilled that into revenue. We've not drilled that into the cost lines. And so we just want to be clear on that.

That helps. And then just one more clarification, Dan. The pension headwind, you just talked about bets below the line, that would not be impacted in banking CASM?

Yes. It's below operating margin, above pretax, yes.

And then you had a slide showing the path for international to go from high singles towards, I guess, teens margins. What's the time line to get there? And how much of that do you get in the '24 margin -- '23 to '24 margin?

Yes. I think we should be fully there by '25. So it's between now and the end of '24.

Brandon Oglenski from Barclays. So yes, I think, called out real GDP being flat in '23 and obviously lapping Omicron in the first quarter, so revenue up quite a bit. But I guess, how conservative of an assumption is that on the demand outlook? And I guess, what is the tolerance of margins or demand doesn't hit plan? What are some levers that you can pull? I asked one of your competitors the same question, but it seems like the industry is very focused right now on rebuilding, getting back to where they were. So what do you do if the ecom forecast doesn't come to fruition?

Let me start there, and Glen and Dan, you can jump in if you want. Listen, I think GDP is a bit anyone's guess. But I can also tell you that this is a company that's just come through a pandemic. And so we are very sensitive to the economic outlook here, and we have a lot of levers that we're willing to play. The capacity you have in here, I do describe as aspirational, assuming we hit the core economic underlying growth that we're assuming even in a flattish environment. But to the extent we're not seeing it, we're not going to bring it back. We're going to adjust it. We're going to do different things with the assets. I think we have a lot of levers in that. Your question really to me is more of the strength -- the revenue strength. And that's why I spent the time at the start of the presentation looking at -- we think there is sustainable macro trends impacting our industry that are going to be greater than any one individual airline's initiatives or plans is going to continue to supply a lot of growth. And I think that unmet demand is going to stay around for quite an extended period of time.

And I guess as a quick follow-up, things that have changed since the last time we were doing this a year ago, interest rates are up quite a bit. So how does that change your capital allocation strategy? Is CapEx staying about the same? Obviously, you guys didn't come with an $11 billion plan, but can you talk about the need for replacement versus higher interest rates?

Again, I can start. We're not going to comment on some other competitors' CapEx, but we don't throw moonshots out there. We don't do once in a generation. We see other airlines do that occasionally. We've been very disciplined about doing it on an annualized basis. And we're always looking out relative to our order book 3 to 5 years out. And we buy aircraft all the time. We don't wait. But we always want to maintain the flexibility and the agility because we do have a volatile industry in which we operate in, and it's subject to a lot of different economic forces. Could we flex down that CapEx? Yes, we could on the margin, absolutely. But we're really wanting to make certain that we're in good shape to catch the demand that we have confidence in. And a lot of that CapEx is going to be not growth. It's going to be replacement. And by definition, it's going to have a lot of efficiency even in an economic downturn. But we're pretty much looking at 3 to 5 years. We're always looking at 3 to 5 years. And we'll have -- OEMs are always interested in getting Delta business.

And we're funding that with the operating cash flow. So we're paying cash for these assets. And while over this period of time of '23-'24, we're also deleveraging not only with the normal maturities but also ticking away at reducing the debt.

Savi Syth from Raymond James. Could you talk a little bit about the MRO side of things, just what you're seeing from third party and even just on Delta kind of the things that you need to do for your fleet and your kind of confidence in kind of keeping reliability and getting the fleet that you need given the supply chain issues we've been seeing?

Yes. I certainly -- the -- we're fortunate. One is we have a great team at TechOps and a really deep team both on the operating side but also on the technical side, the engineering groups. We work really closely with the OEMs, both air framers, the engine makers, the component makers. And certainly, the -- there are constraints in the system. Every day, it is changing as it relates to what part, what material, whereabouts it is. We've been -- our team has done a better job about getting out in front of me. So remember at the beginning of '22, we were with one of the engine makers. We started talking about if we could give them longer forecast related to material in regards to then they could get aligned. So the teams have been systematically doing that with our own so that we get -- they get better transparency to our demand and then we're able to manage it. So the real focus has been ensuring that we can take care of the Delta's needs and that we're lined up for that. And we continue to do that on the MRO side, where our customers are. We're coming off a base where we're not yet back to where we were on the business. And part of that is because we're really busy at Delta with the full amount of aircraft that we've done and the induction into service and the repair of our own fleet and ensuring that we can fully restore.

Yes. It's certainly one of the businesses that we didn't slow down. We maintained what we had, but we didn't push investment because we need to take care of our own. It was labor shortage. And obviously, the labor pushed towards the delta side, make sure we took care of our own needs. It will be a topic we'll discuss in June because I think it's -- to me, it's still a $5 billion external -- additional revenue sort. Today, it's around $1 billion. And so I'd say massive growth opportunities over the remainder of this decade in that business. And we've got all of the deals in place. We've got the pipeline of orders in place. And now it's just up for us to kind of get the focus on the management team and the resources to go execute.

And then if I might also just ask on the regional side. And Glen, you mentioned some of the changes that you're making. Curious what the changes you're making kind of near term versus maybe as this kind of gets resolved what you might return to, like what that component within Delta looks like. And just curious if in the cost guide, if you're assuming in 2023, like a full pass-through to your regional partners? Or is that something that kind of continues to go up as contracts come up and get renewed?

So you have a couple of questions here. The first thing is, we've experienced a dramatic increase in the labor rates at the regional carriers in 2022. And that was in hopes of stabilizing the supply. I don't know the exact impact on that, but it's going to take a while for that to really flow through. And that's why we're not counting on it coming back until '24. I guess the question that you have is we will not be -- as I said, we'll exit our commitment on flying our own 50-seat regional jets by the summer. We may have some pro rates, but if they want to pro rate with us, they're going to have to have 2 classes of service on that airplane. But we will be out of the 50-seat business. So that's about 50 to 100 airplanes that we had in '19 that will not be coming back. We have a 325 limit on the 2-class RJs with our pilots. And we haven't made total commitments on how many of those we intent to fly. But clearly, with the escalation of costs there, the number is going to be biased towards smaller as this comes back, not larger. So that was one of our big pilot negotiations was could we have more 2-class RJs. That's kind of something that we've passed in terms of the importance of them in the total network. And I think we were first in deemphasizing. Ed, when that came back to Delta, we had 500 regional -- 50-seat regional jets in the network, 550.

Yes.

So that's been a long transition. And I think we're ahead of the curve to stay ahead of that curve.

And the cost guide does have what we believe is the full reset of those costs. Won't comment on whether it's a full pass-through, but our teams completed all the negotiated. But it's what our view is today. But for those changes in rates, we've also made sure that we have the flexibility as it relates to being able to sit down aircraft related to those agreements so that we can keep driving the utilization over time.

Jamie Baker with JPMorgan. 2 for Glen. First, you cited some corporate survey work that suggests a healthy step-up in the first quarter. What sort of businesses does that skew towards? And I only ask because the headlines coming out of the tech sector are grim at best and speaking for the investment banks, probably not much better.

Right. Well, the ones that are skewing towards are the consultant firms. And they've been, of course, one of our biggest users, and they essentially were not traveling in '22, and they're looking forward to traveling in '23 as well as financial services, which while you may be shrinking your total workforce, I think if you look at your work calendar next year, you're probably going to travel more than you do this year. And I think what you have to think of in terms of the more macro thesis is that New York is going to get better. I think one of the great things about coming and seeing you all again versus last year is the streets are a lot more lively this year than they were last year. And I think we're all feeling a sense of confidence. New York has been a laggard in terms of return. And seeing New York take that next leg up is going to -- is really one of the key drivers. But really excited about those numbers we're seeing back from across all spectrums.

And if I could add -- to supplement Glen, it's the professional service firms, not just the consultancies. And one of the big factors that we are seeing is that people are returning to office more frequently and with longer duration. It's what's inspiring the professional service firms to get out because they can't go visit clients if they're not in their office. And so there's a pretty significant move we've seen over the balance of this year in terms of people starting to get back to office for various reasons. That's driving the law firms, it's driving the consultants, driving the accountants and all the professional service providers. So I think that's got a nice leg to go there.

And second, it's a bit of a follow-up to Savi's question. On the regional front, given the upheaval there, what we're seeing with rates, station of service to smaller communities, keep hearing that the A319 is the new RJ? How does this play out at the industry level? Does this create more opportunity for Delta? Or do the returns accrue to your discount competitors?

I think we are uniquely positioned with the A220 fleet as well as the 717 fleet. And so if you look at what we've done in a market like Asheville, because we have larger local markets, and we're in big city hubs, we're able to upgauge those frequencies and sustain forward momentum. So Asheville, for example, used to be served 7 red times a day on 2 class RJs, now serve 6 times a day on 717s. Revenues up, margins up, relative positioning is up. So I think there's opportunities in here. It's not without its challenges. For every year, and I'm not going to speak to them. I'm going to speak to us. And it clearly does have its challenges, but it also has its opportunities.

And as you know, Jamie, the 220 and the 717s are unique assets on the Delta has amongst the majors.

Yes. We have...

And we have -- go ahead.

We've got 65 flying on the 717s, and we've got to go to flex up from there for another 15...

To 80 and up to 100, 220s.

Yes. And...

Exactly. Yes.

Duane Pfennigwerth, Evercore ISI. Ed, just a follow-up on a comment you made earlier and Jamie's question on corporate. It was the first I heard -- it felt like a hedge, but maybe you could just expand on it a little bit. We never expected corporate to come back all the way. We're at 80%. Clearly, there's some constructive commentary about early 2023 that it can continue to grind higher. So was that a statement that we don't need it to get to 100% to hit your financial targets? Or has there been some rethinking learning along the way to make you think that we can't get back to, again, all your GDP slide, GDP is bigger than 2019. Not really sure why corporate at some point wouldn't be well north of 2019 as well.

I think it could be, Duane. And it wasn't a hedge as much as I think that's -- we're still learning as we go. We're prepared for it not to come back to a classic business return pattern. And by the way, we don't need it to come back because a lot of those people are on our planes doing different things, traveling more through mobility as compared to on their classic business patterns. They're living in different cities, in different regions of the country. They're traveling into offices for the first time as compared to living in a city. So I think it's something we're continuing to learn. But I don't think that the pattern of 2019 for corporate travel is going to look like what we're seeing into the future. And like everything else, I think was going to be an over rotation for a while. And for some period of time, the next couple of years, people are pushing out. Because in a recessionary environment, what's the first thing that gets chopped is corporate travel because it's the easiest discretionary. This is not a recession where you can do that. This is a recession you have to grow your top line because they already have the cost out of -- so that incremental reduction of travel spend is not going to matter relative to getting back out with your customers.

Could I add one comment to that -- is that I think the differential between the high demand leisure, high-yield leisure and business has converged over time. And so the trade-downs aren't as pronounced as they were historically, which I think is a great shock absorber for us.

That's helpful. And my follow-up is just on the refinery. I know there's been kind of an on again, off again over the years. My guess is this summer in June and July, you might have sent it Richard a thank-you note on having a refinery. It looked like a really good thing to have. So I just wonder what's the future? How do you think about it? Is this something that you're going to look to kind of simplify over time?

Well, we've said over time that we would be interested in listing a strategic partner at the refinery given the pretty significant capital requirements that we are looking at. This year, we're going to make $700 million, $800 million net cash at the refineries, that funds. The CapEx for some period of time takes a little bit of that pressure off of it in the interim. But we'll continue to manage it. It's a valuable asset that in this environment with high fuel prices, high cracks, particularly as it was really the environment which we bought it 10 years ago just for that environment.

It's Helane Becker with Cowen. So just a question on the growth that you're planning to do at the hubs. Is -- are the facilities able to keep up with you? Or are there enough airport personnel provided by the airports themselves, infrastructure runway issues? Are you able maybe parse out what percent is restoration and what percent is actually growth?

Sure. I think all of them is restoration. So I think if you take Atlanta, which is our largest hub in the summer of '19, we were running just under 1.1 million seats a week through the hub. As we look at this summer schedule, we're running probably just at best right around 1 million seats. So the facility is sized for something much larger, and we're doing it on fewer departures because the gauge is way up. So the runways are not constrained. And so then -- do we have the personnel and the airports to do it? Absolutely. Because we're filling in the valleys. The peaks are in the very beginning and end of the day are the anchors and then the time throughout the day is the -- are the times will be filling up. And so that, I think, not only is it more efficient throughput for us. It's more efficient throughput for the airports, not the airports, but TSA is really the -- and are the -- but I think we have a very solid plan for that. And at none of the hubs, are we running seats that are below or above our peak summer of '19. So we're below it all the major hubs, except Salt Lake, which is different because they have all the new gauge on the go, a lot of bigger gauge.

And don't forget that these hubs are major profit centers for these communities, these cities. So they want to invest in the resources locally to help us grow. So it's good for -- all the way around.

Okay. And then just a follow-up question. Ed, I heard you this morning talk about return on capital, and you were not planning on doing that. And you said in the last earnings call, too, I think that the goal is to pay down debt and reduce leverage. But is there a point in -- at some point in the next maybe year to 18 months where the Board says, we've accomplished our goals and at this point, let's revisit a dividend or a share repurchase program?

Yes. So we will revisit it at some point. We're not ready to revisit it currently, certainly not share repurchase. It's -- until we get back to that investment-grade like debt structure. And even then it will be a question as to whether that's good enough to start a share repurchase. Dividend is a little different. It's smaller. It's a little more manageable. But in the near term, I would not count it. But we'll talk with our Board at every meeting and the topic comes up. But until we get a better fix on the business, until we hit those 2024 and have confidence on those 2024 goals, I think that's a luxury to come.

David Vernon from Bernstein. Glen, I want to ask you a question about the revenue outlook for '23. You laid out some pretty exciting things like the growth of the core hubs being at a higher RASM, the growth of premium coming in, the card program performing pretty well. But if you look at the guide, you've got ASMs growing faster than the unit revenues. Can you talk about some of the thinking behind what went into the construction of the guide, the puts and the takes. Trying to figure out how do we think about this as being a conservative outlook or not-so-conservative outlook. Because it would seem like there's enough stuff going on in there from a premium standpoint and everything else, where it might be a little bit better. But...

Right. I think the quarter again, we know the most bet is the first quarter. And we're very optimistic versus last year versus '19 that, that will continue to show forward momentum. I think in the second -- in the back half of the year, it's really related to fuel price and fuel price recapture that the forward curves are significantly lower. And we had a big fuel price spike last year. And fuel is a great unknown. So I'll pass it over to Dan here because it's really -- that's the big driver is what is fuel going to be in this year. And the industry has had a pretty effective recapture on fuel. So I think that's what's driving our unit revenues down as really the appeal is multibillion dollar good guy.

All right. Then maybe just as a quick follow-up. '22 to '23, the 300 basis points of margin expansion, utilizing the assets that you hired ahead of demand, I think I get that. '23 to '24, same rate of margin expansion. What are the levers that you guys are expecting to pull? Because it would seem like '22 to '23, just given the fact that you're staffed for 2019 flying and are way below would be a little bit easier than maybe going '23 to '24 with an additional 300 bps. If you could just kind of talk about high level, what's embedded in your thinking there for...

So just think about these years are points in time. But we're continuing to make progress every quarter as we push forward. So let's talk about '23. '23, first quarter of '23 is going to be real easy to comp versus first quarter of '22 with Omicron. So Glen is talking about revenue, but that was -- the real question on revenue is going to come in the summer when you're starting to comp a much more robust picture. But the same things on the cost side as you continue to push forward. Every quarter, we should get healthier as we go, operations, the demand picture, the durability that. There will be some ins and outs on fuel, and there'll be some ins and outs in terms of where the overall capacity come versus split. But we're -- our assumption is that there's going to be some pretty strong revenue demand as we measure. That's not going to be kind of a one-and-done kind of, okay, check the -- the pandemic is behind us. Now we get back into some normal travel levers. I think it's going to continue to stay strong. I think the growth -- the capacity growth in here is probably the best we could do. Over/under, I'd say we might come in a little less on that, and that's going to continue to be a push for '24. And I think international is a big contributor to going from '23 to '24. International is still not up really, and it's just starting in Asia. Latin turning on LATAM is going to be a big contributor. We're just starting that physically now. These things all have lead time, and they take time. So I think those are some of the things, David. Don't forget also profit sharing is a difference. We'll have a higher profit sharing payment next year versus this year and kind of calibrate for that just for that. So those are some of the factors. But the single biggest one is also that pension, $0.5 billion noncash versus '23 that we're having to cover in that. So you put that all together, and obviously, we feel a lot better about the '23 than the '24. We haven't done the '24 detailed plan, but we see that momentum continuing to push through the year.

Conor Cunningham, Melius. Glen, just on the coastal hubs -- the core hub versus coastal hub strategy into '23. I totally get why you would be like restoring all the capacity in the core markets that make sense. But it's hard -- you show a difference in profitability at core versus coastal. I would imagine longer term, you want to make the coastal hubs more profitable than what they are now. Do you need to restore the core markets before you can get back to focusing on coastal hubs again? And is there an international component on itineraries that maybe there's a long tailwind there that could be a nice move for you.

Right. I think one of the key reasons we love the coastal hubs is they tend to be in the biggest international markets. So having that as the platform for further international growth in out-years is going to be really key. If you think about our hub networks and how they structure for Europe, for example, having Boston and New York and Atlanta on the East Coast, there's a really strong portfolio of U.S. origin. Similarly, Seattle and Los Angeles on the West Coast are quite important as well. So those are really long-term things that we said we want to preserve our opportunity. And yes, our aspirations are to continue to improve margins there and continue their presence there. It's just a priority of when you do it, right? And so this year, the priority in coming out of the pandemic in '22 was in the coastal gateways to make sure that we preserve that platform for future growth. This year is about restoring the coastal ops and really into '24. Because if you think about it, at 101% restoration of ASMs and 98% restoration of seats, which is what we showed you today with the coastal being fully restored over 100%, that means we still haven't gotten the interior hubs back to full restoration throughout '22. So we have a little more work as we head into '24 with that, and then we can go back to a more balanced approach of how we indifferently assign the next airplane into the network.

Okay. That's helpful. And then on -- so there's some talk about pilots. I get that. Yes. I want to talk about that. That's fine. On the other employees, though, you're not unionized there. There are -- other airlines are going through contract negotiations as well. So there's likely another step-up on that side. Can you just talk about your -- any headwind to the cost structure that, that may have on '23? Is it included already? And maybe just the benefit of being able to talk direct to your employee base relative to some of the other airlines.

So one of the advantages of being on Union is that we have full flexibility in terms of keeping our employees -- our nonunionized employees top of their profession. And in each category, whether it's a flight attendant, mechanics, airport agents, technologists, you name it, they are at the top of their scale. And we've maintained it and actually have grown that over the course of the last few years. So we're not facing step-ups. They're actually trying to catch Delta, the other guys, versus what we are. We have embedded in the plan another increase in the first -- early part of the new year that we think is -- will be a meaningful but also important investment in our people. But it's not just scale. You saw what we did early this year about boarding pay with our flight attendants. So it's huge. It was a good cost investment in our people, but it also drove a whole lot of reliability on the plane and gave us an opportunity to manage the operations better. I always tell people that the most important job I have is to take care of our people, and that's what we do. And that's why we have the best service. We have the best performance. We have the best rewards. We have the best profit sharing. The model works really well.

Dan McKenzie here from Seaport Global. A couple of questions and Ed, your remark that international demand is really where U.S. demand was, and I think you said March or April. And so the question on the international side, just given the revenue leverage opportunities on the corporate side, I'm wondering if corporate demand, if it's 80% recovered at the system, in back of my mind, I'm thinking maybe it's only 50% recovered on the international side. So I'm just wondering if you can elaborate a little bit more on the corporate long-haul and how that's expected to perform in 2023. And then related to that is LATAM. We know how the JVs have worked to Europe. LATAM is kind of a newer opportunity. How do we think about Latin America. Is it -- is that growth opportunity really a GDP opportunity? Or is there a chance or an opportunity to expand the network on that entity?

Well, I'll start with your last question first. I think it's a little of both, is I'll take Santiago, which is our lynchpin. LATAM is headquartered in Santiago. And we upgraded -- we historically [ forward ] 767 from Atlanta to Santiago. And I'd say it was 1 of our best performers. Now with the LATAM agreement, with LATAM supporting us, and this is the early days. We upgraded that initially to an A350. And the A350 is producing better returns already than the 767 did in arrears. So I think those are the kinds of opportunities. And using the LATAM presence for the South Florida market, which they serve almost all the markets to South Florida, using Atlanta as the connection point to the interiors of the U.S. for LATAM customers. I think there's a lot of upside for us. And it will be a combination, a few new flights, a lot of gauge, but really working on improving our margins together, and I think there's a lot of upside for both carriers. And the second question is, listen, different geographies are in different stages. I'd say Europe is the furthest along in terms of corporate recovery followed by Latin, but Latin has been a recent trend, and that's still evolving. And then last the Pacific, where Japan just opening and China is still close. So a little bit of everything in the international arena.

Very good. Second question is for Dan. The $700 million to $800 million on trainer is a really big number. And the way -- with something we haven't really talked about for a long time. But is this an entity that -- where the return on invested capital is simply tied to the crack spread? And are the returns sustainable in this particular operation? Or is the value in this really more strategic, the ability to negotiate, so that if you don't earn a return on invested capital, you still -- it still makes you sort of a stronger from a supply chain perspective.

Well, certainly, it's got to earn its keep on its own, right? And in this environment, it is extremely profitable and exactly why both on availability but also on margin. I mean there was times where even the New York Harbor market was tight from supply, and we had certainty for ours. The other piece I would say, though, is I think by having it, at least coming in and sort of over the last 18 months, I think we're better at fuel management because of it. We -- our team, when you -- the floor -- these aren't -- I came out of running airports. They've actually run pipelines, been a part of refineries. They've been in the oil and gas industry. And a big part of our fuel is to sell supply out of trainer into the Northeast, but we also about another 30% we self-supply through the management and getting it actually physically to the airport. And the teams do a great job with that. I do think that gives us a position because of the expertise that we've built over time of people rotating through them working more deeply as it relates to that industry.

Chris Stathoulopoulos, Susquehanna International Group. So Dan, on Slide 27, the unit cost drivers on the operating leverage piece. Just if you could give a little bit more detail on 2 of those 3 items. On the efficiency side, if you could talk to how we should think about utilization or block hours per day and really, that's going to be second half-weighted for next year. And then on the low-cost capacity growth, is that really just adding seats or inventory into the -- your core domestic hubs? Or is that coming from someplace else?

Yes. As it relates to the low-cost growth, that is just -- that's the incremental capacity that we talked about is both international and domestic coming in related to that. And the efficiency, I'm sorry, I missed the part of your question on the efficiency.

Just on the -- if you could help frame how we should think about utilization hours per day or how you measure that and whether that's second half-weighted sort of outcome?

Yes. Well, no, I think we have the -- you see it in that utilization slide that we put up as it relates to the aircraft, right? And closing the gap to 2019 as we go 5%, that's as we put the capacity. And certainly, that gets the benefit of the summer where we're fully utilizing the fleet, but it also talks to the components that Glen talked about, about how we're using the aircraft throughout the year and deploying them into other markets that's increasing that. And that's -- we're getting that benefit as it relates to the mainline operation.

And a follow-up question. Glen, I think this was a follow on to Scott's question on the international market. You said that you expect to be there by 2025, which is a pretty significant step-up from where we are today. So if you could help how much of that is coming from gauge your order book or just a different configuration? And how much of that is just the unlocking and rate recovery in your international partners?

Yes. I don't really know that we have an exact recovery. I'd say if you looked at the 2 key drivers, which are efficiency of the airplanes themselves, so gauge driving lower unit cost as well as the premium products, it's pretty evenly split between the 2, right? The premium products, which, for example, the Delta Premium Select, which is not even 1 full year into the marketplace, the maturation of that, getting that out and it's available for sale as well as having a higher component of D1 and C+ seats. That's really one key driver. The other is the fleet efficiency, which comes in over time between now and '25. And we're not done at '25, right, is that we want to take this beyond. And so -- but right now, we're looking to '25, and that's what we see between now and then. I think there's more upside beyond that.

Steve Trent from Citi. I had a question on loyalty. From what I can see, you guys have been such a good counterparty for Amex, and maybe it also goes somewhat the other way. Do you sort of reach a point sort of medium or longer term in the program where maybe you go back to them, and there's wiggle room to negotiate better economics. I mean, I'm sure you already have [ good flow ] on that one.

Yes. We are always working together collaboratively. There's always points of -- I wouldn't call them negotiations. We're not negotiating the big umbrella contract, but there's individual initiatives and opportunities for them to invest deeper, for us to invest deeper. This is a living, breathing partnership that is the most valuable partnership we have. It's the most valuable partnership they have. And so it gets my attention. It gets Squires' attention, it gets hard leadership team, Dwight, Glen, it runs through the operations. So we continue -- we're all incented to continue to grow it. And I think Glen said on the presentation, while the contract that we designed back in 2017, I think -- 2018, in that time frame, we signed it, had a $7 billion target by 5 years or whatever that -- those numbers are, that's not to stop. I mean that was just kind of a near -- that was just another checkpoint because we see continued growth certainly as our companies become even more valuable to each other.

And even more integrated.

Very helpful. And just a quick follow-up, kind of a follow-up to Dan's question earlier. When we think about the LATAM side and the opportunity for nonticket revenue, I think I heard one of you gentlemen say $500 million from rent a car. Could we see maybe some expansion of these opportunities, for instance, as an eventual joint business agreement pulls up with LATAM?

I think with all of our partners, I think it's all a matter of priority, right? And I think what's great about the loyalty space is we see a lot of opportunities, and it's our ability to execute. And clearly, executing with partners is more difficult than executing on your own. But I think that's -- when you look at what we need to do over the next couple of years, that probably isn't about going to market with LATAM or any of our partners, but that's another thing in our journey. And our journey has a long runway. And the more we can bring our partnerships together over time, the more powerful we'll be together. And so those are our tenants, and I think it's just really a matter of -- well, there's a natural bandwidth everything. And what you don't want to do is deprioritize so you get unfocused.

Christyne McGarvey, Morgan Stanley. Ed, earlier in the presentation, you noted some industry kind of aspirational growth, which is well noted that there are some external supply constraints going. But how do you think about that transitioning to more internal discipline in terms of kind of capacity growth as we go forward rather than just external kind of supply chains for the industry?

Yes. I think the most important governor that we will have speaking for our company as compared to the industry, but I think the industry largely feels the same way, is making certain that we don't overshoot our capabilities. We all saw what happened this spring when we saw a massive demand bow wave. We didn't have revenue in 2 years. We all ran anything we could fly or operate, and it wasn't a good outcome. And we pulled up quickly, others pulled up quickly. And I -- as I said, I think the system, where we stand today -- again, speaking for Delta but again, I think it's not different to us. We're a bit fragile. We're kind of -- we manage it every weekend. We've got to making certain that the cancellation rate is low or below low and that the pilot availability is, the flight attendant availability is, the maintenance availability is, and it's going to continue to stay that way for some period of time. So that's why I described the overall industry numbers you're hearing larger numbers, including from Delta, by the way, are a little bit more aspirational, assuming we get all the -- everything goes well. We don't live in a world where everything goes well. Things will happen and move around. It's making certain that the experience set of our employees continues to gain that we get through the pilot, training that continues to move efficiently and that we have the assets of that. We own all the means of production. We own the aircraft, we own the people, we own the technology. But this is still probably another year before we can, hopefully, by the end of next year, say, okay, I have confidence in what we're going to produce in '24 or '25. I don't have as much confidence in '23, but we gave you our perspective of what it could be.

Any additional questions?

Any other questions? Duane?

Specifically on the international JVs and international investments, I'm wondering if that's in the free cash flow or in the CapEx guidance out over this time horizon, if you could just comment on what level of investment you'd expect to make over '23 and '24 in international partnerships and if that's included here.

I think we're largely there. I don't -- we don't have any new partnerships contemplated. We've been able to get through the restructurings and the reinvestment at a lower level in these partnerships. So I don't think there is a remaining number. I think we're good to go on that front. And so now we turn all of our attention to how we turn that into a real value. I mean, I think the other thing, Glen was talking about the opportunities internationally. Don't forget the landscape internationally is also different. And the competitive intensity of a marketplace 4 years ago is very different than what it is today. And I think that's going to benefit us in our JVs as well.

And since I have the mic, you may take a pass at this one. Just with respect to cost and capacity next year, any high level views on first half, second half? How much of that full year CASM guidance is sort of back half-weighted?

Well, I think as -- we don't look at the calendar as kind of a point in time. It gets better as we go through the course of the calendar. The CASM, the cost guidance gets better. The back half of the year, we start to have a little more capacity in place. The revenue -- in terms of unit revenue brings down -- we take it down a couple of notches because of that to balance the capacity growing in. But when you put them together, I think the second half of the year is going to be a stronger margin performance than the first half of the year. But we gave you kind of a full year, but 2 different paths to the year.

Just one last one on margins. If you don't mind, Glen, given that international opportunity is about 1,000 basis points relative to domestic margins, how do you think about that opportunity? Is it more focused on RASMs or CASMs? And are there regions where the competitive dynamics just don't allow that?

No. I think it's half and half, right? Half comes from the fleet, and half comes from the premium revenue side.

Yes.

And so fleet is CASM, it also is RASM because you have more premium products. But RASM is selling the greater number of premium seats that you have in the marketplace.

David Vernon up at the front again. So a question for you, Dan, on the non-aircraft CapEx outlook for the next couple of years. Glen, we were talking a little bit this morning about the money that you put in to the different airports within the system. Are there additional big buckets of CapEx that you need to spend on the airport side. If maybe you could talk a little bit about how the return on that investment has been paying off and how you're thinking about what is the new LaGuardia terminal -- what impact is that actually having on your financial performance and kind of relate that for us, that would be great.

Well, we're getting through the final stages here. So we still have CapEx related to the airports as we complete LAX and LaGuardia in there and the work that we're doing with -- okay, but we're also then making investments in Sky Clubs and other facilities. These are long term. These are certainly generational in nature and the opportunity that's in front of us. Both LaGuardia and LAX and Salt Lake City and the other ones, you're going to see the growth, but you're going to see the growth over time, right? And you can talk about what we're thinking about from LaGuardia and each of those. So outside of that airport piece, the other place we're investing is continue to invest in brown capital, the electrification of our ground capital. On track for 50% of that in 2024, continue to just chip away at that, modernizing that as it relates to it and a continued commitment around technology and the backbone of our infrastructure, but also delivering better products for our employees, but also for -- and more importantly, for our customers.

On the airport side, specifically, Dave, we're basically done -- not done-done, but we've got the big numbers behind us as LaGuardia finishes, as LA finishes this year, as JFK -- should be pretty much finished by the end of next year. But the real value in that is that the ability for us to manage the projects, manage the construction, we went fast. At other times, others won't slow during this pandemic to get these projects done because we have control of the project. And that's going to save us in the long term an enormous amount of value that others will be subject to rate increases by the various municipalities that we've now got locked down in depreciation and having moved faster. And we've got a fixed cost base at a much lower rate that we can leverage. So I think that return decision is going to pay off multiple ways over the next decade.

Could I just finish with one thought? These are 40-year assets. So the next LaGuardia will be built after I'm gone. And the...

I'll take you back for the...

Don't buy me back for the teardown of LaGuardia. But being a 40-year asset, you don't build it for day 1, you build it for growth. And so the highest CPE is the day it comes online. And then over the 40 years, the CPE comes down. What I'd like to point out is that the highest CPEs are in the '23 numbers, and this only gets better over time as we continue build back into the size of the facility that we've built.

We have time for one final question. Conor?

Conor, [indiscernible].

Keeping here longer. Just on distribution in general, you talked a little bit about it, but just how does your direct-to-consumer strategy? How has that evolved and the pandemic is? Is there a goal that you want to be able to sell a certain amount of seats direct and start to get not pushout, Glen?

We have no goal per se as that -- we want to meet people where they want to buy us in the channel they want to buy us, but with the best products and services. And so to the extent that a distributor is not presenting our products and services the way we need them to, we continue to work with them to improve those displays so that customers get a full array. We think that the array that we have on our direct distribution is how we'd like those products to be displayed and talked about to the customer base. And we've got a lot of adoption in process, whether or not it's here today but whether or not it's Expedia, whether or not it's any of the other distribute online distributors, whether or not it's the retailers through travel agencies that need and want better displays from their online distributors. So we're working with that whole ecosystem. And I think when we say -- they were in the middle innings of improving product distribution. Part of that is not only improving delta but also improving the other retailers.

Ed, I'll turn it to you for closing remarks.

You want me to wrap up. I'll be up really quickly because we we're already way over time. Apologies for that. Thank you for being here. Hopefully, you got a good perspective of all the different moving forces, factors, opportunities, challenges as we move forward. Hopefully, you've picked up for us a real sense of optimism of renewed confidence in the business, having our hands more firmly on the dials of this business than we were over the last several years. And hopefully, it's a marked difference from a year ago presentation to now. It was a great year for our company to be able to hit all of our core targets in the midst of unprecedented uncertainty and challenge and operational disruption. And I think this thing is going to continue to do very well. The demand environment stays strong, hopefully, you get a sense for the macro. Why we think that's going to stay in place operationally, the cost opportunities as we bring scale back, and as Glen rightfully points out, as the airport start to mature and continue to grow into them are going to be good opportunities for us well. And the international landscape is to come. There's a lot of international out into the future in the next several years. We hope you all come visit us in June in Atlanta when we take you through some of the -- really at the incredible excitement that we have going around on the consumer experience. We're going to be back on stage. We're back on the main stage of CES first week in January, I'm back there. And it will be great opportunities to talk about our customer and our technology and where we're going. But next year is there's just a lot of excitement in the pipeline of Delta and for us to be able to deliver those opportunities and double the earnings power of this franchise in 12 months. It's going to be a big year for us, but I've got a lot of optimism forward. So thank you for being with us, and I hope you all have a good holiday. Thank you.