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

Good morning, everyone, and welcome to the Delta Air Lines June Quarter 2026 Financial Results Conference Call. My name is Matthew, and I will be your coordinator. [Operator Instructions] As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Matthew. Good morning, everyone, and thanks for joining us for our June quarter 2026 earnings call. Joining us from Atlanta today are our CEO, Ed Bastian; our Chief Operating Officer, Dan Janki; our Chief Commercial Officer, Joe Esposito; and our Chief Financial Officer, Erik Snell. Ed will open the call with overview of Delta's performance strategy. Dan will cover the operation. Joe will provide an update on the revenue environment, and Erik will discuss costs in our balance sheet. [Operator Instructions]. As a reminder, today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from forward-looking statements. Some of the factors that may cause such differences are described in Delta's SEC filings. We'll also discuss non-GAAP financial measures, and all results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the Investor Relations page at ir.delta.com. And with that, I'll turn the call over to Ed.

Thank you, Julie. Good morning, everyone. We appreciate you joining us today. This morning, we reported our June quarter results, and it's clear that Delta's brand and industry position are stronger than ever. We generated record revenue, which grew 14%, increasing more than $2 billion over last year. This reflects sustained strength in demand and momentum across our diversified business. We delivered pretax profits of $1.4 billion, earnings of $1.56 per share and an operating margin of 9%, all better than the guidance that we provided at the start of the quarter. Return on invested capital was 11%, well above our cost of capital. So through the first half, we've generated $1.4 billion of free cash flow, fortified our investment-grade balance sheet and announced a 15% increase to the dividend. And most importantly, we kept investing to make travel safer, easier and more enjoyable for our customers. Our people are what truly set Delta apart. Their efforts delivered industry-leading performance across key operational metrics and also earn Delta recognition from The Points Guy as the best U.S. airline for the eighth consecutive year. Our people are our #1 competitive advantage, and I want to thank the Delta team for their commitment to delivering for our customers every day, particularly during the busy summer travel season. In May, we announced a 4% pay increase and we've accrued nearly $500 million towards next year's profit sharing payout through the first half of the year. Both reflect our long-standing commitment to sharing success with the people who drive it. Turning to the current environment. The U.S. economy remains resilient, supported by strong employment rising household incomes and strong significant wealth accumulation. Our customers are prioritizing experiences and investing in the moments and connections that matter most of them, driving sustained strength in demand for air travel. These trends align well with Delta's strategy, demonstrating the loyalty that we are seeing across customer segments and powering high-margin diverse revenue streams that enhance the resilience of our business. Our Delta American Express partnership is a clear example of the strength of our loyalty ecosystem. Card spend has grown double digits for the past 7 quarters with particular strength among our premium reserve cardholders. With continued momentum in both new card acquisitions and spend, we expect remuneration of $9 billion this year, up 10% over 2025. As I stated in April, high fuel prices have proven to be the most powerful catalyst for change in our industry and this year, that has once again been the case. Coming into the recent fuel spike, most U.S. carriers were already struggling to earn their cost of capital against a backdrop where industry airfares have meaningfully trailed inflation. Costs have reset higher and consumer preferences have evolved. And as we predicted, structural change has accelerated, enabling the industry to recapture this year's fuel cost inflation at the fastest pace of any recent cycle. Even after recent fare increases, airfares remain 10 to 15 points below overall inflation since COVID. With continued fuel volatility and much of the industry is still earning returns below its cost of capital we believe current revenue momentum shall remain sustainable even if fuel prices moderate. That is an important step towards improving the industry's financial health and earnings sustainable returns over time. For Delta, we are executing on our strategy from a position of strength and with continued revenue momentum, measured capacity and a more stable fuel environment, we expect to return to earnings growth on double-digit operating margins in the second half of this year. For the full year, we are affirming the guidance that we set at the start of the year, even with a multibillion dollar fuel headwind. Our outlook for earnings of $6.50 to $7.50 per share represents growth of 20% year-over-year and our free cash flow outlook of $3 billion to $4 billion brings our 3-year cumulative total to over $11 billion. Looking beyond 2026, we are confident in our long-term financial framework and path to mid-teens margins and return on invested capital. The strength and consistency of our results give us the ability to keep investing and innovating to extend Delta's lead, elevating the experience in creating a more seamless and personalized travel journey. As we invest in the areas that customers value the most, loyalty to Delta continues to grow. Last month, we opened our second Delta One Lounge at LAX, bringing the Delta One Lounge network to 5 locations and expanding the industry's largest cloud and lounge footprint. Our Delta Amex co-brand card continues to lead the industry, and our recent portfolio enhancements are strengthening the value proposition for both existing and prospective cardholders. We are also making the journey more seamless through Delta Concierge, our AI-powered digital assistant, which is now available to more than half of Fly Delta app users with a full rollout later this month. In the year, we continue to set the standard on connectivity. Fast free WiFi is already available to members across nearly our entire fleet with satellite upgrades coming online in the months ahead to deliver even faster speeds and broader global coverage. And starting in '28, Amazon Leo will unlock the next generation of onboard connectivity, reach and personalization. In closing, our performance and outlook reinforce the durability and the differentiation of the Delta business model and our investment thesis. Looking ahead, I am incredibly optimistic about Delta's future and our opportunities to deliver even better performance for our employees, our customers and our owners. Now Dan will cover off on our operational results.

Thank you, Ed, and I want to begin by thanking the Delta team for the outstanding service they provide our customers every day. Operational excellence is core to the Delta brand and its experience our customers expect. Our culture of continuous improvement that spirit of keep climbing drives us to get better every day. This, combined with the continued investment in technology and data, better position our people to run a great operation, improving reliability and efficiency. During the quarter, we extended our industry leadership in on-time arrival and departure performance while strengthening operational metrics across our system. Completion factor improved through the quarter. We expect continued progress into the second half as targeted actions we have taken to improve resilience gain further traction. We delivered record baggage performance, led by our largest hub in Atlanta, where performance has improved meaningfully from last year's strong baseline, supported by enhancements to our baggage handling system and processes and our patented baggage AI technology. Delta's continued to lead large U.S. carriers in domestic Net Promoter Scores, improving over last year. This was driven by outstanding service of the Delta team with people interaction scores reaching all-time records across this global system. This includes year-over-year improvement across airport customer service, reservations and care, flight attendant and our pilots. This performance reflects the focus of our people reinforces how we're making travel easier and more reliable to every customer. We are continuing to invest in technology while empowering our people to deliver more proactive communication directly to customers. We're also enhancing digital tools with a simplified rebooking process, expanded self-service and continued rollout of Delta Concierge. Our customers are noticing. This has driven more than a 25-point improvement in NPS during periods of irregular operations. A more reliable customer experience starts with a more reliable fleet, and our Delta TechOps team is central to that. Key fleet reliability metrics, including aircraft out of service levels, maintenance-related delays and cancellations all improved versus prior year, benefiting from predictive maintenance capabilities and the investments we've made in fleet resilience over the last few years. Beyond supporting our own operation, the tech ops represents an exciting operation to further diversify our revenue through growing our third-party MRO business. This year, we remain on track to generate approximately $1.2 billion of revenue, up nearly 50% from last year, with low double-digit margins. And over the next several years, our technical capabilities, coupled with our strong customer relationships and record backlog position us to more than double MRO revenue while expanding margins. Now I'll turn it over to Joe to cover our commercial results and outlook.

Thank you, Dan. June quarter results reflect strong execution and our clear prioritization of managing for margin. Total revenue of $17.7 billion was at the high end of our expectations, up 14% over prior year on approximately 1% capacity growth, driving total unit revenue growth of 12.4%. We are focused on continuing this revenue momentum to fully recover this year's fuel cost pressure and improve margins as we move through the back half of the year. Domestic led unit revenue growth, up 12.4% and driven by higher yield with international growing 8% over prior year, led by Latin. Importantly, main cabin trends improved through the quarter with main cabin unit revenue growing mid-teens in the month of June. Across corporate sales, all sectors posted double-digit growth. Performance was strong across core and coastal hubs where sales rose more than 20% versus prior year. Diverse revenue streams represented 61% of total revenue in the quarter, up 2 points over last year with premium and loyalty revenue both up nearly 20%. Cargo revenue grew 39%, primarily on volume and MRO delivered revenue growth of more than 30% year-over-year, driven by legacy engine platforms. Now turning to outlook. Demand remains strong and broad-based. Cash sales improved through the quarter across the entire booking curve in both premium and main cabin products. These trends combined with our measured approach to capacity growth, support the sustainability of yield strength. We accept September quarter revenue to grow mid-teens versus last year. Total unit revenue growth is expected to improve sequentially, even against more challenging prior year comparisons. And while it remains early, December quarter bookings are coming in strong, giving us confidence that this revenue strength will extend through the fourth quarter. Capacity for the third quarter is up 1%, while fourth quarter planned 2% to 3%, led by international. Our integrated commercial strategy is how we will continue to deliver our revenue and margin premium to the industry. We are expanding our global network through new routes and JV partnerships while continuing to renew our fleet, enabling us to grow the network more profitably. We are also improving the product and giving customers more choice. The rollout of basic, classic and extra offerings in Delta Comfort is now complete, and will be expanded across all premium cabins this quarter. These offerings increased flexibility for customers while driving improved revenue performance. Loyalty remains one of Delta's most valuable assets SkyMiles membership growth is outpacing capacity led by double-digit gains among Gen Z members. That engagement is translating into durable revenue, best illustrated by our industry-leading co-brand performance. In closing, these investments reinforce our competitive advantage and give us more ways to grow revenue, deepen loyalty and expand margins over time. I'll now hand it to Erik to discuss our financial performance.

Thank you, Joe. I want to start by recognizing the Delta team for delivering strong 2Q results. We generated $1.4 billion of pretax profit with an 8.8% operating margin, despite the highest fuel costs in our history, reflecting the structural advantages we've built in the business. Total fuel expense was $4.4 billion, up nearly $2 billion versus last year. Fuel price per gallon averaged $3.93, including an $0.11 refinery benefit net of a $0.05 impact from a temporary outage. Fuel price came in better than guidance as lower crack spreads more than offset the reduced refinery benefit. The refinery is a strategic advantage for Delta, providing a meaningful offset in a high crack environment. And we expect 2026 to be one of its most profitable years. Nonfuel unit costs increased 6.8% over prior year in the June quarter, reflecting higher crew and revenue-related costs on capacity growth several points below our initial plan. Through the first half, we generated $4 billion of operating cash flow and $1.4 billion of free cash flow after $2.6 billion of reinvestment. Investments we are making are further compounding our advantages. The durability of our performance allows us to invest year after year in our employees and in elevating the customer experience, all while continuing to pay down debt. Our balance sheet is the best in Delta's history with investment-grade ratings from all 3 major credit agencies and a substantial and growing base of unencumbered assets and secured borrowing capacity. We ended the quarter with adjusted net debt of $13.6 billion, down from year-end, while much of the industry raised additional capital. Debt reduction remains a top priority, and we expect gross leverage to reach 2x by year-end. As we move toward our long-term target of 1x, we remain committed to increasing shareholder returns. Turning to our outlook. We expect September quarter nonfuel unit cost performance to improve modestly with further progress in the December quarter as operational investments continue to gain traction and capacity growth begins to normalize. This puts us back on a path toward our long-term framework of low single-digit unit cost growth. Our outlook assumes an all-in fuel price of approximately $3.15 per gallon including a $0.05 refinery benefit. Total fuel expense is expected to be about 40% higher than last year. Combined with our mid-teens revenue growth outlook, we expect a 3Q operating margin of 11% to 13% and earnings per share of $2 to $2.50, up meaningfully from $1.70 last year. In closing, the affirmation of our full year outlook from the start of the year and ability to grow earnings despite a nearly $4 billion increase in fuel cost, reinforces that Delta's durability continues to improve relative to prior cycles and to the industry. Delta's differentiated strategy and consistent execution across dynamic environments give us confidence in delivering our long-term financial framework and creating sustained value for our owners. We will now move to Q&A. Julie, please open the line for analyst questions.

Matthew, can you please remind the analysts how to enter the call, please.

[Operator Instructions] Your first question is coming from Conor Cunningham from Melius Research.

Joe, I was hoping to start with you. Can we just talk a little bit about the progression in unit revenue throughout the second quarter. I'm just trying to get a sense from the difference between the revenue production that you saw in April versus June just given the mix dynamic as you were more exposed to the higher fares. Again, not asking for monthly, just trying to understand the spread a little bit as we get a little bit more comfortable with the second half outlook on revenue.

It's one of the things that gives us confidence as we go into the back half and especially the third quarter. Our exit rate on TRASM was significantly higher than our entry rate. And that goes to how the -- our fuel recapture strategy moved through the quarter. I forget we started it in March. And in April, we were already 70% booked. And so each month, you get more and more of new revenue, new priced revenue that comes through the system. So again, it was significantly higher as the exit rate for both premium and main cabin. And that's what gives us towards our guide for third quarter and our confidence in the back half of the year.

Okay. And then maybe bigger picture, a lot of comments around if we boil it down, it seems like you guys view the industry being a little bit different on how they price going forward just given the changes that out there. So I mean you didn't explicitly guide to fourth quarter, but rough math suggests that you expect pricing to remain firm from here. So just I'm just trying to understand what gives you confidence in that? I know you've talked a little bit about it, but I'm just hoping to broaden out the conversation a little bit more.

Yes. I think it's -- gives us a lot of confidence in the fact that we're going to hold on to the pricing environment and the revenue momentum. The industry has no other choice. I mean we -- the inflation that's going through both on fuel and nonfuel is significant. And fuel prices are still elevated. So that's why we have confidence in holding on to the revenue under a modest capacity increase as well. So that would imply good confidence in the back half. Our forward cash sales, when you look at both cash and bookings, are higher than our close end. And that's what we want to see and when we think about confidence for the back half for the greater than 90%, greater than 120 days. And then as you get into fall for Delta's network, we're much more of a business-oriented network. Post-summer environment, not only for domestic, but for international. So that's where we -- that's where our confidence comes from in the back half.

Your next question is coming from Mike Linenberg from Deutsche Bank.

Ed, this one is for you. I think by all measures of market share, it does look like the low-cost, low-fare carrier group, I guess, what I would call it is in a bit of a secular decline Look, you've been around for some time. Sort of about that. And the reason I'm also bringing it up is that -- as we think about the industry's ability to hold on to fare increases, I think one of the concerns among investors is that it's going to be carriers from that group that come in and undermine the structure as maybe as energy prices come off. Just your thoughts around that?

Sure, Mike. Thanks for that. The -- what we've seen, and it's not just this quarter, it's been building for the last several years is that we've seen some fairly significant structural changes to the overall industry landscape. Probably the last time that we saw the element of fuel moving around with a lot of volatility was maybe 9, 10 years ago. And back then, the low-cost carriers with the darling of the industry. They had the highest margins. They had the highest growth rates. They look to fuel as a competitive advantage because they had lower cost in other areas. Some of them such as Southwest had fuel hedges in place, which they used to try to take market share None of that exists any longer. All of that world has changed completely entirely. No one has fuel hedges of any note. The cost of production, not just for fuel is up, but the cost for labor is up, the cost for airports are up, cost for technology is up, planes you can't get. And if you can get them, their costs are higher. And so what that tells you is that you need to figure out a change to the business model that will enable you to build resilience in your pricing durability. And that's what we've done over time. And that includes not just getting higher airfares that includes the diversification of the revenue stream. That's why our American Express relationship is so important to us. So IR corporate, the leader for the last 15 years in business travel across the United States is important to us. That's why our international growth has been important to us. That's why the MRO and cargo are employed , all of which are growing double digits. So we've been building this. And you wrap that around an experience that is substantially better in terms of the premium experience that we offer today versus 10 years ago. And the opportunities now that we have with technology to become true world-class merchandisers and retailers. 10 years ago, we were a blunt instrument. We had a couple handful of price categories on the shelf. Today, we're continuing to add to that. So what we're seeing here is no surprise to Delta. The fact that you've got others in the industry following our lead is no surprise as well. But I mentioned a point on the call this morning. that even with the improvements we've seen in pricing for the industry, the low end of the market still has to increase fares by another 5% by our estimate, just to get to breakeven at a fuel environment. and there's nothing to be gained by trying to grow in that environment. What the opportunity has to be in finding ways to secure higher revenues, not higher market share.

Just a quick one on to Dan. Dan, you've talked about rate actions that you were taking to improve the option and you talked about how the numbers had improved for the quarter. I know I saw that there were some talk about maybe on the staffing side. Anything there or on the fleet side, any particular fleet giving you problems this quarter?

I would say the Mike, thanks for that. I would say on the fleet elements, you just have to be systematic across the board about continuing to invest and put resiliency in it. And our teams have gotten continue to get better. We have opportunity to get better on that front. A lot of that is just capturing your data, more predictive maintenance staying out in front of it and continuing to work it. And we've seen that, and I talked a little bit about those stats that we're seeing improvements in, but we want to continue to make progress there. And then the other one that we've talked about is the actions that we're taking around the resiliency and capability around our crew resourcing and continue to put more people process technology around that and get better utilization out of those resources, and we continue to make progress on that front.

Your next question is coming from David Vernon from Bernstein.

So I guess the one question I had for you with regards to the Canada outlook. Obviously, you made some comments in the prepared statements around cost moderating as you get more normalized growth. Can you just talk about what that means kind of for 4Q, maybe beginning of next year ASM growth, where in the network you're looking to maybe add capacity? And maybe just stepping back to Matt, where do you see in the marketplace, an opportunity to put capacity into work that is compensatory just given the state of affairs and where oil is?

Yes, David, it's premature to be out giving guideposts for '27 and I know that's not what you're asking. But we've come through a period here over the last -- this quarter, certainly the third quarter looking forward with muted capacity. It was an obvious response to the fairly dramatic fuel spike that we saw fuel continues to stay elevated. Fuel today is 50% higher than where we started the year at. I think you're going to find the crack spreads are going to continue to be sticky. I think they will come down, but I think it's going to be sticky coming down, given the questions that are out there in the Middle East and other parts of the world about what kind of damage was done through the refineries and the value -- the amount of production capability that you can find. So I would anticipate that in the fourth quarter for Delta, you'll see us kind of return to a little bit more of a normalized capacity run rate that 2% to 3% that we've historically looked at kind of keeps us around in par with where economic growth is. And then as we go forward to '27, it's probably the mindset that we've had. You guys follow us well, and you've seen how this team thinks about this stuff. We try to stay in our lane in terms of our strategy. We're not out there trying to compete on someone else's strategy. We're a focus on Delta strategy. The growth that we're seeing here for the back end of the year going into the next couple of years will largely be in 2 areas. They'll first of all, obviously be focused on profitable growth, but it'll be upgauging. We've taken a holiday over the last couple of years from upgauging as we've had some fleet resets here. We'll get back in the next year or 2 as we take delivery of the MAX 10 and some additional narrow-body opportunities to get an upgauge going, and it's a very efficient way to grow. And secondly, international. And the international areas we are growing are in line with our strategies going into some new markets in the Middle East such as Riyadh, bringing Tel Aviv back as well as expanding in Asia. But that's kind of the outlook for growth as I see it for the next year or so.

All right. That's helpful. And then maybe just a quick follow-up. You mentioned the MAX 10 being out there in MAX 7, it sounds like we're getting a little bit closer to the end of the tunnel. Do you think that the delivery of some of those aircraft that have been constrained can offset kind of what is a better structural environment? Or does that factor into the -- to your consideration?

It absolutely does add to the structural changes. The -- one of the fuel that power the low-cost evolution was being able to grow faster than your cost work, we with all the aircraft availability from both Airbus and Boeing on the narrow-body side. that has dramatically changed. And by the way, it's not the question whether Boeing and Airbus can even produce the aircraft as much as the engine producers and the lack of durability that we've seen in the quality of the new engine technologies isn't anywhere close to the pre-existing technologies that we had previously. So I think availability of aircraft is a fairly significant constraint as well. And for us, we're looking forward to get into MAX 10, we expect to see that in Delta colors next year, which will be great to have, but it's also going to enable us to release some older narrowbodies and whether it's 717s and 757s that it will be a replacement.

Your next question is coming from Andrew Didora from Bank of America.

Joe, just a question on international. Just curious if we were sitting here in March, how much of your 2Q international was on the books versus 3Q? Because I just ask because me international, and particularly Atlantic, maybe a little bit below what we had thought, but I feel like it could be something with the booking curve. So should we be expecting a better sequential improvement internationally because of that dynamic? And any thoughts you can provide on the international geographies would be helpful.

Yes, that's exactly right. Typically, your long-haul international has about 15 points of bookings more than domestic does. So when you were in March, April was very much booked and customers booked their travel, especially transatlantic for the summer. They actually start in January and February with that booking curve where domestic is closer in. So yes, you will see sequential improvements as we go through the next quarter and into the fall in terms of that. So that's a good thing. And then also business improved significantly in the transatlantic as you get into September and October in the off-season. So around the world, trends Atlantic for us will still have a very solid summer. Demand has been very strong as we've been talked about for the past -- in the past, our foreign point of sale has been a little bit softer, but we've transitioned to more of a U.S. point of sale, where we're over 80% now for U.S. point of sale in the transatlantic. And that falls back to our strengths. The fares are higher and the strength of our brand in the U.S. is much higher. So the Transatlantic will have a great summer. The good thing about the transatlantic is it's smoothing out. The seasonality has been flattening, which is good for us, and people are moving their trips more into the shoulders in the traditional off-season. Pacific has kept up with capacity. We're actually growing the Pacific. So unit revenues were up about 8% on similar capacity. And you've seen us with 2 new markets this year, Hong Kong and we're annualizing Melbourne and Los Angeles, Shanghai and Salt Lake City Inchon, Asia and the Middle East will be the focus for the next couple of years. Latin is a little bit of 2 different stories. South America has been very strong this year and for the past really 18 months and the forward look really good based on our partnership with LATAM, aligning ourselves with their connecting bank structures in South America. Mexico has been a little bit weaker as the incidents, the violence this earlier this year. So Mexico had been a little bit softer as well as short haul, but we'll expect to see improvement in that as we get into the fourth quarter of this year. And our capacity also reflects that. We were down 7% in Latin America, with most of that is in the short-haul category. And we'll bring that capacity back based on demand. And it's not a sure that comes back. It's slowly coming back. But we'll see -- we should see a strong winter for leisure travel. And again, South America has really been the bright spot. Just getting back to domestic, again, that had been the lead in the lead in unit revenue performance and really strong performance as you exited the quarter on unit revenue versus when you enter and it's good for the participation of all the carriers that have come in on fuel recovery, the fastest in the domestic system and the fastest we've ever seen historically. So domestic is on a really good trajectory, especially with corporate sales traveling in the U.S. and a couple of bright spots that while we said 20% for corporate, big cities like Los Angeles and Boston were actually closer to 30%. So really good progression in the domestic system.

That's great, very helpful. And then as a follow-up, actually, I just wanted to ask about the cabin segmentation you announced earlier this week. I know you've teased it about wanting to give your customers a little further choice. But I'm just curious on like how far you think this can go. So are there further opportunities to continue to maybe expand this a la carte option. And any comments on how you view those options over the next 3 to 5 years could be helpful.

Yes. Thanks. I mean we're really still in the early stages of segmentation, and we've gone through Main Cabin several years ago. We just recently expanded into Comfort+. And right now, we're launching into our premium products. And I think there's a lot -- it's a great benefit for the consumer. It's a great benefit for revenue upgrades, gives the choice to the customer. And I think what you can see, and I think you're in the early stages because I think what you can see for the future is how do we retail all of our products in those categories and actually reward our best customers we put better and better products into those categories for the future. Today, it looks very much like a typical revenue management type merchandising. But I think with all the great brands that we're associated with, you can see a world where you're merging the retailing with it.

Your next question is coming from Tom Fitzgerald from TD Cowen.

Just curious on cargo. I was wondering if you could unpack some of the strength in 2Q, I don't know if that was just obviously, spot prices have surged and there's fuel charges, but with some of your fleet investments, there's a car going over that as well. And I don't know if we should expect that cargo number to decelerate in the back half or kind of continue to show some pretty good strength.

Yes. Thanks, Tom. Most of what we saw for cargo revenue is a great quarter. We're really proud of the team, was on volume. And you've had some rerouting of cargo that typically goes through the Middle East and other areas that we've been able to recapture. But it's also the structural improvements we've made internally, which depending on where we're expanding, Asia is one of the largest cargo markets from the U.S., and we've been expanding in the Asian market. We've been getting greater capability of our airplanes that we've been investing in. And we've done a lot of internal restructuring and how we approach cargoes and much more of a priority. So we'll see strength throughout the year in cargo, probably not the 39%, but we're going to have a really strong back half in our cargo sector. And that will play a bigger role as we continue to invest in international cargo is a big part of international and goes towards the profitability of our international entities.

Okay. That's really helpful to hear really encouraging. And then I guess just maybe on the MRO side, would you mind just providing us your latest thinking on the kind of margin trajectory of that business in the back half and the next couple of years? I know you're longer term, I've been talking about mid-teens, but seeing some nice growth year-over-year in the first [indiscernible].

Sure, Tom. What we've talked about is that mid-teens is the target. We expect to expand a couple of hundred basis points a year. The first half of this year was better than that. We got a lot of volume leverage, given the revenue growth that we expected. But I would -- as you think about this business going from 10% to 12% to the mid-teens with the double-digit revenue growth, that would be the progression that I look at. And so we've been out there. We believe and the team believes that they got the backlog. They think a technical capability to market position, not only grow the top line, but to grow the margins double digit, and I would expect about a couple of hundred basis points a year.

Your next question is coming from Jamie Baker from JPMorgan.

Probably for Ed. So I'm curious what internal analysis you've done to assess what peak pretax margins might look like for Delta in coming years. Obviously, that analysis would I have to make a number of industry assumptions as well. I mean hypothetically the industry was doing a 30% pretax margin. You see a new round of start-ups and that sort of thing. And I'm not expecting that outcome. But my point is there's bound to be some structural peak as to what Delta margins can accomplish. So I'm curious what sort of thought and analysis you've put into this and what you're willing to share?

Well, thanks, Jamie. I'm not sure what peak looks like. We're not there yet. But our framework that we brought to the investors a couple of years ago, outlined a pathway to mid-teens margins and sustainable mid-teen margins. So arguably, peak environment might be a little bit higher than that. But when you think about what had to happen when we laid that scenario out, a lot of what we made assumptions around what you're seeing happen. The structural change in the industry, the most important part of it with respect to the discipline that the industry needs to take in light of high cost, whether it's fuel, whether it's labor, whether it's aircraft availability as well as the cost of aircraft, whether it's the airports themselves incredibly high-cost business. Second, you think about the value proposition that we're creating for consumers. We're no longer competing on price as much as we're competing on value and experience and service, and that's where Delta win. That's where Delta is always one. We're going to continue to lean in there. If you look at the efficiency opportunities that we know we have sitting in front of us upgauging as was a key unlock back last decade to getting out of the small regional jets and introducing the 321neos and the upgauged narrow-body strategy, we've got a long ways to go there still on upgauging opportunities and fleet efficiency, which candidly is the only way you can grow in the domestic network, given how much congestion there is. And so it will be tempered. It will be modest, but I think it will be very profitable. And you also kind of think about where the world is and while there will be ups and downs and bumps along the way, the sustainability of what we're building because we're building it through a greater experience and consumers having an affiliation for the Delta brand is going to be far more durable than anything this industry ever saw. I tell groups all the time I started almost 30 years ago, if you were asking, you were there, as someone why they picked a specific airline at least 80% of time is whatever at the lowest price. Today, if you ask a consumer, why did they choose Delta, they'll tell you this place as Delta. And those are the changes. And I think those are durable advantages. And yes, there will be more unexpected surprises ahead, which is also why our balance sheet strategy is so important here to continue to pay down debt and enable us for the first time maybe in our history to play offense once in a while when deficits and challenges occur rather than always have flight defense, get our debt levels down to such low -- much lower levels than they are today. So that's the view. And that's what -- there's other things as well, but those are the reasons why I think kind of that mid-teens. And the last one I was starting I knew there was one, this technology with AI and I don't know that technology is going to enable us to grow our business. I think it's probably true across most businesses they tell you today, but it's certainly going to enable us to be more efficient and smarter about how we do business. And we already see some early signs and it may take us another year or 2 before you really start to see a meaningful imprint from that, that's coming. And that's not going to be small. I think that's going to be pretty large. So those are the reasons why I think getting to that mid-teens level is durable and sustainable, and we flat off also in the marketplace. You look at our domestic main cabin performance. I saw a stat recently that we grow kind of get our margins anywhere close to where they were back in 2019, that's easily 2 to 3 points on the overall margin for our business. So it just gives you a sense of the leverage we have here to the opportunity.

Very, very helpful color. And then just a quick follow-up question on segmenting DPS and D1. Obviously, one thing that made basic economies such as success was that the majority of corporations for bad consumption business travelers. I think it was Glen once said something like 90% of your managed corporates had walled off basic economy. I know it's early in terms of unbundling the premium cabins. And I haven't actually had time to check how JPMorgan is going to handle this, but do you expect a similar broad-based corporate response in terms of kind of walling off the basic premium fares. And [indiscernible] of that product predicated [indiscernible] doing so.

Yes. Well, when we rolled it out to Comfort+, we did exactly that of what we did with Main Cabin. And so that's -- and we're moving that through the other categories as well. So we do expect that to be very similar. And all those fares won't be allowed on every single flight that we have either. So we'll use that based on where demand is by flight and by market. So I would expect this to be a positive the top end consumer of first class as you get more and more as you -- more and more flexibility because the basic still, even in the premium cabins are restrictive and that doesn't really work with our corporate customers.