Delta Air Lines Chairman and CEO Ed Bastian Speaks Industry with CNBC

The following are unofficial transcript of CNBC EXCLUSIVE interviews with Delta Air Lines Chairman and CEO Ed Bastian and CNBC’s Phil LeBeau, and Wheels Up CEO Kenny Dichter and CNBC’s Joe Kernen on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Thursday, December 12th. The following are links to video of each interview: https://www.cnbc.com/video/2019/12/12/delta-air-lines-ceo-full-interview-earnings-guidance-2020-wheels-up-squawk-box.html

Top 10 Most Reliable Airlines In The US bastian

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JOE KERNEN: And Delta is holding an Investor Day in Atlanta. The airline providing an outlook for 2020 and Phil LeBeau joins now us as a special guest. Hey, Phil.

PHIL LEBEAU: Hey, Joe. Let’s bring in Ed Bastian, the Chairman and CEO of Delta. You’re announcing your 2020 guidance. Let’s talk a little bit about the numbers, because what you’re projecting here is some solid growth both on the top and bottom line.

ED BASTIAN: Demand is great. We had a wonderful 2019. In fact, arguably, the best year in Delta’s history in 2019. Demand throughout the holidays has been strong. The Sunday that we just finished after Thanksgiving was our highest revenue day in our history—almost $200 million in revenue in that one day alone. And as we look through the holiday and look through 2020, we see that solid demand continuing. The U.S. consumer is doing well by us. We’re projecting revenue growth next year between 4 and 6%.

PHIL LEBEAU: And you are also looking at, what, $4 billion in free cash flow.

ED BASTIAN: Yes.

PHIL LEBEAU: So, you have the free cash flow coming through. You’re raising in terms of earnings, your projected guidance 6.75 to 7.75. So, the mid-point moves higher.

ED BASTIAN: Yes.

PHIL LEBEAU: Where do you see the strength overall? I mean, obviously, you mentioned everything is strong right now from your perspective. But, is there one area you’re looking at and saying, ‘I think this is the area that we’re seeing the greatest strength?’

ED BASTIAN: It’s the U.S. It’s the U.S. consumer. About 70% of our business is in the U.S., and the U.S. consumer spend is strong, our business spend is strong, our preference for our brand is greater than we’ve ever seen, our net promoter scores are at all-time highs. And as we look to continuing to invest that momentum into the new year, we have $4 billion of free cash is great. We expect to get that. That’s going to be our new baseline that we measure going forward, that $4 billion of free cash flow return, which basically is for our owners.

PHIL LEBEAU: Next year in the industry, you’ve got the 737 Max expected to come back, adding more capacity. There was a theme, maybe six months ago in the industry, ‘Oh, boy, we’re going to have too much capacity here.’ Do you think people have dialed back those concerns and are now saying, ‘Wait a second, this is not going to be as dilutive as people thought when it comes to too many seats coming back into the system’?

ED BASTIAN: Well, it’s certainly an uncertainty for all of us, as to when it’s going to come, how it’s going to be feathered in. But you’re right, there’s no question this is going to be a gradual reinduction of the aircraft. We don’t have the Max as you know. So, we–

PHIL LEBEAU: Right.

ED BASTIAN: And we don’t believe we got a material benefit in 2019 from not having the Max. We don’t think we’re going to be at material risk in terms of when the Max comes back in 2020. Demand is strong and I think there’s plenty of aircraft out there to serve that need.

PHIL LEBEAU: And we’re not going to likely see a huge impact in terms of fares? People concerned there’s too much capacity there.

ED BASTIAN: I don’t see that.

PHIL LEBEAU: Internationally, LATAM was a huge agreement for you guys. And I think you announced it three or four weeks ago. Internationally, are you comfortable with what you’re seeing in terms of demand?

ED BASTIAN: You know, international is a bit more choppy with Brexit, and what’s going to happen in the U.K. is always one of the concerns we have. But across the board, we’re seeing growth. One of the things about our plan in 2020 is we’re going to be posting growth in every region of the world, in terms of our capacity. Some years you’re up, some years you’re down. But next year, we’re all in in Europe. The LATAM deal is phenomenal. You know, we’re real excited about our partnership with our partners down in Chile, as well as Korea. We closed a deal earlier this year to own 10% in Korean Air. And that move to Seoul, you know, adding Narita to Seoul is also benefiting us.

PHIL LEBEAU: China is always a wild card, especially with everything going on with the trade talks. Any residual impact concerns as you look out over the next year?

ED BASTIAN: Not in a meaningful way. You know, China is relatively small for us in terms of total revenue contribution. It’s in the low single-digits. So, I don’t think that’s something that’s, again, going to be one of those things that’s a material risk to the company.

PHIL LEBEAU: Today you guys are also announcing a new partnership with Wheels Up. Tell me a little bit about how this is going to work out for your frequent fliers, especially those at the very high end who may be somebody who could benefit from perhaps going with Wheels Up for a certain trip.

ED BASTIAN: Yeah, we’re excited to do the deal with Kenny and the Wheels Up team. We’re essentially going to be merging our Delta private jets into the Wheels Up platform and we’ll come away as an equity investor and owner in the new company. It’s a way for us to extend our brand and extend our ability into a new space. We’re not going to have it stuck, as DPJ is, kind of under mother Delta. It’s going to be alongside Delta, so that we can enjoy the benefits and have a lot more transparency and growth opportunities for both brands. Kenny’s team has done a great job building what I call the democratization of private aviation. It will be one of the largest, if not the largest, private aviation fleets out there, with almost 200 airplanes both owned and managed. And we think there’s a great opportunity to make private air travel more affordable and more accessible.

PHIL LEBEAU: How will that work out for a Diamond Elite member who says, ‘Hey, look, I have a particular trip coming up’? Will you guys then say, ‘Here’s an opportunity with Wheels Up’? How will that work out?

ED BASTIAN: Well we’re going to offer opportunities for all of our strong customers to be Wheels Up members in one of their membership programs. And thus, they’ll have access to that fleet of airplanes that we have.  And will be able to interchange whatever size aircraft they need, whether it’s in the King Air fleet or a Delta 737, 900. We’re going to be able to go back and forth and interchange. It’s going to be exciting.

PHIL LEBEAU: Andrew, I know you have a question.

ANDREW ROSS SORKIN: Hey Ed. I actually have two questions. One on Wheels Up, because I know we are going to be talking to with Kenny Dichter in just a little bit. But this idea about democratizing private air travel, how low do you think you can ever get the price?

ED BASTIAN: Well, the goal is to continue to drive affordability. One of the things that’s most exciting to me about the platform is the digital platform that they’re creating. So, it is going to be a more open source model. One of the challenges of private aviation always is your ability to kind of utilize the fleet and close out those open legs, you know, the repositioning of aircraft. So, we’re going to — the open source platform I think in itself is going to create more affordable options with the consumers.

JOE KERNEN: Ed, with size and with Delta adding a lot of size and heft to the number of people that might use Wheels Up, couldn’t you fill up more of the planes so that an eight-seater doesn’t have two people and if there were eight, the hours per person would go down significantly, I guess, if you had enough size?

ED BASTIAN: That’s exactly right, Joe. That’s why the technology and the digital platform is the key. And there’s no platform out there that is — certainly not at our scale in terms of being able to bring that –

JOE KERNEN: Almost turns into a commercial — not really.

ANDREW ROSS SORKIN: Right. And then that’s the flip side of it.

JOE KERNEN: Because you’d have to fly with strangers again, which would be —

ANDREW ROSS SORKIN: And by the way, create security. There are all sorts of other issues. We can talk to Kenny about some of those. While we have you, Ed, and I know that Delta has been a beneficiary of this, there was news that literally broke before you came on. Southwest Airlines out with a statement saying that they reached a confidential agreement with Boeing and that they plan to compensate Southwest for a portion of the protected financial damages related to the grounding of that 737 Max. And Southwest planning to share some of the proceeds with – proceeds with their employees. What do you make of all of this?

ED BASTIAN: You know, Andrew, we’re not in the Max, so I can’t really comment too much. I do think it’s been — certainly Southwest has carried the bulk of the impact in our country. I know United and American have both been out, but it’s really been Southwest that’s been impacted. I do think that Boeing will do the right thing and you know, we’re all waiting for that plane to come back into the sky. Because what we need is we need Boeing focused on development and technology in the new frontiers of innovation, that right now they’re unfortunately paralyzed–

ANDREW ROSS SORKIN: Well, that’s what I was going to ask. You don’t have the 737 Max, but you obviously have a lot of Boeing planes and you work with that company so closely. How things changed over the last six months? And how do you anticipate them changing over the next year in terms of getting this plane back up and actually being able to focus on some of these other issues?

ED BASTIAN: You’re right. We operate 600 Boeing aircrafts. So, you know, the service levels and the support have been great for Boeing throughout this crisis. But the thing that we’re missing is that next development opportunity. And what’s where we need Boeing. Whether we’ve got 757 or 76 replacements coming up or just continuing to extend the platforms that we already operate with them. We’re happy to see hopefully the Max return in the first part of next year, and we’ll see how that goes.

BECKY QUICK: Really hopefully because you’ve done very well. You’ve been the beneficiary of the Max being out. You guys have won the market share. And you talked about how that helped you with your last earnings report.

ED BASTIAN: We really are interested in getting it out. We’re happy to compete against anybody. We did not get an outsized amount of revenue growth from the Max being out. It came from the strength of our brand. The last two years, Delta has grown 15%. We’re in the top third in the Fortune 500 in terms of growth rates for the last two years running. And I think going forward next year we’re going to see another strong top line growth because the people at Delta are the very best. The brand we’re putting out there is top shelf. And that’s what we’re going to continue to focus on, things we can control.

JOE KERNEN: I know Wheels Up has some other investors. How big is — you won’t be majority owner at this point. What are we talking about? Can you give us an idea how much of an owner you’re going to be, Delta?

ED BASTIAN: We can’t disclose the details, Joe, since it’s a private company. We’re not a majority owner, no. But we’ll be a significant equity owner. We’ll be an active owner in the platform.

JOE KERNEN: Do you follow like NCA football? Would you ever consider being the Wheels Up guest that goes down to college game day to be with Desmond Howard and Corso and Herbstreit? Are you a Georgia fan? What do you think? Would you do that?

ED BASTIAN: Of course.

JOE KERNEN: I can talk to Kenny.

ED BASTIAN: I’m a big Georgia fan. Yeah, that wasn’t one of the deals we negotiated with Kenny. So–

JOE KERNEN: Really?

ED BASTIAN: I certainly would have bet on Georgia, my hometown, last Saturday. So, I’m not sure it would have done too well.

JOE KERNEN: And you actually would be put on the spot. You’ve got to pick those — I’m going to work on that for you. Because Kenny is coming on. And maybe I’d like to do that, too.

 

ED BASTIAN: Kenny is here, Kenny is here with me. So–

JOE KERNEN: Oh, he is good. Just ask him. He’s the guy that can help you. This is — I don’t know, whether it ever becomes mainstream. You always have got to be — what did we decide? We had a guy on that said .01%. He actually gave us a number on the net worth you need to do this frequently. Remember? Didn’t he say like –

ED BASTIAN: He was lower than I thought. He said 10, and I think — we’ll talk to Kenny about it, but I think, at least historically Kenny, was in the sort of 30 to 50 range as sort of a minimum, net worth.

JOE KERNEN: To do it a lot? But there are more and more, unfortunately — until we get a decent — unless we get Bernie or Elizabeth in, it’s — maybe these people are going to keep multiplying, these rich people. But, anyway, you’re working on that.

PHIL LEBEAU: Hey, guys, look, I know you want to talk to Kenny. He’s going to be back here in a half hour. I just talked to him a few minutes ago. He’s chomping at the bit to go over all of this with you. Ed has to run. They’ve got investors, they’ve got analysts here, he wants to talk about why he thinks Georgia was not a good move for him last weekend. All of these things. We’ll discuss that with him.

ANDREW ROSS SORKIN: Thank you, Phil.

BECKY QUICK: Thank you, Ed.

ED BASTIAN: Thanks, guys.

ANDREW ROSS SORKIN: Thanks, great to see you.



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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver