Great morning, everyone. Welcome to day two of the Morgan Stanley Consumer Conference. I'm Ravi Shanker, Morgan Stanley's airlines analyst. One of the most enduring parts of the consumer in 2023 has been travel, and we're very excited to kick off day two here with arguably the best premium franchise in the U.S. airline industry, Delta Air Lines. Our top-ranked stock within our coverage, and we're very happy to have with us CEO Ed Bastian and COO Glen Hauenstein. Gentlemen, thanks so much for being here. Before I turn the stage over to Ed for some opening remarks, I want to remind everyone that disclosures related to Morgan Stanley's relationships are available at morganstanley.com/researchdisclosures.
Obviously, if you have any questions, please, we'll have a Q and A towards the end of the session. And with that, Ed, you want to kick us off?
Thank you, Ravi. Well, thank you, Ravi, and it's very good to be here. Just enjoy the opportunity to talk about our company and our brand. We need to remind ourselves that this is a webcast, so we filed an 8-K this morning, which confirmed our fourth quarter guidance, which we had presented, I guess, mid-October, which is a sigh of relief to some, given how the year has been. It's been an interesting year in our industry.
One of the things that has struck me is, and we were talking before we came up, is that this is the first time that we've been present at this conference, as a consumer, a consumer conference, and you usually find us presenting at all the leading industrial, conferences and, and having a, having a widespread following there. But Delta is one of the leading brands, one of the leading consumer brands in our country, with passionate consumer loyalty that is transcending the industry. It reflects the hard work we've done over the course of the last 15 years to differentiate our brand, to decommoditize our brand, to move into the premium sector.
As a result of that, we're not just the leading brand in the airline industry, we're one of the leading brands in corporate America and the consumer marketplace as a whole. This slide on the first page gives evidence of that. Some interesting facts, if you haven't seen this. Delta is the fifth largest U.S. e-commerce retailer in our country, following some pretty impressive names like Amazon, Walmart, eBay, Apple, and then Delta. Interesting. People are not cognizant of that in terms of the impact we've had with our direct distribution, where 50% of our sales are direct to consumer at this point in time. We were named, as we're typically named, one of the most admired brands by Fortune.
This year, we are the 12th most admired company in the U.S., which also is a strong reflection of the health of our brand. Both the Wall Street Journal, Business Travel News, many, many, many leading publications and travel sites have named Delta the leading name. Business Travel News, just a couple of weeks ago, named us number one for corporate business travel, 13th year in a row. To do anything 13 years in a row is pretty hard, but we're continuing to motivated to keep it going strong. Wall Street Journal, we've been named the number one airline for travel in the U.S., five out of the last six years, and the list goes on. Finally, on our co-brand side, we've got a strong partnership, as many of you know, with American Express.
A great franchise, a great brand. We are the leading card within the entire American Express portfolio across their enterprise, and the spend on our co-brand card is approaching 1% of total U.S. GDP. So if there's any question as to why Delta and airlines here are presenting at a consumer conference, I think this slide should give you a pretty good indication of the strength and the relevance and the scope of what we're doing. Consumer brands have been. I know the question's been asked for the better part of the last year, is the health of the consumer. I'm sure there was a lot of conversation on that yesterday, and there will be a lot of conversation on that today. We get a lot of conversation on it. I can stand here and tell you that our consumers are doing very well.
They're resilient. They're continuing to prioritize travel. One of the trends that we have seen, and it's not new, we've been talking about it for the last two years, is the return to some level of normalcy of consumption within consumers, where when the COVID crisis hit, everyone stayed home and locked down and everybody bought stuff, and now they're investing in things, investing in themselves and investing in experiences. And the experience economy, which is Delta, is one of the leading brands in the experience economy, is doing very, very well and still has quite a ways to go. This year, we expect the service economy to grow 8% in our country, and that is not just outpacing GDP. We see that there's room to grow.
You can see in this chart, there's room to grow, to continue to catch up to more of the normalized patterns and trends which we expect we'll see over the next several years. The high-income consumer is our target audience. 75% of all U.S. travel is spent by consumers, households having household earnings of $100,000 or more a year. That's about 40% of the households in our country constitute 75% of the overall travel spend. With Delta being a premium brand, arguably, our numbers are much higher than that in terms of the strength of our consumer and the health of our consumer, and it also is the highest priority purchase for high-income households.
One of the things that the Fed recently put out, something that we've been talking about for some time, is that cohort has accumulated over $30 trillion of household wealth since 2019. So our consumers not only have the opportunity to travel now, they have the desire to travel, and they have the wealth to make it happen, and that's what's fueling the strength of our travel sector. Another slide that indicates this is when you look at long-term in our industry, the relationship between travel and the GDP. You know, our industry is an interesting one, and it's got a tremendous amount of volatility and variability and exogenous factors that influence us.
But if there's one thing that is pretty consistent over time within travel, is that it's a relationship between the size of the economy and the amount that's spent on travel, air travel specifically, is about 1.3%. You can see this, this goes back to 1980. Year in and year out, there's a couple things. You can see what happened during the economic crisis in 2009, it dropped to 1.1%. It was already back over that number by 2012. Certainly broke in 9/11 in 2001 for a couple of years and back. The only time it's meaningfully broken in our modern history of U.S. travel is the COVID crisis.
And you can see from the period of 2020 through 2022, there was about $300 billion of missing demand. When you look at the size of the economy, the wealth of our consumers, and the actual fact that consumers could not travel, but they had the desire to travel, it's a substantial amount of demand that was missing. And when people talk about revenge travel and the fact that people are now getting back on the road and are spending whatever they want to spend to just get out and see people and see things, that's a piece of what we're seeing. But interestingly, this year, we're only back to trend.
So the fact that, you know, people look at our, our industry saying, "Well, how long is this going to continue?" We're only on trend, and we haven't even really made a dent into that $300 billion. So I think over the next several years, we'll continue to see a healthy, strong economy going forward for our sector, certainly, and resiliency. And this is the final slide I'll show before we go into the Q and A with Ravi. How did Delta get here? How have we created the industry-leading position within our, within our industry, but also within the marketplace as a whole? There's five competitive moats that we've invested in at Delta.
Historically, over time, we've been strong in, but certainly in the last decade, we've invested hard in making certain that these are sustainable competitive advantages that will stand the test of time. Certainly, what held us during a pandemic, and I think they should be enduring advantages we'll see through any economic cycle. First and foremost, it's our people, our culture of service. You know, the heart of this company is about people. Many of you are loyal travelers, and I thank you for your business on that. Then you understand what I mean when you say that. When you enter a Delta plane, it's different. When you step out, you're welcomed, it's warm, it's caring, it's elevated, the experience. People are there to serve. We're not there to transport.
We're there for you to have a great experience with us. Second, the operational reliability. What enables us to have that caring service is we produce the best airline product in the sky. The reliability, we've led the industry for well over a decade. We're yet again this year number one in on-time arrivals. This quarter, we're running at a 99.9% completion factor. The Thanksgiving holiday had the media all out there getting people scared, saying it's gonna be another travel storm as everyone's heading back to the skies. At Delta, for the 10-day period of the Thanksgiving period, we operated over 50,000 flights. We had less than 20 cancellations on 50,000 flights. So we're back and we're stronger than ever on the reliability front. Our network is strong.
People think about Delta, they obviously know Atlanta, they know Minneapolis, Detroit, Salt Lake City, our core traditional hubs, all of which are strong and powerful in their own right. But people don't necessarily appreciate the number one and number two travel markets in this country, New York and Los Angeles. Delta's number one now in both L.A. as well as in New York, in addition to our traditional strengths. We're number one in Boston. We're number two in Seattle, and we're continuing to invest to grow not just the franchises internationally with our partners, but also investing in our facilities. You've all hopefully seen our new LaGuardia facility. We're finishing out JFK. This is gonna be another one of these enduring competitive advantages. There's not gonna be another LaGuardia built in probably 50 years.
We've got the best facility in the leading marketplace up here, in New York. Loyalty, I'd mentioned already our American Express relationship, the strength of our brand, the importance of that, of that relationship, having a premier exclusive relationship with the leading, card provider, the leading loyalty provider, coupled with Delta Air Lines, you know, that's where magic occurs. Our financial foundation is strong. We came through the pandemic in a better shape than any of our competitors. We went into the pandemic as the strongest of many of the major airlines, and we came out of it quicker as a result of that. Two things I was most proud of going through the pandemic, one was the fact that Delta was on one of only two airlines in the world that did not furlough a single employee.
So when you think about loyalty, loyalty is also on the employee side in terms of service to our customers. We're also one of the only airlines in the world that did not dilute its shareholders, its equity holders. We did not raise equity. We could have, but we decided not to because it's important, the fact that we stay loyal to you, our investors, we stay loyal to our employees, we stay loyal to our customers. So with that, Ravi, thank you for the opportunity, and we can open the Q and A.
Great. Great. Like I said, I'll get to your seat. I thought that was really impressive. The stat that always gets me is the co-brand spend is 1% of GDP. Kind of that just kind of take some time to to kind of wrap your head.
People love, people love to travel.
Uh, people-
We saw it accelerate during COVID. You know, if there was ever a time people say, "Well, I'm not sure if I'm gonna travel," and whatnot, you know, the acquisitions of the cards stayed healthy. The spending on the cards grew at an even faster clip than they were pre-COVID.
Got it. So people love to travel, we saw that recently. I think Thanksgiving Day was a record TSA travel day. Can you just give us an update on the current demand environment right now, how fourth quarter is trending? You obviously reiterated your guidance earlier this morning, but a little more detail on what demand is like right now.
Sure. As you said, we reiterated our guidance this morning, and I think we're very confident, as we had a record Thanksgiving, record revenues over that period. Christmas is shaping up to be a very, very strong close to the year, and then we're off to the races back in January.
Got it. Across the board, like, is that leisure? Is that corporate? Kind of, is that international?
Absolutely. I think we've had—we had a plateau again with business travel in the early fall, and the Thanksgiving and post-Thanksgiving, we've seen another uptick. Part of that's because of the settlement of the big strikes we had in Los Angeles. Of course, we're a big carrier there in Detroit, so we've seen those start to recover at different paces, but that's good to have behind us, and we've seen a nice uptick in corporate travel year over year as we close out the year and head into 2024.
Got it. To your point, kind of, Ed, kind of when you were talking about the demand thing, I think, a lot of people have been kind of concerned about a potential demand cliff. You know, is this sustainable? Is this sustainable? Are you surprised by the resilience of this kind of travel strength you've seen, kind of despite all the macro pressures we've seen in the headlines?
I'm not surprised at all, and that's the reason I showed that one slide, that you can go back to when the industry was deregulated in 1980.
Yep.
You look forward, at one point, it's like we have stats that go up and down all over the place. Within the year even, right? With fuel prices-
Absolutely
... and things changing in our economy and our industry. But the resilience of the demand, the interest in travel relative to the size of the economy, is one of the things that doesn't change.
Right.
We knew once consumers could travel-
Mm-hmm
... that there was going to be this big surge, and we were, you know, did our best to, to, to capture as much of that as possible. And, you know, you've asked me, we've, we've asked, been asked that question for the better part of almost a year and a half now.
Mm-hmm.
So when does this finally get caught up? I don't think we're gonna get caught up. I think... And by the way, you know, while corporate and other parts of the travel rhythm may be down a little bit, there's other new forms of travel that have come in and substituted when you think about hybrid work opportunities and the fact that people can take their offices now with Zoom with them on the road and work from where they want to work, not just in the office-
Right
... on a regular return basis. So I think the incentive to travel is as strong as it's ever been, and certainly my 25 years at in this industry, and I expect it's gonna continue to be strong. I see nothing that's gonna slow it down, and by the way, it's also governed by the fact that the industry also has a lot of constraints around it in terms of how much... Because if we had more aircraft, if we had more supply available to us, you'd see those numbers even higher.
Right. I thought it was interesting you show on the chart that, we're only back to a trend level in terms of GDP, spending on travel, and that $300 billion of, like, the pent-up demand is, like, hasn't even started yet.
Exactly.
When people think that we have actually all, you know, used up all the pent-up demand. So in the coming years, kind of do you think that this is resilient and structural? Do you think that we can kind of stay at that 1.3 or maybe even over-index above that?
I think we'll over-index on it, and one of the things about that 1.3% in the current year, don't forget, our economy is about 20% larger-
Right
... than it was in 2019. So we've already seen a pretty big uptick in terms of demand, yet the actual capacity in the industry is only back to 2019 levels, effectively. A little bit higher in certain markets, but by and large, it's, it's pretty much back to 2019. So that gap is, is gonna be the, I think, the, the staying power that we're gonna see going forward.
Got it. Just switching gears a little bit. Again, I thought your first slide was also really impressive, kind of, you know, putting yourself up against those other brands, consumer brands that people would normally think of, and a very, very powerful brand was a great place to be. How has Delta established itself as the brand of choice in the industry?
Well, we, you have to go back almost 15-20 years, you know, when we decided that we were gonna stake out this, for ourselves, and it, it started really in 2008, 2009, when we, we were the first to start the consolidation move in, in our, our industry. Our. The biggest challenge this industry had over time was it was subscale. There were many, many airlines, if you go back 20 years and or more, competing, you know, none, none, none of whom had enough scale or, or, or enduring strength to actually invest in the quality of the experience. We decided when we bought Northwest in 2009, that that was our opportunity to take that scale and actually turn it into an enduring advantage.
We knew that if we got consumers what they needed, which is reliable air service with quality, quality, you know, onboard service as well as in-air and in-airport service, that that would be the baseline for us to start to build a brand.
Right.
Because the industry was commoditized-
Right
... up to that point in time, and Delta being a global carrier, being a premium service carrier, you know, commodity is a bad place to be in, in that space. So we invested a number of years in improving the quality of the experience.
Right.
Once our employees could actually have the tools to do a great job, to provide that extra caring service on board, that makes Delta unique and differentiated when you're on board a Delta flight-
Mm-hmm
... that then was the magic that enabled everything to then start to pop and-
Right
... started to gain followership. It was the investments we made here in New York and the airports, investments that we've made in other parts of the world with our international partnerships that have continued to build and layer on top of that.
Got it. You mentioned the C word. Kind of, I think there has been a view that air travel had become commoditized, obviously, flying on Delta is anything but. Again, is it a case of build it and they will come, and do you think that there is enough enduring demand for a premium product in the skies that people will do that?
I do. I do. I think one of the things, again, we saw during the pandemic is that people started to once again reflect on their choices and where they, who they were investing with. You saw, not just in our space, but in other spaces, premium brands started to attract a higher percentage and higher differentiation in the marketplace.
Mm-hmm.
Our brand, when you're traveling, and particularly when you're traveling during a pandemic, you absolutely cared about what airline you were on. You wanted to be on the airline that blocked the middle seats throughout the pandemic, as Delta did.
Right.
No other, no other airline did it to the extent that we did. You wanted to make certain that you were with people that were going out of their way to make certain that people were comfortable in, in their experience. And so we actually saw our brand tick up meaningfully during the pandemic. Our net promoter scores and all the affiliation scores around the brand, even though, you know, we were so far below our historic pattern. So when again, when travel started to return, when people felt comfortable getting back in the sky, that's when that big surge came towards Delta, and that's, that's why we, you know, this, this year, which is pretty remarkable, we'll be 15% higher than our historic all-time high revenues. It's in that 10%-15% range.
Mm-hmm.
Even though we're just three years removed from having almost no revenue.
Right.
It's pretty remarkable.
Right. Just kind of on that note, what do you think of the premium consumer, kind of both across the economy and in the airline industry? And kind of how do you think their behaviors may have changed post-pandemic?
Sure. You know, I think this is really a story of evolution.
Mm-hmm.
When we started on our journey, as I said, back probably even before 2008 and 2009, in reengineering what our strengths and weaknesses were, we realized we couldn't be a commoditized industry. We had to get a premium. The whole infrastructure for selling airline tickets was not geared to sell premium products, and it still is morphing into something that is better at selling. We've been working with a lot of our distributors over time. We've lowered the price of using the premium products to attract more people in, and we've changed the whole core economics. It used to be that our front cabins were our loss leaders. Now, our front cabins are our profit centers.
Mm-hmm.
That's a huge paradigm shift. I think people underappreciate the transition that the industry has gone through in distributing those premium products after years of just racing to the bottom on the commoditization. We're still not done with that. We still have more innings left, and I think that's what's so exciting about the next few years, is not only do we have more opportunities there, but we are continuing to invest in our products. Next year, we'll have LaGuardia finally finished. We'll have... LA is just finishing up now. We have Salt Lake fully opened, almost. And those, combined with international free Wi-Fi, the things that we're bringing to market are gonna make our brand even stronger and make those premium products even more valuable.
Got it. Before we kind of completely move away from the demand side and the premium customer, again, I'd love your views on just international travel. I think there's been a lot of focus on the consumer potentially over-indexing towards international in 2023, and kind of people. You've seen that in passport issuance data, which is an all-time high in 2023. What are you seeing in terms of international demand, kind of how enduring do you think that is?
So international really is a. We, of course, have the transatlantic, Latin America, and the Pacific, so maybe I'll do a little bit on each of them. The transatlantic had the most phenomenal summer ever. We achieved record profits and record margins in the transatlantic. We do not see that abating. We are in what is arguably the very lowest part of the season now, heading into January and February.
Mm-hmm.
Advanced bookings are quite strong and then pick up even further as you head into March and shoulder season. We're really optimistic that we'll have another great run at the Transatlantic. Our capacity is up mid-single digits in the Transatlantic, where it was up 20-some-odd%, almost 30% last year.
Mm-hmm.
We're moderating our growth, and we see very, very strong demand in the Transatlantic. The Transpacific has a couple of different stories going on, and I'd say the most pivotal part for us is our hub with the Korean in Incheon Airport, which is really a phenomenal asset. Best connecting times from the U.S. to secondary cities in Asia and really doing phenomenally well, as is Japan. Japan is doing very well. China is very small, as you know, you know, about a tenth of what it was pre-pandemic, but strong results. And then the South Pacific, where we're now heading right into season, and it looks like it's gonna have a very strong season in the South Pacific, where we've grown a lot since pre-pandemic.
That leaves us to the last, which is Latin America, and very exciting things going on there, particularly with LATAM. We were just with our partners down in Chile.
Mm-hmm
... last week, and the integration between the two carriers is progressing ahead of plan. We're achieving record record results in terms of revenues. The margins are a little bit stressed right now as we grow capacity pretty dramatically by connecting all these connecting complexes in the hubs. But that should moderate as we head through 2024 and really be a profit center for us.
Got it. Ed, I want to switch gears a little bit and talk about the Amex relationship, because again, that really is a pillar of your revenue growth and kind of what you've achieved with the consumer. Can you just, for those who are new to the story, can you just talk about the history of the Amex relationship, and kind of maybe some of the drivers of recent success that you guys have had?
We've been partners with Amex for approximately 30 years, and but it's really been in the last 5 to 10 years that the thing has really started to differentiate like we've had with respect to the entire brand, and I'm sure there's a corollary there. There's a reason why.
Sure.
You know, Amex is the, the premier card provider-
.. in terms of, consumer, in this country. When we started our partnership years ago, I don't think they were necessarily investing in Delta. We looked at this as more of a transactional commercial relationship. When we started to understand the power that we could bring together, because we were both targeted the same consumers, there was always, I think, a question mark between the two companies as to whose consumer it was. Was it an American Express customer?
Yeah.
Was it a Delta customer? When we finally decided, and I give the leadership of Amex, Ken Chenault and Steve Squeri, a tremendous amount of credit, and Glen and I have been, you know, the closest partners you could imagine with those guys. No, there are collective partners, and what we can do to make the pool bigger rather than argue about who gets what size of the slice, things really started to expand and explode. And again, it hit right along at the same time that our brand started to really differentiate in the marketplace. So this year, to give context to people that aren't as familiar, we'll generate $7 billion of revenue from that relationship, just that one relationship. I don't know of a commercial partnership on that scale in the country that has that level-
Mm-hmm.
of power and growing double digits year-over-year. We expect into the next several years, we're gonna, we're gonna continue to see double-digit annualized growth on that portfolio. Because travel is what we do. Travel is one of the main benefits of the card. It's one of the reasons why, you know, our consumer is the same consumer.
Got it. And can you talk about kind of how that... Again, you said the $7 billion of revenue, kind of, what are kind of other opportunities to monetize that? Or kind of where do you think that can go over time?
Well, it really speaks to the loyalty proposition that we continue to expand. It's one of the reasons why we launched this year free Wi-Fi.
Yep.
High quality, high-speed Wi-Fi for consumers that works is to continue to build a bigger pool for individuals that aren't yet into our loyalty program that could expand. We've had since the start of the year, and the interesting thing to me is that these are consumers we already have, just people signing up on the planes already. We've had 2 million new members of Sky Miles that we already had. We just didn't know who they were-
Right.
Join us. And so now that they're once into the ecosystem, and these tend to be younger, they tend to be consumers that haven't yet made a choice around air travel-
Mm-hmm.
—are deciding because of connectivity. That's one of the things they want, and no one can provide it with not just the fact that it's free, but it's also fast, and it works. And then when we expand it next year to internationally, it's gonna be strong. So continuing to build on loyalty, build on the franchise, on—
Yeah
... on the brand health, and then Amex is underneath it. They're one of the sponsors actually providing that and supporting us in that effort.
All right. But clearly, build it, and they will come.
Well, we're doing it.
So maybe kind of to switch gears a little bit, kind of how do you target those customers, particularly young customers? Kind of, can you talk about your digital initiatives and kind of what you're doing, too, with the brand outreach?
Yeah, we think digital continues to be a great opportunity for us. We know in our industry that we've been a leader over time in terms of our platform and the dot-com site, which is now, as I mentioned earlier, 50% of all of our consumers are buying on dot-com, which is probably doubled in the last five or six years, maybe even more than that, in terms of the growth rate there. And because they have something that on the website or on the app that they want, in terms of being able to have control over their experience, be able to get unique products and offers, and they're guaranteed to get the best pricing.
There's no need to go looking at the OTAs because-
Right
... you go direct and build the relationship with the brand. That's what our younger consumers are starting to discover as well, because they want to be members. They want to have status. They want to feel like they're part of something. And the one thing that we have seen with our brand over time is that once people come into the Delta ecosystem, because we are the leading provider, they tend to stay and build a lifetime of loyalty. And so that's really the opportunity going forward, as we continue to build out our digital strength and digital capabilities, giving people more opportunity to use that app for self-service and control of the experience. On the other side of the house, operationally, we have tremendous operational opportunities-
Mm-hmm
... that digital provides. Part of it is we got to make certain that we continue to get our, get our own infrastructure ready for it. We're in the midst of a massive migration to the cloud with AWS, and-
Mm-hmm
... we'll be concluding that by the end of 2024, so we'll have all of our apps ready. They'll be refreshed, they'll be updated, and then you can bring, whether it's AI, and the—which is the, you know, the latest thing. Everybody wants to talk. I'm sure you're gonna ask me a question about that. Or just, you know, classic digital capabilities, bringing technology to solve complex issues with, with, with, with a lot of data and a lot of moving parts. We're a perfect industry for that. I, I, I just step back, and I, I say this to our team all the time: This, this, this company, we have over $40 billion of assets that we've invested in this.
If digital and AI just can increase the value of that just by 2%, 3% 4%, you're looking at, you know, billions of dollars opportunity over time. That's available for us, and I think there's still a lot of low-hanging fruit available.
Got it. I will ask you an AI question. Kind of where do you think it might serve you and your customers best? Is it customer service? Is it the back end? I'm sure you're doing stuff already with AI and ML, so kind of what are you doing already, and what are you exploring for the future?
I think the initial foray into AI is on the customer service side.
Yep.
And we're working with our reservations team to try to help our reservations agents parse, you know, the historical policies and questions and things that you might call into a res agent when you, if you're traveling with a pet or you've got a specific issue or a specific question, and there may be an answer in some policy part of their procedural manual that they have to get answers to. And you can, you know, that's why people go on and, you know, you're on hold for five minutes waiting for an answer. They should only be on hold for five seconds, you know, getting an answer. That's what AI, and that's one of the first applications that we're deploying, and we're using-
Mm-hmm
... AI already to build. But I think there's a lot of interest in the short term for what AI is. I'm more interested in the long term.
Yep.
I think it's really important that large companies such as Delta ensure that when you deploy AI, you have your house in order.
Mm-hmm.
That you have these policy questions streamlined, you have your data clean, you have your networks built so that... Otherwise, if you let the computers control the information flow with a dirty structure, you're gonna get-- You talk about hallucinations, you're gonna get hallucinations on steroids, right?
Yeah.
So, we're being very disciplined about how we roll it out, but I think the opportunity is enormous. It is probably a five-year journey.
Five-year journey.
But I think it's enormous.
If I might add to that, we are starting experiments just in the last month on AI for pricing. Really, the amount people are willing to pay for the premium products relative to the base fares, having the machines show us what do they think we should be doing, and having the analysts then look and see what are the machines recommending. It takes a lot of time and a lot of effort out of the feedback loops, and it really automates it, streamlines it, and accelerates our ability to move faster. So really exciting on a whole host of fronts, but from the commercial side, that's one we really think has some great power for us.
Nice. Again, we've spoken a lot about the premium customer. We've spoken a lot about the leisure customer. Ed, you also mentioned that obviously you're a corporate travel airline of choice. So wanted to get your views, both in terms of what the corporate demand right now is like and how you see that kind of trending into 2024. But also kind of coming out of the pandemic, I think the one thing that people were very convinced about was that corporate travel was never coming back, right? And that has been probably more emphatically disproven than anything else we've seen so far in this industry. What's the long-term trend in that as well?
Sure. The long-term trends are we're not quite back to where we started in terms of volumes-
Yep
... but we're getting there, right? It's that we're now in the high 80s, low 90s, so largely restored. That's in the corporate, that's in the top Fortune 500 companies. But what we've seen is this incredible growth in unmanaged business and small and medium-sized enterprises that's more than offset that shortage. So if you think about who's sitting in our front cabins, it's actually the same person, but just for a different purpose. So, what we had hoped when we went into the, into COVID, was that premium products, people who had gotten used to them, would continue to buy them.
Right.
We've seen this incredible stickiness, 70% intent to repurchase once you're there. So essentially, once I've been flying from here to Chicago in first class, when I go to my house in Palm Beach now, I'm not sitting in the back, I'm sitting in first. So people are getting used to it. We're trying to keep it affordable, keep it in, in budget, so that they can actually afford to do it, whether they're traveling for business or for pleasure. And that's what we've seen, is the people who got used to it, for purpose of travel, now leisure, which has been the accelerating part coming out of COVID, they're buying the premium products.
I think one of the things, Ravi, that was, you know, I'll never forget Bill Gates saying that it's never dead, never coming back-
Yeah.
... you know, 50% at best. You know, I still smile 'cause I didn't believe it then, I still don't. It's still, obviously, clearly he was wrong on that, big time. The thing that they didn't get was that the video conferencing tools, those applications for technology, just enhance mobility.
Yep.
Anything that enhances mobility is going to enhance the value of our brand, the reasons people travel. That's what people didn't understand. They were just so mesmerized by the technology, they didn't understand the power of this, is it actually makes us, you know, be able to connect from wherever we are, however we, we choose, and wherever we go. That's why you've seen, you've seen the country change. You've seen people move to different parrts of the country, yet still maintain their, their, their, their connectivity back. You know, going... You got a whole new sector of travel, of people have joined new organizations, moved to different parts of the country-
Right
... and now have to travel back just to come into their office.
Right.
Right? I mean, it's really an interesting experiment. So, you know, we'll get back to corporate travel. I think, you know, as Glen said in a different way, it'll be well over 100%-
Mm-hmm
... of where it was. But the classic corporate travel continues to take steps forward, and it's been kind of, you know, step by step by step, and I think next year we'll see another step up, and your surveys have suggested that as well.
Yep.
If I might add just one thing, is the flexible work week has also added much easier way to take a four- or five-day weekend.
Yep.
Which we've seen in the travel results, is that people are now leaving on Thursday, coming back on Tuesday. So entirely different travel patterns and much more opportunity for people to be mobile.
Yep. In my experience, I think, video conferencing replaced phone calls. Like, everyone thought video phone conferencing would replace in-person meetings, then instead it replaced phone calls, but people are still doing the in-person meetings.
Absolutely.
That probably works best. So again, we have a few minutes left, and we've spent a lot of time so far, kind of quite rightly focusing on the brand and the demand side of the equation. But I also want to shift gears and talk about the other side of the house, right? Because, I think investors' biggest industry concern over the years has been kind of, you know, oversupply. And, I think we've seen a little bit of a dip in unit revenues recently, especially in the domestic side of the house. And so that kind of specter is kind of raised again. But you've heard from virtually all the management teams on 3 Q conference calls that, you know, they're taking a very close look at growth plans for next year and beyond.
Obviously, we saw the headlines from this weekend on M&A as well. What is your view on the overall health of the industry and the ability to maintain, let's say, an equilibrium between demand and supply in 2024 and beyond?
I'll let Glen take a first stab at that, and I'll add on.
Sure. I think we've seen a very constructive fall and winter evolve. So if you think about where we were back in October, domestically, in particular, we had just under 11% more seats than we did in the previous year. That goes to zero in January.
Mm-hmm.
That is one of the biggest drops in total capacity that I've seen in my long history as the industry adapts to a slower growth model and works to catch up. I think we're sitting on the verge of a very constructive beginning to next year-
Yep
In terms of domestic. International, as we mentioned before, the demands seem to keep rising and keep pace with the incremental capacity that's in there. But a real shift in terms of the domestic supply-demand imbalance, and one that's much more constructive as we head out of 2023 and into 2024.
Got it. We've spoken a lot, and I think you addressed earlier in your comments about some of the external constraints on capacity, whether it's pilots or plane availability, you know, ATC capacity. And so can you talk about some of those constraints and kind of how they are evolving as well?
Well, I think, you know, our—again, our demand set is really strong. Again, it's—it's relative, you know, to Scott's talked a lot about it. And honestly, if we were all capable of flying more, we would, given the health of it. But whether it's pilots, whether it's air traffic control constraints, whether it's infrastructure challenges-
Right
... whether it's supply chain, whether it's engine issues, whether it's the cost of traveling, and both fuel as well as labor, as well as parts, all showing double-digit year-over-year increases over time.
Mm-hmm.
This industry is probably at its capacity limit. So while, you know, Glen talks about a productive, constructive backdrop as we look forward, it's been a pretty constructive backdrop all along here.
Right
Over the last year and a half to two years, which I think is going to continue to stay and actually be even more constructive, potentially going forward, as those carriers on the lower end of the fare spectrum really are struggling with not just those constraints, but also how do they get their pricing to match, you know, the higher cost of service.
Right.
Again, it feeds back to the strength of our brand. It's the strength of the premium provider, those that can pass on and actually use that to gain strength and gain share, are gonna win.
Got it. Any last questions from the audience? Yeah, one in the back.
Our competition? Fortunately, they're all looking at us.
I think as the kind of industry evolves and kind of becomes more premium, I think you're seeing some others kind of talk-
Yeah
about the same thing, but to your point, kind of.
Yeah. No, listen, I—there is one other that has a strategy that's very much looking to model, you know, Delta-like. I think they're smart.
Great.
The thing, the thing that they can't match, that none of the airlines can match, are our people. That's the one thing in our industry that is unique and can't be replicated, is the quality of the service, 'cause it's the people, it's the service lead, as compared to any of the, any of the, the, the hard goods that they invest in. It's the soft goods that are, that are real- we're the real difference that Delta shows.
Okay. Yep. Every plane I'm on is older. But anyway, what happened in 2015 to 1.5?
In 2015?
Yeah.
2015, you had fuel prices that had dropped substantially in the marketplace, and you wound up seeing a lot of supply jump in, so a lot of travel was encouraged. It was also a period of time where the industry was consolidating, and you actually were starting to see some of the benefits of that consolidation. Carriers were starting to grow, grow faster again. So, I don't know that there's anything specific to 2015 relative to other points in time, but I think it was more that there was a it was a sweet spot where carriers were having lower fuel prices, labor hadn't grown as much, and airlines were, were actually tempted to grow even faster, maybe than they should have.
They'll get to two.
I like your optimism.
Great. Ed, Glen, thanks so much for joining us.
Robert, thank you. I appreciate it. Thank you.
Sure.