WHEN: Today, Thursday, July 11, 2019
WHERE: CNBC's "Squawk Box"
The following is the unofficial transcript of a FIRST ON CNBC interview with Delta Air Lines CEO Ed Bastian and CNBC's Phil LeBeau on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Thursday, July 11th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/07/11/delta-air-lines-ceo-ed-bastian-talks-second-quarter-earnings-beat.html.
All references must be sourced to CNBC.
MIKE SANTOLI: Delta Airlines just out with quarterly results. Phil LeBeau joins us now with those numbers and with a special guest. Good morning, Phil.
PHIL LEBEAU: Mike, strong numbers, as expected, from Delta in the second quarter and a number of guidance raises for the remainder of the year. Let's go over Q2 numbers first of all. Beat the street, 235 a share versus the estimate at 228. Revenue coming in slightly better than expected at 12.49 billion dollars. Operating margins 17.1%. Free cash flow $1.8 billion. Guys, they have now had 2.5 billion free-cash flow this year. I believe last year they had 3.3 the entire year. Then there's the improved guidance for the third quarter and for the remainder of the year. Third quarter, they are now expecting to earn between 210, the consensus is at 219, look for that to go up by analysts later today. Full year guidance, raising it by a quarter. It was $6 to $7 a share, now going up to a range of 6.75 to 7.25. And then you've got full-year free-cash flow. It was 2-to-3 billion dollars. Now they are saying they will have at least 3 billion dollars. They are also to raising the amount of cash returned to shareholders. It was at 2.5 billion dollars. Now it's 3 billion dollars. A lot of improvements there, after a very strong second quarter. Let's bring in Ed Bastian, Chairman and CEO of Delta. We'll talk about why we're on this A-330 that you guys have retrofitted. You'll be flying over with the new--
ED BASTIAN: This is brand new.
PHIL LEBEAU: Brand new.
ED BASTIAN: This is brand new.
PHIL LEBEAU: And the new configuration.
ED BASTIAN: It's the first flight going on today.
PHIL LEBEAU: Let's start first off with the second quarter. You beat the street, much stronger numbers than I think a lot of people were expecting, at least earlier this year. There is so much demand out there, could have you flown even more people if you had even more capacity?
ED BASTIAN: Well, first of all, thanks for coming down, Phil. It was a great quarter. A 2-billion-dollar profit in the June quarter. The best June quarter results in our history. To put that into context, you know, if you think about the 2 billion dollars, that's better than 85 of the 90 years of our history in terms of full year results.
PHIL LEBEAU: Full years. Full years.
ED BASTIAN: Full-year results, just what we had in the second quarter. So, top line growth is really strong. About 9% top line growth in the quarter. We also -- another interesting stat, five of the top ten revenue days in our history were just within the last 30 days. So, we were full. We took 454 million passengers, record levels. And the team did just an outstanding job.
PHIL LEBEAU: So square those results, which are, by any measure, fantastic results, square those results with the hand winging that we've seen by investors about the airline business over the last three months. You've seen the reaction of most shares. I know you guys are close to an all-time high. But when you talk to investors, and we hear from investors, there's a lot of, 'I'm not really sure the airline business is that strong.' How do you convince people you are just not seeing that?
ED BASTIAN: Well, the momentum continues. You know, the results in the quarter are not a one-off. This is a trend line that we have been seeing. Our top line revenue has been growing about 8% per year for the last two years. And we're expecting to see that momentum continue into the back half of the year. So, we need to continue to show the results, that this is different. Raising that full year guide up to the top end of the original guide is very important for us. And free cash flow as you mentioned. The cash flow delivery, which I think our investors really are looking for to return the returns back to the market: $3 billion of expected returns to shareholders. $4 billion of pre-cash flow for the full year.
PHIL LEBEAU: Yesterday, Fed Chair Powell talked about, look, they see some around uncertainties, especially on the global economy, around the world, different markets. And you said, when you talked with us just a few weeks back, that you guys have noticed potentially some softness in parts of Asia. What are you seeing when it comes to Asia and in particular China as well as on the transatlantic routes?
ED BASTIAN: We've seen some softness both in the Pacific as well as in the Transatlantic. But relatively speaking it's modest compared to the overall picture. In Asia, it's actually more Japan for us than China. China we're up double digits in terms of passenger growth. We're cautious. We're always keeping an eye on the demand. There's a lot of supply in the market in Asia. In Europe, you know, part of it is Brexit, part of it is macro uncertainty, part of it is more expensive given currency for Europeans to fly to the U.S. this summer. Yet that said, our overall transatlantic revenues also hit a new all-time high in June. And, so, in context, it's not as strong as the domestic marketplace, but it's still doing fairly well.
PHIL LEBEAU: Ed, I know Melissa has got a question for you. Melissa, go ahead.
MELISSA LEE: Yeah. Hi, Ed. It's Melissa Lee back in the studio. I was wondering if you can quantify the kind of boost you got in the quarter and maybe year-to-date from your competitor's woes concerning the 737 Max grounding and whether you think as this grounding seems to drag out further and further into time, that that benefit can actually grow for you for Delta going forward?
ED BASTIAN: Well, as you know, Melissa, we do not fly the Max. And clearly, there was a benefit for the airline in the quarter. I don't think there was a significant benefit. Certainly, it's not explaining the results we're seeing. It's more of the strength of the brand and the service our people are putting forth. To put into context, at the start of this year, we're seeing domestics supply down maybe one-to-two points from the originally forecasted levels. It's still growing, it's still up about 4% within the quarter. One to 2% is not a significant amount. And when you think about the fact that the competitors I think have done a very good job of reallocating their fleets, and covering off on their most competitive routes and their most lucrative routes. You know, we saw a marginal benefit. I don't think that's the reason for these numbers.
MELISSA LEE: Yeah, but do you see that benefit potentially growing as the groundings extend out into time and as your competitors continue to shuffle, especially, the impact on the consumer and the traveling public. I mean, you said recently that the airline industry has been traumatized by the grounding of the 737 Max. I mean, the impact on the consumer has got to be pretty traumatic as well.
ED BASTIAN: Well, it is. And, you know, I don't know when the plane is going to come back. As we've seen, it's taken longer than any less expected to see it returned to service. It's not going to be in place for the third quarter. You know, maybe some time into the fourth quarter. We don't have a crystal ball on that. But I do think consumer demand has shifted to Delta, has been shifting to Delta for several years now. The Max may be contributing a little bit of benefit, I don't think it's a signifcant contributor.
PHIL LEBEAU: Ed, a couple of last questions. I think some people might be looking at us saying, 'Why are they on an airplane?' We are on a new A-330, this will be flying from Seattle to Shanghai tonight for you guys. But in particular, you've got the Delta One configuration up here -- the new business class. What are you noticing in terms of demand to fly business class? Is it that we getting more full fare paying people and less of the upgrades, in terms of 'Hey, I got a bunch of miles, and that's the only way I can afford to get into Delta One'?
ED BASTIAN: Well, this plane is our 330-900neo. We are the launch customer in North America on this plane. So, we are the first airline in North America flying it. Last night was the first service. This is plane number two. And we're taking this to Asia tonight. This product is fantastic. It's award-winning. The Delta One Suites with the enclosed door won the Crystal Cabin Award last year for the best new product innovation in the market place. The other thing I love about this product is we're introducing the new Delta Premium Select which is a business cabin in our international cabin. We are seeing, you know your question around passenger demand for the product, has been phenomenal. The results have been great. The Delta Premium Select is certainly I think one of the leading –
PHIL LEBEAU: But are you seeing more people saying, 'I will pay for this,' as opposed to 'I'm only going to do it if I can cash in enough miles'?
ED BASTIAN: No, we're seeing great demand. Overall, first class is paid, all the factors are up 65/70%. So, when you think about that, we are saving some seats for our frequent flyers to make certain that they can upgrade. But most of it is coming in cash.
PHIL LEBEAU: Ed Bastian, Chairman and CEO of Delta. On a day, guys, where they posted stronger than expected earnings for the second quarter earnings and raised their full year guidance. Guys, back to you.
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