WHEN: Today, Thursday, December 12, 2019
WHERE: CNBC's "Squawk Box"
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 and https://www.cnbc.com/video/2019/12/12/wheels-up-ceo-on-partnering-with-delta-to-combine-private-air-fleet.html.
All references must be sourced to CNBC.
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.
JOE KERNEN: Joining us to talk more about the partnership, Kenny Dichter, Wheels Up Co-Founder and CEO. Kenny, it's good to see you. And normally we see you on set, but this is great. Did he finally just -- he was fed up with when you're going through the TSA lines and you look down, you're putting your shoes in and he sees the wheels. He just finally said, I can't take this anymore. Too many customers are like -- here I am, you know, getting frisked without my shoes and I could be on wheels -- I think Bastian said, if you can't beat 'em, join 'em. Didn't he?
KENNY DICHTER: He did. And, you know, the partner with the number one airline in the world, all levels, brands, service, revenue, incredible validation for Wheels Up. And we're here because of Ed and his team. They share the same culture. They take care of the customer in the same way that we do and, again, a perfect match.
JOE KERNEN: It seems, you know, I don't know the details, Kenny, and, you know, sometimes we need to see that. Because it seems like a quantum leap forward for Wheels Up. But, I think we need to know more. You can't tell us about the equity investment. You've got some blue-chip investors already. What have you got, T. Rowe?
KENNY DICHTER: We have T. Rowe, Fidelity and Franklin. And Delta becomes our largest investor. And we think about our members, Joe, and, look, 90 to 95% of our members have a commercial play in their portfolio. Meaning that, folks use the private jet in an on-demand way at Wheels Up. But again, there's hundreds and hundreds of millions of dollars of commercial spend at Wheels Up. And to -- I have their arms around them when they're flying on the Wheels Up fleet to have Ed and his group take care of them when they're flying commercially, that's a huge benefit of this partnership. And on the converse, you know, Ed has special customers, you know, the first and business customers. When we can pull them on the King Air last mile, they go from Reno to Atlanta and they want to go to Sea Island, you know, we're a logical last mile solution for all of Delta customers. That's a billion-dollar opportunity.
JOE KERNEN: Speaking my language, with Sea Island there.
KENNY DICHTER: So, huge opportunities for both companies.
JOE KERNEN: To democratize this service, obviously 5 grand an hour, or whatever it is, if you're just taking your family, it's still going to be tough. We talked about with Ed, that if you can size and scale this thing up where a citation had all eight seats filled, if you divide 5,000 by, you know, eight paying customers, you could get closer to democratization. But you need size and you need say computer system matching people that are going some of these places at the same time. It seems like a logistical nightmare. It would be very expensive. Could you ever do that?
KENNY DICHTER: I would tell you this, Joe. The technology is available. It's at our fingertips. If you look at OpenTable, you look at Airbnb, they enable large groups of people and operators to come together and create efficiency and utility. We're going to be able to do that with Delta. They do have the scale, they have the customers. And, again, crowd sourcing is not a new phenomenon, but technology is going to enable all of that. And, again, it's a huge reason that we're coming together with Delta to create those efficiencies at scale. And ultimately, like Uber did in New York to the yellow cab business, we're going to create pricing that's sharper than it is today using that technology.
ANDREW ROSS SORKIN: Kenny, it's awesome to see you and it's thrilling to see the growth of this company over all these years. I remember when you first came on and had just started Wheels Up, so this is a great moment.
JOE KERNEN: After Marquis Jet.
ANDREW ROSS SORKIN: One of the questions I would have for you about this idea of democratizing air travel and filling up all eight seats or 12 seats, depending on what kind of body plane it is, is what therefore is also going to come with it. Which is to say, do you think the FAA, do you think regulators start to say, look, actually we are going to have to have security, we are going to have to have metal detectors, the process is going to change if private aviation moves towards a crowd-sourced flight, which is different than a genuinely private flight.
KENNY DICHTER: Well, I would say this. In part 135 how we operate, we are absolutely in sync with the FAA and the D.O.T. on regulation. And our pilots fulfill the TSA responsibility. So, there's I.D. checks, and it's actually in a way it's more intimate. The back and forth, our customers, our members, they check the pilot I.D. So, there is a process. We're big fans of TSA. Look, when I fly commercial, I fly Delta. I put my shoes in the bin like everybody else. Incredible respect for TSA. I've been operating -- Joe, I heard you mention Marquis and NetJets. And you know, that's where I got my start, Warren and Richard Santulli. We've been operating and our whole industry has been operating under a stringent TSA sort of protocol. And that just continues on here. And again, TSA does a great job. We're well within the FAA and D.O.T. regs every day that we operate. So, I don't see that as an issue at all.
JOE KERNEN: There has been great growth. We had one of your competitors on. We don't need to mention which one it was. But he doesn't own the jets. I think 80% at least or something -- doesn't own them. He pointed to your business model in that you're at risk in recession by owning so many jets. And you need capital raises. I'm wondering if this is another capital raise. I just wonder, are you getting closer to where the cash flow would make it less likely – you need future capital raises? And in a downturn, if there was a serious 2008 type event, are you vulnerable at that point owning all of the equipment?
KENNY DICHTER: Well, Joe, the future business opportunity for us, I think we got into the business owning King Airs and leasing citation XLs and 10s. That was a branding exercise for us. The future of our business is much more of an asset light business model, an Airbnb or OpenTable, we're safety vetting and verifying partners. They come onto the platform, and that's really how you capitalize the business. I think when I think about what Bezos went through, and I heard he was named by his peers as the number one executive of the decade, he built his business in the books. That was expensive and heavy. Today books are 4.3% of Amazon's revenue. One day, our owned and operated fleet is going to be 4.3% of our revenue. And that day is coming fast.
BECKY QUICK: How much is from your owned and operated fleet and how much revenue is from your owned and operated revenue fleet right now, Kenny?
KENNY DICHTER: Well, I would say, Becky, we have got three buckets of revenue. And I love them all. The first one is the membership model. We're approaching $100 million, you know, a year or two out in membership revenue. That's our Costco, our Amazon Prime revenue, that our members support us on to own and operate the fleet. So, we love that bucket. The fleet is probably 70, 75% of our revenue today. And off fleet, our market place revenue is 25. I'll say here, I'll be on the show in about two or three years and those two buckets are going to be flipped. Our on-fleet is going to be 20, 25, and our off-fleet 75, 80. So, we're moving that direction already. We're doing digital bookings where there's no touch outside of three pushes on your smartphone and you get your airplane. So, everything we're doing is taking us to asset light. We'll never not have King Airs or XLs or 10s. Textron has been a great partner there, 119 airplanes on the Textron brand and fleet. But, ultimately, our fleet is going to be thousands of airplanes that are off balance sheet and a couple hundred that are on balance sheet. So, we have a core and a control that we need to be the best brand in the business.
JOE KERNEN: Well, Delta – I was thinking there could be a lot of others that wouldn't be nearly as -- that's brand name, that's pretty amazing. I would think that that has to be a bit of confidence builder for the business model for the future for you, Kenny. So, glad you brought it to us today here.
KENNY DICHTER: Incredible validation. And everybody, "Squawk Box" has been there since day one, 6 1/2 years. And to be in the Delta Museum today and announcing this deal, I couldn't be prouder of everybody who works for Wheels Up, all our members and everybody that got behind us in getting the business together.
JOE KERNEN: Bastian, I don't think wants to go down and sit with those guys, you know, Herbstreit and the others. I'm up to $750, I started with $500. So, I have a winning record.
KENNY DICHTER: Joe, take Wisconsin in the Rose Bowl. Joe. Take Wisconsin.
JOE KERNEN: I took Wisconsin.
KENNY DICHTER: They're going to play strong—I know you did.
JOE KERNEN: They lost, but I won.
KENNY DICHTER: I was with Herbstreit last night. He's doing the College Football Awards down here in Atlanta. He'd love to be on the show. He's talking about your draft kings and your picks. So, he's looking forward to that, too.
JOE KERNEN: Saturday -- Sunday morning I won't watch anything ever. But Saturday morning I put that on the minute I get up and watch those guys. I feel like I know them all. Corso cracks me up. Anyway.
KENNY DICHTER: I know they'd love to have you as the celebrity guest speaker.
JOE KERNEN: Oh, I wouldn't be bringing this up hoping to get an invitation for that, Kenny. I would never do that. Anyway, thank you. Good to have you on this morning.
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