Delta Air Lines, Inc. (DAL) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Delta Air Lines March 2012 Quarter Financial Results Conference Call. My name is Cynthia, and I will be your coordinator. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to Ms. Jill Sullivan Greer, Managing Director of Investor Relations for Delta.

Thanks, Cynthia. Good morning, everyone, and thanks for joining us for our March quarter call. Joining us from Atlanta today are Richard Anderson, our CEO; Ed Bastian, our President; and Paul Jacobson, our Chief Financial Officer. Also in the room for the Q&A are Glen Hauenstein; Steve Gorman; Mike Campbell; Bolton Shannon; Mike Randolfi; Gary Chase; Evan Hurst; and Ned Walker. Richard will open the call. Ed will then address our financial revenue performance and Paul will conclude with a review of cost performance and liquidity. And to get in as many questions as possible during the Q&A, please limit yourself to one question and a follow-up. 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 the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in our SEC filings. We'll also discuss non-GAAP financial measures. All results exclude special items unless otherwise noted and you can find the reconciliation of our non-GAAP measures on the Investor Relations page at delta.com. And with that, I'll turn the call over to Richard.

Thank you, Jill. Good morning, everybody, and thanks for joining us on the call today. Before we go through our results, I'd like to congratulate my friend, Paul Jacobson, on his recent promotion to Chief Financial Officer of Delta. Paul started his career at Delta in 1997 and prior to his promotion, Paul was our Treasurer. He spearheaded our debt reduction and fuel management strategies, among other very capable activities on our behalf. He has a great track record and we're really pleased to have him in his new role. Also, Mike Randolfi is a 12-year veteran at Delta. We promoted Mike to the position of Senior Vice President of Finance and Controller. He has the lead on our accounting reporting and controllership functions. With his broad background at Delta, Mike is well suited to lead our cost-reduction efforts. And to round out our leadership changes, I'd like to welcome Gary Chase to Delta, where he is now our Senior Vice President of Financial Planning and Analysis and Investor Relations. Gary brings a wealth of knowledge of the airline sector from his years as a very capable analyst and we're really glad to have him on this side of the call for a change. The great thing about it is, I was able to get all of his questions asked before the call started. But congratulations to all of you. We're humbled that you're here with us. Getting to our results this morning, we announced a pretax loss of $36 million, which is a $355 million improvement over last year, despite $250 million in higher fuel costs. We expanded our operating margin year-on-year by 4 points. We had strong revenue performance. Once again, we produced a revenue premium to the industry. Our total revenues increased $665 million or 9% from the prior year, against a 3% decrease in system capacity. I'd like to thank our employees for running a great operation and taking care of each other and taking care of our customers in the March quarter. Our DOT on time arrival rate was 7 points better than last year. Our completion factor was 99.6%, a 2.8% improvement year-on-year, and we had a 31% decrease in Department of Transportation bag claims, a new record low. And not surprisingly, our DOT complaints have fallen 53% year-to-date through February. And our international on time performance is industry-leading. Running reliable operations is important to our customers and clearly contributed to our revenue outperformance. The consistent ability of our employees to deliver a great operation and provide courteous customer service plays a big role in our success and for their great performance, our employees earned $22 million in share rewards for the quarter. Our March quarter improvement in results and operations is evidence of the momentum we've built by executing consistently on our plan year in and year out. We've been successful at passing along higher fuel costs and have implemented a number of initiatives designed to ensure we are compensated for the services we provide. As a result, our revenue performance outpaced the industry and we saw margin improvement in every region and in every hub across our global network. You've heard us consistently state that we must be disciplined with capacity. To that end, our March quarter capacity was down by 3%. And for the full year, our system capacity would be down 2% to 3%. We continue to closely monitor all of our markets, and for that matter all of our city pairs, to be certain we match supply to demand so that we may fully cover the fuel costs and meet our profit goals. The business is generating solid cash flows, which we are using to reduce debt and make investments in our products, facilities and network. For every $2 in cash we generate, $1 goes to paying down debt and the other is prudently invested in the business to meet our return on invested capital target of 10% to 12%. Last month, we began the largest expansion at LaGuardia by any carrier in 4 decades and we are building the first true connecting hub at LaGuardia. By this summer, we will have more than 250 flights per day, offering more service to more cities than any other airline from New York's preferred close-in business airport. We've seen excellent results so far and Ed will provide additional color on our performance. We ended the quarter with adjusted net debt of $12.2 billion, a nearly $5 billion reduction in 2 years, and we fully expect to hit our $10 billion net debt target next year. Finally, our return on invested capital for the last 12 months was 10.6%, in line with our stated 10% to 12% ROIC goals. You've heard us detail our plan to build a durable business model that generates strong profit margins cash flow and allows for investments in our future. This plan is the same strategy we have discussed with our investors consistently for the last 3 years. So please expect more of the same ahead. We're not, obviously, pleased with a loss for the quarter but a $355 million pretax improvement shows that our plan is working. Most importantly, and I stress this, we had margin expansion in all regions and all hubs, and we expect our 2012 full year profit and margin will increase over 2011, even with higher fuel costs. So in summary, we like the trajectory we are on and so we will stay the course and remain focused on strong revenue growth, very disciplined capacity management, tight management of cost and CapEx, debt paydown, great operations and customer service with the best employees in the industry. Thank you for calling in this morning, and with that, I'll turn the call over to Ed.

Thanks, Richard. Good morning, everyone. Thanks for joining us. Thanks for your time. Excluding special items, Delta reported a net loss of $39 million or $0.05 per share, in line with First Call consensus. As Richard said, while any loss is disappointing, our pretax results reflect a $355 million improvement from the prior year. And to give some perspective, this is the best March quarter Delta has generated since 2000. So clearly, our plan is working. Our operating margin in the quarter was 2.6%, which was 4.1 points better than the prior first quarter. Special items for the March quarter included a $163 million net gain and included a $151 million mark-to-market gain on fuel hedges, a $39 million gain from the slot exchange with U.S. Airways, and a $27 million charge for fleet facilities and other items. Turning to revenue, our top line revenue for the March quarter grew $665 million or 9%, despite a 3% reduction in capacity versus the prior year. That increase in revenue was more than twice the $250 million increase we experienced in fuel expense. Our passenger unit revenues increased 14%, driven by a 9-point yield improvement and a 3-point increase in load factors. And in March, we generated a revenue premium to the industry for the 12th consecutive month. Our cargo revenues were down slightly due to lower yields versus the prior year and other revenues increased $21 million, driven by a 20% increase in MRO revenues. During the quarter, we saw strong unit revenue trends across all our entities, driven by our capacity discipline, corporate booking strength and the benefits from the investments we've been making in products and services. Our domestic unit revenues increased 12% against a 3% decline in capacity. Our Detroit and Minneapolis hubs performed particularly well, and we are seeing strength in our high-yield close-in bookings. New York outperformed the domestic route results by 2 points, which bodes well for our expanded presence in New York. We had 2 days in March which were in the top 10 highest unit revenue days for the domestic entity since 2008. Typically, our highest domestic unit revenue days are around July 4 and Thanksgiving. So seeing this revenue performance this early in the year is a good trend. And that strong environment isn't just limited to March. We've already had 2 days in April which have hit the top 10 mark as well. In the Trans-Atlantic, we trimmed our first quarter capacity by 9 points, which helped to drive the 22% year-over-year RASM increase and a revenue premium to the A48 carriers. The Trans-Atlantic entity contributed a large portion of last year's March quarter loss and we are encouraged that the capacity actions we have taken, in concert with our JV partners, have delivered significantly improved results. The unit revenues for Delta's Lat Am entity increased 8 points. While this is less than our system average, our Lat Am entity faced tougher year-over-year comps than any of our other entities. The Pacific has largely recovered from last year's earthquake and tsunami in Japan. Pacific RASM increased 15% year-over-year, driven by improvements in yield and load factor, and we are seeing particular strength in Narita and our beach markets. We continue to make gains with corporate accounts, with total corporate revenues for the quarter up 11%, despite our 3% capacity reduction. The corporate growth is broad-based and the industries where we saw the most significant increases were financial and business services and manufacturing. I'd also like to thank the Delta employees worldwide for this quarter's strong revenue performance. Their efforts to deliver a top-notch customer product are why our customers are increasingly choosing Delta and paying a premium to fly our airline. Turning to our outlook. For the June quarter, the year-over-year comps get progressively tougher as we move beyond April because we lapped some significant fare increases from last year. That said, the revenue environment is holding up nicely, and we are forecasting April unit revenues to be up 11% from the prior year. We also see good traction in May, with May RASM forecast to be up in the high single digits despite very strong prior year performance. For the domestic entity, we're seeing improvements in both booked load factor and yield in April and May, and we continue to see year-over-year yield improvement in May as well. We are beginning to see the benefits of our increased services in LaGuardia, which is contributing to an increased volume of higher yielding close-in bookings, as well as corporate share shift. Thus far in April, on a 25% increase in capacity, LaGuardia is showing the biggest margin improvement for any of our hubs, as well as the highest absolute margin, which is an encouraging trend as we execute the second phase of our slot swap in July. It's great news to have had such a strong launch of our new service. Thanks go out to Gail Grimmett and her fantastic team in New York. For the Trans-Atlantic, our bookings are tracking in line with last year and we are seeing positive traction on yields. The second quarter is traditionally a shoulder season for our Latin markets, but we are seeing improved load factor trends on a year-over-year basis. And in the Pacific, yield improvements are driving higher booked revenues for both May and June. Finally, we are seeing incremental revenue gains as well from new products and services. For example, our new First Class upsell product has reached the $200 million run rate of annual incremental revenue and that pretty much goes straight to the bottom line. This and many other new merchandising and sales initiatives contribute to the $1 billion in new revenue goal we expect to achieve by 2013. Turning to guidance. We're expecting a solidly profitable June quarter, with an operating margin of 8% to 10%. On capacity, we're forecasting system capacity to be down 1% to 3%, with both domestic and international both down 1% to 3%. Our Pacific capacity will be up 7% to 9% due to the resumption of our Detroit to Nata flying and the normalization of our Japan capacity. With that, I'll now turn the call over to Paul.

Thanks, Ed. Thanks, everybody for joining us, and good morning. It's an honor to be here. Turning to cost performance for the March quarter, operating expenses for the quarter increased 4% or $334 million, driven primarily by our fuel price, which was up 14% to $3.28 per gallon. Total fuel expense increased $250 million, as the increase in fuel was partially offset by $45 million of net hedging gains and reduced consumption on lower capacity. Nonfuel operating expenses increased $80 million for the quarter as the benefits of lower capacity and savings from mild weather conditions partly offset higher ancillary business expenses and employee costs. On a unit basis, nonfuel costs were up 3.6%, driven by higher employee and maintenance cost, as well as the impact of our 3% capacity reduction. Looking ahead, we expect our June quarter nonfuel unit cost to increase 3% to 4% versus prior year, driven by our capacity reduction, combined with higher employee costs, which are being partially offset by productivity improvements. We are committed to reducing our nonfuel unit costs and have begun implementing the structural changes needed to get there, including improving maintenance efficiency, eliminating small gauge inefficient aircraft and improving employee productivity. As part of this, we are aligning our headcount with our reduced capacity. To that end, we are currently offering a voluntary retirement package that closes next week. We expect those employees will exit after the summer flying season. Turning to fuel. For the June quarter, we have had 70% of our consumption between $3.05 and $3.40 per gallon. For the September quarter, we are currently hedged 40% between $3.05 and $3.45 per gallon. As of Friday's market close, with these positions, we are forecasting a June quarter all-in fuel price per gallon of $3.28 and an all-in price of $3.27 for the September quarter. Shifting now to liquidity, we ended the March quarter with $5.7 billion in unrestricted liquidity, including $1.8 billion in our undrawn revolving credit facilities. Operating cash flow for the quarter was strong, with $947 million driven by strong advance ticket sales. Our capital expenditures in the quarter were $350 million, primarily consisting of $300 million in aircraft parts and modifications. On this cash -- the strength of the cash flow, we were able to pay down $450 million in debt, including $40 million in early debt retirements. As Richard mentioned, we ended the March quarter with adjusted net debt of $12.2 billion. Additionally, due to our strong liquidity position, we were able to fully fund our 2012 pension contributions in early April, well ahead of our plan. For the June quarter, we expect capital spending to be $400 million and have net debt maturities of $450 million. We are forecasting unrestricted liquidity balance of $5.8 billion at the end of the quarter and expect to have our adjusted net debt balance down to $11.6 billion. We remain on track to reach our goal of $10 billion of adjusted net debt by the middle of next year. So to conclude, the year is off to a good start and we plan to build on the momentum you see in these results. And finally, in closing, I'd also like to echo Richard and Ed's comments and say thanks to our employees that all worked so hard to build the tremendous momentum we have here at Delta. I'm very appreciative for all that they do to make Delta a great airline with an even brighter future.

Thanks, Richard and Paul. Cindy, we are now ready for the Q&A. If you could give the instructions.

[Operator Instructions] We'll take our first question from Bill Greene with Morgan Stanley.

I wanted to ask a question just on capacity. You guys have been very disciplined in that regard and the commentary on revenue was really quite strong. But we've also seen some fare, attempts to raise fares fail and I'm not sure how to reconcile all of that. Why would a very strong revenue environment see failure when capacity seems reasonably disciplined? Does it suggest the industry needs to take more out? Or how do I kind of reconcile these ideas?

Bill, it's Glen. We have had a lot of success in what I would call some smaller changes to the fare environment, which have produced these results. Clearly, some of our competitors don't like the absolute fare increases that have been in the marketplace but there have been a lot of strengthening of defenses, a lot of strengthening of the advanced purchase, of the state requirements that have yielded this. So I think you have to look at fares in more than just the dollar amount we're charging, but in the qualifications for how you actually get those fares. And I think that's what's driving industry yields up across the board. So while we have had some resistance to those types of fare increases, we've made a lot of progress on the other side of the fare equation.

Fair enough. Another question I had, I don't know if it's for Glenn or for Richard, but obviously you've seen some early success here with the slot swap at LaGuardia. You do have a perimeter rule there. Is there any reason to think that we could ever address that? And if so, if that were either lengthened or eliminated, would that materially affect your performance at LaGuardia or is that not a big opportunity?

Clearly, the primary role restricts LaGuardia and it is a remnant of when Kennedy was open and the government was trying to force traffic to go to Kennedy. There's no real structural reason for LaGuardia to be limited. And similar to DCA, over time, and I have no idea what the timeline is on this, but those restrictions tend to be loosened over time. This one has not to date, and I wouldn't want a forecast if and when it would ever change. But clearly, I think customers would benefit if they had the option to fly beyond the perimeter rule of LaGuardia.

We'll take our next question from Jamie Baker at JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: A question for Paul. You touched on some cost-reduction initiatives but can we get a specific update on the 8.4 set CASM target, when you think you'll be able to reach that goal? Obviously, there's been some slippage in the targeted date in the past.

I think, Jamie, we're on our way in terms of making improvements to that through the employee initiatives. Some of that we wouldn't expect to take in until after the summer flying season. But with the maintenance savings, as well as some of the fleet-related savings as we get into next year, we start trending pretty rapidly into that space.

Jamie, this is Ed. We, if you recall, when we laid out that target last year, we said it would probably take 18 months to 2 years to ramp into that number of structural initiatives. We're working on more to come in that area, but we're confident we've got some reductions in the not-too-distant future. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Okay. And a follow-up for Richard, the topic is pilots. Obviously -- well maybe not obviously, in my opinion, you enjoy a better relationship with your pilots than some of your peers. I'm not going to ask you when you'll have a new contract, and even if you told me, I wouldn't hold you to it. But is it fair to extrapolate that you're more likely to get a deal sooner rather than later? And is that, indeed, a priority for you?

It is a priority for Delta to get a new agreement with our pilots well in advance of the amenable date. Which I believe, Mike Campbell, is it the end of the year?

Yes.

And so if you look at our track record, and you look back to 2007, in 2007 we reached agreement with our pilots 3x within 6 months on new contracts that were well accepted. So we really value that relationship and we want to -- it is a high priority here to get a new agreement concluded as quickly as we can. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Is the timing potentially impacted at all by some of the labor headlines going on these days, related to --

No. I think if you did it based upon how the rest of the industry does it, we'd be about 5 years.

We'll take our next question from Savanthi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: On the maintenance expense, are there big maintenance events coming up in 2012 and 2013 versus what we've seen in the last couple of years?

Savi, this is Paul. We have talked about lowering those expenses through the retirement of older airplanes and we're continuing to work in that direction. We've said that, that opportunity over the next 18 to 24 months is in the $200 million range. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay, that's offsetting those expenses coming on. And then just a follow-up question, on the ancillary businesses related expenses, it seems as that's been increasing over the last few quarters pretty rapidly. I'm just wondering with that is related to, and if we start to see that gap or how we should think about that?

Savi, this is Ed. That's the increase that we've had in our MRO revenues. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay. So it seems even if you look at it as percentage of other revenues or cargo and other revenues, it's increasing even as a percent.

Well, we can go off-line with the details, but we've had 20% growth in MRO revenues over the last year. So those costs are up considerably as well.

We'll take our next question from Michael Linenberg at Deutsche Bank.

Two questions. First, I'm just looking at your regional breakout on revenue. I -- you look at the unit revenue performance by region, I can kind of understand why the Pacific's up 15%, you had maybe a few weeks of an easy comp there. But the one that really stands out is the Atlantic, the 22% PRASM gain. And I know that's obviously being helped by the 9% capacity cut, but we read in the headlines this morning that the U.K. is now officially in a recession. Germany contracted in the fourth quarter, there's some talk that it contracted in the March quarter. Spain and Italy may be in a recession. I mean, is this just -- you've talked about the past, what you've learned with your JV partners. I mean is that, as a result of that, is that what we're seeing here? Because this type of performance, given the macro backdrop, it just -- it -- they don't reconcile and yet the numbers are quite good. What can you tell us about that? It's probably to Richard and Glen.

Mike, this is Glen. I think you have 2 things going on here that produced that I think is a pretty amazing number for us in the Trans-Atlantic. One is clearly the reduced capacity and the secondary impact that has on recapture on the remaining flights. But more impressive is the fact that business travel, in aggregate, is increasing despite the fact that Europe's in a recession. And that's really contrary to what we might expect given all the headlines that we read. And we try to go back and figure this out and what we see is that the U.S. is seeing opportunities in Europe to work. And so we've seen actual cabin load factors and same-store sales where we haven't changed capacity and the business cabin go up, as well as revenues. So we're monitoring that very, very closely because I think if we were to see signs of weakness there, we would take some actions in terms of the fall and winter capacity again next year. But to date, we have seen a little bit of a contrarian view in terms of what the headlines read versus what we've seen on our flights.

And I would add 2 other points to that. The first is, is the investment in our products, the lie flat product, the 76-400, is all lie flat now. And we just made substantial investments there that we are seeing pay off, not just in the RASM but also in our customer preference scores. A sub part of that is, is that we have an intense focus on reliability and on-time performance across the Trans-Atlantic, so that we're providing a premium product with the best schedules and an intense focus by the employees to be certain we're doing the very best job. And then the last point I'd make is leveraging the integration in the alliances. So we've been at this alliance activity for almost 20 years now. And as we get closer and closer to our partners across the Trans-Atlantic, it tends to drive real distribution strength, and the distribution strength is an important part of the equation. So I think it's a combination of all of the above.

Okay, good, that's helpful. And then just my second question, just a commentary about the profitability of LaGuardia. And you made the point, I think it was you, Richard, where you indicated that not only did it see the most margin improvement, but it had the highest absolute margin. Now when I think about your 10 or 11 hubs, and, I don't know, maybe LaGuardia is the 12th hub, I know you concluded with New York. But my sense historically, and I realize these are my estimates, my sense is that LaGuardia was always clear to the bottom. So what you're seeing in LaGuardia is significantly, even based on the comments, what you're seeing is pretty significant and yet you're only getting maybe 1/2 of the benefits, you don't have the additional flight for another month or 2. Is that -- I don't know what you can say or agree but is that a fair statement, that LaGuardia maybe has moved from being not just meaningful improvement but from being one of maybe the worst performing hubs in your system to the best performing hub? What can you say on that?

Mike, it's Glenn again. LaGuardia was not ever one of our worst performing hubs, so but the model needs to probably be adjusted on that. But hey, it was clearly not one of our best. And so what we're seeing now is a significant improvement and I think I would agree with your statement, that we're only halfway there and we're optimistic as we get the other half of the slot, that it will continue to improve.

We'll take our next question from Glenn Engel with Bank of America.

A couple of questions. One, if I stripped out the MRO business, the other revenues would be down, with -- are ancillary revenues no longer rising?

I think that's probably capacity, Glenn.

Second, on the maintenance side. I thought if I -- it was really high at the start of last year, it was really low at the end of the last year. I thought a normal number was an average of all 4 quarters, and yet the first quarter was again off the charts high. What is a normal number for maintenance in the quarter?

Well, I think, Glenn, we have in the first quarter and fourth quarter, we have a lot of seasonal-related initiatives that are going on with cabin interior upgrades, et cetera. So I think you're looking at a heavier weighting in the winter months than you are in the summer months for maintenance again.

And roughly, how much for the full year would you expect maintenance cost to be up?

I think we're generally flat year-over-year.

And finally, if I think of last year, I remember that business comparisons were difficult in April and May, but I thought got somewhat easier in June. Is that not correct this year?

I think it's early to forecast what June's going to be, Glenn, that we give you our April and May snapshot and I think it's probably as much visibility as we're comfortable providing at this point. We do know that the May comp was -- is quite tough and the June comp's a bit easier. So we'll probably have a little more color for you at your conference coming up in a few weeks.

Glenn, this is Richard. If I could make just one point on the maintenance costs and how they vary from quarter-to-quarter. We tend to try to now push all of our maintenance into the shoulder months. So 1Q and 4Q tend to be -- or the end of 3Q, a good part of 4Q, except for the latter half, or the latter half of December. And then January, February and March are where we try to put it in those shoulder months so that you have the maximum fleet availability to be able to fly the peak. And I think we're -- and on the unit revenues, it's pretty clear that we're forecasting unit revenues in April at 11%. So we think the revenue environment is, at least for Delta, pretty strong.

We'll take our next question from David Fintzen with Barclays.

Just a question, I guess maybe for Glen. Over the last couple of years, you've been able to cut capacity deeper than the industry and outperform on revenues. So obviously, you're retaining an awful lot of the revenue and the capacity you're cutting. As you look out over the next year or 2, is that something that you just, you see a lot more opportunities in the network to optimize? Or is there just something else going on that explains that, where we just don't see from the outside?

Well, I think our revenue performance is attributable to 2 factors. One is capacity discipline. The other is really providing a better and better product each and every quarter. And our share -- our revenue performance is really divided into 2. One is the retention of the underperforming revenue or the recapture of that revenue, and the other is obtaining new, higher-yielding accounts. And I think we've been hitting it out of the park, really, on both sides, or in this quarter anyway, in terms of not only retaining the revenue on capacity we've removed, but also on bringing ourselves into a higher realm in terms of corporate share. I think that's really what's driving it. And we will continue to look at the underperforming markets, and we will continue to remove those that are a drag on us.

If I could just add to that, if you've just taken up all the kind of macroeconomic, and you think about an airplane as an investment, the factory investment, you've got to get the maximum production out of each unit. And there are a myriad of actions that you take, from scheduling the costs to revenue. But we have to -- we're going to continue to shrink the fleet, upgauge the fleet and improve the profitability of each shell, because it's a significant capital investment and each of those capital investments has got to contribute to the return. And then lastly, do you have any questions for Gary Chase?

I thought about ceding the rest of my time if he had more questions for you, Richard. But one question for Gary, on the slot swap, you'd mentioned last quarter there's some -- just the phasing was suboptimal. Is that something that affects the month-to-month progression in RASM that we should know about? Or is it just too small to sort of affect the overall April RASM outcome?

As it refers to phasing of...

So as many of you know, the government asked us to do the LaGuardia slot transaction in 2 phases. The first phase was in the latter part of March and the second phase is the 11th of July. And we swapped about 1/2 of the slots in the first swap, and then we'll swap the other half in the second, which leaves USAir in certain markets that they will eventually be turning the slots over to us, and that's why we think it was a suboptimal in terms of P&L during the transition. So not probably enough to move the meter directionally but clearly when you get to July, we think that will make our LaGuardia performance relatively even stronger.

We'll take our next question from Hunter Keay with Wolfe Trahan. Hunter K. Keay - Wolfe Trahan & Co.: So I'm wondering if the use of market value and equity calculation of invested capital is the best way to go. I mean, doesn't that mean that when your stock price goes down, your ROIC goes up? That just -- it just doesn't really feel right. First of all -- and I appreciate you disclosing how you calculate it, for one, I should mention that -- but is there may be a better way to consider calculating your ROIC?

That's why we hired Gary Chase here, Hunter. So let me turn that over to Gary, see if he's got a view on that.

What it does do, Hunter, is adjust a way for a lot the, what you see in the accounting impacts. If you look through time, how much book equity do you hold, the accounting that comes through bankruptcy, the way to think about how we're performing versus the market value of our capital base. So in any -- there are going to be flaws in any methodology, and I think the important thing is that what we're trying to do from an ROIC perspective is to be on a trend, to drive behavior, to think about taking capital out of the business and drive better returns. And regardless of the method that you choose, that's a constructive process. Hunter K. Keay - Wolfe Trahan & Co.: Yes, I think that's fair. It's just -- I think it becomes a bit of an issue when things like executive comp are based on it and it's different from the rest of the industry, particularly different from how I think a lot of people on the street are calculating it. But again, you're there. As long as -- I mean, would you say maybe it's reviewable at this point, I mean as sort of a methodology? Because I calculate it my own way, obviously. But is the way you're calculating it reviewable? I appreciate the concept, Gary, but how you actually think about going about it?

I think, Hunter, the important thing is we're one to provide the transparency on how we think about it, and Gary said the right thing. The key is not necessarily the calculation as much as the results that calculation drives in, the continued improvement over time using a consistent methodology.

And we're transparent about how we calculate it. Hunter K. Keay - Wolfe Trahan & Co.: Yes, I know, I appreciate that.

We want you to see how we calculate it. But let me take this down to kind of a more practical answer, which is, you've got to drive margin in the business, number one. And number two, the cash that you do generate has got to be put to the very best use of the capital holders. And by limiting our CapEx, and being really disciplined about airplane purchases and the like, to be certain that we're going to get a return and making commitment to our capital holders, that 1/2 of what we generate is going back on the balance sheet to de-risk the business, which are all very accretive moves. I think if you look below that calculation and you look at all the things that we've been steadily doing, they're all the right things for the shareholders. Hunter K. Keay - Wolfe Trahan & Co.: I can appreciate that. And real quick, Paul. In terms of -- I think you guys mentioned in the press release some opportunities for some accelerated debt paydown and also you guys prepaid a little bit of debt. How should we think about full year net interest expense? If you want to talk it in the context of total non-Op that's fine too, but I'm specifically referring to that one that was $901 million in 2011, how should we think of the one that upticked a little bit in 1Q? Should we think about that sort of decelerating through years sequentially?

No. I would say that net interest savings is going to accelerate through the year on a quarterly basis. We had some overlap in the first quarter, but as we continue to pay down debt, we would expect that net interest expense for the year is going to be about $1 billion.

We'll take our next question from Dan McKenzie with Rodman & Renshaw. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: I know you've got initiatives underway to lower costs and I guess I'm wondering if you hit your goals, how does the cost outlook for the year change, if at all? And I guess what I'm wondering is, is if there is some cost, unexpected cost inflation that you're trying to offset or whether there are potentially -- so you're just trying to keep level, or is there some potential for the cost outlook for the year to potentially improve here?

Dan, we gave our guidance at the start of the year for costs. And I think we're probably still in that general range. We've had some favorability in the first quarter of the year with weather, which has naturally been helpful, not just in raw savings, but also in a little higher capacity that it produced. But the -- I'd say our outlook for the year is consistent with what we gave you at the start. Daniel McKenzie - Rodman & Renshaw, LLC, Research Division: Okay, understood. And then I guess my second question here just ties to Japan. The commentary of course was really helpful, I get restatement of flying revenues up. But the industry capacity from Japan in the second quarter is a much different dynamic than the first quarter. Second quarter up 14%, first quarter -- versus first quarter, roughly up 2%. So it does look like there is a chunk of new flying that kicks into in the second quarter that didn't exist in the first quarter. So and I guess first off, is demand sufficient enough to maintain pricing and keep pace with increase of capacity? And if so, I guess I'm wondering what's driving that? Anything you can share would be helpful there.

Dan, it's Glen. Maybe we need to reconcile our numbers because, clearly, the second quarter is up, but by the time you get to peak July, the numbers that we're showing for the industry is capacity relatively flat because you have a lot of ins and outs of there. You have American dropping out of JFK and Narita. You have the year-over-year inclusion of L.A.-Haneda and Detroit-Haneda. So I think it's really over a month by month, and I think in the second quarter, we might have a little bit of rockiness in terms of the capacity being ahead of the demand. But by the time we get to third, it looks really solid.

We also -- we brought back Detroit-Haneda in this month as well, which is also part of the...

Considering the base last July. So...

Right. Not this April.

We'll take our next question from Helane Becker with Dahlman Rose. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Just 2 questions. I think you said corporate bookings were up about 11%. I didn't catch whether that was in March or the March quarter?

That was the actual March quarter revenues, Helane. Our corporate revenues were up 11%. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Okay, can you say how it's trending now?

April continues to look strong. In fact, it's ticked up from there a little bit. Helane R. Becker - Dahlman Rose & Company, LLC, Research Division: Okay. And then my -- just an unrelated follow-up question. I think you mentioned the voluntary retirement program. Are there charges that are going to be taken as a result? Were they taken in the first quarter -- if so, were they taken in the first quarter, or will they be in the current ones or going forward ones, which is subletter A. And subletter B, is it included in your cost guidance?

Helene, this is Paul. In response to your subletter A question, we would expect any charges to occur in the second quarter. And in response to subletter B, those would not be included. Those would be special items.

Cindy, we're going to have time for one more question from the analysts.

Our last analyst question comes from Duane Pfennigwerth with Evercore Partners.

Looks like air train capacity is down pretty significantly over the June and September quarters. I realize a lot of this is small markets that they're exiting. Probably the only reason you flew to these -- some of these markets, Glen, is because air train was flying there. But wonder if you have stats handy about your sort of domestic competing capacity out of Atlanta in June, and how that compares with the March quarter?

I don't have it at the tip of my fingers, but generally, it's better as we move through the year.

Okay. And then I'll just take a stab at this one. I doubt you'll answer it. But can you disclose revenue in the March quarter from the sale of SkyMiles? And what the change was year-to-year, and does that flow through passenger revenue?

It's in other.

Yes, it's in other revenue -- it's a complicated accounting because some of it's in passenger, some of it's in other revenue, Duane. And we're going to take your question off-line, and we'll help you understand our disclosures. But we're not going to provide any new information.

That's going to conclude the analyst portion of the call, and I will now turn it over to Ned Walker for the media.

Thanks, Jill. And Cindy, we're ready to go ahead. And if we could ask the media to ask one question with a quick follow-up. Also, if you could review the process for getting your questions in queue, that would be appreciated as well.

Again, that does conclude the analyst portion. All questions now need to come from the media. [Operator Instructions] We will take our first media question from Mary Jane Credeur with Bloomberg News.

There have been a number of media reports about Delta's interest in a certain idled refinery in Pennsylvania. And I wondered if you guys could talk a little bit about how something such as that might fit into your overall fuel hedging and mitigation strategy? If -- I realize you probably can't talk about the plant itself.

Yes, Mary Jane, we're going to consistently not comment on industry rumor and speculation. We're just going to keep that line.

We'll take our next question from Jack Nicas with Wall Street Journal.

My quick question is there were reports yesterday, you were talking to increase your stake in GOL to 20%. Are you considering increasing your stake in GOL at all?

No.

No? That's a definitive no?

No.

We'll take our next question from Josh Freed at Associated Press.

Can you say a little more about your fuel hedging as it stands today? I mean, you had a big gain on that this quarter. I realize it's mark-to-market. But are there -- are you taking a different approach to hedging than you used to? Are you doing more quick trading, or less maybe than you used to? Or is it the same as it's always been?

This is Paul. Our program is the same as it's always been, and we don't comment on any specifics within the plan.

All right. And your reduction of the 50-seat jets, is that still kind of proceeding at the same pace that you had anticipated, or is that going faster or slower than it used to?

It's proceeding at the same pace that we've previously discussed.

We'll take our next question from Andy Compart with Aviation Week.

Just a follow-up on that 50-seater question, I'm just trying to get a handle of what the pace and timing is of that, given that you've recommitted the Pinnacle July 22, I believe it is, and they have 140 of them at the moment. But they never really spell out how many of those do you get rid of by 2022. Can you give me some firmer idea of what to expect -- or how many 50-seaters do you expect to retain, and then what timetable? I'm not sure how many are flying right now with the partners.

We have -- we're not going to provide any specific goal. We've mentioned consistently over time that we're going to look to reduce the size of that fleet. It's not a cost effective solution for us. And the individual transactions or methods by which we'll get there, we're not going to share at this time.

Do you expect, eventually, to get rid of all of them?

We did not say that, no. We said we will be reducing them over time.

We'll take our next question from Karen Jacobs with Reuters.

I was wondering if you could comment on what has been the response so far to the voluntary retirement package offers?

This is Mike Campbell. We do not have a set number, and it is a process that will conclude in another week. What typically happens in these types of programs is it's really up until the end, that people will make the decision. So we have roughly the same numbers as of the take-aways to this one.

As a follow-up to that, are these kinds of offers going to recur at Delta? I mean, I noticed there was one last year.

No. The typical one that's being offered this year is a unique one that will not be reoffered at Delta. It's a onetime program. And what has happened is over the last 3 or 4 years, because of the revolution of representations, we haven't been able to offer one program to all of the employees of the same nature that's being offered. And we use the opportunity when we got the resolution and all the representation issues to make this one-time opportunity, but I do not envision we'll ever offer this type of program again. We just [indiscernible].

Cindy, we have time for one more question.

We'll take our last media question from Cathy McKitrick at Salt Lake Tribune.

My question deals specifically with the Salt Lake City hub. I was wondering what the reductions in flights will be out here and how that might affect the nonstop flights to Tokyo and Paris? And also, if you expect any layoffs in this area?

No, we do not expect any layoffs in the Salt Lake area. The hub is performing well. We have some seasonal adjustments that we make. They're going to be driven by demand and fuel. And the outlook for Salt Lake for us is strong. We're working together with the city on the new airport out there, and we feel good about our presence.

Okay. Thank you very much, Richard, Ed, Paul, Glen and Mike. That concludes our March quarter 2012 earnings call. We'll be back here in July with the June quarter. Thanks very much. Appreciate it.

And again, thank you for your participation today. That does conclude today's conference. You are free to disconnect.