Good morning, ladies and gentlemen, and welcome to the Delta Air Lines July Quarter Financial Results Conference. My name is Kelly Ann, and I will be your coordinator for today. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Ms. Jill Sullivan-Greer, Managing Director of Investor Relations. Please go ahead, ma'am.

Thanks, Kelly Ann. Good morning, everyone. Thanks for joining us on our June quarter call. Joining us from Atlanta today are Richard Anderson, Delta's CEO; our President, Ed Bastian; and our CFO, Paul Jacobson. We also have the entire leadership team here in the room with us for the Q&A session. Richard will open the call, Ed will then address our financial and revenue performance, and Paul will conclude with a review of cost performance and cash flow. [Operator Instructions] 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 Delta's SEC filings. We'll also discuss non-GAAP financial measures. All results exclude special items unless otherwise noted, and you can find a reconciliation of our non-GAAP measures on the Investor Relations page at delta.com. And with that, I will turn the call over to Richard.

Thank you. Good morning, everyone. We recorded an $840 million pretax profit for the June quarter. We increased our earnings year-on-year by $255 million, grew passenger revenue by $63 million year-on-year, expanded our pretax margin by 2.6 points to 8.7%, generated operating cash flow of $1.3 billion and earned $0.98 per share, beating First Call consensus of $0.095 per share. We closed the Virgin Atlantic equity acquisition and ended the quarter with $5.7 billion in liquidity. The entire Delta team is executing well. Our results include $138 million year-to-date for profit-sharing, in addition to $45 million in year-to-date Shared Rewards payments. I want to thank the Delta team for all the good work they do every day. Summer weather has been unusually difficult with repetitive thunderstorms around the country, and I want to particularly thank all of our flight attendants, pilots and airport personnel for providing fine service. We are aiming for a record profit-sharing payout on February 14, 2014, in recognition of the great job by all the Delta people. And we are on pace in our operations and customer service to have a full payout on Shared Rewards for 2013. On the revenue front, we increased passenger revenues by about 1%, even though economic factors reduced fuel costs by more than 10% in the quarter, which resulted in almost $300 million in year-on-year fuel expense reductions. This is an important point. We increased our revenue base while fuel dropped $0.34 per gallon in the quarter. This illustrates the resilience of the Delta business model in a more rational industry environment. We intend to stay focused on closely managing our capacity to keep the fuel and revenue equation correct so as to expand margins. In that regard, Delta is consistently generating a revenue premium to the industry, with the…

Thanks, Richard. Good morning, everyone. Thanks for joining us today. Earlier, we announced a June quarter profit of $845 million, a $255 million improvement over the prior year. Our EPS was $0.98 per share, and our free cash flow in the quarter was $730 million. Passenger revenues for the quarter increased $63 million, with unit revenues flat on less than 1% capacity growth. Cargo revenues continue to be impacted by weakness in the global economy, with the yen devaluation contributing to a significant portion of that weakness. Our MRO revenues declined by $88 million from our decision to discontinue some lower-margin-producing contracts. Although this decision reduced revenues, it was margin accretive and a positive decision to take. Our ability to increase passenger revenues against declining fuel prices is a sign of the strength of the demand environment that we are in and the success of our revenue initiatives. On the domestic front, unit revenues were down 1 point on slightly higher capacity. New York City yields and unit revenues year-over-year outpaced the system average, despite a 29% capacity increase from the LaGuardia expansion. Atlanta had solid performance for the quarter and generated 3 points of margin expansion compared to the prior year. We're continuing to make good progress in increasing our corporate travel share. Corporate revenues increased 4% year-to-date and are up 8% in the last 4 weeks, driven by strength in the domestic market. The improving momentum we've seen throughout the quarter continues into our summer bookings. Banking and financial services have led all sectors in growth, posting double-digit year-over-year increases, proof that our efforts, especially in New York, are paying off. On the trans-Atlantic, fares continue to improve, led by solid corporate share gains and growth in our hub-to-hub flying, contributing to a 2% unit revenue improvement for…

Thanks, Ed and Richard. Good morning, everybody, and thanks for joining us this morning. As we laid out at our Investor Day in December, one of our major focus areas for 2013 was to address the rate of growth and our costs. The entire company has rallied around this effort, and our results show that we are successfully identifying opportunities through both our structural cost initiatives and tactical efforts to minimize cost growth and improve our margins. In addition, high completion factors, strong operational performance and a favorable mix of mainline and regional flying helped our June quarter costs, allowing us to both provide a superior experience to our customers while improving our unit cost performance. Nonfuel costs increased 2.5% for the quarter, beating our initial guidance for the quarter by more than 2 points, driven by lower maintenance and savings initiatives throughout the organization. The positive trend in nonfuel unit cost performance is expected to continue in the back half of the year as our domestic re-fleeting begins. In the third quarter, we'll start taking delivery of 8 to 10 aircraft per month that will enable us to retire 14 mainline aircraft and more than 40 50-seaters by the end of the year. This will generate immediate savings in both maintenance and fuel costs by retiring these older and less fuel-efficient aircraft. This puts our nonfuel CASM growth for the back half of the year at less than 2%, 2 points lower than our original guidance. That also sets a solid foundation for our long-term goal of keeping cost growth between 0% and 2% annually beyond 2013. Turning to fuel. Our fuel expense declined $290 million on lower market fuel prices and prior year hedge losses. Our all-in fuel price per gallon was $3.03, which included a $0.01 per…

Great. Thanks, Richard, Ed and Paul. Kelly Ann, we're now ready for questions from the analysts. Would you please review the process for asking a question? [Operator Instructions]

[Operator Instructions] We'll go first to John Godyn with Morgan Stanley.

First of all, I just wanted to follow up a little bit about the PRASM commentary. It sounds like sort of a very solid outlook for the summer. In the past, we've sometimes seen you add a little bit of layer of conservatism because of the uncertainty in modeling September this early. If you could just kind of speak to maybe what you're seeing to September to date, how the outlook looks. And is there some uncertainty or conservatism baked into the PRASM outlook, just to account for the natural volatility in that month?

All right. John, it's Ed. You're right, September is historically a fairly volatile month. I wouldn't say that we have a undue level of conservatism in the guidance or the forecast we provide you. But it is a month that's a little bit choppy. We have the holiday period, particularly in New York, that shifts the calendar around a bit. I'd say what we're seeing for September is very, very early and is very preliminary. It's encouraging. But the only guidance we can really give you with any concrete specificity is what we've said for July and August.

Fair enough. And if I can just ask a follow-up on capacity. Richard, I think last quarter, when we were sort of looking at a PRASM outlook that was a little bit less exciting at the time, you made the comment that you're prepared to make the necessary changes to the fall capacity in response to how market conditions evolved. Obviously, it seems like PRASM is tracking quite well. But I was hoping you could just sort of speak to how you see risk to capacity going forward, and give us confidence that we won't see kind of a surprise uptick in capacity growth in response to the great results that you're producing here.

Well, I think if you look at the history of our capacity management at Delta, we've always been pretty conservative, and that we have not changed our attack. I think as you look out, you can always expect that we will be conservative and well under in terms of capacity versus where GDP is. In the fall, we begin a pretty significant restructuring of the fleet, and the upgauging strategy commences. I think Ed commented or Paul commented on the significant number of 50-seaters that we have coming out of the fleet. And so the upgauging strategy will actually result in our having fewer airplanes over time in the total fleet. It's just our gauge is going to be up a bit. But that shouldn't be mistaken for any change in philosophy about how we manage capacity here. And I would just -- the last point I'd make is we have -- we still have a significant number of depreciated airplanes in our fleet. And so the marginal capacity is really easy for us to reduce pretty promptly in response to any conditions in the marketplace. So bottom line is, we are very focused on being certain that we're expanding margins, and capacity will continue to be one of the important levers in doing that.

We'll move next to Mike Linenberg with Deutsche Bank.

Just a quick clarification on the pension piece. Paul, you talked about that you were done for the year. Now that doesn't include, I guess, it's up to what, $1 billion, but no more than $200 million per annum, that's still a possibility this year?

Mike, when we talked about the additional opportunities for putting money into the pension plan, we're really beginning in 2014 and beyond. Hopefully, we believe that completes our contributions for the year.

Okay. And then just on the pension, just given the significant move in rates, if we were to look at where the discount rate is now, and I realize maybe this is rough, how much of an impact do you think -- a positive impact it has had on the size of the pension liability, just given that move over the past month or so?

We estimate that the change in the pension liability, as a result of the discount rate changes, is probably $1.5 billion to $2 billion lower than it was at year end.

Perfect. And then just one last one, and maybe this is more to Ed, I believe you indicated that the margin improvement in Atlanta was 3 points better than a year ago. What's driving that? Is that -- is some of that a function of decisions and changes in the schedule by your competitor? Is some of that a change of gauge? I realize there's a lot of 50-seaters that have been moving out of the marketplace. I mean, that's a big move. How much of that is more structural or even competitive?

Mike, it's Glen. I think everything you just mentioned is going on in Atlanta. It's no surprise, and it's public information that our competitor continues to retrench in Atlanta. They're going to be down around 150 departures by the end of this year. Certainly, that's improved competitive environment for us here in Atlanta, as well as optimizing through the upgauge and through the reduction of our reliance on 50-seat equipment, which is first starting in Atlanta, primarily focused initially in Atlanta because of the flexibility we have here in terms of demand.

And David Fintzen with Barclays has our next question.

Maybe one for Glen. Just -- I was curious sort of over the next couple of years, as competitors are working through integration and maybe the business, you're up against maybe a little more steady-state set of network competitors. I'm just curious how you think about the vulnerabilities in the network, so to speak. Or what are the parts of the network that you're really going to watch as the competition sort of evolves in the industry? Is it New York and L.A.? Or is it sort of corporate travel? What are the key places we should be watching as we're watching that play out?

Well, I think that each carrier has a different competitive environment they'll be facing in a consolidated industry. I think we're very excited about what we're facing with the integration of Southwest and AirTran. As that continues to move forward, [indiscernible] I guess somewhere around the first part of '15 is what they've announced. And the integration of American and US Air, we think all of that benefits the relative strength of us in the Southeast. And that's a very good tell [ph] of how we put ourselves in that region of the country. In New York, I think we feel very confident with the slots that we have in New York and the fact that we have a leading slot portfolio in New York, that we will continue to be -- will outpace the industry as we continue to improve our products and services in the New York City area. And on Detroit and Minneapolis, have been very, very steady over the past few years. We don't see any change to that and great profits in there for us. So as we look around our network, I think we're very excited about what the integration of other carriers will present to us in terms of opportunities. And that may not be the case for all of them. You'd have to ask them.

Okay. No, I appreciate that color. And then maybe just a quick one, probably for Ed. The MRO business where you're getting out some of the lower-margin contracts, is that something we can expect to continue or is that pretty much complete now?

I think we've made the decisions we're going to take. So I think over the course of this year, you'll see some of that revenue decline. And then we're going to look, going forward, to selectively build back that operation.

And that will come from Jamie Baker with JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Just a couple of easy housekeeping items. Uncharacteristically, I can't actually find much to complain about this morning. Paul, you touched on the elevated price of RINs. I believe that phenomenon has only worsened in the last month or so. Can you give us some color as to what the anticipated expense in Q3 might look like?

Jamie, we're not giving any guidance on the RINs. As you know, they've been incredibly volatile. [indiscernible] as much as 50x from the beginning of the year. We don't want to speculate where they're going to end up at the end of the quarter. Jamie N. Baker - JP Morgan Chase & Co, Research Division: All right. Second question, how do you anticipate breaking out Virgin's contribution going forward? Any parameters that you could kind of put around them and their profitability would be helpful.

Well, we'll be -- Jamie, this is Ed. We'll be reporting our 49% ownership stake in the -- on a net basis. We haven't decided relative to what additional disclosure we've been making. As you know, Virgin is a privately held company, but we'll provide good transparency relative to Delta, the benefits we see from the relationship, both on the ownership level, as well as on the JV. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Okay. And I'm going to try to sneak in a third since the first wasn't answered. Glen, any commentary on the state of relationships with Alaska Airlines right now vis-a-vis some of the capacity that you've added in Seattle? I certainly am not modeling for any sort of divorce in terms of the relationship there, though it's been suggested here and there that maybe both sides could, I don't know, enter a couples therapy in terms of trying to ease out some of the capacity issues. Any update on that?

We have a great relationship with our partner at Alaska Airlines. And we're so confident in it that we're continuing to build on our long-haul operations out of Seattle. And just yesterday, we announced that we would initiate nonstop service in conjunction with both Alaska and Virgin, between Seattle and Heathrow. And I think that really goes to the core of our confidence in our relationship with them, is that we're willing to continue to build our long-haul operations in Seattle where we see opportunities.

We'll hear next from Glenn Engel with Bank of America Merrill Lynch.

A couple of questions. First, to Glen. If I looked at the second quarter RASM, you outperformed on the Pacific by about 4 points. You underperformed on the Atlantic by 3 points. Can you talk about why the divergence? And touching on Seattle, can you talk about the strategy in Seattle and how that fits in with Tokyo?

Seattle and Heathrow? Well, I think in Seattle, what we're trying to do is...

Seattle just in general, the hub versus the Narita hub.

Oh. Well, I think we've been very transparent that our Narita hub is really a great asset for Delta, and it will continue to be a great asset for Delta. But it is challenged by the environment that's around at the opening of Haneda. So I don't think we can count on that being our only way to get to Asia over the next decade or 2. So we've been proactively managing diversification of our Pacific portfolio over the last years, and we continue to do that. Not that Narita isn't an important destination, not that it isn't an important part of our network, but I don't think we should solely rely on that as that's really got some external factors that we may have to face at some point in time. So right now, we're flying about 50% of our trans-Pacific is not touching Narita. And you can consider that, that would be the opportunity for us to continue to grow in Asia, not to shrink Narita necessarily, but to grow the rest of Asia.

And the outperformance in the Pacific and underperformance at Atlantic versus the industry in the second quarter?

Quite honestly, given the fact that we don't report the hedge in the A4A data, I was surprised that given our reliance on Japan and the standpoint of sale, that our numbers went up in the Pacific. I think you have to ask other carriers why our numbers went up, really, given the fact that they're relying on the yen. And in the trans-Atlantic, we're dissecting that. We know that there were some out of periods on settlements, and we're trying to work with the A4A to clear that up so that it's easier for you and for us to understand, because we believe that the joint venture settlement should not be in the A4A results. They should be separate. We report ours separately. And I think we're working to get to some consensus so we can better understand how that works moving forward.

Glenn, we -- I just want to add on the trans-Atlantic. We were very pleased with our second quarter performance across [ph] the trans-Atlantic. So I agree with Glen. I think it's more of a function of some out-of-period adjustments. Some of the other periods may have had either in the prior year comps or in the current quarter as compared to Delta's performance. Our performance was very strong in the second quarter.

Very strong -- it was a great quarter..

We had some of our best margins on a combined basis with our JV partners that we've ever seen in the trans-Atlantic.

And 2 technical ones, regional capacity growth in the third and fourth quarter; and two, on the headcount side, is that distorted by adding Pinnacle? What would the mainline headcount look alone?

I don't have the regional headcount at furloughs [ph]. We can read that offline, and we can get back to you -- call you with this regional.

The regional capacity was going to be down.

Yes, regional capacity has been down, but we'll be -- we don't give typically that level of guidance dissected.

We'll move next to Savi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just a question on Trainer real quick. I know that it's a small impact versus how much fuel has come down. But even without the RINs, you're breakeven, expected to be profitable. Is that just kind of short-term issues with spreads narrowing? And I think, in June, Bakken prices moved up, and how should we think about it going forward? I mean, is Trainer going to be kind of profitable net-net for the year or...

Savi, it's Paul. We -- part of the Trainer performance, and when you look at the breakeven performance, is driven by the lower jet cracks that you've seen. This is and always has been a bit of a hedge against jet cracks as well. I think as we look at the WTI to Brent convergence that we've seen, we are still actively pursuing Bakken opportunities that we believe has a sizable opportunity compared to the import of the West African grades into the East Coast. So we do believe longer term that we can hit the profit objectives of the refinery overall. But we -- there's still a forward-view on gas cracks and the overall refining margin. Depending on what RINs do and crack spreads, we could see our way to breakeven performance for the year.

Yes, I think -- this is Ed, Savi. I think the volatility of RINs makes it pretty difficult to forecast a full term view looking at Trainer in isolation. But there's no question that this has served to be a great hedge on our overall jet fuel cost. And that's really what Delta looks at, our overall jet fuel cost. And with that, we've been quite pleased. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Yes, that makes sense. On the breakout, regional capacity was down year-over-year, but your unit revenue was down as well. I was wondering what's happening there.

Well, we started to retire 50-seat equipment, and we're accelerating that as we get to the third and fourth quarter. That will -- the continuation, we will continue to have reductions in regional equipment. That is mostly being replaced by existing equipment. But as we get into the third and fourth quarters, we begin to take deliveries of the 717s. The 717s will start to replace a lot of the 76-seaters, which will replace the 50-seaters. So think of it as kind of a reverse cascade in terms of gauge. And as Richard mentioned and Ed mentioned, the actual fleet number despite -- will be down about 2% despite the fact that capacity is up 2%. And that will not only provide a better product for our customers, but some cost relief or cost assistance as the gauge continues to increase.

And Hunter Keay with Wolfe Research has our next question.

I hate to beat the subject into the ground here, but on fuel, Paul, you said, in answer to I think it was Jamie's question, you didn't want to speculate on where RINs are going to end up. And I appreciate that. But should I take that to imply that the impact of that is not included in the fuel guidance of $3.05 to 3.10 for 3Q? Because I can't really figure out how you're guiding to such a low number, given where spreads are, given how you're hedged mostly in Brent. I'm just not getting that number with stock prices right now. Should I expect incremental upside risk to that after the calculation of RINs is included?

Hunter, our expectations are built into that fuel price guidance, including our expectations of the hedge performance and the refinery for the third quarter. We can work with you on your model to figure out where some of your questions might be. But all of our expectations are built into that fuel guidance that we gave.

Okay. So you're -- are you expecting hedge gains in 3Q in that $3.05, if you can -- we can take this offline if you want, but...

Yes, sure.

Yes, we are.

Okay. And you answered Mike's question on pension in terms of the rate environment and the impact on the unfunded liability. But all else equal right now, can you help me quantify the impact it would have on CASM ex fuel on a full year basis? Maybe just -- I know there's a lot of moving parts, but maybe as you're looking to -- thinking about CASM and fuel in 2014, how much is the rate going to drive that down in the P&L?

Hunter, the P&L for pension is set based on a full year basis at the beginning of the year. So any changes in the discount rate or interest rates would effect in 2014 and beyond.

Right. Yes. And that's been [ph] like if I were to take the rates right now and run a fully annualized basis, are we talking maybe like a full point of CASM-Ex or is it too early? I mean...

No, no.

And Dan McKenzie with Buckingham Research has our next question.

I'm wondering if you can talk a little further about Virgin. I guess, in particular, I'm just wondering where you're at with ramping up the JV and when the JV revenues might begin showing up in the monthly PRASM numbers? And I guess related to that, if the potential contribution from Virgin is included in your revenue and margin guidance, I guess, just given the London-Heathrow exposure, I'm thinking it has the potential to be a little material here.

Let me talk to the DOT process, and then Ed could go to the specifics. Our application for antitrust immunity with DOT was filed back in April. There were no oppositions filed by any other party. And we expect to get approval for antitrust immunity, which will be the basis of the JV, by the end of the summer. So that's proceeding apace. There have been no objections. And if you saw the approvals that we got from the DOJ and EU on the share acquisition, I think that really signaled the fact that from a regulatory perspective, it's very positive for consumers. So we don't expect any issues with respect to antitrust immunity application.

And to follow on what Richard was saying, Dan, this is that we're looking at a January 1 start date for the JV. That's our current expectation. And relative to revenues going forward, the Virgin revenues will stay within the Virgin financials. We won't have Virgin's revenue stream in the Delta consolidated revenue picture because we own less than -- less than 50% of that entity. The benefits from the JV will flow on the -- that flows to the Delta level [ph] will certainly show some improvements on our Heathrow numbers. And we'll also record the -- our net 49% of the Virgin earnings in our -- as a net line item within our P&L.

It will be down and not up [ph].

Understood. Okay, very helpful. And then secondly, I wonder if you can peel back the onion a little further on your corporate travel commentary. The stat, the statistic of 80% corporate travel spending, 80% flat to up. It sounds like the growth that you've seen over the past year is beginning to slow, but maybe that's a mis-read. I guess I'm wondering if you might be able to break that out on a same-store sales versus a share-gain basis. I know corporate travel spend has been getting -- bumping up or has been essentially lifted from the gains that you've made. Just wondering if you can help us peel back that onion a little bit.

Well, there's corporate share gains continue in our current quarter, as well as in our forward outlook. 8% growth is -- most of that is organic growth. We are continuing to pick up new accounts and new business as compared to the market growing at an 8% level. So we -- I don't think that I see any signs of slowing down relative to momentum. It's clearly choppy. So you've got some industries, such as our defense industry and the transportation industries that are actually down year-over-year, given what's going on in the their economies. We've seen great growth coming in the financial services and the banking sector. Technology in the current quarter is up double-digit gains. So we continue to be very, very encouraged by what we're hearing from our corporate travel managers, and it's a product in the operation. There are people providing us the real -- just the real story here.

We'll hear now from Helane Baker -- excuse me, Becker, with Cowen.

Just a question with respect to the new terminal at JFK. It opened in May, so you've had about 6 or 8 weeks, maybe 2 months of operations. And I was wondering if you could [indiscernible] how it's going, customer acceptance, and how CTB is doing in that terminal. One, for purely selfish reasons; and two, just because I've heard negative things about JFK overall. And yet, you have this fabulous new terminal, and I was wondering how it was going.

Well, I think, overall, it's going well. The -- we have very specific data from our customers about the experience through our email survey program, and then the use of that information to tailor our service and to tailor our operation, to be able to continue to improve customer satisfaction scores. And overall, the scores for the new facility are up significantly. I think the main challenge and candidly, I must say I think it's an embarrassment to our government that as much as we, as an industry, pay into customs and border patrol, that we have issues at not just JFK, but at Newark, at Chicago, at Los Angeles, where we cannot seem to get our government to perform the very basic service. And those of us that travel extensively around the world and go to countries like Japan and China and Europe, customs is a breeze. And in the U.S., despite all the investment that we make as an industry, we collect a fee from every passenger. We cannot get the kinds of levels of support that if we are going to grow our economy in the U.S., travel and tourism is an important part of that equation, and it's one that needs to be fixed. And that we're pursuing every avenue in Washington and in Congress to get this problem solved. The answer shouldn't be to outsource JFK to Abu Dhabi.

Right, right. I don't necessarily disagree. But still, CTB isn't doing its job. And I guess is that a job for the A4A to focus on, do you think?

The A4A is incredibly focused on it. Nick Calio is focused on it. We've actually gotten some appropriation language in Congress to increase the funding. And I think we -- the whole industry is -- has supported those efforts over the years. I participated in a Secretary of Commerce task force a couple of years ago that gave a whole series of recommendations in this regard to the Executive branch. And so far, we've -- our government's failed to provide the level of service that we should be providing if we want to see the third most important industry in the U.S., travel and tourism, continue to grow and contribute to a growing GDP.

Okay. I appreciate the analysis. Can I just ask one follow-up question with respect to Mexico and Aeromexico? I saw some comments they made yesterday in their press release for their earnings that they were building a hub in Monterey. And I was kind of wondering how you will participate in that, if at all.

Helane, this is Ed. You'd really need to go Aeromexico for that. We're really not at liberty to talk about their plans on our call.

Oh, okay. I was just kind of wondering how you guys were going to participate, but that...

We're not -- we don't have any plans to participate in that.

We'll move on to Duane Pfennigwerth with Evercore.

Just on your fuel hedge, sorry to come back to that. But refinery aside, can you just walk us through your hedge positions for 3Q and 4Q, and what the strike prices are on that?

Duane, it's Paul. We don't give specific guidance as to the strike prices. I'd say we're generally about 60% hedged at current levels. And like we said earlier, we expect some hedge gains in the third quarter. Our level of hedge gains in the third quarter, Duane, are -- today's level is about $40 million net of premium, just to give you an indication.

That's very helpful. And then just on the strong nonfuel cost performance, I wondered if we could dig into heavy maintenance a little bit. And specifically, has your approach on engine overhauls changed at all? And I'm not sure if you're willing to share this, but if we looked at maybe 2 buckets, engine overhaul expense plus engine CapEx last year, how do you view those 2 buckets changing into '13?

Certainly. It's Paul. There are really 2 pieces to the engine maintenance strategy going forward. One, we have taken advantage of significant part-out opportunities. As we mentioned in our last quarter call, CapEx opportunities to acquire older airplanes and harvest them for parts has provided significant savings for us going forward in terms of a lower cost basis for the overhauls that we have. And secondly, as we talked about a part of our structural cost initiatives, we expect substantial savings as we -- we're basically no longer doing any engine maintenance on 50-seat engines for the foreseeable future as part of that retirement strategy.

How big is that bucket, Paul, if you can help us? I mean, what was the magnitude of your expense last year on engine overhauls or 50-seat engine overhauls?

Let me try to address it in a much -- we don't usually break down our specific P&L expense by engine type. But take it up a level and if you think about CapEx and what's required according to what the OEMs say, typically, the OEMs want a carrier to carry somewhere between 11%, 12%, 13% of spare engines versus what's installed. So if you had -- the OEM model is -- if you have 100 engines, they would expect you to own 112 engines. At Delta, because of part-out buying airplanes on the marketplace, our engine overhaul facility's turn times and cycle times, we have a target of a 5% spare ratio. So our goal is to continue to drive down the work in process and the investment, the overall investment in tech ops, parts and capital. And so it's a series of used equipment, PMA authority, cycle times in the engine shops are the best in the world now at Delta. And what that all results in is a significant reduction in the amount of spare engines versus the OEM model.

And that will be from Bob McAdoo with Imperial Capital.

This is a quick one. Back to the issue of the regional carriers, I know what you talked about going forward. But can you explain why the RASM for regional carriers was down in the recent quarter?

Yes, Bob, it's Glen. It's really related to a significant upgauge as we take out 50-seaters and rely more heavily on 76-seaters. The margins actually expand. And as you know, when you buy the airplanes for long term, we're not buying them for day 1. But the fact that we were able to upgauge the regional fleet and achieve margin expansion, I think it's a testament to we're on the right path.

So margin expand, but because of bigger airplanes, you got a few more discount [indiscernible]...

That's it. The RASM goes down slightly, but the CASM goes down dramatically.

Thanks, Bob. Kelly Ann, that's going to wrap up the analyst portion of the call. And I'm going to turn it over to Ned Walker for the media section.

Thanks very much, Jill. Kelly Ann, if you could please review the process for asking questions, that would be very much appreciated. [Operator Instructions] With that, Kelly Ann?

[Operator Instructions] And we'll go first to Darren Shannon with Aviation Week.

I'm looking for some more guidance on the sector breakdown on capacity, both 3Q and 2H. If you could just give me mainline and regional, I'd be happy. But if you go deeper, I'd be very happy.

Well, I think the guidance that we've already given in the press release is as deep as we go in terms of forward-guidance.

We'll move next to Kelly Yamanouchi with the Atlanta Journal Constitution.

In terms of margin expansion in Atlanta, are there any particular markets where you've gotten the biggest gains? Is it a sign of more business travel gains?

Kelly, we don't break our margins out by specific route. I think suffice it to say that the employees at Delta are doing such a phenomenal job delivering great service to people in Atlanta that we see our gains across the board.

Okay, great. And is there any opportunity for significant capacity increases?

Well, I mean, we just stick to the capacity guidance that we've given in terms on a system level. And that's the extent of the capacity guidance that we give going forward.

And David Koenig with Associated Press has our next question.

Mr. Anderson, your yield was basically flat. And also, today, US Airways' consolidated yield was down 2.8%, kind of on a flip open capacity. But what does that say about the pricing environment that you saw in the quarter that just ended?

David, it's Ned. We lost you at the very beginning. Could you restate the question? We were unable to...

Sure. Sure. I was just mentioning that your yield is pretty flat here. And the US Airways' consolidated yield was down nearly 3 points, 3%, now they did have a rise in capacity. What -- my question was what that -- what those yield figures say about the pricing environment that you saw in the quarter that just ended?

I think we're very excited about business travel. We're very excited about core demand, enthusiastic about it. Of course, there is a correlation to fuel, right? And when fuel goes up, airline ticket prices have do go up as well. And as fuel came down, airline ticket prices on the margins would go down a bit. But that had really nothing to do with core demand and margins expanded. So I wouldn't really correlate that -- those small yield declines to any kind of yield core deterioration in the long term.

Will the industry ever break that link with oil prices and fares?

I don't think we want to. It's a margin, Dave, so it's not an oil price to -- and that's what I think the industry's been able to achieve. And I think that's why we think it's a pretty good environment right now.

Our next question will be from Mary Jane Credeur with Bloomberg News.

How long does Delta's contract with BP and ConocoPhillips for Trainer go? And are you able to adjust or renegotiate those terms at all because of the rising RIN costs?

Mary Jane, this is Paul. When we announced the transaction, we said we have entered into 3-year deals with ConocoPhillips and BP around the refinery. We're not going to comment on any specific contractual provisions in our relationship between them.

Okay. And could you elaborate a little bit more perhaps, Ed, on the underlying strength on domestic business? You talked about the core strength there. How much of that is -- what sectors are driving that, banking, tech? Is there any pattern to regions that are particularly strong, Northeast, New York area, et cetera?

You did a good job of answering your own question there, Mary Jane. Obviously, our growth in New York has contributed a lot to the strength we're seeing domestically. We've done well here in Atlanta. I'd say on an industry profile, technology, manufacturing has picked up in terms of our corporate revenues from our manufacturing base has been strong as high single digits. And -- but the overwhelming lion's share of the improvement is coming from the financial services and the banking sector.

That would be from Karen Jacobs with Reuters.

My question was also about the revenue environment, which was addressed with some of the questioners already. I was just hoping you could expand on the revenue environment you're seeing, and if you could address the difficulty you've had in raising fares this year.

Karen, I'd say the revenue environment is really solid. We mentioned that our summer bookings are strong, our unit revenues are up 3% in July, and we expect a similar performance for August. So I'd say everything we're seeing in the revenue environment is solid and quite stable.

Okay. And I mean, what's with fares now? Is it harder to raise fares these days?

We did not and cannot speculate on forward decisions with respect to our pricing of airfares.

Okay. I only asked the question because I know the company has tried to raise fares this year about 5 times, but hasn't been successful with most of those.

Okay. Hey, thanks very much again. Richard, Ed, Paul, Glen and team, thank you very much for your comments. And this concludes our June quarter conference call. We'll be back in 3 months with our September conference call. Thank you very much, everyone. Bye-bye.

Again, that will conclude today's conference. Thank you, all, for joining us.