WEBVTT - Delta CEO Ed Bastian Talks Premium Travel

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>I am here in Atlanta, Georgia with the CEO of

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<v Speaker 2>Delta ed Bastard here alongside me. After that earning support

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<v Speaker 2>yesterday and that projection of twenty percent earnings per share

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<v Speaker 2>growth in twenty twenty six. Now that you've had a

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<v Speaker 2>day to suggest, have you been surprised by the market's

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<v Speaker 2>reaction and frankly by the lines of inquiry that you

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<v Speaker 2>got yesterday.

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<v Speaker 3>No, really, First of all, thank you for coming down.

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<v Speaker 3>It's great to have you on our campus down here

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<v Speaker 3>in Atlanta. There were a lot of expectations. We have

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<v Speaker 3>a lot of momentum in our business, and as we're

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<v Speaker 3>going into the year, we've seen the first part of

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<v Speaker 3>the year, the momentum picked up yet again in the

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<v Speaker 3>early early days of January, and so as a result

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<v Speaker 3>of that, I think our our investor base was curious

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<v Speaker 3>as to whether they see that momentum continuing to build,

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<v Speaker 3>continue to the flatline to bop around a little bit.

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<v Speaker 3>And we just finished a year where we saw some

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<v Speaker 3>pretty significant challenges, whether it was the Liberation Day impact

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<v Speaker 3>on consumer sentiment and shutdown of the government and the

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<v Speaker 3>airspace and the latter part of the year, so we

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<v Speaker 3>wanted to make certain we had a little bit of

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<v Speaker 3>wiggle room, some caution as to how we thought about

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<v Speaker 3>projecting the year out. And so I think there was

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<v Speaker 3>more inquiries to just how much caution is there and

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<v Speaker 3>what couldt look like?

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<v Speaker 1>Right, And so I think that's more of what we saw.

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<v Speaker 2>So we'll get into what great could look like. Let's

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<v Speaker 2>get into the caution and some of the things that

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<v Speaker 2>are less foreseeable, including a proposed ten percent cap on

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<v Speaker 2>credit card rates. And it raises this question about the

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<v Speaker 2>loyalty program at Delta, considering the fact that American Express

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<v Speaker 2>and the partnership there contributed something like fourteen percent according

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<v Speaker 2>to my calculations of the revenue growth over the past year.

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<v Speaker 2>I'm just wondering how big of a hit is this.

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<v Speaker 2>Have you started to map that out at all?

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<v Speaker 3>I think it's early. I think it's premature. Listen, that's

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<v Speaker 3>not our business. As the financial services world and the

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<v Speaker 3>bank and climate. I think the banks that have already

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<v Speaker 3>come out and spoken about it are expressing a tremendous

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<v Speaker 3>amount of concern. So I understand it would require legislation,

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<v Speaker 3>is what I'm told, And we know the challenges of

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<v Speaker 3>getting anything through Congress these days. I also think the

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<v Speaker 3>knock on effects are pretty significant. When you think about,

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<v Speaker 3>you know, what seems to be maybe a good idea

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<v Speaker 3>to help the lower income strata given some income tax

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<v Speaker 3>or tex some interest rate relief, The reality is is

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<v Speaker 3>going to eliminate their ability for credit and it's going

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<v Speaker 3>to freeze up, you know, tremendous amount of credit lines

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<v Speaker 3>that the banks aren't gonna be able to afford to provide.

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<v Speaker 3>So I'm not it's not my business. Of course, we're

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<v Speaker 3>going to work closely with America Express. The second factor

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<v Speaker 3>is is that Amex is a premium card provider, so

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<v Speaker 3>that's really not the income level that we focus on

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<v Speaker 3>in our business.

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<v Speaker 2>At the same time, there is a sense that's a

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<v Speaker 2>growing part of the revenues. We saw an eleven percent

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<v Speaker 2>increase in the contribution that this particular aspect made to

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<v Speaker 2>to Delta's revenue. So I just wonder how much do

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<v Speaker 2>you expect that to grow? All things being.

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<v Speaker 3>Equal, we're expecting high single digit growth in the current year.

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<v Speaker 3>We've been seeing double digit growth for the last several years,

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<v Speaker 3>and it's a really important part of our business model.

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<v Speaker 3>But I don't think it's something that we look back

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<v Speaker 3>and start getting concerned. I think this idea has a

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<v Speaker 3>lot of roadblocks and obstacles ahead of it.

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<v Speaker 2>One thing that you said in an interview with the

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<v Speaker 2>colleague talking about what could great look like is that

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<v Speaker 2>effectively all the growth that you've seen so far has

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<v Speaker 2>been from the premium cabin not from the main cabin.

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<v Speaker 1>Why do you think that is.

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<v Speaker 2>Is it because of just incredible strength at the premium end,

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<v Speaker 2>or is it because of weakness in the main cabin I.

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<v Speaker 3>Think the main reason is the demand set for the

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<v Speaker 3>premium seats and the premium product that we offer is

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<v Speaker 3>a continues to.

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<v Speaker 1>Be at a record high.

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<v Speaker 3>The more we look at the health of the consumer,

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<v Speaker 3>we talk about the K, we're at the top.

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<v Speaker 1>End of that K in terms of who our consumer is.

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<v Speaker 3>And when you have a high demand set, that's what

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<v Speaker 3>drives pricing strength, and that's what drives the growth that

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<v Speaker 3>we've seen the last several years. That said, on the

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<v Speaker 3>main cabinet, it's still a big part of our business.

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<v Speaker 3>It's what pays the bills i'd like to think of,

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<v Speaker 3>and as we see some of the rationalization that's occurring

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<v Speaker 3>because you have a lot of lower end airlines with

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<v Speaker 3>low end seats, too many seats chasing still enough low

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<v Speaker 3>end consumer demand. That space is where a lot of

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<v Speaker 3>the rationalization and you see it in the industry currently.

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<v Speaker 3>As that backdrop continues to get into a healthier environment

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<v Speaker 3>because all those airlines have to find a way to

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<v Speaker 3>earn their cost of capital, they're not going to be

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<v Speaker 3>around and so as a result of that, whatever happens there,

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<v Speaker 3>we will benefit from that and we'll keep that premium

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<v Speaker 3>demand set growing.

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<v Speaker 1>So well, we're not growing in that.

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<v Speaker 3>Space, but it will still be a good one for

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<v Speaker 3>us in terms of improvement.

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<v Speaker 2>You've talked about consolidation in the lower end of the

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<v Speaker 2>industry and how you expect this to be a pretty

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<v Speaker 2>big year of that as people try to justify their

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<v Speaker 2>existence and survive. Would you play in that and anyway

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<v Speaker 2>would you make any acquisitions.

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<v Speaker 3>We're not going to comment on that question, but you know,

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<v Speaker 3>when you look at who Delta is, you can answer

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<v Speaker 3>that question for yourself.

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<v Speaker 2>Well, I guess the other question is how much is

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<v Speaker 2>the growth going to come from organic versus inorganic? Is

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<v Speaker 2>there sort of a plan, especially given how much you've

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<v Speaker 2>reduced leverage to really increase by acquisition some of your capacity.

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<v Speaker 1>Well, when we look at that growth for US, international.

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<v Speaker 3>Is a big part of our growth strategy, and we

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<v Speaker 3>announced yesterday a big new order for the blowing Dreamliner.

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<v Speaker 3>We're very happy about that, excited about that. People think

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<v Speaker 3>about our industry, they come to me, they say, where's

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<v Speaker 3>the future for travel going to?

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<v Speaker 1>Come? From? One hundred years old? It is international.

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<v Speaker 3>When you think about only one in five people in

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<v Speaker 3>the world have ever stepped foot on an airplane.

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<v Speaker 1>That means you have to go new places.

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<v Speaker 3>You have to find new opportunities to grow and expand,

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<v Speaker 3>and that's going to be the statement of the second

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<v Speaker 3>century of flight. I believe it's about making the world

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<v Speaker 3>a much more connected place than it is today.

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<v Speaker 2>You know this comes at a time the international travel

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<v Speaker 2>growth that the rhetoric between trees has been incredibly heated

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<v Speaker 2>and more about putting up walls. Are you concerned that

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<v Speaker 2>that could have consequences and put barriers When you talk

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<v Speaker 2>about the international travel and the growth that you're seeing

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<v Speaker 2>in that sector, there.

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<v Speaker 1>Have always been walls. There's always been in politics, there

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<v Speaker 1>are sailings. What we look at the world today.

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<v Speaker 3>We know the one thing that really does unite the

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<v Speaker 3>world is when you can actually travel and see and

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<v Speaker 3>experience and get to know people, and you bring the

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<v Speaker 3>countries physically closer together. So yes, it's not going to

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<v Speaker 3>be a straight line up in this business. We know

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<v Speaker 3>there's a lot of terribulence in the sky, not just

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<v Speaker 3>in the business models sometimes, but when we actually do

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<v Speaker 3>physically get connected back together and the world come a

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<v Speaker 3>closer place, that's where real opportunity.

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<v Speaker 2>Since you're talking about the demand so far this year,

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<v Speaker 2>and you've seen I believe, record demand so far in

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<v Speaker 2>the first week and a half of January, I'm just wondering,

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<v Speaker 2>is it mostly still coming from premium? Is it equal

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<v Speaker 2>across all tiers? Is it also an economy to the

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<v Speaker 2>same degree that you're seeing in terms of the robust

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<v Speaker 2>interest at the top.

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<v Speaker 3>End, It continues to be at the top end, it

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<v Speaker 3>continues to be in business. We're seeing double digit growth

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<v Speaker 3>in business at the start of the year. We had

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<v Speaker 3>our largest weekly sales in our history just last week,

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<v Speaker 3>up double digits over the same week a year ago.

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<v Speaker 3>So if this demandset continues, we're going to have a

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<v Speaker 3>great year.

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<v Speaker 2>So I have to end with this because my colleagues

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<v Speaker 2>asked me to do this. The lounges, the regular lounges.

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<v Speaker 1>Not the Delta one.

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<v Speaker 2>They're getting really crowded. How are you going to manage

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<v Speaker 2>that considering that a lot of people have complaints about that.

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<v Speaker 3>Well, we've been experiencing that for the last handful of years,

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<v Speaker 3>and it's a problem. What no good deed goes unpunished.

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<v Speaker 3>You know, you build something great and everybody wants to

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<v Speaker 3>be in there, and it's doesn't feel as exclusive any longer.

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<v Speaker 3>We've been working through that for the last several years.

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<v Speaker 3>American Express is our close partner on that expresses building lounges.

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<v Speaker 3>We're building new lounges where you've got the Delta one

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<v Speaker 3>lounges that are coming. We're going to continue to build

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<v Speaker 3>more supply and more capacity to take care of all

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<v Speaker 3>of our great customers.

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<v Speaker 2>Ed Bastin, thank you so much for being with us today.

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<v Speaker 2>Really appreciates speaking with you.