Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Business Week with Carol Messer and Tim
Speaker 2: Stenebek on Bloomberg Radio.
Speaker 3: Well.
Speaker 4: Last month, Delta Airlines forecast profit in sales that fell
Speaker 4: short of Wall Street's estimates for the final months of
Speaker 4: the year, suggesting a slow recovery from a challenging summer
Speaker 4: travel season. For an update on the business and the
Speaker 4: latest on Delta's partnership with the private on demand aviation
Speaker 4: provider wheels Up, we bring in Ed bast And, CEO
Speaker 4: of Delta Airlines and George Mattson, CEO of wheels Up,
Speaker 4: both joining us from Atlanta. We should note that Delta
Speaker 4: does own close to forty percent of wheels Up. That's
Speaker 4: according to Bloomberg Data. Guys, thanks so much for joining us.
Speaker 4: We're going to get to the wheels Up partnership and
Speaker 4: the exciting news that you guys have when it comes
Speaker 4: to new aircraft. But I wanted to ask each of
Speaker 4: you the same question that I've asked every CEO that
Speaker 4: I've spoken to over the last week, and I want
Speaker 4: to start with you, what does a second Trump administration
Speaker 4: mean for Delta Airlines.
Speaker 5: You've seen from the market's reaction. There's a lot of
Speaker 5: optimism in the corporate community, I know for Delta, specifically
Speaker 5: in the aviation industry. The president, the former president now
Speaker 5: the current president elect, knows our industry quite well, was
Speaker 5: very supportive as we worked with him in his previous administration,
Speaker 5: particularly as we went through COVID. Got the support we
Speaker 5: are the original industry that got the Cares Act started,
Speaker 5: and the support to keep our employees employed, and we
Speaker 5: look forward to continuing to work with him in a
Speaker 5: second administration.
Speaker 4: What about ED when it comes to regulation during the
Speaker 4: next administration, because I think many people would say that
Speaker 4: Biden administration took what some would call it hostile stance
Speaker 4: on airline M and A. Do you expect that to
Speaker 4: change under Trump? Will it lead to a new round
Speaker 4: of airline consolidation.
Speaker 2: I don't know about consolidation.
Speaker 5: I guess as possible, but I can tell you that
Speaker 5: the Biden administration, particularly Department of Transportation, who we work
Speaker 5: most closely with, we were quite frustrated with the amount
Speaker 5: of regulatory overreach we saw continuously through the last four years.
Speaker 5: And we hope there's a new sentiment that's pro pro employee,
Speaker 5: pro consumer, pro business and a good balance between the three.
Speaker 6: And George, let's ask that same question to you. You
Speaker 6: think about a second Trump administration, what would that mean
Speaker 6: for Wheels Up?
Speaker 2: Yeah, thanks, Kate.
Speaker 1: I think as Ed said, you know, the prior administration,
Speaker 1: we're in the prior administration. Obviously, there was a strong
Speaker 1: support for aviation in general, US aviation in particular. And
Speaker 1: you know what really drives our business as much as
Speaker 1: anything else, is a good, solid, strong economy. Obviously, the
Speaker 1: markets have reacted very positively to the results of the election,
Speaker 1: and the economy appears to be quite strong and resilient,
Speaker 1: and I think ultimately that's going to support our business
Speaker 1: plan went forward.
Speaker 6: And let's also talk, of course about the relationship between
Speaker 6: your two companies, Delta and Wheels Up. And Ed, I'll
Speaker 6: ask you this question. Delta, according to our data, owns
Speaker 6: more than a third of Wheels Up. You've also supported
Speaker 6: Wheels Up with credit and access to capital. Why own
Speaker 6: so much of Wheels Up? What is in it for Delta?
Speaker 5: Well, what's in it for Delta is the opportunity to
Speaker 5: create a new level of premium in commercial aviation that
Speaker 5: hasn't previously existed in terms of a partnership, and more
Speaker 5: than just a partnership, it's an ecosystem that's linked between
Speaker 5: private and commercial. We know many of our private aviation
Speaker 5: consumers also fly commercial fly in Delta, and we want
Speaker 5: to make it easier for them to make those choices
Speaker 5: when they have the opportunity to fly private and vice versa.
Speaker 5: When there's private aviation consumers that may occasionally need a
Speaker 5: commercial flight, whether it's going to Europe or some other place,
Speaker 5: we want Delta to be their airline of choice.
Speaker 3: Ed.
Speaker 4: Would you consider buying the company completely?
Speaker 2: No, that's not in the carts.
Speaker 5: We deliberately wanted to make certain we had investors with
Speaker 5: us when we made this decision, and I think having
Speaker 5: the external validation of investors beyond us Delta was helpful.
Speaker 4: Hey, George, I want to talk about the fleet because
Speaker 4: there was big news last month when Wheel's upset it
Speaker 4: would buy the embra or Phenom fleet from Grand View Aviation.
Speaker 4: It's one hundred and five million dollar deal. It's part
Speaker 4: of this three year plan to transition to Embraer and
Speaker 4: Bombardier Challenger aircraft. You're also though, moving away from Cessna citations.
Speaker 4: What's the thinking behind this apart from just a newer fleet.
Speaker 3: Yeah, thanks Tim.
Speaker 1: When I arrived here just over a year ago, having
Speaker 1: spent eleven years on the Delta board, we obviously had
Speaker 1: a number of first aid priorities, but one of the
Speaker 1: priorities over this first year was building a long term strategic.
Speaker 3: Plan and a fleet plan that supports that plan. We
Speaker 3: have a.
Speaker 1: Significant, loyal, strong member base, a really strong brand.
Speaker 3: Most of our members have been individual leisure customers.
Speaker 1: We are increasingly becoming a provider of choice to corporate customers.
Speaker 1: I think through our Delta partnership that's only going to
Speaker 1: become more important going forward.
Speaker 3: As we looked at our fleet, it was a little
Speaker 3: older than we wanted it to be, and it was.
Speaker 1: A little bit more complex than we wanted it to be,
Speaker 1: with four fleet types operating, which we've now distilled down
Speaker 1: to two fleet types. And in deciding to modernize the fleet,
Speaker 1: what we did is we basically selected the two most
Speaker 1: popular aircraft types in their respective categories, with the deepest
Speaker 1: install bases the largest secondary markets in order to be
Speaker 1: able to buy those aircraft at fleet scale.
Speaker 3: Over a period of time.
Speaker 1: This is going to really significantly transform the product offering.
Speaker 1: We're able to deliver the customers the experience, the reliability,
Speaker 1: the efficiency that comes both with the aircraft themselves and
Speaker 1: also the simplification of the fleet. We're going to enhance
Speaker 1: that fleet with best in class connectivity. I think Delta
Speaker 1: was a real leader in providing free, high speed satellite
Speaker 1: Wi Fi on.
Speaker 3: The air aircraft.
Speaker 1: We've announced a commercial partnership with Go Go to provide
Speaker 1: aim low Earth orbit satellite Wi Fi capability on all
Speaker 1: of our aircraft. We're very excited to have been able
Speaker 1: to jumpstart this fleet transition by acquiring brand View, which
Speaker 1: has the largest fleet of on demand feed on three
Speaker 1: hundred and three hundred e's in the market. And that
Speaker 1: transaction is going to close very very soon, and we're
Speaker 1: going to immediately be able to offer that at fleet
Speaker 1: scale to both our charter customers but also our programmatic
Speaker 1: member customers.
Speaker 2: And I think when you.
Speaker 1: Look forward at the progress we're making financially in the
Speaker 1: first year, this fleet modernization is an important unlock for
Speaker 1: the next phase of that of that profitability journey as well.
Speaker 6: And I also want to talk of course about Delta's
Speaker 6: fleet and ed we have to talk about Boeing. You're
Speaker 6: a major Boeing customer, and to put it mildly, the
Speaker 6: company has had a lot of problems. They've recently raised
Speaker 6: new capital though they've gotten past the worker strike. But
Speaker 6: that being said, how quickly do you expect Boeing to
Speaker 6: actually get back on a normal production schedule here and
Speaker 6: are you anticipating for their delays when it comes to
Speaker 6: deliveries and certifications.
Speaker 5: Well, we're, as you may know, not anticipating any Boeing
Speaker 5: deliveries because we have none outstanding in the next couple
Speaker 5: of years. So in the immediate term we're not impacted
Speaker 5: at all. But I do believe that they have made
Speaker 5: the right decisions around raising capital to invest in their business,
Speaker 5: around a concertain their employees are properly taken care of
Speaker 5: and compensated, and so they can get back focus on
Speaker 5: delivering high quality airplanes to our industry. I think it's
Speaker 5: going to be a number of years before you see
Speaker 5: a steady stream of airplanes starting to return, and well,
Speaker 5: hopefully sooner, but I think we are all realistic that
Speaker 5: this is going to be a very challenging turnaround still
Speaker 5: to come.
Speaker 4: When you say a number of years, would you count
Speaker 4: that number on one hand or two hands.
Speaker 2: A couple fingers as a so.
Speaker 4: A couple I like that. Hey, we're speaking with Ed Bashion,
Speaker 4: CEO of Delta Airlines and George Mattson, CEO of Wheels Up,
Speaker 4: both joining us from Atlanta. Ed, well, we have you
Speaker 4: give us an update on capacity in the market. Here
Speaker 4: we hear it's improving, but is it improving for both
Speaker 4: premium and economy seats right now?
Speaker 2: The market has rationalized.
Speaker 5: I think this past summer we saw in the US
Speaker 5: marketplace there were a lot of seats for sale had
Speaker 5: a pretty big impact on pricing. A number of the airlines,
Speaker 5: particularly those on the lower end of the price scale,
Speaker 5: have been struggling. They most of them have lost money
Speaker 5: this year, lost money in the peak summer even and
Speaker 5: have had to implement a number of self help measures
Speaker 5: to ensure that they can find better balance between supply
Speaker 5: and demand. On the premium side, that's where growth has
Speaker 5: been in the industry, and Delta has led the way.
Speaker 5: And any of the airlines, there's a couple of us
Speaker 5: out there that are more focused on premium have done
Speaker 5: quite well over the past couple of years over those
Speaker 5: that are more in the commodity sense, where price is
Speaker 5: the principal determinant of the consumer purchase. They've struggled and
Speaker 5: they continue to struggle, and that's why you see the
Speaker 5: supply and being rationalized.
Speaker 6: So that's the view on the commercial airline demand. George,
Speaker 6: give us a peak inside what demand for private air
Speaker 6: air space looks like, because you think about coming out
Speaker 6: of the pandemic, we know that there was a big
Speaker 6: uptick when it comes to private jet travel. What are
Speaker 6: you seeing right now, especially as we head into some
Speaker 6: of these peak travel demand periods.
Speaker 1: Yeah, I think in general, I would just say that
Speaker 1: the industry remains quite healthy. We certainly saw a very
Speaker 1: big sort of demand bubble from COVID and when people
Speaker 1: did start returning to flying, a lot of folks who
Speaker 1: hadn't flown private had started to fly private, and so
Speaker 1: we've seen that I would say normalized. The industry feels
Speaker 1: relatively stable here, but I think when you look kind
Speaker 1: of medium and longer term has really strong you know,
Speaker 1: macro headwinds, right, I think you know, the vast majority
Speaker 1: of of of aircraft private jet aircraft are still wholly
Speaker 1: owned by individuals or corporations, and so the opportunity for
Speaker 1: on demand and fractional providers to continue to grow. I
Speaker 1: think remains very strong. As as as commercial aviation becomes
Speaker 1: in some ways more challenging with congestion and other and
Speaker 1: other challenges, I think it becomes a more a more
Speaker 1: interesting alternative.
Speaker 3: And I think one of the really interesting things about.
Speaker 1: What we're doing with Delta is really trying to break
Speaker 1: down the barrier that has always historically existed between commercial
Speaker 1: and private aviation into one, you know, seamless aviation solution.
Speaker 3: And so I think as we are successful.
Speaker 1: In doing that, we're going to draw more participants into
Speaker 1: the industry hopefully through our offering and expand expand the
Speaker 1: market in the in the process. But to answer your
Speaker 1: specific question, I think generally things feel quite healthy right now.
Speaker 4: Yeah, So George, help us understand the the profile for
Speaker 4: somebody who would you know, maybe they're a Delta one customer,
Speaker 4: but they're also able to fly wheels up. What does
Speaker 4: that look like from an income perspective, a net worth
Speaker 4: perspective where they'd actually make the jump and they'd make
Speaker 4: that choice the most recent Bitcoin rally not necessarilywithstanding.
Speaker 1: Yeah, look, there's different there's different cuts at what at
Speaker 1: sort of what level of income or net worth constitutes
Speaker 1: the ability to fly private. I've seen numbers in the
Speaker 1: mid single digit millions of dollars of networth. I've seen
Speaker 1: numbers that are higher. I've seen a study that suggests
Speaker 1: ninety percent of people who can afford to fly private
Speaker 1: under that definition have never flown private. So and so
Speaker 1: you know you have if you think about our partnership
Speaker 1: with Delta Airlines, a couple of really big pools of
Speaker 1: potential customers. One is the forty five thousand or so
Speaker 1: Delta corporate customers, where Delta is often the leading provider
Speaker 1: of travel period to that company. And so we're offering
Speaker 1: this within that framework as an additional alternative, as a sleeve.
Speaker 3: If you will, of an existing broad corporate agreement.
Speaker 1: And then when you look at the individual customer, which
Speaker 1: was sort of the gist of your question, you know
Speaker 1: there are many If you believe that ninety percent of
Speaker 1: people who can afford to fly private never flowing private,
Speaker 1: well where are they. They're in the front of the
Speaker 1: cabin generally at the commercial airlines. And you know there
Speaker 1: may not be you know, flying private every time. But again,
Speaker 1: this idea of a solution that could be commercial or
Speaker 1: it could be private, or it can be a hybrid
Speaker 1: of the two. Is where I think we're going to
Speaker 1: find demand for those for those customers from those customers,
Speaker 1: and I think there's a lot of them out there
Speaker 1: who don't quite know how to access our industry quite yet,
Speaker 1: and we're trying to fly that.
Speaker 4: Hey, Ed, I got to another capacity question for you,
Speaker 4: because I know that you're already thinking about how things
Speaker 4: look in twenty twenty five. We're already looking forward to
Speaker 4: spring break in summer peak flying season. With Boeing's recent
Speaker 4: strike your turbofan maintenance, do you see a shortage of
Speaker 4: capacity across the industry or at least at your airline.
Speaker 5: I would expect for the next year, though we haven't
Speaker 5: given guidance for next year. Actually, stay tuned next next week,
Speaker 5: next Wednesday, we have our investor Day in New York,
Speaker 5: so maybe you can get it, you can get some insight.
Speaker 5: Then I expect the industry is going to move as
Speaker 5: the economy moves. Is an industry that's driven by the economy,
Speaker 5: not just US, but on a global scale. And for
Speaker 5: those carriers that are premium such as Delta, we have
Speaker 5: the ability to drive probably a little higher capacity than
Speaker 5: the broaduct economic growth.
Speaker 4: Okay, and Ed, I know that. Well, I don't know. Actually,
Speaker 4: it doesn't seem like there's still any lingering effects. When
Speaker 4: it comes to the crowd strike issue that you had
Speaker 4: over the summer. I know you recently filed a lawsuit
Speaker 4: against CrowdStrike. You've said you've suffered about five hundred million
Speaker 4: dollars in financial impact from that event. As the dust
Speaker 4: has settled, what are the long term implications, what's the
Speaker 4: financial implication, Well.
Speaker 5: The implication exactly what you said. There was a five
Speaker 5: hundred million dollars immediate impact from those five days, and
Speaker 5: there were additional damages on obviously the brand and the
Speaker 5: remaining impact as it took some time for our customers
Speaker 5: that were really disappointed to come back to Delta. So
Speaker 5: all of that's included in the lawsuit that has been
Speaker 5: filed and will be pursuing vigorously. But from a go
Speaker 5: forward basis, we learned a lot. We thought we were
Speaker 5: surrounded by the very best that you can protect yourself
Speaker 5: with both CrowdStrike and Microsoft, and we realize that you
Speaker 5: can take these guys at anywhere close to face volume
Speaker 5: in terms of what they tell you they're responsible for.
Speaker 5: So we've all learned to dig in deeper as to
Speaker 5: how these systems and processes flow. And it's not just Delta,
Speaker 5: I think it's the.
Speaker 3: World at large.
Speaker 5: There were thousands and thousands of companies that were impacted
Speaker 5: on a global scale, not realizing how CrowdStrike was injecting
Speaker 5: directly into the kernel of the operating system's potentially faulty code,
Speaker 5: which is and then Microsoft distributes it. So that was
Speaker 5: a huge learning for us, and we've done the audits
Speaker 5: immediately and we've already made some pretty significant changes in
Speaker 5: our technology security infrastructure to prevent that from ever happening again.
Speaker 6: Well, really appreciate the detail that you gave us there.
Speaker 6: We'll keep an eye on that lawsuit, but while we
Speaker 6: still have you guys, only a couple of minutes left.
Speaker 6: Most people think about commercial and then they think about private.
Speaker 6: But George, I'm really interested to hear about how you're
Speaker 6: thinking about these charter operators such as JSX, for example,
Speaker 6: where you can get on a thirty seat jet at
Speaker 6: an airport, either a private airport or commercial airport, and
Speaker 6: they seem to be a lot cheaper than, of course
Speaker 6: chartering a private jet. Is that a threat to your business?
Speaker 6: You think about the convenience and the affordability of some
Speaker 6: of these operators, and they seem to be picking up steam.
Speaker 2: Yeah.
Speaker 1: No, Look, there's certainly been there's certainly been some progress
Speaker 1: made in the introduction of this sort of hybrid commercial
Speaker 1: private by the seat product or alternative. It's still quite
Speaker 1: different than private aviation, really more kin to commercial aviation frankly,
Speaker 1: in that you know you're buying a seat. It's not private,
Speaker 1: it's scheduled on their schedule and so on.
Speaker 3: So look, there may be a place for it.
Speaker 1: I mean, it's operating under a fairly unique set of
Speaker 1: regulations called Part three eighty.
Speaker 3: It's a bit of a different construct.
Speaker 1: It's being looked at in different ways by different folks.
Speaker 3: But look, we see it as an alternative that certainly
Speaker 3: people consider it. Look, if you're one person or two.
Speaker 1: People traveling and you're looking for something other than commercial,
Speaker 1: and you know you don't want to get your own plane,
Speaker 1: it sort.
Speaker 3: Of fits that niche of the market. If you will,
Speaker 3: you're traveling with your family or a larger group.
Speaker 1: Frankly, private aircraft of your own can make as much
Speaker 1: economic sense as that alternative. But look, there certainly has
Speaker 1: been some growth in that segment and it remains to
Speaker 1: kind of be seeing where it goes from here.
Speaker 4: Hey, guys, really appreciate you both joining us and spending
Speaker 4: quite a bit of time with us this afternoon. Know
Speaker 4: you're both busy. That was wheels Up CEO George Mattson,
Speaker 4: also with Delta CEO Ed Baston, both joining us from Atlanta.
Speaker 4: Thanks again, of course. The big news that they have
Speaker 4: is that wheels Up is modernizing its fleet with that
Speaker 4: big purchase that they announced last month of Embraer and
Speaker 4: Bombardier jets