Categories Earnings Call Transcripts, Industrials

Delta Air Lines (DAL) Q2 2021 Earnings Call Transcript

DAL Earnings Call - Final Transcript

Delta Air Lines (NYSE: DAL) Q2 2021 earnings call dated Jul. 14, 2021

Corporate Participants:

Julie Stewart — Vice President of Investor Relations

Ed Bastian — Chief Executive Officer

Glen Hauenstein — President

Dan Janki — Incoming Chief Financial Officer

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

Tim Mapes — Senior Vice President and Chief Marketing and Communications Officer

Analysts:

Helane Becker — Cowen Securities — Analyst

Sheila Kahyaoglu — Jefferies — Analyst

Conor Cunningham — MKM Partners — Analyst

Hunter Keay — Wolfe Research — Analyst

Jamie Baker — JP Morgan Chase — Analyst

Stephen Trent — Citi Research — Analyst

Myles Walton — UBS — Analyst

Savanthi Syth — Raymond James — Analyst

Mike Linenberg — Deutsche Bank — Analyst

Duane Pfennigwerth — Evercore Partners — Analyst

Joseph DeNardi — Stifel, Nicolaus & Co. — Analyst

Chris Stathoulopoulos — Susquehanna — Analyst

Andrew G. Didora — Bank of America / Merrill Lynch — Analyst

Mary Schlangenstein — Bloomberg News — Analyst

Tracy Rucinski — Thomson Reuters — Analyst

David Koenig — The Associated Press — Analyst

Dawn Gilbertson — USA TODAY — Analyst

Leslie Josephs — CNBC — Analyst

Alison Sider — The Wall Street Journal — Analyst

Madhu Unnikrishnan — Skift Airline Weekly — Analyst

David Slotnick — The Points Guy — Analyst

Presentation:

Operator

Good morning, everyone, and welcome to the Delta Air Lines June Quarter 2021 Financial Results Conference Call. My name is Katie and I will be your coordinator. At this time, all participants are in a listen-only mode until we conduct a question-and-answer session following the presentation. As a reminder, today’s call is being recorded.

I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations. Please go ahead.

Julie Stewart — Vice President of Investor Relations

Thank you, Katie and good morning, everyone. Thanks for joining us for our June quarter 2021 earnings call. Joining us today from Atlanta are CEO, Ed Bastian; our President, Glen Hauenstein; our Interim Co-CFO, Gary Chase and our entire leadership team will be available for Q&A.

Ed will open the call with an overview of Delta’s performance and strategy, Glen will provide an update on the revenue environment and our brand momentum and Gary will discuss cost, fleet and our balance sheet. I’d also like to welcome our incoming CFO Dan Janki who is with us in the room today, but will not be participating in Q&A.

Similar to last quarter’s call, we’ve scheduled today’s call for 90 minutes to make sure that we have time for plenty of questions. For analysts, we ask that you please limit yourself to one question and a brief follow-up so that we can get to as many of you as possible. After the analyst Q&A, we will move to our media questions, after which Ed will provide a brief closing statement.

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 and all results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the Investor Relations page at ir.delta.com.

And with that, I’ll turn the call over to Ed.

Ed Bastian — Chief Executive Officer

Well, thank you, Julie. Good morning, everyone. I appreciate you joining us this morning. As we speak, we’re well into the summer travel season. And if you’ve been to the airport in recent weeks, you’ve seen firsthand how travelers are reclaiming their lives and returning to the skies. This increase in demand drove a better than expected revenue outcome for us in the June quarter with revenues down 49% versus 2019, resulting in a $6.3 billion total revenue. This was an impressive 76% sequential improvement from the March quarter. More encouragingly the momentum is continuing as we exited June with a demand environment that’s accelerating. Domestic leisure demand and yields are above June quarter 2019 levels and we see clear signs of business and international demand recovery heading into the fall.

Through the crisis we’ve earned an unprecedented level of brand loyalty and trust. Thanks to the world-class service, operational reliability and innovation that drives the Delta difference. And our commitment to safety, cleanliness and wellness is as strong as ever. The people of Delta are our strongest competitive advantage, powering our resurgence and running the best operation in the industry. It is because of our people’s incredible work that Delta was honored as the number one airline for 2021 by J.D. Power. I want to thank every member of the Delta family for the professionalism, spirit of service and warmth you show to our customers every single day.

I’d also like to thank our crews and operations teams for continuing to put our customers and their safety first as we restore our business. We are now in active recovery of our business and the challenges of getting our airline fully back to the service level our customers expect and deserve is daunting in light of the huge surge in demand that we are experiencing. But we’re taking all the right steps primarily through increased staffing levels at both Delta and our contract service providers to service this demand without compromising on the standard of care and cleanliness that our customers have become accustomed to on Delta throughout the pandemic. And even with these challenges, our team continues to run the very best airline in the industry, leading on all key operating metrics for the month of June and year-to-date.

For the June quarter, we narrowed our pre-tax loss to $881 million. This was meaningfully better than initial expectations driven by demand strength. Importantly, we achieved significant financial milestones during the quarter. These include returning to profitability in the month of June with a pre-tax margin in the high single digits, despite still missing 40% of our prior revenue from June of 2019, generating $1.5 billion of free cash flow and nearly $200 million of adjusted free cash flow in the June quarter. Achieving solid profitability and generating meaningful free cash flow a little over a year from the start of the worst crisis in this industry’s history is an impressive statement about the resilience of our business and the great work of our people.

In showcasing the value of the commercial partnerships that we’ve developed leveraging the Delta brand, we have created almost $1 billion in investment value this year through our partnerships with Wheels Up and CLEAR. And I want to point out that $1 billion is against a zero cost base. I want to give a big shout out to Kenny Dichter and the Wheels Up team as their listing on the New York Stock Exchange goes live today. We’re proud to be Wheels Up exclusive commercial airline partner and largest shareholder with a stake valued at over $500 million. Also congratulations to Caryn Seidman Becker and the CLEAR team on their successful IPO. Our investment in CLEAR is worth approximately $340 million.

And finally, I want to congratulate Sir Richard Branson and our team at Virgin Galactic for making history last weekend and completing their first fully-crewed spaceflight. It was exciting to watch Richard break new barriers once again, this time commercial space travel. I take the time to mention these relationships because of the much larger ecosystem that Delta operates and attracts. And these opportunities to create value will continue to be nurtured as we extend our brand beyond traditional airline boundaries.

With June profitability in the books, we’re now in the restoration phase of recovery and focused on harnessing the power of our differentiated brand and our resilient competitive advantages to drive sustainable profitability in the second half of 2021 and enable long-term value creation. Specifically for the September quarter, we expect a mid single-digit pretax margin as demand continues to improve with the return of corporate travel and gradual reopening of international markets. We are starting to see signs of a resurgence of business in international travel both of which are supporting the next leg of the revenue recovery and we’re well positioned to take advantage of both with leading domestic corporate share and a strong global network. Around the country, more and more offices are opening and people are reconnecting to their businesses and to each other. With 72% of our employees vaccinated, we officially reopened our own offices last month in June. And as I interact with other CEOs, I am encouraged to hear about their own plans to accelerate their return to office. That sentiment is coming through loud and clear in our most recent corporate survey with almost 95% of our accounts indicating they will be returning to their offices by the end of this year. Domestic corporate volume grew from 20% base in March of this year, the March month that is, to 40% recovered in the June month and we expect it to be close to 60% recovered by September based largely on these reopenings.

I’m also encouraged by the strength that we’re seeing in international. While we know international demand recovery will be very choppy and uneven, we’re seeing strong bookings to Europe when countries open their borders. From our experience in the US, we are seeing the impact that widespread vaccinations have on reopening the economy. We know the same will be true for the rest of the world over time, but are mindful of the risks that new variants pose to the pace of recovery and our team will stay very disciplined in restoring international capacity.

As the recovery builds steam, we are making the required investments, including hiring frontline and reservations employees and investing ahead of the full recovery of the airline in places like maintenance and training. This will allow us to continue to provide industry-leading service levels and prepare the airline for success in a stronger than previously expected demand environment. These investments are key to the execution of our strategy to win, which is defined by providing best-in-class service to our customers and leveraging the brand while creating a simpler, more efficient airline. The power of our brand has come through the crisis stronger than ever and we’re seeing evidence of this across the business. The resilience of our American Express co-brand credit card program is a great testament to the increasing brand affinity that we have. Card spend on the Delta American Express portfolio in the month of June was 115% recovered to 2019 levels for the same month despite travel purchases still being off by 25% in that same period.

We are continuing to renew and simplify our fleet. And yesterday we announced that we are opportunistically adding seven Airbus 350s and 29 737-900 ERs that will enter service over the next 12 to 24 months. These are current vintage to the aircraft that we operate in our existing fleet and we’re adding these pre-owned aircraft for substantially less than the cost of new planes. These aircraft align with our fleet strategy that’s focused on simplification, scale, size and sustainability and create optionality for future growth or replacement in a capital disciplined manner. These transactions accelerate our recovery plans, which also began with the exercise of 25 Airbus 321neo options in April. The A321neos which will start to deliver in 2022 offer the lowest seat cost in our fleet and will strengthen Delta’s gauge advantage relative to our competitors. Our recent actions on fleet enhanced efficiency throughout the cost structure. Gary will talk more about this shortly and will highlight the progress that we’re making on our balance sheet and journey back to investment grade metrics.

As our recovery path becomes clear, so does our future as a carbon-neutral airline. In 2020 we committed to our airline’s carbon neutrality and we’re taking actions today that are critical to our future. This includes the reduction in emissions that we’re achieving with our fleet renewal, investments in sustainable aviation fuel together with many corporate partners and the evaluation of long-term investments in carbon reduction and removal technologies. During the quarter, we released our inaugural 2020 ESG Report, which expands on the corporate responsibility reports that we have issued in the past. You’ll be able to hear more about our ESG commitments as well, importantly, as our multi-year financial targets and vision moving forward at Delta’s Capital Markets Day, which we will be holding in person in New York on December the 16th. This event will give everyone an opportunity to hear from our management team, which over the past year, we’ve strengthened by bringing in outside perspectives and promoting our deep bench. That includes Allison Ausband who during the quarter, pleased to announce, was named our Executive Vice President and Chief Customer Experience Officer. In addition, John Laughter, who I’m also pleased we announced as our new Executive President and Chief of Operations. Allison and John are Delta veterans who bring deep experience and unmatched expertise to their roles.

In addition, our Incoming CFO, Dan Janki brings extensive business and financial skills to his role as well as a broad global perspective and operational experience that will serve us well in the recovery and beyond. Dan’s background makes him the ideal leader to advance our efforts to restore Delta to our pre-pandemic financial position. You’ll hear from him briefly before Gary delivers the financial update. With this great team of serving leaders, we’re building an airline that’s positioned to drive long-term value for all our stakeholders. Our people and customers are owners in our communities where we live, work and serve. I could not be more excited about our future.

And now I’d like to turn it over to Glen.

Glen Hauenstein — President

Thanks, Ed and good morning everyone. 16 months after the start of the pandemic, I’m encouraged by the pace of the recovery and excited about our future. Delta is well positioned with a powerful brand, strong competitive advantages and a differentiated customer experience, all of which are increasingly driving deeper customer engagement.

During the quarter we saw consumer demand for travel return at an accelerated rate as pent-up demand drove an increase for air travel. As customers return to the skies, Delta is their airline of choice given our industry-leading service that’s provided by the best employees in the industry. This resulted in a more than $2.7 billion improvement in revenue from the March quarter. Compared to 2019, revenues were 49% lower beating our initial guide on 39% less sellable capacity. Bookings in domestic and short-haul Latin leisure markets recovered to nearly 90% of 2019 levels and during the quarter we began experiencing strength in demand to select European countries as they reopened. Domestic business travel is on an improving trajectory with corporate volumes 40% recovered in the month of June, doubling from the 20% recovery rate in March. Small and medium-size enterprise volumes continued to outperform corporates by 10 points and are now 50% recovered. I’ll talk more about the encouraging trends we see in corporate in a few minutes.

From April to June passenger unit revenues improved by 25 points with both load factor and yield strengthening through the quarter. This is a great accomplishment considering that we had the middle seat block in place for the month of April, which when lifted on May 1st resulted in a 45% increase in sellable capacity with minimal incremental costs. So, kudos to the Delta team for managing through this transition period and driving these outstanding results.

I also want to congratulate our cargo team for an outstanding quarter with cargo revenues up 35% compared to the June 2019 quarter despite running a much smaller operation. We are also seeing momentum in daily bookings and net cash sales. Our average net cash came in 20% higher than forecast, doubling relative to the March quarter. Importantly, in the month of June, our average net cash sales are 70% restored to corresponding 2019 levels that’s running about 10 points ahead of revenue recovery as customers are making travel plans out into the future.

As Ed mentioned, we’re exiting June with a demand environment that’s much stronger than just three months ago. Since the start of the year, we’ve seen a sequential revenue improvement from 35% recovery versus 2019 in first quarter to 51% in the second quarter. That trajectory is continuing and we expect our September quarter total revenue to be 65% to 70% recovered on capacity. That’s 70% to 72% recovered when compared to the same quarter in 2019. This positions us for another significant sequential improvement in unit revenues. At the midpoint of our guidance, this represents another $2 billion sequential increase in revenue on approximately 10% higher capacity.

We expect strong leisure demand to continue through the fall and winter and we’re starting to see the next leg of the recovery take hold with improving trends in business and international travel. Delta is well positioned to take advantage of both with leading domestic corporate share and a strong global network. Corporate travel volumes accelerated in May and June with almost 95% of our accounts booking travel in the month of June. We’re also beginning to see return of consulting and sales related travel and higher volumes in traditionally business-heavy markets like New York City and Boston. Our recent corporate survey results show that over 90% of our corporate accounts anticipate travel volumes to increase in the September quarter, up from just 33% in the March quarter. In addition to these survey results, our close engagement with customers give us increased confidence of the acceleration of business travel, especially as we move towards the post Labor Day period, as schools and offices continue to reopen.

We expect domestic corporate volumes will recover between 55% and 60% of 2019 levels by the end of the September quarter, up from 40% at the end of the June quarter. Despite volatility in global COVID recovery trends, international travel is accelerating with capacity and load factors increasing as we head into the fall. When we spoke last quarter, only two European countries had reopened for US citizens. Today more than 15 European countries are open and we’re seeing strong bookings follow as border closings lift. We are also hopeful that 212(f) restrictions prohibiting inbound travel to the US will be significantly reduced in the September quarter. The recovery in short-haul Latin exceeded 2019 levels but in long-haul Latin demand remains muted as many countries are still closed. Pacific demand remains low and will likely be the last region to recover.

Delta has a strong platform internationally due to the structural changes in the landscape, but more importantly because of elements unique to Delta. First, we will have the number one joint ventures in each entity and our international partners will emerge from their restructuring efforts more competitive than before. We look forward to continuing our valuable strategic relationships with all of our global partners as they navigate through the COVID-19 crisis and as they position themselves to emerge from their restructuring processes. We are confident these strategic relationships will accelerate our international recovery in the years to come.

Second, our hubs are powerful offering extensive and efficient global coverage. The strengths of our global hubs resemble those of our core domestic hubs, namely strong presence and local share and the ability to connect traffic efficiently.

Third, our wide-body fleet renewal will be instrumental in our recovery and path to higher margins. Adding the seven A350s announced yesterday builds on our long-term fleet plan efforts. Our wide-body fleet renewal program improves our product offering, enhances our cargo capability, reduces our unit costs and is more efficient — fuel efficient contributing to a more sustainable future.

As we rebuild the airline, we’re optimizing the network for the return of business and international travel and are building on the strengths of our core and coastal hubs where we’ve been able to improve our local share by 3 points from pre-pandemic levels. We also continue to put the customer at the center of everything we do, creating an enhanced premium experience. This is successfully de-commoditizing air travel on Delta, providing customers with the products and flexibility that they value most. Premium products are demonstrating resilience where demand is strongest with domestic and short-haul Latin premium revenues outpacing main cabin by 5 to 10 points. We believe this will be reflected at the system level as premium revenue in other entities improves with the return of business and international travel at scale. We’re also seeing increases in customer engagement and brand momentum. This is evident in SkyMiles acquisitions which set an all-time record in the month of June, outpacing the prior record achieved in July of 2019. These acquisitions allow us to bring new customers into the Delta ecosystem. Engagement is also coming through the performance of our co-brand credit card program as customers are increasingly seeing the value proposition and continue to aspire for travel, status and premium experience.

For the quarter co-brand spend was 110% recovered to 2019 levels driven by improving T&E spend indicating customers’ desire to explore the world and reconnect with friends and family. We exited the quarter with co-brand spend around 115% recovered for the month of June. New co-brand account acquisitions improved more than 75% sequentially and were around 90% recovered to 2019 levels for the quarter. In addition, we are seeing more customers moving into premium co-branded cards, given the value proposition for those products. The improving trajectory resulted in cash remuneration from American Express in the month of June exceeding 2019 levels. We expect remuneration will continue to remain at or above 2019 levels into the second half with significant growth opportunities in the years ahead.

In closing, the foundational building blocks for our long-term success are in place. With the industry’s best domestic and global network, renewed and efficient fleet, a decommoditized product and a highly-valued brand and the industry’s best employees, we continue to extend our commercial and financial lead. Combining that with our efficient cost structure, puts us on a path to improve on our pre-pandemic margins and generate sustainable free cash flows, allowing us to reinvest in the business and restore our balance sheet strength. Delta’s future is incredibly bright.

And with that, I’d like to take this opportunity to welcome our Incoming CFO to Delta. Dan, I’m looking forward to working with you and now I’ll turn the call over to you for a few minutes.

Dan Janki — Incoming Chief Financial Officer

Thank you, Ed and Glen for the warm welcome. Certainly pleased to be here and begin working closely with Ed, Glen and the entire executive leadership team to ensure that we continue to establish clear priorities, deliver on our commitment and build a more resilient, valuable Delta. There is no doubt it is an interesting time to join. But what really drew me to this opportunity at Delta is the unique culture, industry leadership and growing brand strength with the customers. It’s a combination like no other in the industry.

It’s really clear that there is a great deal of talent in the finance organization. I’m humbled and honored to lead this organization forward through this pivotal time. A key guiding principle for me will be open and transparent communication with the financial community. I look forward to speaking to all of you and getting to know the key stakeholders in the coming weeks and months, including many of you on the call.

Now I will turn it over to Gary for the financial update.

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

Thank you, Dan, and on behalf of the entire finance team, welcome to Delta. Good morning to everyone on the call and thanks for joining us. Delta people shined and carried our brand to new heights during the crisis. Those efforts, combined with the strong demand recovery Glen described and the benefits of operating a simpler, more efficient fleet are enabling us to cross a number of key milestones on our journey to return to and exceed 2019 performance. Let me quickly review the second quarter then provide color on our second half cost outlook. I’ll wrap with a discussion of our capital outlook and balance sheet.

Starting with highlights from the quarter, we reported an adjusted pretax loss of $881 million, a more than $2 billion sequential improvement and generated a solid June month profit despite revenues for the month of June still 40% below 2019. Nonfuel costs rose 6% sequentially on 21% higher capacity as the teams continued to rebuild our network efficiently. Nonfuel CASM was 9% higher than 2019. We realize savings from tax credits and third-party rate reductions that were offset by rebuild expenses and maintenance and pilot training and a non-cash expense for employee flight passes awarded to our employees in recognition of winning the J.D. Power Award.

Adjusted fuel price per gallon of $2.12 was 11% higher than the first quarter, including a $0.23 per gallon impact from refinery losses. We realized the 7.1% fuel efficiency gain versus the June quarter of ’19 with the majority driven by fleet renewal. Demand momentum fueled cash sales across the booking curve, driving $1.5 billion of growth in our air traffic liability to nearly $7 billion, now $300 million higher than the same period in 2019. With the strength we see in the demand environment, we expect our air traffic liability to remain above 2019 levels into next year.

Daily cash generation was substantially positive for the full quarter. More importantly, we generated nearly $200 million of free cash flow, excluding our $1.5 billion pension contribution and $2.5 billion in PSP grant proceeds. We are transitioning now away from daily metrics to focus on regular free cash flow, the best measure of value creation as we turn the corner on profitability and look to restore our financial strength.

As we head into the second half, we’re excited to shift our focus to returning to profitability, generating cash and restoring and exceeding our pre-COVID results and financial position. With continued recovery and limited cost growth, we expect to be profitable in both the September and December quarters at current fuel prices.

Regarding the cost outlook, I’m very happy with the team’s performance in the first half as we continue to rebuild the network efficiently. We remain on a path to achieve nonfuel CASM below 2019 levels by the fourth quarter though the strength of demand recovery is creating some welcome cost pressure in the form of higher rebuild and selling related expense. We have also experienced inflationary pressure from vendors and our operating teams have accelerated hiring of frontline employees to ensure we maintain excellence in operations and service levels as we rescale. Despite these pressures, we will see continued leverage in key areas. For example, we expect an approximate 8% headcount growth through the end of the year on a nearly 15% increase in ASM production. We’ll see our fleet utilization rise from 2Q levels approximately 15% below 2019 to approximately 5% in the fourth quarter. Our airports will also see better utilization, particularly our coastal hubs as they move from 70% to more than 90% restored.

As we accelerate maintenance and training to meet higher potential capacity in ’22, rebuild expenses are stepping up in both the third and fourth quarters to a 5 to 6 point cost headwind versus 3 to 4 points in the first half. September quarter will see nonfuel costs grow sequentially at roughly the same rate as capacity due to the higher rebuild and revenue related expenses I mentioned. With these factors, September quarter nonfuel CASM is expected to be 11% to 14% higher than 2019. We expect to close the gap to 2019 nonfuel CASM in the fourth quarter through continued volume leverage as capacity remains essentially flat from the third and fourth quarters instead of the more normal seasonal decline of approximately 15%. Adjusted fuel price per gallon for the third quarter is expected at $2.05 to $2.15 and fuel efficiency for the quarter is expected to remain better than the September quarter ’19 period by approximately 5%.

On the capital outlook, we now expect gross capex of approximately $3.2 billion in ’21, up from our original guidance of $2.5 billion, driven by our aircraft announcements. Hats off to our fleet and technical supply chain teams for landing these compelling opportunities that meet three key criteria. These transactions are opportunistic and take advantage of attractive economics in the used market. These aircraft types are currently active in our fleet and entirely consistent with our fleet simplification strategy. In addition, these aircraft along with the 321neo options we exercised in April will support the potential for up to 7 points of additional capacity restoration at compelling marginal economics by 2023.

We have a lot of additional optionality in our fleet plan to flex capacity up or down at low cost, depending on the shape of the recovery. Our 717 and 767 fleets are our largest levers. We’re still flying these fleets at scale today and could retire additional units or reactivate parked aircraft to meet higher demand scenarios.

Let me now move to the balance sheet. With improving financial performance and a strong liquidity position, we’re using cash to reduce leverage and non-operating expense while rebuilding unencumbered assets and managing our debt maturity profile. During the quarter we prepaid $450 million in aircraft related debt in addition to normal amortization of $875 million and contributed $1.5 billion to the pension plans. Additionally, we paid cash for all but three aircraft deliveries. Since October, our debt reduction initiatives have totaled $11 billion and freed up $6 billion in collateral. With the additional funding this quarter, we do not foresee the need to make any material pension contributions in the future. By year-end, we expect the plans to be fully funded on a Pension Protection Act basis and 90% funded on a GAAP basis. With this level of funding and the plans frozen to new participants, we are now reducing the investment risk of the portfolio to protect our funded status. The great work of our pension and treasury teams over the last decade and funding this obligation frees up roughly $1 billion in annual free cash flow that can be used in the future to further delever or otherwise create value. Adjusted net debt is expected to be approximately $19 billion at the end of the September quarter, modestly increasing from where we ended June as we paid cash for aircraft deliveries.

As we turn the corner on profitability and look to the future, we’re excited to shift our focus to restoring our business and delivering long-term value for our owners. Restoring our financial foundation remains the top priority as we position for the future and we look forward to sharing more of our long-term vision with you in December. Let me conclude by congratulating the 75,000 people who make the Delta difference a reality every day. These excellent results are your scorecard and a reflection of all you do to delight our customers.

With that I’ll turn the call back over to Julie to begin the Q&A.

Julie Stewart — Vice President of Investor Relations

Katie, can you please remind the analysts how to queue up for questions?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from Helane Becker with Cowen.

Helane Becker — Cowen Securities — Analyst

Thanks very much, operator. Hi, everybody. And thanks for your time. Welcome, Dan. So here is my questions. My first question is, I was wondering if you could talk about, maybe Glen this is for you, how you expect the non-US recovery to look by the different regions over the next, say six to 12 months, if you can. And then my other question is, I think Glen you might have talked a little bit about this in the ATL line, are you seeing that people are booking further out? And I don’t know if you can talk to like after Labor Day bookings or even holiday bookings how they’re comping to previous levels. Thank you.

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

So, Helane, first about the entities a little bit. We’re seeing a US-based demand recovery to the open countries in the transatlantic and we expect our loads to move to be close to historical levels, running probably in the low to mid 80%s by the August, September, October period. Again you know that 212(f) restricts Europeans from coming to this country. So I think we focused on those countries that generally have high US outbound demand. And as we move forward, we will be adding a little bit of capacity, but essentially keeping our levels flat where we would normally pull down in the September-October time frame and focusing on our European hubs and distributing traffic through them. So I’m pretty optimistic about how the results could play out in the transatlantic. And that’s really, we have 35% to 40% of our travel still missing with the European origin piece not open for sale and with business really not recovering at the same level as leisure. So pretty optimistic about where we can get to on this leg, but there is a lot more to come in the transatlantic.

In Latin, it’s really the tale of two markets. One is the closing US point of origin leisure market as well as Mexico business. Both of these are actually exceeding 2019 levels. So short-haul Latin is doing quite well and we continue to expect that to be very, very strong as we move into the more traditional leisure season in the late fall. And then the Pacific, which I think Ed has talked in the past, we expect this to be the laggard due to low vaccination rates and continuing outbreaks over — and restrictions in the Pacific and we really don’t see any impetus for that to be lifted. Now, I think we’re looking at 2022 at the earliest probably where a significant recovery in the Pacific. So Atlantic, clearly the furthest along. That’s great for us because 65% of our international revenues are in the transatlantic. So we’re excited about what we see in terms of US demand there.

Domestically, post Labor Day, this is — every month that we look from August to September and October, clearly as you move out you have fewer and fewer bookings. But we have about a third of our September bookings on the books now and we have, as it sits today and we expect to get some of this back, but we have positive yield in every one of the entities. We have sequential improvements in RASM. So I think we’re seeing very strong indications of demand through the post Labor Day period. Of course those are initial indications. We have a long way to go as we move closer and closer to those departure dates.

Helane Becker — Cowen Securities — Analyst

Gotcha. That’s very helpful. Thank you.

Operator

Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu — Jefferies — Analyst

Good morning everyone and thank you for the time. Maybe just on cost related questions, on CASMs, they are expected to remain fairly elevated in Q3. How do you think about the Delta in driving CASMs from up 11% to 14% in Q3 versus 2019 levels to flat in Q4? I get about half of that is rebuild costs, but maybe what’s the bridge and the moving pieces and more broadly, how do you think about cost headwinds and inflationary pressures?

Glen Hauenstein — President

Well, Sheila, we talked about the major drivers. The key is really leveraging the continued build of the network. And as I was describing in prepared remarks, generally when we move from the third into the fourth quarter, we have a pretty big reduction in our activity levels. This year we expect that to be relatively flat. That gives us the opportunity to leverage the things that I was describing to get some good incremental leverage on our people, some good incremental leverage on our asset utilization and it’s just a natural outcome of the way the capacity progression is moving.

In terms of how we see the bigger pieces, they don’t change that much between the third and the fourth quarter. We expect that rebuild expenses will still be at elevated levels in that 5 to 6-point range in both quarters. And one of the things I mentioned on the last call, from a mix point of view, both the second and third quarters, we’ve got about a 5-point drag from not having anywhere near as much of our long-haul international flying, which is just structurally very low CASM, long stage length flying.

As we move into the fourth quarter, it’s still a headwind. It’s not quite as much. It’s about 3 points. So that’s the color that I would add.

Operator

Thank you. Our next question comes from Conor Cunningham with MKM Partners.

Conor Cunningham — MKM Partners — Analyst

Hey, everyone. Thank you. It’s great to hear that corporate continues to improve as people return to the office. I will — I do have to ask like your competitors are now pushing to replicate some of your success that you’ve had with large corporates. So, I was curious if you could talk to the moats that you’ve built around that franchise and how you anticipate strengthening that segment in the face of potential competition.

Ed Bastian — Chief Executive Officer

Well, thanks Conor. It’s a very important segment for us and we have won, as I think you know, Business Travel News Airline of the Year for 10 straight years and we expect to hopefully win it again this fall as well. Our team does a magnificent job of servicing the accounts, providing the technology, the access, the insights to make their job and travel on Delta as easy as possibly and that’s supplemented by the great product and service that our people put forward every single day. We’re the leading operational airline in the industry. So when you marry up the investments we’ve been making, particularly in the premium product sector, which our corporates are a main consumer of, with the great service our sales and commercial team provide and the product and operational integrity of the business, it’s a very, very strong moat.

We have gained share over the pandemic, a meaningful amount of share that we have gained and the one thing that we have seen is when customers come to Delta, they don’t leave, and so we’re going to continue to expand upon that.

Conor Cunningham — MKM Partners — Analyst

Great to hear. Thank you.

Operator

Thank you. Our next question comes from Hunter Keay with Wolfe Research.

Hunter Keay — Wolfe Research — Analyst

Hey. Thanks. Good morning. I’ve got two questions for you. The first one is for you, Ed. How do you feel about deleveraging the balance sheet if it hurts your ability to maintain market share?

Ed Bastian — Chief Executive Officer

Good morning, Hunter. I have to ask you first, so you’re sitting on a rocking chair asking that or no.

Hunter Keay — Wolfe Research — Analyst

Actually, I am.

Ed Bastian — Chief Executive Officer

I will rock back in my chair as I answer to you.

Hunter Keay — Wolfe Research — Analyst

I really am.

Ed Bastian — Chief Executive Officer

That’s good, that’s good. Deleveraging is important to us. It’s something that — first of all, we’re the same team that’s been here for over the last 15 years. We believe in derisking our balance sheet and then paying down debt and we also know that we can do that while also driving a premium product and service offering in the markets that we see as being critical to Delta. We were able to do the both — do both of those things over the last decade and we’ll continue to do that.

The level of debt that we took on over the pandemic, candidly it’s a meaningful amount, but it’s not an overwhelming amount. It was about $8 billion of net debt that we took on during the pandemic. And when you think about, as Gary mentioned, we’re basically done funding our pension plan with no more pension contributions required. As I think you also know that we’ve been averaging over the last several years close to $3 billion — $2 billion to $3 billion a year in stock repurchases, which clearly we won’t be doing in the next — sort of in the next two to three years until we get our investment grade metrics back and another $1 billion on top of that of dividend distributions that we’ve been making. There is a substantial amount of free cash that is available to us as we reclaim investment grade for Delta. And we’ll be sharing our longer-term metrics at the Investor Day in December and showing you the path forward. But we can do all this and have plenty of headroom to compete hard and effectively in the marketplace.

Hunter Keay — Wolfe Research — Analyst

Okay. That’s super helpful. Thank you. And then, Gary, if you would just clarify, I think you said something about 7% capacity. Are you saying that the current plan for ’23 system capacity is to be 7% above 2019, but you can take that higher or lower if you need to? Am I interpreting that correctly?

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

No, Hunter. That’s not what I was saying.

Hunter Keay — Wolfe Research — Analyst

Okay.

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

What I was saying is that the fleet actions we’ve taken give us the potential to add 7 points to our capacity profile by ’23. But I was also noting the flexibility that we continue to have with some of the flex fleets to go up or down. And I think the teams have positioned us really well to react to what comes at us in terms of the demand environment.

Hunter Keay — Wolfe Research — Analyst

I see. Okay. Thank you, Gary. Thank you, Ed.

Operator

Thank you. Our next question comes from Jamie Baker with JP Morgan.

Jamie Baker — JP Morgan Chase — Analyst

Hey. Good morning everybody and just apologies off the bat that my colleague Mark isn’t joining us. But he is on one of your aircraft on a JP Morgan sponsored business trip. So I guess we’re all better off.

Glen, is there a way to tell what portion of summer domestic revenue is driven by reallocated international demand? For example, could you look at SkyMiles behavior this summer, identify what portion of those travelers would have historically been in Europe or Asia instead?

Glen Hauenstein — President

Yeah, I think domestically we see a redistribution towards domestic from long-haul international. That’s a natural occurrence. I think people are ready to get out. The exact quantification, I think, would be difficult. But we do see that if those leisure destinations are open there is significant demand for that and that includes the transatlantic where it is open. And if you think about running load factors in the mid to high 80%s in the shoulder season as we head to the end of the summer here, just on US origin travel there is increased strong demand trends that we’re seeing. And so if it is open people want to get there.

Jamie Baker — JP Morgan Chase — Analyst

Yeah, definitely. Thank you. And, Gary, just to follow up on the ATL, and I haven’t been historically obsessed about the air traffic liability until we all sort of had to, ordinarily the second to third quarter sequential decline for Delta would be somewhere around, I don’t know, $750 million, $800 million. If we continue to get international reopening, particularly for inbound US, could we model for something closer to a flat outcome next quarter, so staying in the $6.5 billion range or that sort of thing, or would that just be too ambitious? I know you said it would be above last year’s levels, but that still leaves a lot of room.

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

Yeah, Jamie, obviously, there’s still a lot of uncertainty around that. Our thinking right now and that’s embedded in how we’re thinking about net debt is for a slight decline in that. But we don’t expect that you’re going to see the normal seasonal pattern as we move through the remainder of this year for all the reasons you just highlighted.

Jamie Baker — JP Morgan Chase — Analyst

Okay, perfect. Thank you everybody. Appreciate it.

Ed Bastian — Chief Executive Officer

Thanks, Jamie.

Operator

Thank you. Our next question comes from Stephen Trent with Citi.

Stephen Trent — Citi Research — Analyst

Hello everybody and thanks very much for taking my question. Just a quick one from me. When we think about in certain pockets in the United States that we are seeing some difficulty with new variants and low vaccination rates, do you see any scenario in which Delta could trim capacity to some of these regions or reinstate on some routes blocking of middle seats?

Ed Bastian — Chief Executive Officer

Good morning, Steve. I don’t. As we’ve been monitoring our bookings and clearly we’re mindful of the risks around COVID and the new variants and the continued information that the CDC provides us with, we have not seen any reduction or drop in demand looking out over the next 60 to 90 days, which is about as far as our crystal ball can go right now. We know our customers are largely vaccinated. Our people are largely vaccinated. We have over 72% of Delta people are vaccinated and the vaccines work and they are giving people the ability to get back to their lives. So no we do not anticipate any changes at this time.

Stephen Trent — Citi Research — Analyst

Okay. Appreciate that, Ed. And thank you and looking forward to seeing you guys on December 15, I believe you said, and thanks again.

Ed Bastian — Chief Executive Officer

December 16th, 16.

Stephen Trent — Citi Research — Analyst

Yeah, 16. Excuse me. Thank you.

Glen Hauenstein — President

You can fly down and see us on 15 too if you want.

Operator

Thank you. Our next question comes from Myles Walton with UBS.

Myles Walton — UBS — Analyst

Thanks. Good morning. Ed, I think at the beginning you mentioned commercial partnerships and creating $1 billion of value from Wheels Up and CLEAR from a zero cost base. I’m curious of your view on the [Indecipherable] market given the news by American as well as United on that front and the way that fits in in your portfolio of investments and operations over the medium term.

Ed Bastian — Chief Executive Officer

Thanks, Myles. As you can appreciate, every one of the proposed manufacturers has been after Delta. We’ve heard from many of them. We’re studying this space and we will continue to get smart in this space. I think it’s at a very, very early stage right now and I think a lot of the plans that we’ve seen are a bit premature, candidly. But it’s not anything that we are unaware of and I guarantee every one of those manufacturers would love to have Delta colors on their plane. So hard to predict timing. But we’re in the marketplace having lots of conversations.

Myles Walton — UBS — Analyst

Okay. And then maybe, Gary, just a clarification. The CASM-Ex questions, just looking in absolute dollars, it looks like sequentially 3Q you’re looking for the same unit cost ex and fourth quarter the same. And the improvement was really just about comps in 2019. Is that right?

And then for 2022, how much of these rebuilding costs go away and we get the tailwind of those 6 points? Thanks.

Ed Bastian — Chief Executive Officer

I’m not sure I would characterize it exactly that way, but it is about having more scale relative to 2019. So sequentially, I think that what you outlined is roughly accurate and that is what we expect. As we go into ’22, your question was about the sustainability of the rebuild?

Myles Walton — UBS — Analyst

Yeah, what goes away from what you’re doing.

Ed Bastian — Chief Executive Officer

Yeah, we definitely expect those to moderate. A lot of that is going to depend candidly on how the demand environment develops. What I would say is what we’ve articulated is driving to levels below ’19. We’re not excluding rebuild expenses. This year they happen to be particularly high. As we get into ’22, we expect those to be more normal and it’s part of the thought process on what we’ve got to accomplish.

Glen Hauenstein — President

Myles, if I could speak to that for a second. We at Delta — our number one task is to safely get our business to back up with the service levels that our customers deserve and expect at Delta. And given the huge surge in demand that we’ve seen over the last 90 days, the entire industry is challenged with that. That’s not a unique Delta position and we’re going to do everything we can to get ahead of it. And that includes staffing levels, providing whatever support we need to to the service providers and service contractors, training, maintenance because we realize that this is about protecting our brand and our long-term customer base rather than trying to manage cost for an individual quarter. We will hit the cost targets that we mentioned to you. One of the things that we learned a lot about Delta over the pandemic is our ability to manage down labor cost is really unique in this industry and we have a whole lot more — many more tools and flexibility, I think, than we ever really appreciated. And so we shouldn’t think about labor, which is the biggest part of — a big part of the rebuild cost as a fixed cost so it’s not going to stay. So the productivity, the efficiency, the ability to work closely with our people, we’ll be in really good shape on the cost run next year and well protected our customers’ experience at the same time and the revenue base, which is the most important.

Myles Walton — UBS — Analyst

Thanks.

Operator

Thank you. Our next question comes from Savi Syth with Raymond James.

Savanthi Syth — Raymond James — Analyst

Hey. Good morning. Competing on product is kind of good for the consumer in the industry. But one of your competitors plans to grow like first half next year — like growing seats by about 10% a year through 2026. And just kind of curious if that level of growth is something we’ll see at Delta because it’s part of some kind of a structural trend or if that has any implications to Delta’s premium kind of revenue leadership or how Delta is set up to kind of compete against that?

Glen Hauenstein — President

Well, I’d first like to say we’re proud that we started the de commoditization process many, many years back and we’re well along. And I think we’re objectively maybe the furthest along in terms of exploiting that opportunity. There is probably more space out there for other carriers given the appetite we’ve seen for these products that have been sustained through the pandemic. So I’m not going to articulate on anybody else’s plan. But we think that there is continued growth in our fleet evolution as we continue to upgauge the airline over the next several years. Our percentage of seats that are in the premium cabins continues to increase. And we think given the fact that we are still in the early stages of being able to distribute those products and services to all of our customers through all of our channels that there is plenty of opportunity for us to continue to grow that space in the next years — next several years.

Savanthi Syth — Raymond James — Analyst

That makes sense. Thanks, Glen. And maybe a quick follow-up for you Glen as well. Just — appreciate the color on the domestic corporate demand recovery. I know that’s around volumes. Is that RPK? And curious what that looks in terms of revenue. I’m guessing volumes have to recover first and then revenue comes back, but I was just wondering if it’s similar or if there is a disconnect there.

Glen Hauenstein — President

Yeah. Those are passengers and yields on domestic leisure are up, yields on domestic corporate are down. But we see trajectory in domestic corporate and we expect that, as you say, to continue as we move forward.

Savanthi Syth — Raymond James — Analyst

Makes sense. Thank you.

Operator

Thank you. Our next question comes from Mike Linenberg with Deutsche Bank.

Mike Linenberg — Deutsche Bank — Analyst

Yeah. Hey. Good morning. I guess two projection related questions for Glen on Amex over the last year you sort of had backpedaled on when you would get to the $7 billion of contribution, obviously, because of the pandemic. The fact that, I guess, the month of June or the June quarter we were 110% and 115% in the month of June. Glen, can you update us? Are we now not on just track, but maybe at a pace that we’ll get to that Amex bogey prior than the previous forecast?

Glen Hauenstein — President

Yeah, well, I think that’s something you’ll have to come to our December Investor Day to see. I don’t think we’re ready to disclose the exact date yet, but it suffices to say that we are feeling much better about making up some ground that we lost during the pandemic today than we sat six or nine months ago.

Mike Linenberg — Deutsche Bank — Analyst

Okay.

Ed Bastian — Chief Executive Officer

Yeah. I would — Mike, this is Ed. If I chime in, I would say that we are thrilled with the relationship with American Express. Our team, their team — I was with Steve Squeri last Friday and I think we have the best-performing card in their entire portfolio. Delta — even though we are the highest value that we create, I think we’re also the best performing on top of that in terms of growth. So it’s really been a great, great relationship and that’s still without a lot of travel spend that’s missing, international and business, yet from the card. So we’re excited.

Mike Linenberg — Deutsche Bank — Analyst

Great. And then just sort of a second projection question, Glen. I mean to watch you go from 20% of corporate volumes to 40% and 60% and yet even recently, I think, we had a survey from US Travel and even the GBTA talking about US corporate travel getting back to, I don’t know, 70%, 85% by 2024. It just feels very conservative. I mean, it seems like we’re running well ahead of that. Is that the case or is there just something different telltale where you guys are outpacing the industry?

Ed Bastian — Chief Executive Officer

Mike, this is Ed. Let me chime in on that one too, because I’ve got the numbers right here in front of me. We’ve done our own survey talking to our clients, the biggest companies in the world. I know a very large number of them and I couldn’t make heads or tails out of what the GBTA was speaking to either.

Let me give you the most recent survey, and this is as of last week, updated. 36% of our big corporates expect they’re going to return fully to pre-COVID levels no later than next year, 2022, 36%. Another 21% says fully back no later than 2023. Interestingly, only 5% of our big corporates say that never return to pre-COVID levels, 5%. That had been 8% in previous surveys, it’s now down to 5%, while 38% indicate it’s still unclear as to what their levels. Not that they’re not getting back, it’s just the level of flying and the timing is still somewhat uncertain, which is understandable.

So if you take the 2022, 2023 that’s 57% no later than ’23 and you assume say 75% of those unknowns of 43% that gets you actually to 90% back over the course of the next couple of years. And frankly, I think it’s going to be even better than that. So this is one of the things that as [Phonetic] we have seen there is enormous pent-up energy and demand for travel.

Also in that survey 93% of our customers said they’re going to increase travel in Q3 over Q2 and many of those by meaningful amounts. So I think the surge is coming. And just as we’ve seen it on the consumer side, we’re getting ready for it on the business side. And once you open businesses, offices and you get international markets opened, I think it’s going to be — it’s really — it’s going to be a very good run over the next 12 to 24 months.

Mike Linenberg — Deutsche Bank — Analyst

Great. Great insight, gentlemen. Thank you.

Operator

Thank you. Our next question comes from Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth — Evercore Partners — Analyst

Hey. Thanks. Good morning. Ed, you have a good Board in my opinion, lots of experience driving real value in consumer industries, maybe arguably easier consumer industries. Can you give us some insight into debate at the Board level regarding balance sheet improvement as a priority right here now versus investment? Are there differing opinions on investment rate versus balance sheet improvement? And I guess longer term is investing half of your operating cash flow, how we should be thinking about 2022 and beyond or have we kind of moved away from that?

Ed Bastian — Chief Executive Officer

Well thanks, Duane. We do have a great Board. I agree with that and there is a lot of good insight that we garner from that Board. This is largely the same Board that’s been with us over the last decade. It was the Board that was involved in how we delevered coming out of the financial crisis in 2009, how we’ve managed to lead the industry in getting back to investment grade metrics over five years ago while delivering a premium product and service level and expanding internationally at a rate probably faster than anyone, particularly with the investments that we’ve made. So the Board knows the strategy that we’re on. We’ve talked a lot at the Board level about needing to get our debt down of the balance sheet to get those investment grade metrics back. We’ll give you some very specific guideposts on that when we have our Capital Markets Day in December so you know what to expect from us. And at the same time, we’re also investing meaningfully into the business with the opportunistic purchase of Airbus 350s and 737-900s that are current vintage, they’ll [Phonetic] plug and play and we will continue to be able to grow the business accordingly. So the strategy actually is not that different from where we’ve been and I think it’s going to — we’re going to stay very focused to getting the investment grade back and growing the business at the same time.

Duane Pfennigwerth — Evercore Partners — Analyst

Okay. Appreciate the thoughts.

Operator

Thank you. Our next question comes from Joseph DeNardi with Stifel.

Joseph DeNardi — Stifel, Nicolaus & Co. — Analyst

Thanks, Ed. Good morning. Ed, in response to Mike’s question you said, I think based on your time with Steve, that the Delta card with Amex’s highest value. Like what do you mean by that? Are you trying to say that it’s a very profitable card for Amex as well or their most profitable card?

Ed Bastian — Chief Executive Officer

No, I don’t know if it’s the most profitable. I hope we are. You’d have to ask Steve that. But what I can tell you is, it creates the highest overall level of spend and growth in the portfolio and it’s been that way for some time and it continues and we both continue to invest to keep it that way.

Joseph DeNardi — Stifel, Nicolaus & Co. — Analyst

Okay. Okay. And then, Gary, you said the fleet actions would allow you to add 7 points to ASMs by 2023. So what level of ASM production are you on track to kind of achieve in ’23? I know there’s a lot of flexibility, but does the current fleet support 100% of 2019 capacity in ’23, 105%, like where are you now with that? Thank you.

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

Yeah. Joe, we will talk more about that and what our long-term capital needs will be in December with you. What I was pointing out was the portfolio decisions that we’ve made gives us 7 points of additional capacity that we can bring in in that time frame and just continue to point out that the team has positioned us with a tremendous amount of flexibility to go either up or down depending on how we see the demand environment. But we’ll have more color on that with a bigger picture about how some of the other components play into it as well.

Joseph DeNardi — Stifel, Nicolaus & Co. — Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Chris Stathoulopoulos with Susquehanna International.

Chris Stathoulopoulos — Susquehanna — Analyst

Good morning. Thanks for taking my question. So your marginal cost per mile in 3Q was just under $0.04 and it’s ticking up sequentially significantly. And I realize that as you said you’re spooling up capacity here, but I was wondering at what point, whether it’s in ASMs or revenue, where the — where we could expect to see this operating leverage for the costs that you’ve taken out over the last year or so more clearly show up in results? Meaning normalizing for the change in your marginal cost per mile from the second to the third quarter as you spool up here, what kind of a more accurate run rate looks like and that would also assuming corporate does return as you expect by the end of the year.

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

Well, Chris, on an underlying basis we still have and are experiencing a lot of leverage, even as we move into the third quarter. That will be the case for a good bid here, the guidance we have in the third quarter. We’re still operating 28% to 30% below where we were in 2019. So there are parts of the system where we were under pressure as Ed described and we’re absolutely meeting the needs there. But there are also lots of opportunities for us to drive that leverage.

Some of what you’re seeing in terms of the moving pieces are, at least I think, unrelated to that a big cost pressure as we’ve moved from the second to the third quarter, at least a couple of points which is selling related expense we’re obviously thrilled to be seen. And it’s just a function of the demand recovery that we’re experiencing. Normally when we’re in a typical year we work very hard to not be maintaining aircraft during the peak summer months for obvious reasons. We want them flying and generating contributions. This year we’ve got a maintenance step-up as we move from the second to the third quarter. In fact, I think when you look at third quarter maintenance it will be comparable to, if not even slightly ahead of where we were in 2019 instead of the down 30%-ish that you’ve been seeing over the last few quarters. So it’s a year with a lot of unique features in terms of how they play out on the cost side, but the fundamental leverage that we’ve been describing is there.

Julie Stewart — Vice President of Investor Relations

And now we’ll go to our final analyst question.

Operator

Thank you. Our next question comes from Andrew Didora with Bank of America.

Andrew G. Didora — Bank of America / Merrill Lynch — Analyst

Great. Good morning, everyone. Just kind of wanted to go back to costs. Obviously the labor market is very tight right now. And I think your last base pay increase was in October of 2019. So, Gary, is there anything in your 3Q or 4Q CASM expectations for a wage increase? And I guess, Ed, how are you thinking about the need for one right now?

Gary Chase — Co-Chief Financial Officer, Senior Vice President – Business Development and Financial Planning

Thanks, Andrew. We don’t pre-announce what we’re doing on our labor strategy and cost. Obviously, our people are working really hard and delivering great value. We’re still losing money. We need to get the Company stabilize first before we start talking about wage increases.

Andrew G. Didora — Bank of America / Merrill Lynch — Analyst

Okay. And then last one for Ed. Not sure if you’re going to have any comment on this, but the last — end of last week the President issued an executive order and he just called out slot administration as one of the objectives. What do you think this means just given your position in a pretty stock constrained market here in New York? Just love to hear if you have any comments on that. Thanks.

Ed Bastian — Chief Executive Officer

I really don’t. We’ll study. We’ll talk to the administration and Department of Transportation and Secretary Buttigieg and many individuals about it. We have a long history of driving great value for customers. It’s expensive to drive great value and we’re making the investments to drive great value. There is no question when you think about the level of service, the quality of service, the reliability, the affordability. Everything is moving in the right direction. So we’re thrilled to be able to show them the actual results of what we’re doing.

Andrew G. Didora — Bank of America / Merrill Lynch — Analyst

Thank you.

Julie Stewart — Vice President of Investor Relations

That will wrap up the analyst — that will wrap up the analyst portion of our call. I’ll now turn it over to Tim Mapes, our Chief Marketing and Communications Officer to start the media questions.

Tim Mapes — Senior Vice President and Chief Marketing and Communications Officer

Well, good morning to all the members of the media. Thank you for your time this morning. We’re grateful for that. And, Katie, if you wouldn’t mind reiterating for the members of the media the rules of asking a question with one follow-up, please.

Operator

Thank you. [Operator Instructions] Our first question will come from Mary Schlangenstein with Bloomberg News.

Mary Schlangenstein — Bloomberg News — Analyst

[Technical Issues] you’re planning for the rest of the year, if you can talk about the numbers versus the percentage increase that that will be. And then also if you’ll comment on whether you’re having any trouble finding enough people to hire.

Ed Bastian — Chief Executive Officer

Mary, this is Ed. We missed the first part of your question. Could you repeat that?

Mary Schlangenstein — Bloomberg News — Analyst

Yes. I wondered if you could say how many employees you are going to add, the number versus the percentage increase.

Ed Bastian — Chief Executive Officer

Over the course of this year we’re in the process of hiring between 4,000 and 5,000.

Mary Schlangenstein — Bloomberg News — Analyst

And are you having any trouble finding applicants for those jobs?

Ed Bastian — Chief Executive Officer

We are not. The Delta brand is a very strong hiring brand. We’re having great success. The challenge, as I mentioned on the call, is the training, the time it takes to get people in position. Whether it’s on the phones, in reservations or in the airports, it takes a few months. And the demand has come back at such a fast clip, it’s taken us all a little bit of time to catch our breath. But we will be fully back over the next couple of months and providing — we’ve been providing great service. But the service levels that customers should expect and deserve you’ll be getting back from Delta in the next couple of months.

Mary Schlangenstein — Bloomberg News — Analyst

Okay. And have your flight operations been affected at all in terms of lack of flight crews?

Ed Bastian — Chief Executive Officer

Not at all, not at all. We’ve been managing the best completion factor in the industry and it’s not even close. Our team is doing a good job. We’ve been at this for over a year, managing the training queue and the training pipeline and our pilots and our maintenance team are doing great.

Mary Schlangenstein — Bloomberg News — Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from Tracy Rucinski with Reuters.

Tracy Rucinski — Thomson Reuters — Analyst

Hi. Good morning. I was wondering if you have any updates on your plans for the Trainer Refinery and particularly on the outstanding liability on the biofuel credits.

Ed Bastian — Chief Executive Officer

Tracy, we don’t have anything, any news in that regard. We continue to operate Trainer. The team does a very nice job there. We said in the past that there are opportunities to pull another strategic partner in. We’d be open to that.

Relative to the question around RINs, we are fully accrued. So I know there’s been some discussion in the press about whether we pulled away from acquiring RINs. We just know the pricing at RINs is not a market-based price at the present time, and we’re not going to spend good cash chasing a fairly — a marketplace that isn’t transparent. So we’ve accrued the costs, but we have time to decide, as we settle those obligations over the next couple of years.

Tracy Rucinski — Thomson Reuters — Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from David Koenig with The Associated Press.

David Koenig — The Associated Press — Analyst

Oh, hi. Well, Mary asked my question, but if I could, kind of a follow-up. I know, Ed, you said that it’s too early to raise wages, but what about starting pay? Are you having to raise starting pay to attract people or do anything else out of the ordinary to find those 4,000 to 5,000 folks?

Ed Bastian — Chief Executive Officer

It’s interesting, Dave. We’ve looked at potentially hiring bonuses and other incentives and largely we haven’t needed to resort to that. People look at the Delta brand as a place they want to be long term and they see this as an opportunity to get inside Delta. So, no, we haven’t had to make any changes to the scale. We always watch it. We’re very competitive in the market. We pay well our people. We take great care of them. But no, we haven’t had to adjust our salary scales in any meaningful way.

David Koenig — The Associated Press — Analyst

Okay. Thanks.

Operator

Thank you. Our next question comes from Dawn Gilbertson with USA TODAY.

Dawn Gilbertson — USA TODAY — Analyst

Hi. Good morning. My questions are about the customer service wait times. They still are as long as six hours at least as recently as yesterday. So I’m wondering from a travelers’ perspective is there any end in sight? I’ve also noticed that you guys have temporarily suspended helps through Twitter DMs which is a frequent recommendation I and other traveler reporters give. So is there any end in sight? And what’s your best advice for people to reaching Delta, especially with last-minute travel questions? Thank you.

Ed Bastian — Chief Executive Officer

Well thanks, Dawn. This is Ed. We are hiring a couple of thousand people into reservations. We’ve already hired at least half that number. We’ve got more to go. Every single week more and more people are getting on the phones. We’ve reached out to many of the people at reservations who had retired as we had separation packages and voluntary departure packages over the last year. We have a fair number of them that returned. They are on the phones. We have people working from home. It’s not a question of not providing the staff. We are doing everything we can. The volumes are beyond anything we’ve ever seen. They are beyond the high point of 2019 and the handling times are substantially longer as people have more questions as travel has changed [Indecipherable] first time back. So we’re incredibly sensitive to it. The number you mentioned is not the average number at all. Yes, there are rare occurrences of that. We have the call back features in place. We manage every one of the queues, whether it’s the general SkyMiles, the premium queues, the non-member queues. And we’re all — at the longest the average we’re seeing is in the one hour time frame which is by the way — which is by the way way too long. And by September, we expect to get that back down to normal levels.

Dawn Gilbertson — USA TODAY — Analyst

Could somebody comment or get back to me on the Twitter DM because you guys appear to be the only one of the major airlines that’s temporarily not responding via DM?

Ed Bastian — Chief Executive Officer

Yeah. I’m not sure about that. We’ll get back to you.

Dawn Gilbertson — USA TODAY — Analyst

Thank you.

Ed Bastian — Chief Executive Officer

And by the way people email me every day, every hour and that’s a good way. If somebody needs help, just send me a note. I’ll take care of it.

Operator

Thank you. Our next question comes from Leslie Josephs with CNBC.

Leslie Josephs — CNBC — Analyst

Hi. Good morning. Thanks for taking my question. So the employees that are coming in now that you are hiring, are they on average at lower wages than some of the people that left? There is a lot of senior people took [Phonetic] retirement. And then also for the 28% of employees that are not vaccinated are there certain work groups that’s concentrated in and are you doing anything to increase vaccination rates across the Company?

Ed Bastian — Chief Executive Officer

Your first question, Leslie, yes, the starting rates of people joining the Company are clearly lower than the rates that people retired at as they left the Company after 25, 30, 40 years of service. So we are getting a juniority benefit in the scale. We’re giving a lot of people — a lot of our — particularly our young managers are having opportunities to take on more responsibility and grow in their careers and that’s all very, very healthy.

Your question around vaccinations, the 28%, could you repeat that?

Leslie Josephs — CNBC — Analyst

What are you doing to increase that vaccination rate across the Company and is that — do you see that is concentrated in any one work group or geography so that it’s the [Phonetic] best place to access or information –?

Ed Bastian — Chief Executive Officer

Listen 72%, candidly we’re proud of it. It beats any national average by a meaningful amount. We do have pockets within the Company in certain regions and certain demographics that are below 72% and we are doing everything we can to continue to encourage and incent. We provided $1 million last month in total awards to vaccinated employees through drawings. We had 40 different drawings of $25,000 apiece. I think we have one more drawing today that we have of anyone that’s just been newly vaccinated within the last month to win $25,000. We’ve given away free travel to employees through drawings that can get vaccinated. And we continue to describe the risks to individuals if they’re not vaccinated from the variant. So I don’t know a company is doing more to get its team vaccinated than Delta.

Leslie Josephs — CNBC — Analyst

Thank you.

Operator

Thank you. Our next question comes from Alison Sider with Wall Street Journal.

Alison Sider — The Wall Street Journal — Analyst

Hi. Thanks so much. Just curious what you are hearing about the mask mandate on planes, if you think it will be lifted in September. And I guess how you feel about that if you are hoping it will be lifted earlier or if you’d like to see it extended.

Ed Bastian — Chief Executive Officer

Hi, Ali. I don’t know what’s going to happen. It’s up to the FAA. It’s not really up to the airlines to make that decision. We’ll be in conversations, clearly, with the FAA. I think it’s important that medical experts make those decisions, not airline professionals as we’ve learned through the pandemic. They’re the ones that have all the insight and the information in keeping people safe. I can appreciate people not wanting to wear the mask. I don’t like wearing the mask when I am onboard either. But it’s something that we need to do to keep each other safe.

And I think the other question about what’s going to happen in September, really depends on where we are in the recovery phase. If the variants are continuing, I think people are going to be a little more careful about lifting the masks. If international borders are not yet opened, I’m not sure lifting the mask is going to help opening up those borders. So there is a lot that goes into that. And I think there is many pros to taking the mask requirement as there are to keeping it on at the present time.

Alison Sider — The Wall Street Journal — Analyst

Thanks.

Operator

Thank you. Our next question comes from Madhu Unnikrishnan with Skift Airline Weekly.

Madhu Unnikrishnan — Skift Airline Weekly — Analyst

Hi. Good morning. Thanks for taking my call or my question. I had a question about the federal payroll support and whether based on the arguments Delta management made last year if you still believe that the support was facilitated faster recovery protecting jobs? And the second part of my question is what happens after October 1st and whether — and what the burning off — I think expiration of support will mean for Delta’s earnings.

Ed Bastian — Chief Executive Officer

Well, the — I think it’s without debate that the federal support was critical to keeping our industry afloat and keeping our employees employed and being in position for the recovery. As we’ve talked on this call, one of the biggest challenges we’re having now is getting everything fully stood up even though we’ve kept a lot of our employees. So you can imagine if we had to actually let many, many people go and abandon those individuals the challenges we’d be facing in our country of getting travel moving again. So I think it’s been an incredible success. I think one can debate the length of the PSP2 and PSP3. I see no interest in going beyond what we have at the present time with PSP3. And we expect to be profitable in Q3 and beyond without any PSP support, yes.

Madhu Unnikrishnan — Skift Airline Weekly — Analyst

Thank you.

Ed Bastian — Chief Executive Officer

Katie, we have time for one final question, please.

Operator

Thank you. Our final question comes from David Slotnick with TPG.

David Slotnick — The Points Guy — Analyst

Hi. Good morning. Thanks for taking my question. I’m wondering if you could talk a little bit about what you’ve seen in the last few weeks with unruly passengers? Has there been any upward or downward trending in incidents of that? And do you have any thoughts on just what’s been causing the sort of surge this spring or early summer?

Ed Bastian — Chief Executive Officer

David, I — we haven’t seen any meaningful shifts. It’s been something we’ve been dealing with over the course of the pandemic. Some people want to relate it to having to wear masks. I’m sure that’s a piece of it. I don’t know that’s the main piece. I think the bigger challenge is that we’ve got a lot of individuals that have been impacted. Their emotional well being have been impacted during the pandemic. And as people are coming back out into society you see challenges in all walks of life, not just in our industry. You see it happening in other places as well in the society. So obviously, social media amplifies that and puts it on a stage. That’s not our experience. It’s not our normal experience by any means. They are rare. Our crews are trained and they’re incredibly professional in managing the conditions when we have someone who doesn’t want to follow instructions of the crew and unfortunately something we’ve become good at. And I look forward to the return of our business and patterns of normalcy so that we can start to manage our business without having to worry about these effects.

David Slotnick — The Points Guy — Analyst

Patterns of normalcy is a good way to put it. Thank you.

Glen Hauenstein — President

Thank you for the question, David, and thank you to all the members of the media for your time this morning. As we wrap up, we’ll turn it over to Ed for final comments.

Ed Bastian — Chief Executive Officer

Well, I thank you all for joining us. It’s been an hour and a half. We spent a fair bit of time with you, but hopefully you’ve learned a lot as to why we’re encouraged. And as we power our plan for the post-pandemic future why that I’m and our team is as optimistic as ever for the journey that we’re on.

US travelers are returning and it’s really a tribute to the incredible work of our scientific community in developing effective vaccines. That’s going to be key to opening the world. Our return to profitability in the month of June is a major milestone. Solid profitability, close to 10%, speaks to the strength of our brand and the great work of our team worldwide. As we move past this inflection point from crisis into restoration, the people of Delta will be front and center serving our customers and our communities. Our mission of connecting the people of the globe is a noble one. It’s an important one. It’s got great purpose. And the social good that’s generated by travel will be essential in the months and years ahead as our world heals.

So I thank you all for your time today for joining us and one more time want to say special thanks to all the Delta people worldwide for their great work over the course of this last 16 months and getting our business to a point where we’re looking to bright skies ahead. So thank you all.

Operator

[Operator Closing Remarks]

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