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Executives

Jill Greer - Managing Director, Investor Relations

Richard Anderson - CEO

Ed Bastian - President

Steve Gorman - EVP & Chief Operating Officer

Glen Hauenstein - EVP, Network Planning & Revenue Management

Paul Jacobson - CFO

Analysts

Jamie Baker – JPMorgan

Michael Linenberg - Deutsche Bank

Dan McKenzie – Buckingham Research

Jim Parker - Raymond James

John Godyn - Morgan Stanley

Helane Becker - Dahlman Rose

Hunter Keay - Wolfe Trahan

Glenn Engel - Bank of America-Merrill Lynch

Duane Pfennigwerth - Evercore Partners

Delta Air Lines, Inc. (DAL) Investor Day Conference Call December 12, 2012 8:30 AM ET

Jill Greer

Good morning everyone. If you can all take your seats it is time for us to get started. I want to thank everybody for coming and welcome you to Delta’s 2012 Investor Day. For those I haven't had a chance to meet, I'm Jill Greer, Managing Director of Investor Relations for Delta. We have a great day planned so I'm just going to get you a couple of quick housekeeping items before we get going.

For those of you here in New York you should have a copy of the presentation in front of you and for those on the webcast the slides were filed on the Form 8K just a few minutes ago and they are also posted on the Investor Relations page at delta.com. We are going to follow a similar format that we have for the last few years where we have presentations, a couple of presenters and then we do a longer Q&A session with groups of presenters. When we get to the Q&A for those in the room I would just ask that you wait until the microphone comes to you so that the people on the webcast can hear your question.

After the final Q&A we are going to go down to the arcade for lunch and at lunch we will have our annual drawing for some really great gift. Our gift this year are, a model of the flagship of Delta Suite of 747 and also a chance to, an opportunity to experience the best of Delta at the Diamond Medallion for a year. So make sure you get a chance to drop your business card in the bowl and you can get a chance to win.

We do have a great team from Delta here with us today. We have Richard Anderson, our CEO; Ed Bastian, our President; Steve Gorman, our Chief Operating Officer; Glen Hauenstein, our EVP of Network, Planning, Revenue Management, Marketing and Alliances; Paul Jacobson, our Chief Financial Officer; Ken Morge, our Treasurer; Gary Chase, our Senior Vice President of Financial Planning and Investor Relations; Gail Grimmett, our Senior Vice President for New York; Holden Shannon, our Senior Vice President for Strategy and Corporate Real Estate; Ned Walker, our Chief Communications Officer and Ben Hirst, our General Counsel.

From the Delta Air Lines Pilots Association we have our incoming MEC Chairman, Captain Kingsley Roberts and joining him are Captain Doug Ross and Dino Atsalis. We have members of the Delta Board Counsel and then finally, last but not least, we have Amy Martin and [Irena Brume] from our fantastic IR team and given the sound of my voice right now you will probably be hearing a lot more from them later today.

So before we get into the presentations, I do have to tell you that today's presentation does contain forward-looking statements and the risk factors that could cause those results to differ materially from our statements are included in Delta’s SEC filings. We also have non-GAAP financial measures in the presentation today and a reconciliation of those measures is included as an appendix to your presentation and they are also posted on the Investor Relations page of delta.com.

So now with all the important business out of the way, I am happy to turn the stage over to Richard.

Richard Anderson

Well, thanks a lot for being here. You know, we started doing these in 2007 and we plotted a steady course every December and if you look back over that timeframe, our goal has been to build a long term sustainable franchise at Delta and if you just gauge our success and our progress, I think you would agree with me that we're well down that path and we’ll continue to innovate and make prudent investment to be certain that we're a strong airline for our investors, a really good airline for our customers and a very good place to work for our employees.

So when you think about what that path has been and where the path is headed, we're going to talk a bit about where we’ve been and then talk quite a lot about where we are headed, because if you think about the industry and the sort of cash flows that we developed and the kinds of sustainable cash flows we can have, we have to continue to progress both the multiples in the industry and the confidence in our investor base that these cash flows are long-term sustainable cash flows and that the investment cycle that we see in the industry is a long-term investment cycle for our equity holders because we derisk the business and given you a confidence level that quarter in, quarter out, year-to-year we can continue to produce the kinds of returns that our capital owners deserve.

So if we think about it, the first step when we go all the way back to 2007 was the importance of industry consolidation and we will, I believe shortly have the U.S. Air American transaction concluded and I don’t have any, you may all have better inside information than I do, but we've been vocal supporters of that transaction and further consolidation both domestically and around the world. And for Delta, its given Delta, having concluded our mergers quite successfully has given us a significant lead in the industry and it's a lead that we don’t intend on relinquishing.

Consolidation will continue, and that consolidation is both domestically and internationally and it’s not just in transactions, it’s also asset transactions like the one we concluded with US Air for New York City, it’s cross-border investment as we announced yesterday with Virgin, as we did a year ago with GOL and earlier this year with Aeroméxico and with the joint venture that we have with Air France KLM.

If you think about what I will refer to as normal businesses, normal businesses grow two ways. They grow through organic investments and they grow through transactions. In our industry, as you can see in the US, we are going to get to where we need to be in terms of really four industry participants and when you think about how the regulators have allowed that to occur, Southwest does air trend, Delta does the Northwest transaction, Continental and United merged and then the last piece of that puzzle is American and US Air and it’s been a long journey in the industry to get to a rational industry construct, but we believe that in 2013 we will be in that construct.

And similar activities are occurring around the world and we will continue to participate in those because in a sense these are really the cross-border transactions that we enter into are really about consolidation. It’s just because of foreign ownership restrictions and alike that that has to be done through investment, joint ventures and antitrust amenities and Ed and Glen will speak further to this as we go through the day.

But, this is a really good part of what's happened over the past five years to this industry that gets all of you as our investors confident that these cash flows will continue and the multiple expansions for the kinds of cash flow that we have in this industry will occur. And you can see what progress it has given the industry, when you think about where the industry may have been 15 or 20 years ago and where it is today, you have got management teams that are quite rational about deployment of capital and returns on invested capital.

So let's talk a bit about where we are at Delta, and how we are building that sustainable franchise and developing your confidence and our long term cash flows. As we look out, there are really three important steps that we have undertaken and as we approach 2013, we will be in our fourth year and we think about our shareholders of strong performance. So between 2010, 2011 and 2012 we had $4 billion of free cash flow, we reduced our debt $5.2 billion, our margin is up 800 basis points and importantly, we had a 10% return on invested capital over that timeframe. 2012 will shape up to be quite a good year; we expect the profit of about $1.6 billion which will be about a 30% improvement year-over-year or about $350 million.

So when you look at the progress that we have made since our first session here in New York in 2007, it’s been quite remarkable and its really been about a strategy that's built around solid returns on invested capital which we've hit our 10% ROIC over this timeframe from 2010 and we expect as we go into 2013 that 2013 will be a really solid improvement over 2012.

We've maintained a RASM premium for nearly two years now. Glen will go through in detail why that premium is sustainable and we are going to talk as I get to the last slide on an issue that its been important for everyone which is Delta you've been down a strong path of managing your CapEx, paying down debt and improving free cash flow, and if you look at our margin expansion over since 2010 800 basis points margin expansion, 2013 is 100 basis points margin expansion, and we have a long term macro goal to continue that sort of increased improvement over time.

So being a really good place for shareholders to invest their money and trust that we are going to wisely deploy our capital, as the industry consolidates we can't be a commodity. Customers, the banks you work for, the investors you work for, the decisions that the Fortune 100 companies make around travel is we can't be a commodity. We compete on a global landscape and when you think about what you want as an airline customer or your company wants as an airline customer you want a high quality product and Steve Gorman today will take you through without a doubt Delta is the best operating airline in the world. You can look at our completion factor, on time performance bags but moreover look at our customer survey data.

We win the Business Travel News Award two years in row and that's important. You don't get to the RASM premium that we have without valuing your customers and taking care of your customers and getting them where they want to go on time with a courteous staff, a clean airplane and a premium product. It’s an important part of the strategy and will remain an important part of the strategy, because the commoditization of the industry, no industry does well when its commoditized, purely commoditized and while we compete in all segments of the market, we have and we will continue to provide a superior product to support the revenue gains that you've seen us make over the last several years. And the piece that's been missing in this industry candidly is you can't run this business without good employee relations and morale.

And to think you can otherwise just simply is not the case. This is a service business. We rely on our employees to do really all the work of our business almost on an unsupervised basis when you think about it. And that comes down to training, investment in our people and morale. And when you think about the risk to your returns in this industry some of the biggest risks to your returns in this industry is are you going to be able to operate consistently over time or you are going to slow down, sick-outs and like. That's a big risk lever in this business and at Delta we don't have that risk lever. Because the only way to have a long term sustainable product where domestic and international net promoter scores, Business Travel News Award and the kind of affirmation of our brand that comes from outside third parties that only happens when you really do make it a good place to work for your employees.

That's where those RASM premiums come from and that’s why that investment is important over time. To have your completion factors zigzag from 99% to 92% and have sick-outs, in all the other variation in the operation, that does not build a sustainable franchise in a consumer business and Delta is unique in its ability to have everybody on the same team.

And one of the evolutions that we have to continue to make in this business overtime is there can’t always be a problem that’s solved by going back to employees. The employees are the key people in delivering the product that we provide to consumers. And just to end up a bit on what you would expect, what to expect in 2013, it will be our fourth year of strong profitability. We expect and we've build a plan that improves on the 1.6 billion that we will produce and profit for 2012. We expect quite strong cash flows. We're going to push toward 2 billion in cash flows for 2013, and we're going to continue the net debt reduction and we will discuss as we hit our 10 billion target in 2013, how we continue to reduce our debt but also introduce a cash return program for our share owners.

The net debt reductions is still really important part of the plan because when you think about what improves our multiples overtime, it's the continued derisking of the business. So, our labor relations are really good that’s a risk that’s not here. The second thing is the net debt reduction continues to take OpEx, non-Op expense and improve EPS it’s incredibly accretive and it’s really interesting when you talk to the different large buy side owners there are many of them that believe that continues to be the most important lever because it’s so accretive to EPS.

So they will continue to be that piece of the equation in terms of our application of our free cash flow to reduce our net debt. And this really tells I think and you are going to see some of our slides today repeat, but it’s the capital discipline with the enormous cash flows we have that will allow us to continue to make investments and the investments that we are making are often times in the case of the Virgin investment yesterday it going to be a once in a lifetime opportunity. The opportunity to go into Heathrow and get a 25% market share is only going to come by at that kind of a price once.

So when we have those opportunities or we have the opportunity to vertically integrate in the trainer facility which Ed will talk about a bit more and you think about the investments in public companies liquid investments like GOL and Aeromexico which facilitate cross border integration and long-term sustainable RASM improvements those are important investments and they are important investments for five, ten years from now. But, you can see what the trend line has done and how we have been able by discipline CapEx to continue improving our operating cash flow. And on the aircraft side, you know it’s interesting that in this industry, we almost take it with a grain of salt when airline buys 50, 777 for $8 billion, where we don't do that.

We are so disciplined about how our capital gets invested, this management team actually will sit down all the way down to investments of $1 million to prove the returns, the internal rates of returns where its investment and airplanes, opportunistic investments in airplanes like the 717 or the 737 or the MD-90 strategy. In each of those instances, we are testing cash on cash returns and we have a real disciplined at the company around being certain that we don't get focused on going to air shows and buying a lot of shining new airplanes that don't have returns. Someone yesterday asked me about the Virgin Atlantic transaction, and said well you know, how would you compared that to buying an A-380. Well I know for sure it’s a lot better return then buying A-380, because when you look at 30 year investment in a piece of equipment like that, you got to have sustainable returns that you can see and that you can affect.

And so that discipline that you have seen I hope that we have built your confidence level. And our ability to manage our fully inner where we maximize the returns for the investments that we make, and we continue the capacity discipline and the important thing about our fleet plan is when you own 90% of your fleet and you have a large number of airplanes that are fully depreciated without a monthly payment. You can manage your capacity to match supply and fuel prices. And we do not get focused on one supplier or another supplier or a certain fleet type. They are all assets that have to be managed in an asset intensive business to provide a return to our owners.

So, this slide which really I think encapsulates kind of the last five years but let me talk about where we want to go heading into 2013. We know there's been a lot of discussion and we've had a lot of feedback from our large shareowners about our free cash flow and I think by far free cash flow yield is the highest in the industry and we will continue to be the highest in the industry and we've realized that we are interested with a significant amount of capital and those capital owners expect to return.

As I've said, I think our financial performance has been strong and we will continue to get stronger and as it does, we are going to in 2013 with our board lay out for you at our annual meeting in June of 2013 our capital deployment strategy.

And by this time next year we will have a new debt at our analyst conference in next year have a new net debt target and Paul is going to talk a bit about this because I know one of the issues out there has been the pensions.

But we have a long run in terms of being able to fund those pensions and Paul will talk through what those requirements are but our real focus now is to begin the process of returning the cash to our shareowners in a rational way while continuing to reduce our debt.

And our plan is that our annual meeting once we get into 2013 and we've done the proper analysis with our board to come back to you with a plan on how we will deploy our capital and return our cash, a reasonable amount of our cash to our shareowners while at the same time given us the capital base we need to continue to innovate in the industry.

And innovation in the industry is important because as I said, we have enormous free cash flows and when you think about those free cash flows our responsibility to you is to stay focused on the strategy around shareowners, customers and our employees, continue to innovate in the business and support consolidation across the industry and to deploy our capital shrewdly where we know that we can get returns but at the same time we do need to make the investments for three years, five years, 10 years from now.

And we are doing that both in the form of our inorganic growth opportunities with our cross border investments and alliances but also with innovation within the business. So this year we launched a brand new delta.com. Its going to be a very important tool in our further monetizing ancillary revenue streams, being able to sell first class upsell in our purchase path on our website, to be able to sell economy comfort on the purchase path on our website, to turn delta.com into one of the preeminent global travel sites, not just for booking tickets but for booking hotels, for booking rental cars.

These are all important long term investments. Our .com platforms just give you an example it was a $140 million investment over the last two years but it was to replace the platform that it had been built in 1997 and didn't give us the flexibility of being able to sell different packages, different travel packages, giving us the ability to sell different seat packages and to be able to monetize all the ancillary revenue streams that are available on that and will become available in the industry.

So my point is there are investments like that that are multi-year investments that are important enablers of the rise in premiums that we're collecting and that we intend on continuing to grow, same thing with the fleet opportunities that we have.

The 717 opportunity popped up. If you saw the prices in the capital, you would say, you could never pass that deal and you can’t pass that deal because the amount of capital that we will deploy there and by the way it's not our cash.

The amount of capital that we deploy there is incredibly low for the asset base in the opportunity that provides us. And I would expect that you would expect us that when we have those kinds of opportunities to get a fully refurbished fleet like that at the kinds of prices that we have to be able to enable the re-fleeting of the airline which is in essence being able to operate to same level of capacity with many fewer airplanes is a perfect trade.

And so we're going to continue to make those trades and we want you to know that we're not doing it with anything in mind other than a wise investment for the long-term viability of this franchise and that really is our focus, the long-term viability of the franchise and if we look back over the last several years, we've been able to deliver that with a 10% ROIC and 2012 will be a 30% improvement in our pretax and it’s our aim and our goal to continue to produce those kinds of results for our shareowners.

And I think the important watershed in 2013 is we are finally going to have our net debt to a level where we can deploy our cash back to our shareowners and that will be an important part of the value equation which will create for our shareowners a confidence level in our strategy and our business model.

We don’t want to keep doing it the same way and I think we have proven to you that we don’t do it the same way that the industry did for the several decades after deregulation. And it really is about changing this business model permanently.

And it takes some bold moves, it’s a bold move to tell your employees that they are part of the team and we want to run a consistently great operation day-in and day-out. To tell your shareowners that we are not go out and buy A380s or 50 777s, but we are going to step back and assiduously deploy fleet capital to be certain that we have cash on cash returns that give us the privilege of your investment and give you the confidence that we are going to return those dollars to you.

And as you make your portfolio decisions and your investment decisions you will see Delta as a secure investment that has superior returns overtime and (inaudible). And so I will conclude here and give a little bit of time back the themes that I have talked about here you are going to see weaving through these presentations and I hope that you will find that the information today gives you the confidence level that the strategy that we are undertaking, the vision that we have for Delta to be the customers favored airline, the best place to work and the most secure place for you to invest with superior returns and good security overtime, we will (inaudible) in our presentations.

In the end, we got to prove it to you everyday and we will continue to prove it to you everyday with the quality of our operation, the quality of the finest workforce in the world and a management team that is unemotional about its investment decisions and incredibly focused on returning invested capital to our shareholders and being the preferred airline in your minds, when it comes time for you to make your portfolio investment decisions.

So thank you for being here today, and I hope you find this to be helpful and enlightening in terms of the path that we are forging at Delta.

If I could just take just one moment, I really want to thank the people that I have the opportunity to serve. And when I see Steve and Ed and Glen and Gail and Holden and Paul and Gary and all the other executives here and I know how committed they are, and how hard they are to work, it really is a privilege to serve each one of you and it’s a privilege to be up here today to represent you.

It’s a really good management team. We are not a political organization. We are a lot of people that work really hard in a meritocracy to deserve our customers business and deserve your investments, and it’s humbling to be a part of your team and to be a part of your team and for you to give me the confidence and the vote of confidence to serve you. So thank you, thank you all a lot and I would like to thank all my colleagues at Delta for a good year in 2012 and an even better year in 2013 ahead. So thanks.

Ed, you are up.

Ed Bastian

Well, good morning everybody back, we’re back church here. Richard, thank you for that comment, it sounds like you’re reaching a little bit; we appreciate that and enjoyed it. You know we've switched around the investor locations over the last several years and I promised you if the stock did okay this year we would come back to the same place, so the stock’s up 30% this year, so we are back and hopefully we will be up and a like amount next year and we will continue to keep this venue.

But as Richard said, the year for 2012 for Delta was a really strong year. And the business is working across just about every dimension you would like to look at. Our revenues are outpacing the industry; our customer satisfaction scores are significantly accelerating, net promoter is up at unprecedented levels in terms of the rate of change, the operations team has just done a fabulous job. We’ve never, I know in my history at Delta have run a better operation and we can consider the size and the scale of what we are doing and the performance our operations are producing its really a lot of what's underlying and driving that customer share shift and the revenue premiums that we are generating.

Financially, we had a good year, we are going to, as Richard said we are expecting to generate about a $1.6 billion net profit and the share price is up about 30% this year, so all in, a good year. But at the same time it does mean that we are pleased with the results or we’re satisfied with the results. We know there's more that we can do. We know in order to become a high performing stable company for you our investor base there's more improvements that we need to make, structural improvements that we need to continue to make and you will be hearing about that over the course of the day.

So this is a good opportunity at the start of or the end of 2012 and then start moving into 2013 to reflect on the accomplishments of what we laid out at last year’s investor meeting. We said that we would generate solid earnings growth and free cash flow and despite the difficult economic conditions that we all experienced in 2012, we did that; $1.6 billion in net profit. We expanded our pretax margins by 100 basis points and we generated $1 billion of free cash flow excluding the refinery purchase.

We said that we are going to continue our revenue momentum over the course of the year. The share gains that you've seen and the improvements that we are making with our merchandising initiatives, and indeed we have; in November we closed the 20th consecutive month of generating a revenue premium to the industry. Glen’s going to talk about how he is going to extend that streak into 2013 and we have a lot of optimism and confidence that we will continue to do that.

We said that we would make Delta an airline that’s preferred by our customers and across any metric again you want to look at whether it be the operational metrics, our net promoter indices and scores or the awards that we've won this year particularly the Business Travel News Award, it's clear that Delta is making massive change and becoming the preferred airline for our customers and we said that we would continue to reduce the risk in the business. One of the big investor concerns is the airline industry is constantly surrounded by risk and the model both on the employee side, the financial side and operationally that we could create a more stable business for our investor base in the midst of a volatile industry and that’s exactly what we've done.

There is one thing in thing in 2012, we often said that we would accomplished that we did not accomplished, in fairness and we also said that we needed to start to stabilize some of our non-fuel cost growth and we will talk about that over the course of today. We made some strategic decisions mid-year that are structural in nature, that will actually not just cause our non-fuel cost not just stabilize, but actually grow in to 2013, but we have a plan for dealing with that. We understand the importance of that. But what you need to understand is that we're focused on the revenues that the costs are generating in the overall margin expansion in the business and the balance that we seek to obtain from that. So I’ll talk at fair length about that and Paul will have some details on that and I am sure you guys have plenty of questions for us in the Q&A on that as well.

We are going to end the December quarter with what I would consider in the face of some of the economic turmoil we've seen this quarter including the impact of Sandy with a very respectable December quarter profit. We're expecting that we're going to produce a net profit in the December quarter in the $200 million to $250 million range and that’s despite the impact of Sandy which we estimated on the operations, particularly the revenue of about $50 million.

We're going to -- we're giving you some updated guidance here on the operating margin. We expect the quarter to end with an operating margin between 5% and 6%. We’ve tightened that. That's the upper band of the range; previous when we entered guidance for the fourth quarter in October which by the way was pre-Sandy, we gave you an estimate of 4% to 6% and despite Sandy we are still thinking that we are actually going to not just hit that range, but come in at the upper end of that range.

We are expecting our fuel price all-in including hedges, taxes and the impact of the Trainer refinery is going to be between $3.20 and $3.25 and on that note there is one thing I want to mention about Sandy is that not only did Sandy impact the operations in the $50 million net revenue loss to the operations, but it also delayed the start-up of the Trainer refinery and given the outages that we experienced across the distributions infrastructure in the Northeast, the difficult time that we had actually getting product in, the difficult time we also had getting product out and so it caused a pretty significant delay in the anticipated benefit, so while we were looking for Trainer pre-Sandy to generate a modest profit in the quarter, we actually are going to have probably somewhere between a $50 million to $60 million loss due to the delayed start up.

Now fundamentally the Trainer facility is doing great and we have continued great performance there and the infrastructure is back now, so as we look to 2013, it doesn’t change any of our forward-looking estimates, but that was already embedded within the 2012 fourth quarter guidance that we are going to have a slight profit and despite the fact that we had that delay in the startup, we are still coming in with a fuel price and an operating margin within this guidance range gives us good optimism for the future.

On the revenue front, our passenger unit revenues for the quarter are going to be up 3% to 4%. We are looking at the month of December up 3% to 4% as well, so we see the momentum that we had in November continuing into December and I will talk about 2013 in a minute. And we are going to complete our third solidly profitable year in a row in which we have generated $4 billion in free cash flow over that three year period, and over 10% return on invested capital over that three year period, so if there is any question that this is a different industry from the old days and that we are not making great progress in turning this into an investible industry, hopefully those last two points of information provide that clarity.

Now what do we expect for 2013? We expect the industry climate to continue to show slow growth on a GDP scale for positive, but we are planning for the year with fairly significant caution and we do not see any large areas of optimism in the economic outlook and we are going to approach our capacity in 2013 with a flat capacity outlook to a downward bias. So if you would ask me where we sit today, as we are thinking about 2013, our capacity probably at most will be flat, but could very well come in slightly negative. We see no growth planned across the domestic or the Trans-Atlantic entities, our two largest entities and we are anticipating our first quarter capacity to be down in the 3% to 4% range.

Going back to the industry slide; we also expect for the industry though hopefully to continue to improve the stability across the macro environment. There has been a lot of discussion over the last several years about consolidation in this industry, there has been transactions that have been completed along that line and there is a lot of discussion about one last transaction that’s left to be done and the rumors of US Air and American which we don't know what’s going to happen there.

But the thing I think that's more important and I’ll tell you that is the actual integration of those airlines have yet to be accomplished, so while there's been a lot of financial discussion and a lot of transaction discussion the actual operational integration of consolidation across our landscape still in the relatively early phases. So as United Continental get their integration completed and Southwest AirTran get their work done as whatever happens at American Airlines and US Air get sorted out. I think you will see, continue to see a more rational, more stable and more durable industry landscape which is going to be good for all of us including Delta.

When we look at unit revenues into 2013, we are looking at a relatively sorry I'm trying to read off the screen and small prints so I'm having a hard time seeing what I'm supposed to be talking to. I mean a relatively solid look out into the future. Obviously there's been a lot of discussion about the fiscal cliff and what its going to do to the economic outlook for all of us and what's going to mean for the industry, but I can tell you sitting with a book of business that we have today we are looking at our unit revenue projections for the first quarter being up 4% to 6%.

So a pretty strong first quarter outlook into 2013 and as we've built our plan for the full year 2013, we expect another year of solid revenue performance. Cost pressures continue to abound in this industry and its amazing that in a low growth, low interest rate environment the size of the inflationary pressures that we all see in this industry on fuel actually at the current point in time we are expecting the market price of fuel to be for 2013 between $2 and $3.10 a gallon, that's actually $0.20 lower than what we paid this year. So hopefully if the commodity markets hold where the current curves are then we will see some good guys coming from fuel expense which would be the first time and quite a while, but on the other side of the barrel the non-fuel costs we will continue to see pressure of primarily driven by the step up in labor rates that we are going to have on January 1, our non-fuel cost growth for the full year of 2013 is going to be between 4% and 6%, one point of that is funding, is being funded by a reduction in the profit sharing plan, so we've adjusted our profit sharing plan for 2013 or from 15% down to 10%.

So that actually funds a point of that non-fuel cost because it was a trade between salary rates and profit sharing, so the net impact in non-fuel cost for the full year and I've got a slide that will talk a little bit about that will be in that 3% to 5%. But if you think about the first quarter and you try to put all that together to what does that mean on a cost perspective I gave the revenue guidance of a 4% to 6% unit revenue growth, we are expecting our unit cost to grow in the first quarter at a 2% to 4% cliff. So right there we are expecting to see a minimum of 200 basis points of margin accretion given what we know now.

This is the playbook. This is what we've been using for the last several years to Richard’s point. We are going to continue to invest in product where it makes sense in service to grow our total RASM. We are going to look to try to deliver that product and as a cost effective manner improve the efficiency of what we deliver and we are going to use the cash, the operating cash that the business generates to keep an equal balance between investing in product and capital and paying down debt and keeping that deleveraging story alive. We set the net debt target in 2009 for the company at that point in time we were sitting at a $17 billion net debt level. We said that we are going to bring it down to $10 billion. We said that our plan was to bring it down by the end of 2012. We are going to be short a year in that, but I think given the size of the challenges we faced over that duration and the direction of the net debt pay down, we've done a great job with respect to continue to delever the balance sheet.

This is a picture of the revenue premiums that we've been generating relative to the industry, and as you can see, at the end of the year, we're looking for a 3% to 4% improvement. You know, one of the questions that we often got back in the 2010 era following the merger with Northwest was were this revenue synergies, what you saw the cost synergies but where were the revenue synergies and are they real, will they over show up. Well, we're pleased to say that the revenue synergies are real and I think as consolidation occurs across the industry, you will continue to see revenue improvements across everyone within the industry, not just Delta.

And now the second question we have, this is premium sustainable. Is this on the back of potentially operational disruptions of some of our competitors and that’s what driving the improvements and the answer to that is no. The reason why we're driving the revenue improvements is that we're making and taking the share premium that we are is because we're putting out a product in the service that customers want to buy and we see no change with that relative to our go-forward position. Glen will provide a lot more detail and that is to not only do we see this premium being sustainable but actually we anticipate continuing to grow it as we look in to 2013.

We talk about being the airline choice for our customers and there is a big reason why particularly in the corporate space, we spend the amount of time we do on that topic. When you look on the side of the page that shows the corporate revenue share gains, you can see double-digit shares gains across almost all of our major corporate categories and this is despite the fact that our capacity for the full-year in 2012 was actually two points lower than it was in 2011. Yet we're still driving double-digit share gains in a relatively low single-digit marketplace from a corporate spend category.

And to add further credence to the investments and the strategy we have been deploying, several weeks ago we were pleased to receive from Business Travel News which is the most widely watched survey amongst corporate travel managers the BTN Award Of The Year, and not only did we win the Award Of The Year amongst the corporate travel managers, but across each of the 10 categories Delta came in first place, it’s never happened before. And even further then that and you can’t see it on the screen, but if you look at the detail in the slide, you will see the gap between us and any of our competitors is really a very large margin.

So we are excited, it’s a statement of proof that the hard work of the employees are paying off in our customers’ eyes so we were appreciative of receiving this. But I think as you go back to that question is this revenue advantage sustainable and can you grow it, the answer is right on that pages, absolutely we can and our customers are telling that they are going to be behind this every step of that way.

Now as I mentioned earlier one of the things that we were not able to accomplish in 2012 that we hoped to accomplish was to bring some rate of moderation to our non-fuel cost on our growth and if you look at our non-fuel costs for 2012 for the last couple of years it was up between 3% to 5% per year. One of the greatest balancing acts that we find ourselves in is a position of and Richard talked a little bit about this in his remarks between building a product and a service that people are willing to pay a premium in and how do you balance the cost of delivery, and for Delta specifically it’s been a very interesting period of time because if you go back over the last five to six years if you go back at least into the 2006 to 2009 timeframe 2010, we were not in a big investment mode with respect to our product and service and in fact we were talking about prosperity there, we are worried about survival through some of those years as we run through the bankruptcy and the fiscal economic collapse in 2008, so the last thing we were doing was investing a products, so it actually allow us to keep our cost levels relatively flat, but it was clearly hurting us on the revenue delivery side.

As we got into period post 2009 to the 2010, and 2012 period, it was a period of deferred investment that we needed to catch and for us is the stable things, we needed to get flat bed products into the market place, we needed to invest in our people, we needed to investing technology, we needed to have those award winning service that you just saw on the last slide and deliver the operational result, as Steve Gorman and his team have been able to deliver, all that comes across.

But how we look at that, as we look at the margin and the result from that, in terms of what the revenue improvements that those investments generate and versus the cost, now we are not insensitive to the fact that we got to bring some moderation to that non-fuel cost growth and we are committed to continue to do that, but I will tell you in 2013, we are going to have another increased in that area, but the long term view is that once we get to that point for 2013 and we have reset on labor rates which we do on January 1 and they are significant on come January 1, our long term goal from that point is that we are going to keep it flattish on a going forward basis but certainly within the cost of general inflation.

So when you look at the margin expansion the businesses had the 800 basis point improvement and margins over that timeframe, when you look at what we think in 2013 is going to continue to be another year of margin expansion, its how we balance and look at our cost strategy. Paul is going to have a lot more details in the cost side and his finance presentation, but this is the one thing, I think that's probably a sensitive point that the management team fully appreciates and understands is how we are going to try to not just deliver on premium revenue promise that you are expecting from us but also deliver it at a cost efficient level.

So as we go forward into 2013, not only are we delivering at a good level of performance, we also took the opportunity to invest in what I call some real game changers that really take the industry model that we are looking to modify and we are looking to lead and make investments in 2012 that will deliver even better and more durable returns for 2013 and beyond.

And these are the four big ones. LaGuardia we got completed. Glen’s going to talk about LaGuardia, I won't steal any of his thunder but needless to say we are very excited about how we are doing here in New York. The domestic fleet restructuring that we are taking out a large number of RJs, our international equity investments and finally I'll give you a little color on Trainer.

We set down a path a couple of years ago to significantly up gauge our domestic fleet. And we get questions all the time about profitability domestic versus international and one thing I want to make sure everybody knows is our domestic operation is quite profitable. So this is not an opportunity to somehow resurrect the domestic operation, this is an opportunity to enhance the domestic operations and the profit margins within the domestic sphere.

But one of the biggest weaknesses and vulnerabilities we had in the domestic operation as we looked to the future with the size of the small project portfolio at Delta, in fact at the end of 2009, we still had close to 550-seat RJs flying in the domestic network.

I affectionately referred to the 50-seat RJ within our family as the Rodney Dangerfield of the fleet and it can’t get respect from anyone. Our customers don't like it. Our employees don't like because it feels like someone else’s job that should be that they are taking.

Our investors don't like it because it’s the most expensive seat that we produced by a large margin across the network and finally our operators the DCI operators all lose money flying them.

So we saw that there was a real opportunity to make a fairly significant sea change in a relatively short duration of time that if we were able to align the interest of all parties that we could bring about a big opportunity and in fact we teased it last year at the investor meeting.

We gave you a little sense that the 50-seat RJ maybe a thing of the past. We weren't quite sure how we were going to pull it off but we had some ideas and we've, I'm pleased to say that we've gotten most of the way through the restructuring and so we've got a clear line of sight to getting that RJ fleet down to about a 125 (inaudible). Part of that clearly was the opportunity we jumped on with AirTran and the 717s.

Part of it was the opportunity that we had when we renegotiated with our pilots and we used that as some of the motivation to do a deal early rather than late and get additional scope flexibility with respect to 76-seat RJs which we just announced last week, the order of 40 additional CRJ 900s and with Bombardier’s assistance they are going to facilitate the removal of another 60 of those 50-seaters.

Some of it was agreements that we had when we made the decision that the difficult decision to close Comair and move their 70-seat flying to SkyWest and in turn SkyWest took out 66 of 50-seaters as well.

So there's been a lot of moving parts to this analysis but when you look at the underlying economics what's driving the improvements is that average gauge at the bottom and you can see how much the average gauge of our domestic system has improved and the cost efficiency with which we are able to operate.

As the slide says which I'm again struggling to read is that in 2013, we are going to be able to keep flat capacity despite the fact we have 2% fewer departures that’s a big improvement, that’s a big opportunity.

And I would say the other big cost efficiency lever we have here is the maintenance savings on that airplane. We're going to save between $400 million, $500 million in that range over the next three years in 50 seat maintenance each of these that are coming up.

From our advantage point, starting at some point early in the coming year, we're never going to do a heavy maintenance check on a 50-seater probably ever and as a result of that, all those savings are going to be funneled into the net performance and net improvements in our domestic margins.

While we garner a lot of attention with our news on Virgin yesterday and the Virgin Atlantic purchase of the shares which we are very excited about. As you know, we already made two other international investments and I thought I would give you a little color because it informs our view as to how we're doing internationally with these investments and we’ve said all along that these are strategic investments. We're not there to be a financial investor per se but we're there to actually enhance the Delta network and the Delta margins.

At Aeromexico, we currently hold a 4% equity stake and we have a board seat there as well and you can see what we've been able to do in terms of turning that opportunity in Aeromexico. Delta network today is expanded to 32 points within Mexico and our Aeromexico itinerates already make up 20% of our revenue on our Delta (inaudible) flying in Mexico.

And most impressively is our margins in Mexico have improved by 800 basis points over last year driven by an 18% improvement in rise and gains in Mexico and then you can see below the revenue improvement on a year-over-year basis.

We got more to do. You are going to continue to hear more on the Aeromexico story. But from the Delta standpoint, this is how we look at the returns on that investment. Now what the stock market places on the stock per say or the returns in our business and you can see the Mexican results have been very, very strong and we are very pleased with that relationship we have at Aeromexico.

At GOL, we have a similar set of economics. Delta now has the most US to Brazilian city pairs of any carrier in the Brazilian marketplace and our GOL itineraries are already making up 20% of the traffic that sits on our Delta long-haul flights.

We are today restricted at only five long-haul flights into that market as Open Skies comes to Brazil over the next couple of years and more access is granted we expect to be able to expand on some of those flying opportunities together with GOL.

And again similar to Aeromexico, look at the margin improvement, our Brazilian margins are up 400 basis points in 2012 with all of our flights improving over that sector. So, this is a strategy that we laid out for you a year ago, the strategy that I can tell you is working.

These are improvements that we are seeing in both of our business units in the two largest markets within Latin America that are outpacing our overall system performance. So with that let me turn to Virgin and give a little bit more color and background on that.

As we announced yesterday, we purchased a 49% stake in Virgin Atlantic stepping into the shoes in essence of Singapore Airlines. And as part of that investment, we are going to have three board seats on the Virgin Atlantic board and the Virgin Group very importantly is going to retain and that was important to us.

The Virgin Group is going to retain the 51% ownership I know there has been a lot of speculation in the marketplace as to what Sir Richard Branson’s intent was in the Virgin Group’s intent and being their intent as he said himself yesterday for the foreseeable future to be a long-term investor.

In fact, we have some members of the Virgin Group here at our Investor Day today thank you for coming and we have developed over the last year a very strong tightened partnership with the Virgin Group itself in terms of building this, building what we can, the model what we can take into the future.

We are going to create a Trans-Atlantic JV between the UK and the US which is going to be a $3 billion entity. So, this is the large market and this is the large opportunity, its $3 billion at today's level, in terms of today's level of flying.

We are going to see seek antitrust immunity; we expect to receive a clearance from the authorities both for the share purchase as well as hopefully for ATI within the year. So by the end of 2013, we expect to be fully operational.

And you can see the size and the scale of the flying here and the opportunity. The JV itself is going to be different than what we have with [AFKL], with AFKL while it’s a full profit sharing JV, we don't have any shared ownership stakes within the carrier. We don't own any of AFKL stock, they own none of hours.

Here we have actually created the first cross-border merger opportunity through the Trans-Atlantic JV where we both own significant ownership stakes and influence and the results that not only are we going to merry up our metal for operational purposes, we actually have full ownership and governance opportunity to be able to take that investment and turned into a very, very profitable undertaking for both of us.

At Delta, we expect the synergy value from this investment to estimate about a $120 million that's net to Delta and there is probably going to take up to three years to ramp into.

We think and we hope to be able to do a little better than that but I think that, and that was sitting underneath with our questions, what's underlying the valuation for how we value the entity, it was really under synergy opportunities for the entity.

When you talk about Heathrow and everyone here in New York is well aware that it’s by far the number one marketplace in the transatlantic. In fact while we talk about the size of our AFKL JV across the transatlantic, it’s a very large entity, it’s a $10 billion entity. We don't play in any relevant way accept in only one of the 10 top markets across the transatlantic and in fact when you look at New York-London where we instantly go from what we have today about 10% market share to somewhere I think it’s around 37% or 38% market share, JFK, the Heathrow is the number one market by a factor of almost three over what you would see with respect to our top market which is JFK to Paris along the transatlantic.

So you can see the opportunities are significant. We will have a combined 25% share between overall US and Heathrow and we will have somewhere in the 36% to 37% range of share between Heathrow and New York; a significant opportunity and it’s what really drove the underlying investment thesis because when you think about what we can now do on the customer side, the corporate side, the biggest vulnerability we have that's held us back with respect to share gains across the corporate space particularly here in New York is we don't have Heathrow frequencies; we don't have scale with, we don't have the scale to go against the might of the AVA JV. Now we will have that. We will have nine daily offerings between the New York marketplace and Heathrow on a daily basis and I think that's going to be a very powerful combination.

And as well a lot of questions about the brand as to what are the brands going to stay; and I can assure you the brand is going to stay and we've all read interestingly about the various specs that Richard and Willie Walsh are making and we are not part of any of that by the way. We are not buying into that; but why is the brand staying; well look at this. The Virgin brand is the number one brand amongst business travelers across the transatlantic and this is on the most recent customer and corporate data and when you take the top brand in the market and you combine it with a brand that's got the most momentum in the market, which is Delta its just a very, very powerful combination.

And when you talk about the Virgin brand its not specifically the Virgin Atlantic Air Line brand on an airline aviation basis. The Virgin Atlantic brand is in the top 10 brands in the UK, period; and that’s the chart, so when you think about the power of that brand and the significance and the premium, the attraction that brand carries, its something that we are going to want to put our brand alongside and certainly see one plus one equals three. Not to do anything to diminish the power of that brand.

And finally, I'm going to wrap up here, because I'm running a couple of minutes late. Trainer, I mentioned earlier, Trainer has had a very, very good startup. Unfortunately, Sandy had a big impact on the underlying distribution mechanisms behind Trainer. The pipeline capacities were shut for periods, for weeks at a time. We couldn’t get the crude into the plant. We couldn’t get the finished product out of the plant at the right operating levels.

So when you think about the results of Trainer, I think I mentioned earlier that we are looking at somewhere between a $50 million to $70 million net cost for the plant during the first quarter of startup and you consider that the plant on average was only operating at about 75% operating efficiency for the entire quarter. It gives us reason to believe we are very optimistic about the results looking forward. The good news is that the operating infrastructure is largely complete. The pipelines are back online. The distribution outlets are in check. The crack markets are starting to recover and starting to improve a little bit and one of the ways we've evaluated the expected performance of Trainer for 2013 is look at our expected production schedule for 2013, which will come online and largely is already online by the end of this month to where the crack markets and the product markets were for 2012, the year which it has closed and using that calculation, we expect a profit in a range of about $280 million for 2013 and that’s embedded in our forecast and our projections.

So Sandy threw us a big fall, I think the people appeared in New York are sensitive to it as anyone, but despite that, the team and Jeff Warman has done a great job and a very difficult. I can’t imagine. Starting up a major refinery, having a hurricane hit you the first week that you are fully operational. They did a great job in weathering through that and we’re very optimistic about the future.

So with that, I'll conclude. We're excited about the progress as you can tell by the longest of initiatives we’ve been busy this year. It's been a good year and while we’ve made good progress on many fronts, we understand there is more work to do and we're investing in those areas. We're looking to improve the overall effectiveness of the performance of the operation. We're going to, as Glen is going to talk about, we're very, focused on that revenue premium that we have and how we can not just sustain it, but grow it but I just want to, like Richard did, echo our thoughts and thanks to all the Delta leaders here, all the Delta employees worldwide for delivering just an outstanding year in 2012 and also kudos to our investor base, so I thank you; many of you guys have been following the story for a long time. We appreciate your staying with us through some tough times over the years and we're optimistic that 2013 is going to be a good year for you as well. So thank you.

Question-and-Answer Session

Jamie Baker – JPMorgan

Good morning Jamie Baker with JPMorgan. Just a couple of quick questions; on $120 million synergy target with Virgin, does that also reflect the portion of their losses which you will have to account for and if it does, going forward does your model assume that with your broad presence you are able to influence the current loss production at the Virgin entity?

Richard Anderson

The $120 million does not factor in any core improvement in the base of the airline and yes the airline currently is losing money. The $120 million is the long-term outlook for three year expectation and yes we certainly expect the airline to be profitable within the next three years and the turnaround to be completed and in addition to that we will get synergy value not just from, it’s not largely driven by our ownership stake, but it’s driven by the network, the revenue improvements that we expect to see on the Delta side of the house, the improvements that we can make in share gains and some of the operational improvement. So yes, there is going to be improvement which will be reflected in the results but the bulk of the synergies of what we think Delta can drive.

Jamie Baker – JPMorgan

Second on cost performance, not to get markdown with modeling questions obviously, but you cited ex-fuel CASM pressures in the first quarter that are less than what you expect for the full year, you identified mid-year as being the peak, but presumably, the capacity in the second quarter would be more favorable. So if the wage rates, if the wage increases turn on January 1st, what are some of the incremental cost pressures that occur mid-year, that don't occur in the beginning of the year?

Richard Anderson

I am sorry, I may have misspoke Jamie; we expect that the peak of the non-fuel cost pressures will be the first of the year and they will moderate as the year goes so by; you can only read this, you know given the presentation almost blind, couldn’t read my words, but maybe haven’t spoken that, but no, we are expecting the peak of the non-fuel cost pressure to be in the first quarter of the year, and that is going slowly moderate and Paul will speak into that in his presentation. Certainly, capacity coming out down to three to four points in the first quarter is not helping along that line as well.

But capacity being down, thinking about this industry in the past, one the ways the industry dealt with, non-fuel cost pressure was adding capacity and that's not the right answer and capacity is to be the independent variable and that we have the responsibility of managing our structural costs. So we are going to keep capacity as the independent variable and then attack our structural cost with the initiatives Paul will go through. Hey, Michael, Michael Linenberg.

Michael Linenberg - Deutsche Bank

Thanks, Michael Linenberg with Deutsche Bank. Richard it was interesting you talked about how you are not going to be out buying A-380s or 50, 777s but in sort of an ironic way your 49% stake in Virgin will give you access to A-380 order book and the 7 879s. So the question is, is there an opportunity where some of those airplanes, either they are in the JV or maybe they find themselves in the Delta fleet sooner in the 787s you have on order which I think are 2022 or 2021.

Richard Anderson

Well, I mean we don't want to get ahead of ourselves, but obviously with our Board position in our ownership, we will be in a position to influence the fleet plan long term and there's a lot of optionality in the Virgin fleet book. So as usual we will be looking to optimize the fleet investments across the venture. Air France does have A-380s and we have figured how in our joint venture because we jointly price and schedule we keep the ill effects of that air plane out of the joint venture, put it that way. So how is that explaining.

Michael Linenberg - Deutsche Bank

Just my second question, when I look at your potential relationship with Virgin Atlantic and I look at what you've done with Virgin Australia you had the anti-trust immunized JV you know we saw Virgin Australia go from a loss to a profit a year ago when they talked about the results, they talked about the JV with you as enhancing them so I feel like that that's going to play out to some extent with your relationship with Virgin Atlantic. With that said both those two Virgin branded carriers have brought Virgin America into their frequent flier program they are talking about some additional code sharing opportunities, maybe even use of some of their facilities and yet you are involved as well, where do they shake out in this, if anything I mean.

Richard Anderson

Virgin America doesn't have a role in our relationship with Virgin Atlantic.

Unidentified Analyst

Ed you talked a little bit about the refinery, could you talk about the possible opportunity to bring up back (inaudible) to refinery and to sort of brand and what are some of the issues if it were to work out sort of timing you might look out there, thanks.

Ed Bastian

We are working diligently on that. Again I think the start up with the hurricane slowed us a little bit in our ability to make more progress in securing Bakken supplies. We are working with rails. We are working with some producers out in North Dakota. We actually even sent Gary Chase to Williston, North Dakota. So all of you that know Gary and seen him in Williston, North Dakota it’s a good visual and there's a real opportunity there.

I think the challenge we have in the Bakken is the infrastructure constraints in getting it out and that's one of the reasons why the spread has maintained at a relatively low level, and certainly seeking enough production capacity because there are a lot of people chasing that supply and there's not enough aggregate that can actually deliver a sizeable enough certainly something that fits our need, but that all said we have some interesting proposals that we've already received in-house.

We expect to execute some of those proposals in the first part of 2013, and there's in my mind little doubt that we will start reproducing out of trainer Bakken crude at some point during 2013 at rates lower, certainly that what we're purchasing today, which is [Brent] plus on a delivered basis.

Richard Anderson

Just to add a couple of things to that. One of the trainer refinery is actually designed and built quite well for the types of crude that come out of shale, and number two we're going to be making investments in rail offloading facility at the refinery to go both ways because you know one of the big challenges we have as an industry at Mid-West crack spreads. So the differential between WTI, when you look at airline fuel prices, WTI is not a very meaningful number. It's really Brent, and the reason why that the Mid-West refiners have taken that differential between Clearbrook, Minnesota and Brent and priced it in to the crack spread and we buy a lot of jet fuel in the upper Mid-West.

So there is two ways to get at that margin. One way is to get Brent in or get Clearbrook, Minnesota in to trainer and I think we could do that as early as April, and we looked at some really pretty good differentials. You know, we actually have proposals that to buy a good piece of that differential. But the other thing is can we backhaul jet fuel back to the Mid-West to get out of $40 crack spreads, because that’s what's driving, that's been our single biggest cost issue for Delta is the Mid-West crack spreads for the Minneapolis, St. Paul and Detroit hubs. Minneapolis, St. Paul in particular. I mean most of the area we paid $38 to $40 a barrel. And so there is two ways to get out and we're going to make the infrastructure investment at a minimum if you can backhaul and be able to disintermediate that high crack spread in the Midwest would be tremendous amount of value to it, so we have got several angles that we are going at it.

Dan McKenzie – Buckingham Research

Yeah, good morning Ed and Richard. Dan McKenzie here from Buckingham Research. Couple of quick questions, first with respect to the $3 billion opportunity with Virgin what percent of that 3 billion is incremental to what you are doing today is when you factor in your other flights in London?

Richard Anderson

Included in the 3 billion revenue estimate Dan is the existing capacity that’s what which is the current capacity both carriers combined at today. So it’s today a $3 billion JV, obviously we will look to grow it. The capacity is I think we have about 30% of that capacity today in the market and Virgin Atlantic has 70% that’s the current capacity share between the two carriers.

Dan McKenzie – Buckingham Research

Got it. And then secondly, just given the fiscal cliff I appreciate your outlook on modest GDP growth next year impossible to predict what Congress will do, but wondering if you would be willing to share what if we do go into recession next year, what flexibility Delta has and with respect to your capacity what you would be willing to do?

Richard Anderson

Sure, we have a fair bit of capacity flexibility entering the year is one of the benefits of having a low capital base in our fleet, we are not - it doesn’t hurt us as much if we have to temporarily ground our fleet on a tactical basis which we already do just in day week scheduling as we operate today. We spend a lot of time we have talked about Board about the implications of the cliff in the event we work to go off the cliff, while we certainly hope that's not the situation it’s funny when you look at the airlines probably the economics are skewed a bit with the airline industry, given that would also likely for the lot of pressure on commodity prices, you would think in oil prices and we have probably much greater leverage to oil decline than the revenue loss that actually for the airline itself may not be as dramatic and impact as one might think on the surface.

In fact we go back in 2009, as a proxy for what happened in a very difficult economic climate. Delta actually exclude the fuel rates for the moment, I will come to that, Delta actually made money in 2009 in the worst economic year of our lifetime. So what that tells us is that, yes we are going to keep our capacity, we put some capacity down, but we are also going to go in to with the very limited cautious view on the hedge book as well to make sure that we don't have down side risk in the event oil price were to collapse and we geared our book such that we are very limited down side risk to that, I think that's the big risk, we have got to protect against in the event of a massive dislocation in the market place./

Ed Bastian

I would just add to that, if you look at our year-on-year capacity in 1Q it will be done about three and we have actually taken a few steps since we put our plan together for 2013, actually on our internal plan we pulled a little bit more capacity. So I think in 1Q you just better off, given seasonality of the business and even the prospects of the fiscal cliff to already kind of be well positioned. The second thing is, we could hit our CapEx pretty hard, if we wanted to. And third, part of the structural cost work that we are doing when you just think about it over the next two or three years, we just have to hold our headcount flat. Our FTE flat and so then you get real operating leverage to the bottom line when you do that.

So we are already down that road which kind of serves putting the company in a good spot with fiscal cliff. So in liquidity will in the year ahead of above our $5 billion I mean I don’t know where but we will have strong liquidity going into that, the ability to pull CapEx to continue to add to that.

So I mean I think we are well positioned. The government ought to solve the problem and that's what ought to happen and I don't know, I'm not trying to be political but I mean the bottom line is the notion that the wealthiest country in the world with the fastest growing, with the largest economy and maybe not the fastest growing but a growing economy and you can't solve that problem, seems to me to be wrong.

Jim Parker - Raymond James

Good morning, I am Jim Parker with Raymond James. I have a couple of questions just of course capacity discipline is extremely important in offsetting fuel costs now you've got a big labor increase the industry does coming up and it appears that you are taking the lead at least in the first quarter, we are taking capacity out to offset higher costs, I'm curious if mid-sized carriers like JetBlue, Alaska who were growing capacity about 7%, if that's an issue for the industry?

Richard Anderson

You know I just generally don't like to comment on what other people do in our industry. Overall I would say rather than commenting on our specific carrier, overall capacity meeting demand and capacity meeting realistic demand is an important part of any business, doesn't matter whether you are in the airline business or the hotel business or the like. It’s a really important to us to match our capacity demand taking into account how elasticity might change over time as you price the product to cover all your costs plus return.

Jim Parker - Raymond James

My second question has to do with the 40 larger RJs that you are going to acquire. Here's that purchase price or the cost of those aircrafts all combined might be about $900 million, $800 million or $900 million, is that correct, if you get?

Richard Anderson

We didn't disclose them yet. We didn't disclose the price.

Jim Parker - Raymond James

I'm curious. You are going to get rid of some, a lot our 50-seaters. But that are you going to put this on your balance sheet or you, will you put it on the balance sheet of your regional?

Richard Anderson

We haven't made that decision Jim.

Ed Bastian

Yeah, we haven't decided yet how we are going to do it and so.

Richard Anderson

You know I think the question with those are airplanes is where do you put them on which balance sheet and via leasing around them and we are still investigating which way we are going to go. We do think that even if you implied onto our balance sheet with what we are going to do with 60-seaters, the 60 that were taken off plus the improvement in operating cash flow and the avoidance of all these maintenance overhauls on 50-seaters that actually improve our net debt position overall once we get it all done.

So we are going to try to take it fairly quickly and get the 60 50-seaters out fairly quickly. So in terms of the net debt even if you implied it on, just for not saying that’s what we're going to do but if you just looked at, we modeled it and are actually our net debt would go down as a result of the deal.

Once we have it fully implemented, just 50s out, I think it pays for itself within three years basically. Even you fail to appreciate how the economics of 50-seat airplane have deteriorated, at this fuel prices. Everybody bought those airplanes at $24 a barrel.

So if you went back and looked at the assumptions, it was $24 a barrel and juniority on the employee scales and it ran for a number of years and by the way, Exim Bank Financing, right? So capital was free. Fuel was $25 a barrel and juniority with employees and that’s really just changed dramatically from where we see today. So the benefits are significant is my point.

John Godyn - Morgan Stanley

Thanks. John Godyn at Morgan Stanley. I’ve just a couple of quick questions here. First, you've expressed some disappointment in what the stocks done, given the strides that you made in improving earnings and hitting the 10% ROIC target. How can we be sure that 10% is setting the bar high enough? And is there any appetite to take a higher, can the business earn a higher sustainable return?

Ed Bastian

Well, we’ve generated a 10% return over the last three years is what is said and I can tell you our aspirations is to better than that. So I think in fact in the last year, looking upon Gary I think for 2012, we're estimating somewhere to an 11% or 12% ROIC actual for the calendar year 2012. It's in that range and our expectations are that ROIC is going to go up from there. So I didn’t see that 10% is the adequate levels. 10% has been the actual level for the last three years and certainly the key message there was that it was in excess of our cost to capital and I think we do have opportunities to improve it.

John Godyn - Morgan Stanley

And on long-term cost guidance zero to 2%, Richard I think you made a comment about trading capacity as the independent variable, can you just give us a sense of what the long-term capacity growth rate is underlying that?

Richard Anderson

If we look out toward 2013, we have a flat capacity downward for 2013 and in fact when you just look at 1Q how much 1Q is going to be down, it’s really pretty hard even when we because we are peaky airline. You really want to fly everything you have from in the peak months and so our block hours look like this if you see January to December, but we have a downward bias in 2013.

As we lookout, I think 2014 and beyond you really think about flattish, right and it’s going to ultimately you would like to be in a situation where you do have some modest growth, but you got to be able to maintain than the RASM premium becomes the independent variable, right? Which is why the up gauging is so important because there will be some pressure on RASM as you up gauge when you have that many seats and you reduce the number of departures because the one thing RJs do even though they are operating economics are wonderful, they make your RASM look high because there is not many seats on those airplanes.

So as we look out I think you are going to still see the same discipline we demonstrated over the last five years going forward. At some point if the economic conditions and industry dynamic supported, you would like to get to very modest growth numbers, you know, overall system wide but the factors have to be there. We are not going back to the old world where you deal with your structural CASM challenges by adding ASMs not the right way that kind of manage the business, and even if we going to add capacity in the future which we are not saying we are, its really with the up gauging which will be very cost effective capacity. We are still expecting the feet account to continue to shrink in total and that the departure levels that continue to reduce, plus we look out in ‘13 for sure it’s downward bias given everything we see today.

Helane Becker - Dahlman Rose

It’s Helane Becker with Dahlman Rose. I see in the data that you are not going to really discuss the number of pilot retirements you have over the next few years. So I was wondering, if you can comment on that and how those retirements will change will change your labor cost even with the rate increases that you are going to be experiencing over the next few years. How those retirements with new pilots coming in, kind of adjust your whole compensation structure?

Ed Bastian

Well, there is lot of moving pieces in that because there was a significant amount of productivity overtime in that contract that helps us manage the seasonality peak that I was talking about. So that inflow plus there is a lot of benefit from the contract in the form of these 76-seats swaps and been able to increase the 76-seat count and return for getting 60-seaters out. So there is lot of pieces that move in and out of the economics of that transaction, but with that said, once we get to 65 we will have a significant number of retirements and we don't anticipate being in a situation where we have pilot hiring in 2013 as we sit today, but obviously as people hit the 65 age limitation, we will be hiring at the bottom of the seniority list. We haven't done an analysis of what the trade off is there, but overall the pilot contract and when you take the totality of all the terms, the productivity, the scope clause and the flexibility that gives us to be able to manage the business to the peak, its all in a good yield in terms of the overall profitability of the airline.

Richard Anderson

I think Helane and looking at Steve in the next five years, the scheduled retirements just the outflow is in the 3,000 range; between 2,500 to 3,000 roughly, yeah so it just gives you an order of magnitude.

Hunter Keay - Wolfe Trahan

Hunter Keay at Wolfe Trahan. Ed, you mentioned that the domestic operations were quite profitable. I'm curious if you could tell us if A, it would be profitable without ancillary revenues; and B, maybe how you think about the re-gauging of the domestic fleet and the impact that that might have on your ability to generate either more or less ancillary revenues?

Ed Bastian

It is profitable, I mean it is profitable; I won't comment with or without ancillary revenues because its kind of an academic question, I don't know maybe Glen, he can answer that question. Relative to the up-gauge strategy obviously we are driving more volume and it is in a more cost effective manner and it gives us more merchandising opportunities on-board the plane with more people.

Richard Anderson

Hunter, when you think about a 50-seater it doesn't have economy comfort, it doesn't have first class upsell, it doesn't have the seat programs. So it gives you a lot more opportunity across a variety of product offerings to be able to bundle and unbundle other product offerings; hence the investment, the long term investment in our delta.com site to be able to enable that. So I actually think the up-gauging strategy is going to give us more of those opportunities just because the variety of products that are on the bigger airplanes as compared to a 50 seater.

Hunter Keay - Wolfe Trahan

And I remember two years ago at the Analyst Day here somebody asked you about reports that you were negotiating with Virgin and you know obviously it didn't happen. Can you maybe tell us what’s changed, how those conversations with Virgin has changed over the last couple of years and obviously in the context of American getting into joint venture approved maybe sort of how the conversations before and after changed with Virgin and how you are going to do this thing?

Richard Anderson

Yeah, it’s probably not entirely fair to do that and it’s not fair to our partners to do that; suffice to say we are really happy with where we ended up and I would say the really big change along the way you know was that the Air France KLM when we were talking about it two years ago was part of trying to work through something with Virgin and where we ended up was just standing in the shoes of Singapore as Delta and working on a coordination and cooperation agreement between Virgin and our other European partners.

Ed Bastian

I think we we're at 00:00.

Richard Anderson

Let’s get a few more questions.

Glenn Engel - Bank of America-Merrill Lynch

Two questions, its Glenn Engel, BofA Merrill. One is last year when you showed the CapEx chart, it was about $1.5 billion a year for the next several years. Now it's running to $1 billion. What's the normal level; again if we go beyond the Virgin investment?

Richard Anderson

No, it's [$2.1 billion] this year, Glenn. We also showed, next year we're expecting it to come at $1.7 billion. So I think the big number was the refinery. It was about $300 million between the purchase of the refinery and all the CapEx, just the big move and the second piece was that we're starting the $1.7 billion actually would be next year’s number. It's largely being the refinery.

Glenn Engel - Bank of America-Merrill Lynch

And next year also has the Virgin which brings it up to $2.1 billion. When I go beyond 2013, does it go back to the $1.5 billion level or we're at a new higher level.

Richard Anderson

You can say the 1.5 to 1.7 level. So think out of this way. So think about our base CapEx. If we go look at our base CapEx, our base CapEx next year, which is you know fleet refurbishment, IT, ground equipment, turmoil investment is still in that 1.7 range and you know we kind of think of it as replacing our depreciation, but then we have these inorganic opportunities. We have the opportunity to do the refinery, basically the price of a 777. And then we had the opportunity to do GOL investment. We had the opportunity to do the Aeroméxico investment and these are opportunities that are not going to pass us by again. But if think of what Glenn, what our base CapEx is, in other words what it takes to continue to run the business and replenish the fleet and invest in interiors, it's in that 1.5 to 1.7 range, long run. Now you may have opportunities come up like Aeroméxico, GOL, Virgin, the Trainer refinery, where we think it's wise for the long-term to make those investments because you have kind of a once in a lifetime opportunity to be able to do those, but that base level is down to that 1.7 range.

Glenn Engel - Bank of America-Merrill Lynch

And on the fiscal cliff side, are you a source of potential tax revenues or is that something you are hearing on the hill?

Richard Anderson

I think we have given; I don’t know any other it’s interesting when you go to the fiscal cliff meetings where the groups gather around because we are a member of the fix to that and you are always curious about the other industries you cover many of those and in some sense someone doesn’t want the depletion allowance to go away, someone doesn’t want inside buildup to go away; I think we are the only industry that sits at the table with a 22% sales tax.

So we have given and that’s candidly that’s why we are investing we have invested in the fix to that campaign and Nick Calio, who is the Chairman of A4A is on the steering committee and the clear answer there is until everybody else is at a 22% I don’t think you go back to the well again for this industry and we were successful in the FA Reauthorization Bill last year for the first time as an industry to keep taxes from going up on the industry and we were successful in the getting the ETS turned back in Europe.

So I must say the A4A trade association is a very different trade association; it’s not your father’s trade association. It’s very focused on an actual airline policy that produces results for its members and we are very practical about funding it, managing it and having a consistent regulatory position across the board. So the most important thing for this industry is not be tagged again in the fix that campaign.

Jill Greer

We joined for the Q&A session. This will conclude the Q&A and its 10:10 right now and we are going to take a break and reconvene at 10:30. Thank you.

[Break]

Jill Greer

Our next presenter is going to be our Chief Operating Officer, Steve Gorman.

Steve Gorman

Good morning everyone. Before I get started I'd be remiss but without saying I'm really, really proud and grateful for all of our Delta employees but particular operations employees who have really developed a foundation of operational excellence and on that foundation of operational excellence I mean and the hierarchy needs of our customers the three most important things to them clearly are is my flight going to cancel, am I going to arrive on time and if I checked the bag, does my bag arrive and leveraging the investments we've made and infrastructure, equipment, parts, stations and of course our employees, our employees have done a remarkable job working together to achieve operational excellence and to put us at the top of the industry in those three fundamental categories, and I'm very grateful and proud to be one of the leaders of that great team.

I will say that it is dangerous to talk about snapshots because every day I view consistency as opposed to just snapshots. But I want to use a snapshot to put some reality to the numbers because when we talk about a lot of those numbers we talk in terms of percentages, and percentages over time and that type of thing and the trends and improvement over time, but just for a good example of where we've been for a really well over 12 months that if you take the Friday after thanksgiving to the Monday that four day period I think is really indicative of where we have been consistently for over the last 12 months in providing those fundamentals to our customers, those four days we had about $1.4 million customers on Delta mainline flights, we had 91,160 flights, of those 91,160 flights we completed 91055 of them. Of those five only three of those were for maintenance and on those five that we canceled only 450 of those 1.4 million customers were impacted. And of those 91,055 flights only 835 of them did not arrive on time in a period when we are dealing with 92% to 94% load factors.

So I think that is a good snapshot of what we view now and how for a number of months a typical day with good weather of having a completion, canceling less than two or three flights a day, having a 100% days like we had yesterday. Having a departure within zero and the high 70s, low 80% and arrival on time of over in the low 90% and then at the same time for those four days as well as the normal day to have less than 1.5 bag claims for every 1,000 customers. That’s becoming normal day and on those fundamentals, we're able to build customer service and get the full benefit of all the improvements of our product offerings that I am going to talk about.

I am going to talk a little bit about the results and some of the actions that we've taken to achieve them and in a summary format and then close with what our customers are telling us. And so from that standpoint, on the operational excellence, on completion factor, if we can look at a two-year period and look at from 2010 to 2012 and really want to look at a good clean run rate of a six months from April through September where we don’t have the winter weather noise, have to have a very mild winter in 2012. Other years it’s not quite so mild.

So don’t want to have the noise of that and from there, you can see, I mean one full point and you think one point of completion factor. That’s not a big deal. You know, 190, 8.6 to 99.6 but that’s in a year, that’s 8,500 fewer cancellations. That’s over to what, 23 plus a day fewer cancellations and a lot of that is due to our maintenance group, our technical operations group, which has made remarkable progress over the last couple of years and they have just this year alone, 1,900 fewer maintenance cancellations and on the international flights, less than one cancellation a day, which are more challenging to recover from for our customers.

Done things like obviously domestically, if you kind of look at the different fleets we have roughly seven different fleets, how do we deal with that where we took the maintenance stations and specialize maintenance stations on the overnights, we want to specialize them in terms of mechanics, training and subject matter expertise for more efficient and effective trouble shooting. We want to specialize what parts are at those stations and we have gone from eight of those into 10 to 20 and to 11 to 23 of our maintenance stations that we have converted to very specific fleet target and maintenance stations.

We have also optimized our maintenance planning, one of the things we have a very detailed proactive maintenance program, so about a little under 10% of our fleet every night that’s one of those overnight maintenance stations and receives clear all of the time controlled inspections that are going to be required over the next 15 days and that’s whether that’s a borescope inspection on the engines or inspection on functional checks on anything on that aircraft clears so there is nothing that is due in the next 15 days get a good clean aircraft that now has a little over two weeks of flying before it has any maintenance to do again and if you think about a little less than 10% 15 days a clear if we have a regular operation from weather or something it also gives us three to five days of cushion from a standpoint of when those inspections are going to be due and that’s a big part of it.

Another piece is part allocation, we did not necessarily go out and buy a lot of new parts for allocations at the maintenance station so that as they are trouble shooting or have failed inspections of some of these inspection items they need to replace parts and send them back to our shops or to suppliers for repair or also a lot of those task require lower dollar expendable parts that are just replaced and thrown away and from that standpoint we increase that since 2010, we have increased the amount of service and targeted just this year from about a 76% fuel rate on the allocation we are supposed to have at those stations to nearly now 90% and we would like to get a little bit higher and we didn't do that by buying parts, we did that by repairing the parts, that were unserviceable and turning them in the service and frankly for one time basis to catch up spending roughly about $20 million to make those part serviceable and now have a balance of having our repairs equal or removable going forward.

And of course we always dealing with all the different ATA codes on the fleets and working specific for reliability projects, whether that's a better battery on MD-88 or working on a door problem on a 757, just always in a very methodical manner dealing with that. That's been able to be a big part of reducing those cancellations. On on-time really the devils in the details, so what we’re really doing is really focused on from when that airplane rolls into the gate, to when it pushes back again. And good old fashioned process improvement and we have identified 13 different task that are very, very important, if we are going to get those that hit that D-zero and it’s going to push on time.

And if you think about we backed up to the whole process and you might think, if they worried about D-zero, why they focused on D minus 35, maybe D minus 3, but why D minus 35. When we look at all of the data we found the task that need to be completed which is the start loading customers and start loading bags 35 minutes before departure, that has the highest correlation, if we are going to make D-zero and we need to have all the doors closed of D minus 3. So we set very specific targets for that and goals initially for the hubs then to the top 20 stations and this year to all the stations and we will track the percentage of time that we complete those tasks within the allotted time before the zero and wherein the teams work on action plans to raise that and you know the great thing about the Delta spirit and the employees, you set goals and then we work together on achieving those goals with an incredible amount of passion and commitment.

We also look at from the overall on time of having a much more efficient through that whole process of landing to take-off reduce the taxi time and we notice that a big piece of our taxi time was during the push back process.

We were wasting minutes there, literally minutes but when you are talking about the number of flights we are talking about minutes become hours over the course of a day and so and a year.

And so things as simple as don't push it back 90 degrees, push it back 45 degrees and while it’s going back, start the engine for the single engine taxi and one of the pilots in the flight deck can load the weight and balance information if it didn't have it before they push. Things like that save two three minutes every flight and it adds up and improves our reliability.

And finally, we focus on the traffic and the flow and one comment I want to make there is things like I have been estimated time of arrivals in an automated fashion and then feeding that into our gate management systems so we don't have gate [holdouts] even on the good weather days and also giving our pilots the flexibility to speed up or slow down to try to hit arrival five minutes early.

And use a little less fuel by slowing down, use a little more by speeding up but try to hit that arrival D minus five on the arrivals because we know that is in inflexion point and then having a longer term, having lower misconnections of customers and bags and hitting that to zero on the way back up.

Through all the hard work of our employees to be at the top of the industry as probably the most complex network with the most connecting customers it really accomplishment by the team.

On bags which is that third piece of those fundamentals, remarkable progress by the airport teams over the course of the last really since 2007 reducing the claims by 66% over that time period, just that 36% in the last couple of years really have invested back in 2009 and ’10 on the infrastructure particularly in Atlanta and the core infrastructure of the sorting systems and the bag belts and the size of the bag belts and really focusing on the transfer bags let any bag in our hubs that is going to connect in over 70 minutes just gets fed into the normal sortation system and comes out to the airplane from the peer where the [origin] bags are coming from.

And I know it seems kind of intuitive that if you have a connection over 70 minutes there's a much higher probability that that bag would not make that flight in the past because the tail bags made it but those bags that are going on the next [tank] maybe wouldn't but the more you treat them just like origin bag that's been that's been probably one of the biggest contributors to our dramatic reduction in bags claims as dealing with that.

Also scanning, you know, scanning all of our bags that scanning allows us to do reconciliation claim side of how many are we missing, where are they at, what's left, can we get it buttoned up by D minus three with all the bags on there. That also feeds the raw data that is on the Delta app in terms of allowing our customers to be able to trace their bags and frankly at the kiosk and provides that information for those less and less or fewer and fewer times that we don't get the bag there with the customer that we know where it is, when we will get it to the customer to get rid of that stress and what they are working on.

One final thing on bags that we really moved on as we lowered our claims to such a low level. We really started more working on from a customer satisfaction standpoint how quick are those bags getting to the bag claim care or so because we found that that’s really important as well because that’s time, right and like yourself and a lot of our other very busy customers in terms of their business and their travel, all that time is really, really important.

So we focus on having that first bag initially at 20 minutes up and then the last bag by 10 minutes and have those Sky Priority bags come up first and do that now very consistently on over 95, in some cases as much as 98% of the time.

What we found though is all airports aren’t created equal and so if you are at a [Spoke], and you get off the airplane and five minutes later you are standing at the bag claim, 20 minutes could seem like a long time.

And so we really focused on adjusting at the station level for ‘13 to have at the station level very specific first bag to claims. At the station level, that’s more in line with that particular structure at that airport, particularly at the Spokes. All that is driven with the, really the airline that has the most connections and the largest hub in the world in Atlanta, we're very proud of the team that we're number one in bag claims for those network carriers that are dealing with that hub and spoke systems in those connection bags and have been there now consistently for a number of months, it will be going forward.

That platforms are those fundamentals of completion factor on time in bags has allowed us to focus more and more on the customer service aspect itself. And what we've done for customer service is utilize our own web based survey and any of those you have traveled, you receive that e-mail and I would encourage you to respond because we are using that data in that direct input from our customer.

We have doing that now in the airport for about two years, we have had over 10 million surveys in those two years and it’s every aspect of the experience the overall airport experience if you checked into the kiosk how that experience was at the gate, at the check in, if you do have a disruption to the flight for weather or that occasional mechanical, how did we do on recovering you in terms of your flight and getting you to your destination?

We use that data, break it down by (inaudible) by station and by literally to the agent level in airport and use it to generate corrective actions, use it to recognize and reward employees who are doing a fabulous job of customer service and use it for accountability frankly.

We have rolled that out now in flight that’s the other group that spends the most time with our customers. Obviously, our flight attendants we have piloted another few bases and now we have rolled it out to all the bases and have full intention over the course of the next 12 months to get it to the crew level in terms of customer service and there we are judging as you would expect with flight attendants smile and warm greetings, responsive and accessible and available on board and then the overall experience with the flight attendant being responsive in a friendly and courteous manner.

And again, recognize and reward those who are doing a remarkable job and also have accountability for those where we need some as airline need to improve. Direct customer feedback driving what we are doing in terms of taking actions to improve customer service.

Another important aspect of our business is we will never not have some irregular operations, even if we never had a mechanical cancellation we would still be dealing with Mother Nature and from that standpoint we have invested a lot over the last couple of years to do a much better job of providing service in those kinds of situation for our customers.

You know, we have invested in auto and improved auto rebooking system that in the actual event itself during the event, let’s say like a big weather event, there is snow storm or thunder storm or hurricane that we can rebook in a much more effective manner for our customer to get them to their destination as closed to the original plane time as possible, obviously in priority order in terms of our customers.

And we have also invested in resetting engine because our seating has got more complex with economy comfort with preferred seating it’s very important that we do our best in an automated fashion to reseat our customers when there is aircraft swaps or the schedule changes or there is a regular operations to a like-to-like seating.

So if you are 2A, do everything possible which get you on 2A on what you have been rebooked on, and to have the software and the algorithms that enables us to do at a much higher percentage of the time is really important that we have invested in that and its working.

We have consolidated all of our, here is where you can probably see that the operating folks [aren’t] exactly maybe the greatest market tears, we consolidate, we have a lot of different signs and we call when customers need help a lot of different things we said no, we need to consolidate all that under kind of one label and sign it, and put that sign as out there accordingly to help our customers know where to go to get help and operation folks we just made it need help with a question mark.

We have need help service centers at the airports at 37 airports, we have a need help customer line to our rest, but in those service centers could be an agent with the handheld check in device, it is a kiosk, its in essence of what we call virtual assist which is an asset, a self served device that is if it was very much like if you are dealing with an agent we do have the agents there, obviously they are most experienced and it really has helped in the course of between the auto rebooking, the reseating and the consolidated very visible service centers with one line has really helped.

The other thing we've done obviously we've continued to tweak how and when we provide a first point of contact service recovery compensation during the events that we've caused or mother nature has caused as we know that dissatisfaction from how its handled real time during the event is really, really important to customer satisfaction.

And finally, from a social media standpoint, from a social media standpoint we have a group of over 20 employees that basically 7x24x365 are monitoring social media. We have on average about 3,600 hits a day. Three quarters of those are Twitter, tweets on Twitter and from those standpoint, those really are real time because often times those are being sent while those customers are literally on an airplane in the midst of their travel experience and we can respond very, very quickly literally real time in some particular situations. And needless to say when someone communicates that issue they are sitting on the airplane and they get a response if something happens to fix the problem, boy that is a huge win from a customer service standpoint, because it leads all that stress associated with the uncertainty. And so we've invested in that from as call media standpoint.

On top of that fundamentals of the big three, you know completion factor on time on bags, on top of all our efforts around improving customer service using direct customer input and doing a much better job of service recovery; we continue to improve our product offerings. And as the other piece of that whole equation, whether that's obviously as we moved down in our international fleets going closer and closer really every month to getting towards that ultimate goal of having a 100% wide-body international fleet with flatbed seats and with all new seats and coach with on demand video, we will be over 50% before the summer of ’13 and be pretty much have the A330 left after the end of 2013 and we can see the dramatic difference, no surprising customer service in our survey scores and our customer satisfaction metrics on when they are playing has that versus those that do not.

WiFi, all of our domestic airplanes and the two class regionals obviously have WiFi today domestically and we are right now literally here in the next 45 days we will have our first wide-body airplane certified for international WiFi; that's satellite we have the radio on top of the airplane and are well on our way of going down that path so that over the course of the next 18 to 24 months we will be at the stage where all of our airplanes domestically and internationally will have WiFi for our customers.

Economy comfort has been a huge change. Obviously, we do a lot of study on that and know that leg room is one of the most important factors for comfort on-board, if you are not in the business elite or in first class, so we have economy comfort in domestic as well as international and of course we continue to, we have a really tight set of policies and procedures and how we handle our SkyPriority customers and all of their issues throughout the entire travel ribbon and I think I am really proud of the team of more and more; it's very, very consistent in executing against all the programs we put in place for our SkyPriority customers.

Finally of course the Sky Clubs; and in the airports, you can see what we've done here in LaGuardia, throughout the system, whether it's the new Concourse in Atlanta, Concourse F or whether it's just throughout the whole system, upgrading our Sky Clubs to have more seating and to be more comfortable and frankly just a more relaxing environment for our customers while they are utilizing the Sky Club and having the offerings, food and beverage out there.

You put all that together and the best news, I know internally when we look at it, but also from the standpoint of Delta Airlines is our customers have noticed this change. When you put together the investments we've made in the fundamentals of having operational excellence consistently every day, directly listening to our customers and developing action plans to improve customer service, the ongoing investments in improving our product, the net promoter score, if you look at that quarter by quarter comparison, year-over-year, in the second and third quarter of 2012, it has doubled versus where we where in 2010.

So our customers have definitely noticed this is and I am sure Glen will talk about it. It's definitely been linked to we think the ability to attract that premium customer and is a big part of that improvement of our RASM and it's very rewarding. Now we see 30% in our sites and we are not backing down getting resting on our laurels in any sense.

Up close though with where we are at in terms of consistent performance where we are at really at this point as we look forward in ‘13 is we have made a lot of investments over the last couple of years in terms of capital and cost. We have seen the benefit of that, our customers have seen the benefit of that and as we look forward it’s much more now in terms of completing the product improvements and then institutionalizing the use of the technology that we’ve invested in and really focused on process improvement and consistent execution as we move forward to leverage everything that we have invested in, so that it’s for the benefit of our customers and therefore the benefit of our airline.

And I will just close by saying I thank all those of you in the room who are frequent customers; I hope you have noticed the dramatic change over the last couple of years in the service we are providing and again close with a thanks to all the Delta employees who just done a remarkable job in terms of focus, passion and commitment and we will continue that commitment to continue improve the service. Thank you.

Now I would like to welcome my colleague Glen Hauenstein.

Glen Hauenstein

Thank you very much Steve. I would like to start where Steve left off and that’s a joint thank you to the 80,000 people at Delta Airlines who pull off one of the largest shows in the world if you will that goes on 365 days a year and 24 hours a day. I have the pleasure of essentially getting the report card for that result every month and we can look at it a bunch of different ways, we can look at it as net promoter, we can look at it as the activations we have in our frequent flyer program, we can look at it as the new targeted acquisitions into our credit card portfolio, but really though the thing that manifest itself most is the revenues premium that we drive to the industry and so always tell Steve it makes my job a whole lot easier to report those numbers when the operation is doing so well, day after day, and week after week and month after month.

And that's really I think been one of the driving forces, and it really is not a about us, it’s about fulfilling the consumers needs. And when I say fulfilling the consumers needs, I think there are couple of iterations when we say fulfilling the consumers needs, it’s giving them the on time reliability, the baggage reliability, all those things that Steve just talked about.

But its also flying the airplanes to the places that people want to go and I think that's one of the things that we have continued to focus on and we have continued to focus on either to our own metal, where to the metal of our partners and I think one of the most exciting things we have announced in last year is the announcement that we had yesterday and I would like to again thank our friends out in the audience from Virgin Atlantic who are here with us today. They asked me last night, I had dinner with them after our investor cocktail reception, and they said, what are you going to talk about, and I said well, I’ll go after Ed and Richard and Steve, so I am going to talk about everything they didn't talk about and see what they left for me in my presentation.

The real future of our ability to sustain those profits now that we have a great customer corn, a great customer is the ability to offer more of an experiential and differentiated product. And that's very different for airlines where we set a few years ago where it was a really a race to the bottom in terms of who could produce the most cost effective seat. Now we are really focused on who can produce the most margin accretive seat, and what we've done is there clearly our customer base doesn't want a strip down product. Some of them do and we will in the future and do today have the ability to offer that level of service, but what we are really striving to do is to be able to offer the customer exactly what they want to buy, not only in terms of the transportation aspect but the experience aspect of their travel on Delta.

We have a parallel goal endeavor, we have really you considered a little bit of an argument, who has the most powerful network in the world but clearly between Delta and its partners we would be in the top one or two in terms of selection of who has those great global partnerships alliances and core networks. If you think about it we now have the leading position in New York, we have it up in Tokyo, London, Sao Paulo, Mexico City. All now with our partners and either through equity investments or through joint ventures.

So we essentially can take a US customer base to 99.7% of the points on the earth online with our code that they would want to go, and I think that really when we are talking about further development of the network its really not putting more dots on the map but making the dots we have produced our higher margin by getting closer and closer to what our customers are willing to pay for. Our New York strategy is really paying off. We have a few slides that I'm going to get to, but I would like to thank Gail Grimmett, who has led our New York City efforts for the past year, most of you know her, she is sitting right here in the front row and she has done an amazing job here in New York, taking Delta from an unenviable position I believe it was actually third or fourth several years ago to a number one position where it is today. So thank you Gail.

One of the key drivers when you look at being able to offer the customers what they want is being able to sell it to them, and historically if you think about the GDS the GDS were really good at selling one thing and that was a seat. So if you wanted to sell anything other than the seat from point A to point B, the GDS were not here to do that. So Ed talked a little bit about it, we have reengineered from the ground up our website and it actually just launched about two weeks ago.

So the good news is most of you didn't know that because usually when you launch a new website like that you wind up on the front page of the paper with the web crashing or all these problems having but we really launched it very seamlessly and very quietly, and what you see from the front pages is very different but how it connects into the rest of the systems is quite unique because what it does is it enables us to sell a line of products that we weren't able to sell previous to this in their purchase path of the ticket sale.

It also allows us to do better merchandising, selling hotels, car rentals and selling the entire travel experience as opposed to just an airline ticket. GDS are also following as of yesterday I believe we launched with travel (inaudible) which is the first GDS we've got partnered with, but they will also now be able to offer those products to select agencies that we chose for them to offer these products to. So not only can we offer them through the web but over time will be able to offer them through the entire GDS distribution network.

Customers responding, customers are responding to all of this, and I think my topic is a sustainable revenue premium but we don't want to just sustain it. We want to grow it. And I think we have a great platform. We have a peer correlation of improvements in operational performance and customer satisfaction and improved corporate share. Our corporate share in the space from one quarter of 2010 through one quarter of 2012 has gone up by over two points, just another validation of the many things that we're doing and it's relative attractiveness to our corporate clients.

Some key pillars of how we're going to drive a durable network in our future, and I think I am going to start in the middle because I think it's relevant and so important. Virgin Atlantic is incredibly important to our New York strategy. If you think about what we have done over the past several years in New York through the acquisition of LaGuardia slots through things that are coming on like the opening of T4 later this year or early next year I should say, through the building of a global international networking candidate that we didn’t previously have.

The only real reason that we were being told by our corporate clients that they could not use Delta was we had lack of access to Heathrow. And so, when you think about the new Delta and Delta in 2013, we partner Virgin Atlantic, we have taken away really the last reason for corporate clients not to use Delta in New York and I am very, very excided about that because when you think about the progress we made in LaGuardia and the momentum we have and as we go through 2013, and we get to March, which would be the first month that we allow the introduction of the first phase of the new services and then to July of next year, all of the goodness that accretes to having that presence in New York and having it be there and stay there and mature will come into play and into our revenue streams.

We have a target for this March and our internal target is that LaGuardia from March of 2013 in perpetuity will be a profitable entity for us, and this is a target that we have devised internally and we have a roadmap to get there and we think it is very, very achievable, because as you know LaGuardia is the most preferred airport to (inaudible), not only most preferred for New Yorkers but really most preferred for the people who are living in the places coming into New York. So if you are in Richmond and you have a business meeting in New York what is your preferred airport when you get to New York. I know I live in Atlanta and I will tell you that very few times have I selected Newark or Kennedy when I was given the option of LaGuardia. So not only is it a New York play but it also really strengthens the Delta position in the outstations that are served into LaGuardia.

We have a lot of great product initiatives coming this year as Steve talked the flat beds are coming in, the new Terminal 4 in Kennedy. We have historically measured our underperformance versus American Airlines which I am very confident that we will close in 2013 and that will be part of our revenue momentum, but I don’t think that we are satisfied there because given the size and the scope of our offering in New York we think that we should be generating a premium on that revenue as all of those pieces come on line.

I want to talk a little bit about the RJs and the evolution of the domestic US aviation network. Overtime the larger cities have gotten larger in terms of or what I should say more accurately is that most of the growth in US aviation has occurred in the major US metropolitan areas. And what you are seeing overtime is us decide to terminate service or turn over service to regional partners in very small cities primarily in the center part of the country, but then those trends continue and so how we serve these cities in the future is going to be a very important to our shareholder based because what we need to do is we need to produce a better product for our customers and a seat more efficiently.

So I will give you one example of a situation that occurs today, as we fly several times a day between Birmingham and Memphis, and the Birmingham to Memphis local market is very, very small, its around 10 to 15 people a day and most of those people are on seats that we are flying to Memphis or connecting on Memphis to other places. Now all of those cities are redundant to cities that are served non stop out of Atlanta, where we also fly 50 seats RJs from Atlanta to Birmingham.

As we refleet the airline and reengineer to be more efficient, we believe that by eliminating the 50 seat regional depth service to between Birmingham and Memphis and up gauging the Birmingham to Atlanta to be on medium size RJs or smaller narrow bodies like the 717s, we will be able to produce the products that’s not only more appealing to our customer base because you won't be sitting on 50 seat RJ for an hour and a half. You have two classes on both segments, but its much more cost efficient for us to produce.

If you think about the cost of production for a large city on (inaudible) so Birmingham to Los Angeles the cost of production on small narrow bodies over Atlanta is about 20% below the cost of production going on small 50 seat airplanes to Memphis and then continuing on an aero body to Los Angeles and so people ask us how are going to accomplish the up gauge and still maintain your revenue premium and I think the answer is that we are going to produce a product that people want to buy that's much more efficient in the marketplace and that is superior in long-term economics to anything else that's offered in the marketplace. So not only do we think it’s a durable model but we think it’s appreciated more by our customer base.

And lastly, expanding our reach through our partnerships. We do have a great cluster of partner there for instance GOL at the top and Virgin Atlantic but clearly in Latin America and these are just in their infancies developing our relationships even further with GOL and Aeromexico and using them as leverage points into the secondary and smaller cities in those regions. I think we've done a very effective job in 2012 but we really are just starting down that journey and there's a lot more opportunity for us as we move forward.

A little update on our LaGuardia expansion is as most of you know it is started last March and then continued on through July and through tranches. So as I mentioned earlier, as we get to July of this year we will be lapsing or one-thirteenth of the initial expansion.

We are approximately 50% of the daily departures in LaGuardia about 20%, 20% to 25% of the traffic we currently transit through LaGuardia is connecting and that was right on target for where we thought it would be.

Our New York City margin is up two points despite the capacity as in LaGuardia, so we have essentially had a 45% to the capacity without having any margin deterioration in its first year of operations and I would think that there was one compelling argument that why Delta could continue to outperform and why Delta’s network strength is going to outperform the rest of the industry in 2013. It would be really related to two things one is our presence in New York and the fact that we built it last year and we should start to reap the benefits of it this year.

And the second is the competitive landscape in the rest of our hub. So whether or not its Salt Lake City with a retrench from the Southwest, whether or not its Atlanta with a reduction in services by air travel. We have a very, very favorable capacity offering by the competitive set into our primary hubs across the United States.

So I think those are the two real things that are going to push us even higher as we go into 2013, one is New York and the payoff of New York and all of the investments that we've made over the last five years and the second is the competitive landscape of other airline capacity in our hubs.

Again I don't, we like this so much we show it everywhere because this is second time it appears in this package but our performance versus the industry continues we are on a 19 month streak for the system we are on a 21 month streak for domestic and for what we see in December and January those trends should continue as we end 2012 and head into 2013.

But I think the real question is not really how we judge ourselves versus our peer set. Of course that's a great benchmark and it’s something we are very proud of and something we will continue to focus on, but the real question is what is the opportunity?

I think airlines in general because of our bias towards selling strict transportation has resulted in the age old problem of the guy who paid $79 sitting next to the guy who paid $700 and then having had the exact same experience. And what that cause is a lot of anxiety on the part of the guy that paid $700 and it causes that cocktail conversation and chatter of what had you paid to get to your vacation point.

In spite of the commoditization of the industry, which is probably no more prevalently displayed than in what has historically been the Orbitz or Expedia displays with the metrics on top of what the fare is to get from point A to point B?

I don't know if you have noticed but in the last week, Orbitz has actually now incorporated the ancillary products onto their websites. So now you can buy your experience.

And we call this the car wash and probably that’s not a real sexy thing to do but when you dry out to a car wash, they always offer the basic wash and the basic wash is $10. And then they offer the enhanced wash and then there is the deluxe wash and then there is the supreme wash.

And very, very few people actually just buy the basic car wash. Most people buy some value added product and I think this is the big catch or we finally get at in the airline industry is we really need to offer people what they want to buy, not what we think they want to buy and we need to offer that to them to buy it easily and to control their own not transportation but experience.

And Steve had a slide in his package that talked about some of the things that we're trying to differentiate ourselves on today whether it’s Priority boarding, whether it's club access, whether or not as economy temper whether or not it's Wi-Fi, whether or not it's Priority boarding, whether or not it's aisle seats, whether or not it's anything that we can really think of that we have coming into the pipeline of improved and alternative offerings.

And then it’s our ability to package them and because what we see is somebody’s propensity to buy is much, much higher on the ground in a transaction process than it is later when they are on the airplane.

So what we are trying to do is move more and more not only to the offerings that we would have that are in addition to the airline seat itself, but then combining them and providing additional value add so you might buy a package that included a check bag Priority boarding and club access because what we also find is that when they buy these combination of packages there is breakage on them.

So I didn’t really want to check a bag but they already paid for it and they already felt that they got value from it. So I think if we look at the history or the evolution the first wave of this was what we would call the punitive thing. So baggage used to be free but now we are going to charge it for.

And what we see in this wave and I think we all have about $700 million of this embedded in our plan for 2013 is what we call experiential. So I want to go from LaGuardia to Palm Beach but I don’t want to sit in coach I want to sit in first class or I want to seat in economy comfort or I want to sit on the aisle or I want to buy the weekender package which includes economy comfort and Wi-Fi access and Priority boarding.

And we are just at our infancy of how other products that we can sell not only related to the transportation but related to the 160 million customers a year that we service on Delta.

So how many people in this room have been on a Delta flight in the last year, raise your hand. So if you have been on one with televisions you have probably seen some of the advertisements that we have in embedded on the airplane and really that’s just catching the surface, now that you are going to sit through five hours of commercials, but its indicative of how we would like to monetize what we have, which is the 160 million of this country’s most affluent customers.

So we have a project of Sky Media which is trying to bundle them, so whether at all of the places that we can touch customers, so whether not its in the gate houses with the information display screens whether or not in the boarding pass, whether or not it’s on the airplane whether or not its through an e-mail of opportunities that make us more like an Amazon, you purchase this you might also want this.

And the more and more we can customize that experiences as we forward, the more value we think we can bring not only to our customers but to people who want access to our customers.

So if you look to travel where airline travel is a percentage of the travel experience and it was 44% in 2004, it fallen to 19% by 2011 and we are determine, I think really there are two things as how is your related performance to your peer set? We are doing really well there, but also how do you lead your peer set to get a higher share of the travel and that's what we really going to be focusing our energies on in 2013.

With that, I think my time is up for the presentation. I would like to invite Steve back up here for the question and answer.

Question-and-Answer Session

John Godyn - Morgan Stanley

Hey, this is John Godyn from Morgan Stanley. Glen you just made a comment on $700 million in the budget for 2013 on experiential, can you give us a sense of where it was in 2012?

Glen Hauenstein

I believe it’s about $200 million improvement from where it was in 2012.

John Godyn - Morgan Stanley

Okay that's really helpful. And Steve you had some good slides on there in terms of improvements in on time completion factor. I think sometimes it’s difficult for people in our shoes to sort of quantify the impact of that in terms of what it means for CASM or the bottomline; is there any context that you can give us for that?

Steve Gorman

I'll give you a little bit of context in terms of for example in bad times. In general, obviously there is a quality cost, so as you improve the quality of the operation you reduce the quality costs; a good example is a bag claim. A bag claim we estimate costs us anytime we have a claim about $50 and so when we see that dramatic reduction of 66% and so seven in terms of bag claims and you see there's numbers of you know seven per thousand down to one less than getting close to less than two per thousand. That makes a big difference in terms of the quality cost. That's just one example of where we've had dramatic improvement and been able to reduce quality costs. Obviously, the delay costs, the cancellation costs, its in there as well and in terms of irregular operations have a quality cost and I don't think we are quite happy to model that nails it down exactly to what cancellation costs are for a delay. But we do know when we are running a smooth operation and it’s definitely a benefit cost to us.

Duane Pfennigwerth - Evercore Partners

Duane Pfennigwerth from Evercore. Just a couple of questions for Glen, there was a chart on market share versus fair market share, just wondering how you define that and if you can speak to the headroom on that statistic?

Glen Hauenstein

It’s defined from a QSI model that has given your service levels between these two cities what should your anticipated share be and then it’s aggregated up to at system level. At a market level there's some variability to it, but when it bring it up to the system level its very, very accurate, so that would be how its developed. Is there headroom, I think there's continuously headroom and I think that's our job to you know get closer to what the customer wants and that would really get us the headroom; I think the things that we are doing with our alliance partners, the things and Virgin Atlantic I think is typical. What was the number one reason we couldn’t win our corporate contract in New York when we had the largest presence in New York, the number one answer would be lack of access to Heathrow.

Right, so I would anticipate that we’re unlocking the reasons systematically that you would not use Delta and I think that maybe until I make it negative, but in New York it was if you think about five years ago we didn't have any access to Heathrow then we didn't have enough, and we didn't have any access to South America, we didn't have any access to Asia. We didn't have a big presence in LaGuardia; but we were known for the shuttles and taking Delta to Florida. And what we have now is something that's very, very, very different and something that is very appealing to the business customer and its scope, its depth and its spread and we've really I think with this with the Virgin Atlantic transaction have addressed the last reason that you would not have Delta as your preferred supplier in New York.

Duane Pfennigwerth - Evercore Partners

And then just a follow-up, getting to profitability at LaGuardia, can you frame what the incremental improvement would be?

Glen Hauenstein

We've had profitable months in LaGuardia. We've had, but as you might imagine in December with Sandy we had the first week, the first 10 days after LaGuardia we had 31 unit revenue in New York and that moved back to zero the following week, so a very dramatic impact to the P&L in New York in November. But when I mean sustain profitability, I mean that we have a margin that’s equivalent to the system averages and so there is quite a bit of work for us to do as we get to lapping the initial tranches of LaGuardia.

Jamie Baker - JPMorgan

Hey Glen, Jamie Baker, JPMorgan. If you look at airline revenue production as a percentage of GDP, the relationship is significantly less than what it was sort of pre-2000 and the difference depending on how you look at, it is probably about $15 billion a year and I would suggest that the growth of discount carriers in the advent of the internet are large reasons why. If you accept that we're on the cusp of potentially a transformative merger and one that would finally constitute about 90% of the domestic market in the hands of four players, do you think that that potentially unleashes enough industry pricing power that we can start to close that gap; if so, how much?

Glen Hauenstein

I don’t want to hypothesize about how much, but I would say that I think that there is a positive development for the industry and I would also say that I think our job has been to try and de-commoditize the transaction because a ticket on Spirit is not the same as the ticket on Delta. The experience isn’t the same. But the way it's presented to the customer, it's identical. And so I think similar and we're not the only industry to do this; I think about the insurance companies and the advent of the online agencies and the advent of the insurance version of what an arbiter expedia would be for travel.

And I see how insurance are working to de-commoditize their products by saying, are you covered or all policies are not created equal. And that’s really incumbent on the airline business to let people know of either through our direct communications or through other channels that all seats are not created equal and we have that product, but that product probably isn’t what you want to buy.

So it’s that ability in the logic that we have been missing that says, yes you could buy this, but why don’t you think about this because this meets what your historical travel needs have been and so a little bit incorporating; Amazon a little bit what we have learned from the insurance companies a little bit to say, yes you are not buying a seat from me you are buying a transportation experience. And you should be willing to pay different values for a different experience even if it’s on board the same airport.

Michael Linenberg - Deutsche Bank

Thanks. Michael Linenberg from Deutsche Bank. Steve just a question for you, can you just give us an update on the timing the induction of the 717 fleet; I think initially I thought it was August and may be it slipped a month to September and is there anything with respect to like air worthiness directives that could slow that down, anything on that front would be helpful?

Steve Gorman

Sure. I think all along we have been planning that post the summer of 2013 whether it ends up being little bit later in August or in early September, I do know that we would expect the airplanes to begin going into the actual hangers that surplus we’ll be managing to begin in April and the first airplane obviously it’s the one that will get all the different supplemental types certificates, all STCs and the FAA approval and then we would expect a very, very regular flow. I will tell you from what we are up right now, we don't see any show stoppers at all, from what we know and we do have some of very experienced 717 technical group that happened already be Atlanta who is moved over to the Delta airline. And no show stoppers there and think we will get, when not in terms of ADs or anything that we won’t to do from an STC well along with the supply chain, you know what needs to occur for all that to happen on time and frankly we are moving even along the line of what the maintenance program will be and very, very far down the road on inducted that Delta with a matured maintenance program.

Helane Becker - Dahlman Rose

It’s Helane Becker with Dahlman Rose. How do you ensure that your code-share partners deliver the same product and are committed as deeply as you are in making sure the customer and especially the high value customer gets the same experience, when they think, they bought a Delta ticket through the whole process, how do you, I guess make sure everybody is on the same page?

Steve Gorman

As Glen and I needless to say partner on that working with our partners, we do it with structure and now let me start by saying I will admit that, it is not a, we are not yet to the ultimate goal of having a completely seamless experience, but we do have a good structure of working groups, and I’ll give you an example, the operating working groups where they worked very hard on eliminating those scenes and having the same standards in terms of on time and connecting, and Glen can talk about frequent flier miles, sky priority and priority boarding and all the benefits of being a sky priority member or an elite member of their frequent flier really have worked hard together over the last three years at least Glen maybe five focusing on all those to making it as close to the same as possible. Again I don't want to put forth at all to say that we are there yet. But I think we've made a lot of progress and for those areas where we continue to need to make it a little bit more homogenous from an experience standpoint we have good joint teams working on that with action plans towards that.

Glen Hauenstein

From my perspective I think sky priority was one of the breakthroughs of 2012. We finally rolled Sky priority across all Sky team members with the same branding and the same delivery and the same qualifications. Now that's the be all end all, but I think that's indicative of we know that we need to bring these airlines closer in terms of experience. In the case of Virgin we need to be more like them and in the case of some other carriers they need to be more like us.

But that's really the goal is to take the best of and to bringing them together not that they will ever be totally seamless because the French will always speak with the French accent and the Americans will always speak with American accent and different cultures right I think one of the things we need to be mindful of is as we become these global airlines and we partner with them that we can't expect them to have an American approach to service. And so there will always be differences but I think what we where trying to do is to establish the minimum levels of service that are would be constant amongst all carriers so that we know who you are, we recognize your status, the hard aspects of what your able to get on board an airplane or consistence or if its WiFi or (inaudible) and so pieces and again we will never get it perfect but we have come a long way and we have a long way and we have a long way to go.

Steve Gorman

And I'll add one other thing I mean some of the base that we do take care of obviously is where we handle each other at our different airports, the co-location is a big part of that that's making that a lot easier in different airports, and we have a lot of best practices shared. Because very rarely as you would expect would either one of us run into an issue from an operation standpoint that either one of us happen to have that exact same issue and basically taken actions to tackle it so we are very open in terms of best practices sharing, and one really good example is we will have spoke to hub, hub to hub and hub to spoke in the course of a travel experience. How we balance that holding for a customer at that first hub and what that does to misconnections there for the hub to hub flight versus if we wait too long then we will be sitting with the next hub and be delaying that hub to have a customer maybe miss their connection to the final spoke and dealing with those kind of complexities together on balancing all of that we work together all the time very well on those type of issues.

Unidentified Company Speaker

I would like to thank Steve and Glen for their presentation and I would like to introduce our Chief Financial Officer, Paul Jacobson.

Paul Jacobson

Good morning everybody and truly is an honor and a privilege to be up here in front of you, first Investor Day, Chief Financial Officer for me and I started up by losing my voice yesterday. So hopefully it will hold out for this presentation if not, Gary is going to sprint up here very, very quickly and pick up right where I left off and deliver it as gracefully as he can.

What you heard today is, you know, we've been on a good successful journey of margin expansion over the last several years as we ratcheted up, our product quality, our service delivery quality over that time period with some very targeted investments across the cost and the capital side but doing it in a very disciplined manner that you have seen us balancing with, really good solid, sound free cash flow management, and Richard showed the slide. Early I also got it in to this material that shows really what the true difference in free cash flow management has been when you look at to where we were 10 to 12 years ago during the peaks of the late 90s.

Those investments that we made in the business have been successful, whether it's Glen in the product improvements that you've seen and the revenue performance that he and his sales team have been able to generate or Steve on the really record breaking operational performance that we see at Delta each and every day. All of those targeted investments really ultimately turn in to a quality product as Richard mentioned in his comments that we really need to differentiate ourselves and utilize the first mover advantage we have in this consolidation round in order to continue to improve and expand upon our lead in the industry as a whole.

Going forward, we got to be a lot more focused on the cost element of that side. So that cost growth, in order to tamp that growth rate down, we unveiled and we will be talking in detail today about the billion dollar structural cost improvement program which we start to see benefit and really materializing in the second half of 2013 with the delivery of some of the aircrafts, as well as focusing on fuel with our differentiated strategy of acquiring the trainer refinery.

All of that coupled into a transitionary phase as we look at free cash flow which Richard and Ed both alluded to. As we look at future cash flow deployment we are coming up on the end of our $10 billion target as we have said that is really nothing more than a rest stop on our cross country journey. We have got a ways to go to continue to hit our de-risking targets, but a healthier balance in terms of cash flow deployment between capital debt reduction and shareholder initiatives are on its way as we end up in this transitionary period.

Turning to the cost side, we have said pretty repeatedly that the investments have produced cost pressure, but through all this time period and this shows you going back through 2008 to the most recent period, we have actually maintained our cost advantage over our peers, the legacy carriers and we have done that at a point while we have also significantly expanded our pretax margins.

You hear a lot about these initiatives that we target, whether its product related like seat projects or cost related issues like Steve talked about and I have actually brought a friend with me today to demonstrate just a microcosm of some of the things that Steve has talked about. This is a turbine wheel shaft for a 767 starter motor. You see on the tag here that it is serviceable, so if I dropped it I am going to be in a lot of trouble and Steve’s going to hit me for his budget miss if I drop this part, this part right here cost about $8,000 pretty complicated when you look at all the fans on there and the staff, but this part in combination with its brothers in an entire starter motor complex resulted in 67 fewer cancellations year-over-year, simply because we distributed more of these out to the line, this is the part that simply, you don't know it is going to fail until you start that airplane.

So you have got 235 passengers on that 767 that are wholly dependent on whether this part works, it also relatively quick change. So having one on hand is a critical importance, so investing in that, making sure that we have enough of these parts around. Like I said year-over-year that’s a 67 international cancellations, that’s over 13,000 fewer customers that are unconvinced just by simply more tactical deployment of those parts. So smart investment around the expense side and ensuring that we have the right parts and the right places, at the right time, so that Glen and his sales team to go out and sale that marquee key operation and translate that into better top line revenue.

Looking forward however, we really need to flatten up that unit cost growth, but we can't do it using the entire strategies of the past, historically you go back into the 90s with Delta with the famous leadership 7.5 or you look at post 2001 cost cutting the first place we always land was the people and to the product. We have got a different strategy now, we got a strategy that's working in terms of the revenue share that we gotten as well as the revenue improvement, the more possible thing we can do right now is go in and start taking away product, taking away these starter motors and going back to they way we were, because now that result and just another broken promise. So what we needed to do is we need to change that equation, we really need to focus on going in behind the scenes and driving economic efficiencies that are invisible to the customer.

So ultimately, we are delivering a superior product through a more efficient delivery platform. And that’s what the structural improvement project is all about. So we have got a $1 billion program and you see here that we’ve actually assigned it to about five different categories. Each one of these categories has a responsible officer for it and we get together monthly to talk about progress against those goals and make sure that we are tracking on what we say we are going to do.

There is a lot of things that happen behind the scenes for this but just to touch on some of the highlights in the time that we have, fleet restructuring $300 million target. This is obviously a big component and you’ve seen a lot of that groundwork laid already with the announcements that we’ve had with the 717s as well as the 76 CRJs.

A big component of this is the retirement of the 50-seaters and that will begin really in earnest in realizing maintenance savings as we enter the second half of 2013. As we take delivery of the first 717 in August to begin to take the 737 900s and 76-seaters in September and beyond for the rest of the year that will save us significant amounts of money in engine overhauls on old 757 airplanes that will be part as well as some of the CRJ 500-seaters which Ed mentioned. We won’t be doing any maintenance on that after June 30.

Another element of this structural initiative is on maintenance redesign. So we talked about doing less maintenance by retiring those inefficient and making sure that we replenish them with more efficient customer friendly aircraft. The other piece of it is redesigning the way in which we do maintenance, the target maintenance, lowering material expense by capitalizing on part out opportunities.

So the 757 that’s going to be retiring headed for the desert has some parts on it that can be utilized, going and harvesting those parts, making sure that we get full utilization out of it is going to save us on our parts expense for the 757s that are flying as well as taking advantage of our size and scale.

We've actually gone out and invested capital against old MDAD airplanes. These are aircraft that are typically purchased by part suppliers who will chop that airplane up and sell it for parts. Well, with the amount of utilization that we have and the needs that we have in the scale, we are able to go out and do that and recognize pretty significant savings with pretty rapid capital paybacks of potentially less than one year given the low capital cost to actually acquire that aircraft.

But we've also got to improve our processes focusing our work and attention on those priority parts rather than just the next item in the queue. So as Steve mentioned with (inaudible) compliance its not so much as just going out and buying a lot of inventory, its making sure that you are repairing the parts that are needed most urgently and most critically for the operation, utilizing technology and process redesign to identify those priorities and make sure that the line and make sure that the jet base is working on those parts that are most critical to the operation.

We also think we can save $100 million in distribution platforms. This is primarily driven through improving our market share at delta.com. Glen talked a lot about the technological innovations and investments that we've made on that platform.

Turning it into an incentive for people to go to because the quality of the product and the purchase path gives them the value that they want so that they seek it out, not seeking to penalize people for not utilizing it but by seeking to incent them by offering them the experience in the booking path that they want using our technology.

Restructuring commissions. Steve is here and our sales teams have done a fantastic job of monitoring commissions and making sure we're incenting agents for the behavior and the booking that we want and the quality of the revenues that we get as well as the quantity.

So at the end of the day, driving efficiencies through how we spent and utilized our sales commissions is having a better impact on our top line as well. Reducing merchant fees by driving people and improving our current acquisitions on our SkyMiles American Express Card, we are actually able to reduce our merchant fees.

So by encouraging that and making that a valuable product for people to have as part of their overall relationship with Delta is a great platform for us to actually drive expense savings out of the business by capturing merchant fees savings through that process.

Staffing efficiency, this is another big one and this is one that we're actually already begun to realize the benefits from. A $100 million of this $325 million goal is based on restricting the backfill of the 2,000 employees that exited through the voluntary program that we announced last spring.

We all got together as a management team and we were diligent in our work to redesign our processes to make sure that at the end of the day, we can live without those 2,000 people, driving to more efficiency through the organization and improving the productivity of the people that are there. As well as capitalizing on the productivity improvements in recent file contract. You heard examples about pilot staffing and I think it was Ed that alluded to the fact that we're going to have a lot more seasonal efficiency in how we staff among the pilot ranks as a result of the agreement that we reached with them.

So, as we talk about that contract and these other initiatives laying the foundation for those savings. There is a bucket of other costs here too that we think we can drive a $125 million out of.

Going in and as I mentioned with the spare parts leveraging our size and our scale to actually improve our supply chain, going through and capturing those savings because of the scale and because of the leverage that we have with suppliers. Improving our network efficiency to drive more utilization out of aircraft and reducing our transportation expense.

We ship goods all over our system whether it’s the spare parts like I showed you, catering, fuel everything has a transportation component to it and by focusing on that transportation element and driving better logistical efficiencies, we think we can contribute to that $125 million pie.

Overall, we expect these initiatives to begin to take effect in the second half of 2013 and culminating in a run rate by the end of 2014. We think we will get $600 million out of this program in the second half of ‘13 and as a result, achieve that goal of flattening out our costs increases that you have seen over the last couple of years beginning in the second half of next year.

We are also taking a creative way of addressing fuel expense. We have got a lot of programs aimed at non-fuel CASM but we can’t forget that fuel expense is 35% to 40% of our cost structure and is actually a very critical element and component of how we look at free cash flow and our profitability both in the short and the long-term.

So with the acquisition of the Trainer Refinery, we have already started to see the benefits. As Ed mentioned, we do expect us an operating loss in the fourth quarter primarily driven by the impact of Sandy and the infrastructure around it, but in the days leading up to Sandy just prior to that we had actually reached our goals of hitting a 175,000 barrels a day at a liquid volume recovery in excess of a 100% that’s promising because that shows the potential of the asset and what we have been able to do the bump in the road from hurricane Sandy has been significant but its also temporarily.

In the first quarter, we never expected that we would see a hurricane on the East Coast coupled with a waver of the Jones at to allow free flow of cheaper Gulf Coast product into the New York harbor but even through that we have manage to keep the losses at around $50 million for the quarter.

As we look at how the plan performed just prior to the hurricane as well as what we expect that can do in 2013, we remained very confident in the ability to refinery to drive our $300 million annual savings target and that's the part you will see, when we break out the profitability of the refinery in the 10-K and you see the segment reporting, you are going to see quarter-over-quarter we expect benefits but beyond that there is also been a couple of really key improvements that we have seen in fuel expense over this time period during the start up.

One, Richard alluded to it, at one of our hub cities which shall remain nameless; we actually have had vendors competing to try to stay in the business. Let me rephrase that just to restate it, an airline is the one that always has had zero leverage in the supply chain but we now have two refiners that were competing to supply us with jet fuel because they didn't want to be taken out as a result of the exchange contracts that we entered into and the commercial agreements coupled with refinery.

So by doing that we actually sign them up to long-term agreements saving over $15 million in one city annually, and we have got that booked over the three year contract. So by saving that $15 million you will never see that in the refinery P&L, you are not going to look at and say there is that $15 million but as part of ancillary benefits we call the halo effect of owning this refinery.

The second piece of it is we have actually seen since we turn the refinery on in late September we've actually seen a reduction in jet fuel prices versus ultra low sulfur diesel. If you look at the relative pricing between them over the summer and the year prior you are looking at about a $0.02 premium to diesel is what jet trades. Recently it’s traded as low as $0.04 a gallon cheaper than diesel fuel. That's the savings that the entire industry enjoys but represents for us about $150 million a year of lower expense on fuel. You will never see it in the refinery P&L, but its proof and a proof statement around what we said were the tangential benefits of actually purchasing this refinery and operating it.

The great opportunity for us in 2013 besides getting to that steady run rate of Max Jet which we think we will do in 2013 is the Bakken opportunity. Ed touched on it a little bit during the Q&A, but we fully expect to invest in offloading capabilities to be able to reset crude by rail by the end of 2013. We are working with multiple partners right now and as Richard mentioned, we have a couple of proposals on the table. We expect that we will start receiving some volumes of Bakken in the first half of the year and hoping to grow that component.

But as you look at what Bakken delivered opportunities are versus the West African crude that we put into the refinery today, you are looking at about an $8 to $10 improvement in crude costs over that relative position. By improving that and by increasing the volumes of Bakken, we are going to able to drive significant benefits over and above that $300 million a year that we think will get through that frac spread. And we expect that to begin in 2013.

I'll spend a minute turning to CapEx and free cash flow. I won't spend very long on this slide because Richard’s already talked to it, but what I find compelling about this slide is the relative performance between where we sit today and where people like to talk about the last peak cycle of the late 90s and 2000 period and you can see that we are approaching similar operating cash flow levels to that time period, but look at the difference in cash flow and free cash flow.

During that peak time of the late 90s we were investing all of that operating cash flow in ransom; we are doing it off the platform of an investment grade balance sheet, but we'd already begun to increase our leverage in 1998-99 as we were over investing in the peak aircraft cycle. In order one of the things that we need to do and what you see in this CapEx that we are talking about is more sustained continuous fleet renewal, so that we don't end up with bulky years where we have to go out and contract for airplanes in an uncertain environment four years down the road ending up in a scenario that we did in 2000-2001.

Now I think the industry has changed. I think consolidation has had a very good effect on sustainability of operating cash flows, but couple that with the conservative CapEx that you've seen on a relative basis and that spells significant free cash flow that's available to continue to derisk the business, invest in future projects as well as returning capital to shareholders which is what we are positioning for as we hit our $10 billion goal.

Over the last three years we've actually generated well over $1 billion on average of free cash flow a year. And that has really driven our deleveraging strategy over that time period. We've now paid down over $5 billion of debt, adjusted net debt, as you look at the calculation, since 2009, through a combination of open REIT market, REIT purchases, letting debt instruments mature, buying aircraft off lease which has been a tremendous opportunity for us as people try to redeploy capital in the aircraft leasing space. That's got great effects for us on the seven times calculation, but also going in and taking advantage of the low interest rate environment. So not sitting on the sidelines while we pay down debt but rather looking at where are the opportunities in the market place, not only to pay down debt but also restructure the existing debt.

You’ve heard me say many times that this exercise has been much about optimizing the portfolio of the debt that we have remaining as it has been about getting debt down from $17 billion to $10 billion. And through those efforts, we've actually been able to lower the effective interest rate by a full point on the remaining $10 billion of debt over that time period.

As a result, I think we're going to exceed our $500 million benefit that we talked about at the beginning of this exercise. In fact 2013, interest expense will be over $400 million less than 2009 when we started this, but somewhere between $800 million and $900 million in the middle of that range, which is a tremendous accomplishment when you look at what we've been able to do over that four year time period and have compounding effects.

If you are spending $400 million less per year, and interest expense, you are also generating a significant amount of that in improved free cash flow, which has allowed us to reinvest in the business, pay down debt and as we turn the page in to returning capital to shareholders. One thing we don’t talk about a lot is the pension, but as I had been out on the road, talking to many of you, one of the frequent questions we get is what are you going to do about the pension? Are you going to be putting a lot of cash in to the pension plan? The answer is no.

We got pretty significant relief under the airline protection of the Pension Protection Act in 2006 that we were able to take advantage of. By hard freezing plans we effectively bought relief through 2031 to fund our pension plan, and we repeat that. To fully fund our pension plan right now we are on a track to do it by 2031. We have gotten tremendous benefit out of this both through sustainable and very manageable cash contributions, but stability and the level of those cash contributions and a continuing declining interest and that’s why you have seen a divergence between our pension funding and on balance sheet liability for GAAP purposes. So GAAP requires you to mark that unfunded liability at current interest rates, which are expected to go down another 100 basis points this year versus last year. So you are going to see a widening of the GAAP unfunded liability, but that hasn’t materially impacting and in fact hasn’t impacted at all our funding contribution requirements because of the airline relief bill.

And what we are able to do is we use a fixed 8.85% discount rate to calculate funding requirements under the airline bill, which means that over the next five years we expect to average $700 million of contributions similar to what we have done over the last couple of years regardless of what market discount rates do. So that balance sheet liability is a little bit of a false indicator in terms of what the true calls on cash that the pension plan is. And as a result by 2031, I happen to be at the camp that I think interest rates will be higher than they are today. I am not sure where all of you stand on that, but I will bet a majority of people agree with me in this room. And as you could continue to see improvement and normalization of interest rates over that time period this balance sheet liability will actually come down pretty significantly. The sensitivity to this number is about $2 billion for every one point of discount rate in improvement on the discount rate for GAAP purposes. So we actually run a lot of scenarios on this and look at it, but if you just see a normalized 7% double AA corporate level is been near the average for the last 30 years, you look at that our pension liability goes from about 12 or 13 to where it is today down to about $6 billion and that's more in line with what we are on a trajectory to fund to through 2024.

If interest rates are below 8.85% in 2024, we actually revert normal (inaudible) in which we’ll have seven years to fully fund deficit from that time period forward. So this isn’t something that keeps me awake at night, the only sensitivity we have to our pension contribution is assets returns. Those return have held up quite well this year, I think it will exceed our 9% target with just two weeks to go in the year. But we have no desire to accelerate funding, because really all we are doing is pulling cash flows from that 2024 to 2031 period into the present time, which we don't think there is any need to given where we are in the historically low internet rate environment. So with that I will do is allow for more of the healthy balance of free cash flow deployment over the next few years as we begun and continue to move forward through this progression.

The first part of this exercise is been funding and merger integration followed very closely by the delivering platform that we have talked about, and as we have focused on that and achieve our $10 billion goal, really the time is right to reevaluate, how do we prioritize cash flow is going forward. We are going to continue to delever, I think that's been pretty clear from all of the presentations but the pace at which we delever can be tempered and more balance given the platform that we are on right now was more the shareholder friendly view of capital deployment.

So we come a long way on this journey. I think looking back I have been with the airline for 15 years, and I grew up in a time when airlines made a lot of money in the summer and tried not to give it all away in the winter. We are on the verge and we will print our third conservative profitable December quarter, which hasn't happened since the late 90s during that time period. So I think its good evidence that the environment has changed, and with our first mover advantage and in the early stages we are consolidation in the industry I think the best is still yet to come and I'm happy to be a part of the team and thankful to be partnered with our 80,000 employees and family members that we have at Delta that do their best every single day to deliver a product for each of you everyday so that the sales team can go out and continue to get you on Delta Airplanes more. So with that we will open it up to a few minutes of questions.

Question-and-Answer Session

Unidentified Analyst

Even if I take out the savings you have $600 million and a $1 billion next year, it seems like you are underlying unit cost inflation is around 4% a year without unless you have the really (inaudible) just to stay even. Is that a downside of having such an old fleet that you are just going to have more natural underlying cost inflation than your peers.

Paul Jacobson

No Glen I think what's missing from that equation is the year-over-year productivity that we aim for through just the general operating plan. So you are not looking at the incomplete picture when you look at just taking the structural benefits out of the normal cost inflation. We generally strive to offset regular way inflation through operational improvements and general performance improvement at the divisional level and we've done an okay job of that. I think as capacity has come down that's put a lot of pressure on the unit cost but overall margins remain healthy and that's what we are aiming for.

Michael Linenberg - Deutsche Bank

Paul just two quick ones, the $8 to $10 per barrel savings between the Bakken and the West African, is that inclusive also of transportation costs, is that in there and then if it is what are the transportation costs per barrel. What are you using?

Paul Jacobson

So when you look at delivered Brent into the northeastern refinery you are generally looking at about Brent plus $4, which includes both the transportation plus the quality premium depending on what you are using in West Africa. So by looking at where the differentials have been and as you look back to Clearbrook, WTI to Brent and factoring in somewhere in the neighborhood of about $16 a barrel for transportation costs on rail, some of that can be taken out through various partnerships, through the supply chain as well as by building and offloading. The fewer times you can handle that barrel of oil during (inaudible) the cheaper it is to move it from point A to point B, and that's why its important to have an offloading capability and resource available at your plant gate to minimize those holdings. So we think we can get some improvement off on that $16 over time and look to try to drive that, but clearly the presence of Bakken crude oil in the plan is going to have a multiplier effect on the overall profitability given what the plant is able to do.

Michael Linenberg - Deutsche Bank

Just one other on the pension contribution, you gave us the $700 million, what is it on a P&L impact and then what is that on the 4% to 6% increase in CASM ex-fuel for 2013. How much of that is that pension piece if any?

Paul Jacobson

The defined benefit impact of the pension expense is actually relatively flat. You are at a point right now where given the size of the balance sheet liability, you get just as much savings in the annual service cost from lower interest rate as you do from amortization of higher unfunded balance. So that’s roughly flat as we look forward and that’s not very sensitive to interest rates based or where we are right now. That will change overtime but overall funding is going to remain pretty constant too.

Unidentified Analyst

Paul, its Mark (inaudible) JPMorgan. When you mentioned the balance deployment of excess cash going forward and cash flow going forward, you have this $10 billion net debt target. What's your new target? There has to be something that you use as a governor for how you manage share repurchases and dividends? Is it a debt-to-EBITDA target? Is it a credit rating? You mentioned in the past, maybe getting the balance sheet back to BB or investment grade. How should we think about that going forward?

Paul Jacobson

Well, I think pretty clearly, we said we had unveiled a plan as we get into the spring. I think long-term we've said, investment grade is a target but those metrics are, pretty far out on the horizon when you look at the amount of beyond balance sheet liability that the rating agencies take into account.

So to say that we're aimed squarely on an investment grade rating wouldn't do justice to a balanced approach because you basically have to consume all your free cash flow and further delevering. You would have to contribute to the pension to satisfy that piece of it which we have no interest in doing given the airline relief portion. So I think the right answer is a balanced approach and we will have more details and the specifics as we get into 2013.

Unidentified Analyst

And then just a quick follow-up. In terms of how you fund yourself going forward? (Inaudible) has been very clear about trying to focus on aircraft debt and really unencumbering all sort of non-aircraft assets on the balance sheet. You have had a little bit of a different mix you just redid your bank line obviously secured by some of your slots, so I am just wondering when you look at sort of efficiently funding the business how we should we think about that in your mix of assets that you look to lever?

Paul Jacobson

Well I think the asset mix is determined by two things one is receptivity in the markets and given where interest rates are today, we felt like it was prudent to go in and continue to keep debt on the assets that we have got right now and not use that to really free those up.

The second piece of it is the quality of the assets for a rainy day, so should we find ourselves in a scenario that we need to raise cash having quality assets that are going to survive even dips in the capital market access newer airplanes etcetera is provides a little bit of a better platform than having a [hedge part] of other assets.

So while there is receptivity to that we want to make sure we take advantage of it. Our delivering has all our efforts have been aimed opportunistically where is the biggest bank for the buck in terms of what we are able to drive in terms of savings which is why buying aircraft off lease has been such a great opportunity for us where you find opportunities of people that want to raise cash at the operating less or level you can go in and drive returns well in access of 10%, 12%, 15% when you look at it on the settlement basis versus what you are paying in annual rent expense.

So we are going to remain opportunistically driven much as you have been asking for the last four years I am not going to tell you what the next debt instrument we are going to buyback is but we are going to try to stay balanced in that approach.

Unidentified Analyst

Ed mentioned a little bit about the downside of participation on the hedge book if crude prices fall feels like I am seeing a lot more headlines about crude being probably the entire brand falling into the $50, $60 barrel range some point next year which I mean I have no idea who knows but if it does what to say brand and say $60 level. Can you give us sort of the puts and takes that we should expect not only from the hedge book but also with Trainer as well and the ability that you have to participate on that maybe to quantify as much as you can?

Paul Jacobson

Sure, we have actually been proactively going in and trying to improve our downside participation because we don't want to have happen is a repeat of 2008, 2009 where we saw a rapid decline in prices and inability to participate on that in the short-term.

And the tradeoff and that is really more expensive implementation of your hedging program by focusing a little bit more on premium spend to get that downside participation.

We feel comfortable doing that because the way we set up our plans for 2013 actually has prices above where current market levels are, and that's important we constantly plan for the business for higher fuel prices and don't want to be surprised by it, but I think where we sit right now, we got an opportunity to restructure the book to get a little bit more downside participation.

What we are aiming for is regardless of how far fuel prices drop is to cap any hedge losses of $300 million for the year. We have done a lot of work in the book to make sure that's the case and that's what we are aiming, that may sacrifice a little bit of protection to the upside, but overall that's the prudent thing to do based on where we sit in the landscape today.

As it relates to Trainer that's really going to be a function of product cracks not necessarily the underlying crude and where cracks are right now there are lot of refineries throughout the world particularly in Europe, if cracks remain at these levels they are going to have to shutdown. So that should actually put some upward pressure on cracks.

But the North Eastern refineries right now especially with the opportunity for Bakken once the infrastructure is fixed and that’s actually pretty well positioned and insulated against those effects based on what prices are and we would expect that to continue through 2013.

Dan McKenzie - Buckingham Research

Thanks very much Paul. Dan McKenzie from Buckingham Research. One clarification question as I try to reconcile the cost savings with your non-fuel CASM guidance as you into next year, is the takeaway that you know, your non-fuel cost guidance would have really been say 6% to 8% because of these initiatives that you are undertaking its now 4% to 6%, is that the right way to think of that.

Paul Jacobson

Yeah, it obviously would be higher without the structural initiatives but the structural initiatives are a very key component of how we look at and plan for the year which is really one of the key drivers for why the 76-seater makes sense over that time period as Ed and Richard mentioned that the incremental debt that you take on from just retiring the 50-seaters and bringing the newer 76-seaters on is paid for within a very short time period just based on the annualization of the savings that you get for maintaining the fleet.

So as you look at where we are on 4% to 6%, yeah we would be higher if we weren't cutting you know $600 million out of the cost structure structurally but that's part of where we are and the decisions we need to make in order to flatten the unit costs.

Dan McKenzie - Buckingham Research

And then my second question is really a revenue recognition question and that is one of your competitors has reviewed the breakage on their frequent flier program. I am wondering if it would make sense for Delta to do something similar and the implication of that with respect to revenues and cash looking ahead.

Paul Jacobson

Well, I think we are focused on cash revenue generation and we can take the accounting questions offline but overall I think we are going to continue to perform the way we have through our sales team and we will talk about accounting specifics offline.

Thank you all for your attention and with that I'll turn it over to Richard for some wrap up comments.

Richard Anderson

Well, thank you all for being here. That concludes our 2012 Investor Day. We appreciate all of your attention and your good questions and we look forward throughout the year of being credibly responsive to you and to the investors you represent.

I think you get a really good picture of our strategy and our focus and where we expect to continue taking Delta. We've been on quite a journey together with many of you and with our employees and we think back to where the first Investor Day presentations were in 2007 and what we looked alike on a standalone basis and where we sit today in 2012.

And I think you can see that we have ambitious plans for 2013 and as we look at on the horizon, we are excited about where the opportunities lie. We are convinced that our RASM premium is sustainable and that we can in fact grow that RASM premium over time and that most importantly, we value the capital that we've been entrusted with and we look forward to continuing our dialogue with you over the course of the next several months as we get to our announcement at our annual meeting at June on our future capital deployment strategy.

So please stay in touch with us, give us our views. We always appreciate the feedback and we take your feedback to heart because we do want to be the airline that is the preferred investment vehicle for all your portfolios and customers.

So thank you so much again. I must apologize to you I cannot stay for lunch because we have board meetings that start board and committee meetings. We have to take our annual operating plan to get approved by our board over the next day and I've got to start those meetings promptly at 1 O'clock. So I do appreciate your being here and look forward to dialoguing with you throughout the year. Thank you.

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