Edward H. Bastian - President and Director
Mark Streeter - JP Morgan Chase & Co, Research Division
Delta Air Lines, Inc. (DAL) JPMorgan Aviation, Transportation and Defense Conference March 4, 2013 9:30 AM ET
Mark Streeter - JP Morgan Chase & Co, Research Division
Okay. Let's keep on schedule here. Very pleased to have with us Delta Air Lines and Ed Bastian, who is the President of Delta Air Lines, specifically. Ed will introduce the Delta management team, most of which is here this morning. Ed, you have a very strong crowd. And Ed and I have a few things in common. I've already mentioned my family a couple of times. And I don't know if I ever told you, but my father worked at Frito-Lay, so Ed worked at Frito-Lay. Ed also likes to ski, I like to ski. And I recently ran into Ed in Salt Lake, which I flew to on my birthday, I've already mentioned my birthday this morning. And I paid for a first-class ticket because Delta's load factors into Salt Lake are so high, I knew I couldn't upgrade. And I was flying on my birthday so -- but it was nice to see Ed and other members of the Delta management team out in Salt Lake where they were announcing profit-sharing to employees, which is another indication of how far things have come in the airline space.
So with that, let me turn it over to Ed.
Edward H. Bastian
Thank you, Mark. That was a nice introduction. I'm not sure what Frito-Lay has to do with anything these days in the airline world. They've got really good profits and we aspire to be them in terms of matching their margins someday, I do appreciate that. It was good to see you out in Salt Lake.
I have a good team of our folks here with me this morning. I'll just go down in order. We've got Mr. Gary Chase, who heads up our financial planning and analysis group and Investor Relations, and many of you get know Gary quite well. Glen Hauenstein. Glen is just back from vacation. So made sure Glen came, he wouldn't miss this. Jamie, he's back here only because of you, and glad he's sitting next to you. Paul Jacobson, our Chief Financial Officer and Jill Greer, who heads up Investor Relations from us. So we're pleased to be here.
We also have a couple of members from the Air Line Pilots Association with us today. We've got Doug Ralph. Doug, where are you? Way back, I can't see you. And Mike Hanson. Mike, you're in the back as well. We're always pleased to have our pilots join us at these presentations and it's a great show of force of unity and strength, and the commitment that we have to driving down a difficult road, but we're riding it together and we're doing a great job.
As you all know, we are on a public also. We will be providing some forecasts and some updated guidance, and any questions that anyone might have, feel free to access our delta.com investor website, and you can get the information to analyze any of the questions you might need from that.
So it's an exciting time, as always, to be in the industry. There's a tremendous amount of change that's going on. I'm sure change that will be discussed today, and I'm sure we're all looking forward to hearing what various folks have to say about the change they see coming down the road. But it's a particularly exciting time to be at Delta given the momentum that we've garnered and we continue to generate. We continue to innovate and drive structural change to the business model, and glad to say that the years of hard work that we've been at it together are paying off, and look forward to sharing an update of the progress with you here this morning.
We had a strong 2012, and that momentum is continuing into 2013 as we are on track to deliver our best March quarter in over 1 decade. All of which confirms our main investment thesis. That is that despite challenging economic headwinds in our 3 largest markets, the U.S, Europe and Japan, and all prices that stubbornly stay at relatively historic highs, paying over $130 a barrel for jet fuel, we, as an industry and as a company, have taken the tough steps, tough decisions and made the necessary changes across the business model to produce a solid and durable stream of earnings that you can count on going forward.
And while we're pleased with the progress we're making, by no means are we satisfied. We realized that there's more that we need to do in order to create a high-performing company for you, our shareholders, as well as for employees and our customers. And that's why you've seen us take the steps we have to drive innovation, invest in our product, our technology and our services, keep fueling that momentum and drive for even stronger results in 2013 and beyond.
This is a snapshot of the 2012 results for the industry. And as you can see, from the leadership position that Delta has taken within an improving industry, Delta delivered a full 50% of the entire U.S. industry's 2012 profits, and that's quite a statement, and we continue, as I mentioned earlier, look forward to 2013 with great expectations. We generated $1.6 billion of net income, which was an increase of 30% from 2011. We grew our unit revenue 7% and continue to outpace the industry, for now the second year in a row. We delivered, for our customers, top-tier operational performance and a 40% drop in customer compliance as a result.
Our net debt goals continue to be within reach now as we reduced our net debt by over $1 billion in the year, and produced an 11% return on invested capital. And the momentum that we've built continues into the first quarter. We're forecasting Delta's best first quarter in over 12 years, and in fact, hope to post a profit in the first quarter, which is by far, our most difficult seasonal quarter of the year, reaching yet again another milepost along the way to a stable, durable franchise that our investors should expect.
With respect to our guidance for the quarter, our operating margin guidance is we expect to be between 2.5% to 3.5% for the quarter. Our fuel price guidance for the quarter is expected to be, and that's including taxes and settle pages, $3.23 and $3.28 per gallon. With respect to our unit revenues, we expect our passenger unit revenues up in the quarter, between 4.5% and 5.5%. We expect our consolidated nonfuel unit cost to be up between 6% and 7%, we'll talk about that over the course of this presentation. And our system capacity to be down between 2 and 3 points for the quarter.
This guidance is largely consistent with the guidance that we provided in January when we first gave guidance for the quarter. We've tightened it up in a couple of areas. Our operating margin guidance, the midpoint is about 50 basis points lower than it was back 2 months ago, and that's directly attributable to the rise in fuel price within the quarter where we've seen a $0.10 rise in fuel prices real-time in the quarter, and that's nicked our margins just a tad.
On the revenue front, we maintain the same midpoint guidance that we had back in January, and we've also improved or touched our ex-fuel unit cost, and so we're pleased with the initial effects we're starting to see from our cost-reduction efforts and our nonfuel unit costs are down just a tad from the midpoint that we're expecting a couple months ago.
I would also want to put Q1 results into context. Our last profitable first quarter was in 2000. And at that time, fuel prices were substantially lower than they are today. In fact, fuel price per gallon in the 2000 March quarter was $0.62 a gallon, just think of that way back when, that's the last time we made money in the first quarter. That compares to fuel prices in the current quarter of $3.25 a gallon, a sizable increase.
That change alone represents over $2 billion of higher cost in the quarter than we paid the last time we had a profitable first quarter. So a common question that we get from our investors, and I expect we're going to get continue from investors today is, is this time different? And we've been making progress in showing evidence, hopefully, over the course of the last several years, that yes, indeed, this time is different and the airlines are managing their balances differently. But from my perspective, if this doesn't provide solid proof that this time is indeed different, I don't know that will.
We realized for Delta to deliver the long-term performance that we all strive for requires that all stakeholders, our employees, our customers and our shareholders, all participate in that success. For the employees, Delta needs to be, and is, a great place to work. And as we take great care of our employees, they do, in turn, a great job serving our customers, who continue to drive both market share and revenue premiums for Delta. And I think that with all humility, we have done a great job in the last 5 years on both of those dimensions. And our industry-leading results had almost any metric that he want to look at, whether it's our operational reliability, our customer satisfaction scores, our financial performance or corporate market share, are testaments to that success.
Our shareholders, however, had required patience over this process as we've used the free cash that we've generated during those past few years to pay down debt and de-risk the balance sheet. Over $5 billion has been paid down in net debt over the last 3 years, making Delta a more stable and durable company. And we expect to hit our net debt target of $10 billion this year. And we're now at the point of evaluating the optimal use of that continuing stream of free cash over the next 3 years. We'll continue to delever the balance sheet, that's not going to change. We're going to continue to be very disciplined in how we look at our capital requirements, as always, and that's not going to change. But we're now at a point, together with our board, of considering some additional uses for that cash, including some element of return to our shareholders, and we expect to make an announcement in advance of our upcoming shareholder meeting this June as to our plans.
Historically, airlines have had a tough time maintaining balance over all 3 constituencies. However, we realize that in order to strike this balance, that we must strike that balance if we are to be considered a great long-term investment for our shareholders. And we're committed to continuing down this path and doing things differently from the prior years.
Doing it differently requires discipline in our capital deployment, something airlines historically have not been great at. Look at this chart, which captures our operating cash flows for the last 15 years and our CapEx over that same timeframe. The last time that we reached the level of profitability that we now sit at was in the late '90s. Well, look at how cash then was generated and being used. Reinvesting large amounts back into the business, overspending, creating sizable debt at an unsustainable degree of risk. Sure enough, it led to the reorganization of both Delta and Northwest.
Now look at how we've been managing our cash and capital over the last 8 years, a balance and disciplined approach that understands in order for us to improve our returns on invested capital, we need to manage not just the returns, but we also have to manage the capital that's expended to generate those returns. And it's the successful application of that approach that allows us to consider returning capital and cash back to our shareholders in future years.
Where we've expended capital, we believe it's been very targeted in improving the quality of the product and the services that we offer to our customers. We're not expending capital to grow what we do. We believe we already are of sufficient scale on a global basis. Our goal for the last several years has been -- is to expend capital to improve what we do, to ensure its consistency, its reliability, before we consider any new growth.
So you can see the depth of the product improvements onboard our aircraft in our facilities, in our technology, as well as the expansion of our international partner relationships. But importantly, we've also made similar investments in the reliability of our operations, for the last 2 years, have been leading the U.S. industry on every key performance goal, running a better airline than at any time in our history. And what's exciting, that there's more that can be done.
You see those investments that we've been making to improve our product, our service and our operations, that's driving and making Delta the airline of choice for our customers. We've driven an increasing revenue premium relative to the competition now for 22 straight months. Customers are speaking loud and clear, they're choosing Delta, and we're proud of that. And for February, we disclosed our February unit revenue information this morning, and we're going to be reporting for February a 5% increase in our unit revenues for the month, which we expect to once again outperform our competitors and deliver our 23rd straight month of industry leadership.
Now given this period of outperformance, we receive questions as to its sustainability. Not only do we believe its sustainable, but we're expecting to be able to add to our position of leadership. And one of the key drivers of our premiums that we expect to continue is the momentum that we've generated with our corporate customers. Our investments in our product, our improved service and reliability have been widely recognized and applauded. In fact, in 2012, we won over 30 business awards, just about every award that you can imagine that's being -- was handed out for airlines, Delta was named in. And was capped of last week by Fortune naming Delta its most admired global airline for the year.
And you can see the tangible results of those awards on the other side of the chart, in the improved market share, in the highly valued corporate revenue space, which continues in 2013. Our corporate revenues in the first 2 months of this year are up 8%, despite the fact that overall flying levels are down 5%. And those gains are broad-based as you can see with only 2 sectors posting declines, and no surprise, those are the defense and the transportation sectors. This is against an overall corporate market backdrop, where industry spend, corporately, is up only modestly above prior-year levels. So once again, indicating the share shift that we continue to garner.
And when you consider the key improvements that we have yet to implement, the new facility at JFK that we'll be opening in May, the full rollout of our international -- new international product that will be completed by this time next year or the fact that we're going to be closing later this year with the newest member of the family, Virgin Atlantic. You can see why we expect that momentum is going to be durable, and it's going to continue going forward.
Another customer innovation that we recently announced that we're very excited about, that also has great application with our corporate customers, is our joint loyalty program with Starwood, the leading hotel loyalty brand in the industry. Crossover Rewards, which we created together, unites our 2 brands, bringing customers of both programs' unique benefits, providing our diamond and platinum members access to the elite benefits that are available to all of the Starwood elite members. And this also creates exciting cross marketing opportunities as there is an enormous amount of elite members across the 2 programs who only have limited activity on each other. That, we have full access to now, and that's going to be a very exciting development. So yet, one more way of leveraging first mover advantage in this industry, at the same time, we're bringing great value to our customers.
As most of you know, the most important corporate initiative we have at Delta is our win in New York strategy, and I'm pleased to report the progress that we're making. We've picked up over 7 points of overall corporate market share in New York in the last 3 years, and as we look in 2013, that's continuing to grow, helping us to improve our overall margins by 300 basis points in New York in just the last year alone. And while we're pleased with the progress, we have much more improvement ahead of us. We're still in the building phase here. We're still not complete, as I mentioned, with our international product rollout, which will be complete over the next year.
We still haven't opened our new facility at JFK, which we'll be opening May 24, so come out and see it if you can. We're going to be improving this year on the spool up that we had at LaGuardia. We added 45% capacity at LaGuardia over the past year in 2012 as we took over the old U.S. Air facilities and renovated them and we've built Delta to where now Delta is by far the #1 airline at LaGuardia, and we're going to be lapping that spooling effect in the coming year, which is going to add a nice bit of improvement into our margins as well. And then finally, starting up our new trans-Atlantic journey JV with Virgin later this year. All these things are going to improve performance in New York. We're pleased with the progress we're making. Hats off to Gail Grimmett and the team up here, she's doing a wonderful job and we're very excited about where this is headed.
The most important access point for corporate travelers, however, is Heathrow, and that's been -- that is the driving force behind our investment decision in Virgin Atlantic Airways. Four years ago, it's hard to believe, 4 years ago, Delta was legally restricted from serving Heathrow. And so -- and it's just that short time span, in the last 4 years, we're going to go into the overall #2 position both at Heathrow and across the trans-Atlantic with 23 combined roundtrips and a 25% market share. And as we put together our new joint venture with Virgin in New York, we'll have 9 daily roundtrips and a 36% market share on the most important international route in the world, JFK to Heathrow.
To see the significance of Heathrow to trans-Atlantic travelers, the JFK to Heathrow route is 2x larger than the second most traveled route, as you can see in the chart, and 3x larger than the second busiest route out of New York. It's a must-have market. And of the top 10 markets across the trans-Atlantic, 85% of those travelers are going to Heathrow. This has historically provided our single biggest challenge in our corporate customer negotiations, particularly here in New York, when we have not in the past been able to provide competitive frequencies. We now will be able to compete with anyone in this must-win market. The regulatory approval processes on the Virgin transaction are moving well, and we expect to be in position to close the deal and start the ATI implementation by the end of the summer.
Now as we've talked a lot about improvements in product and service and quality and they do come at a cost, it's not free. And in fact, one of the big balancing acts that we must constantly face between driving the product that we want our customers and our customers want to pay a premium for, with funding the costs that are necessary in order to produce that product. When you look at our 2013 cost guidance, our nonfuel cost guidance, you can see that depicted here. We expect our nonfuel cost to increase for the full year of 2013 by 3% to 5%. However, the majority of that will be in the first half of the year, and that's largely driven by what we consider to be the final reset of our employee pay scales. And you'll see a moderation of that, as you can see, starting in the second half of the year, where we expect our second half nonfuel costs to be up -- down -- or up only 1% to 3%.
Our long-term strategy is to keep our future cost growth within overall inflation expectations and helping to keep those costs in check are a considerable list of structural cost initiatives laid out here on this page. We've ran through these in the past with our investors, I'll touch on them quickly. Fleet restructuring, I'll be talking about in a minute, and that's primarily what we're doing to replace 50-seat jets and up gauge to mainline and larger regionals. Big improvement and opportunities that we've got in maintenance as we capitalize on market purchase and part-out opportunities. Delta does have one of the older fleets in the system, and as a result, we have considerable opportunities to use older equipment to, in effect, improve the overall performance of our maintenance programs.
Distribution. We've been a driver, we haven't been out very publicly with this, but we've been a driver in driving lower-cost distribution platforms and particularly to delta.com, our website. And finally, staffing efficiencies, where we're using technology to improve the overall levels of productivity of our employees. So we appreciate that it's been -- it's the other side of the coin when you talk and you get very excited about your commercial opportunities, there is a cost to it. I'm pleased to say that the programs are working well, and we will be, long-term, within general inflationary conditions.
On the fleet, the most important structural improvement that we have is the domestic fleet restructuring, that we're in the midst of implementing, dramatically reducing reliance on what was just a couple of years ago our largest fleet, that being the 50-seaters. Looking at this, this is a bar chart that compares our 2009 domestic fleet count to where we expect it to be in 2015. And you can see that we're reducing the overall number of 50-seaters by 75% or over 350. In fact, we've already reduced -- we've reduced about half of where we're reducing and we're going to be reducing it by another 200 aircraft in 2015 and replacing them with 2-class upgauge regional jets and the 717 deal that we announced last year with Southwest.
Interestingly, our 2-class regional jets have both a higher RASM and a lower CASM compared to 50-seat jets, and they have a lower maintenance burden as many of the older 50-seat jets are coming into fairly significant maintenance events over the next couple of years. So this is a home run and a win-win by almost any way you want to look at it. And bottom line is over the next 3 years, we're going to be able to deliver our current domestic capacity with 200 less aircraft, driving increased cost efficiencies and customer satisfaction. So any way you want to look at that, this is a home run. We're making great progress on it and we'll continue to update you as we move forward here.
We've also taken another innovative step to help manage our highest cost item, and that being through the purchase of the Trainer Refinery. We do not believe as some do in the industry, that you take a hands-off or reactionary approach to your highest and your most volatile cost item. And we've experienced so some teething pains in the start-up process, running an oil refinery, much like running an airline, is not for the faint of heart. We were impacted significantly by Superstorm Sandy as I think you know, and that was followed up by some operational delays that we had in receiving our full crude supplies cost by weather and force majeure conversions. Those start-up issues had since been solved and we expect the plant and the plant will be up running at full capacity this week.
But as a result of some of the operational delays that we experienced in the month of January and February, we ran the plant at only 75% of capacity for the majority of the quarter, yet, we still expect to breakeven on the facility in the quarter. So even at only a 75% utilization rate, we're still going to break even, which is very meaningful. And we went back and we looked at had we been running to give you a sense for the power of this -- of the potential power of the refinery if we were able to run at full capacity for the quarter, we would have made $60 million in the current quarter from the capacity.
And as we are now at full capacity, and as we look to the second quarter, we're projecting a profit in the second quarter of somewhere between $75 million and $100 million just in the second quarter alone using the current market cracks. So hopefully, you'll see that the evidence is sound, the strategy is sound, there's evidence here that we're going to make this work for us. But like anything, that's big and new and different has taken us a little bit longer to turn on than we thought. And one of the other real game changers for the refinery acquisition that we'll create is our opportunity to tap into alternate and cheaper sources of crude as compared to what we pay for today, which are the North Atlantic Brent price supply.
We've been active in making arrangements to source Bakken crude at considerable savings from Brent. In fact, we had our first shipment just a couple of weeks ago at the plant, and the light sweet product, I'm pleased to say, ran very, very well. So we're working with a number of parties to deliver crude shipments by rail that we expect to start by the middle of this year. Quantities initially will be a bit limited, but it should still generate considerable savings that only an airline can only access by physically participating in the refinery economics. So stay tuned for more announcements in the coming months. This is going to be another one of those big game-changing innovation items that we're very excited about, which is the crude by rail opportunity, particularly using Bakken.
And yet, we haven't forgotten about our hedge book. We're still managing that in a disciplined manner. And as of the market close on Friday, we expect our hedges to generate a net gain of $40 million and a like amount in Q2. Our hedge book beyond June is quite limited. And finally, the last major structural change that we've been implementing and we continue to implement is our debt buy-down strategy, de-risking the balance sheet and providing considerable bottom-line savings and interest cost. We expect to hit our $10 billion net debt target this year, and we will be at $11.3 billion in net debt as of March 31, at the end of this month. That's almost a $6 billion reduction in net debt in a little over 3 years. And on the other side of the page, you can see the production it's had on the bottom line in terms of the reduced interest costs and the enhanced flexibility for financing. And we expect long term, our interest line to generally -- to get down to the $750 million sometime in the 2014 timeframe.
So in summary, you can see, hopefully, why we're excited about our future. We're coming off a very solid performance in 2012, but yet the opportunities for improvements remain in many areas of our business. A friend of mine is fond of saying that momentum is a leader's best friend. And in this industry, I think there's no question that Delta is the company that has that momentum, and we're going to do everything we can to keep it, to keep feeding it, staying ahead of our competitors and improving the service that we provide to our customers and the returns that we provide to you, our investors.
So thank you for the opportunity, Jamie and Mark, it's always a pleasure to be here. It's an exciting time at Delta and we always love to talk about where we're going for the future. Thank you.
Mark Streeter - JP Morgan Chase & Co, Research Division
To that we've got a question over here.
You talked a little bit about the Bakken crude coming on by rail. Could you -- and the volumes would be small, initially. Could you give us a sense of what that ramp might look like? And as we exit the year, for example, what sorts of volumes might be coming in from the Bakken?
Edward H. Bastian
I'd be -- it'd be premature to give you a sense for the volumes at this point because we're still early -- not early, we're, I'd say, mid-stage in negotiations with a number of suppliers. The biggest challenge we're facing is obviously getting our hands on adequate supplies up in the Dakotas and working with the rails on the distribution front. But suffice to say, we do -- we've made good progress in that space. We expect soon, probably sometime in the next 60 days, to be making an announcement as to what we'll be delivering. Initial quantity is, as I mentioned, will be a bit limited, but they'll still be meaningful with respect to bottom-line savings for fuel. Nice way of saying, I can't tell you much right now. So...
You mentioned your $10 billion net debt target, one of the other obligations that airlines have, and your airline more than some others, are pensions. Obviously, the required cash needs for that aren't that large and they can be spread out over a long period of time. As reported, there's a headwind of lower interest costs and lower discount rates and so forth. How do you think about that in the overall capital deployment?
Edward H. Bastian
Well, we, unlike many companies, and I know pension funding has become a big topic in the corporate landscape in general, not just for airlines. But we applied back and we were granted a special permission in 2006 from the U.S. Congress for what's called a Pension Protection Act, which in turn for us are freezing the plans and keeping plans, we would have extended relief with respect to how long we have to fund those plans. Our obligation to fund them really stretch out -- stretches out to 2031. So when you sit here today, we've got almost 18, 19 years from now before we're required to be in a funded position. If you look at our total liability, our unfunded liability, I think it's probably in the $12 billion to $13 billion region, I'm not sure the final number as discount rates continue to move on us. That number, however, has been significantly influenced by the reduction, drive down in discount rates. So when we think about long term, will interest rates and can they stay at these low levels long term into the future? We think that's unlikely. They eventually will start to rise at some point. And by our estimate, at least 1/2 of that liability will probably be eliminated, at least from the balance sheet recording, just by the fact that interest rates start to climb. And I think the measure is for every 100 basis points of interest rate increase, eliminates $2 billion of liability, it's something in that magnitude. So you have to look through the math to figure out what the real long-term economic expectation is for that liability. We are including that as part of our analysis with our board as we consider what the return of capital could mean to shareholders in the future. So we're looking at that. Today though, our pension obligations and our funding levels are at the same levels they've been for the last couple of years, and we expect for at least the next 2 to 3 years for them to stay in those same levels.
And could you talk -- hi, over here to the left, back here. Talk a little bit about the capacity rationalization on the trans-Atlantic route. Delta being one of the most proactive in that regard throughout 2012, given the pending investment at Virgin Atlantic, wondering how you think about, over the next, say, 6 to 9 months the capacity management for the legacy Delta routes on trans-Atlantic.
Edward H. Bastian
Well, we've continued to be quite disciplined with our capacity in the trans-Atlantic. And when I say we, I mean us and Air France-KLM, Alitalia, our joint venture partners, and soon to be Virgin Atlantic, as well, and it's paying off in the results. If you look at our first quarter 2013 unit revenues, our trans-Atlantic unit revenues are up double digits on a year-over-year basis. The best unit revenue performance we have in any of the regions of the globe, including here in the U.S. And certainly some -- a large part of this is being driven by capacity route utilization, another big part of it is by the improvements that we're making in the product and the service and continuing on the network side to drive more of more of our flows over our key hubs in Amsterdam and in Paris. So capacity discipline looking forward, I think in the trans-Atlantic, considering how unsettled the economic outlook is, Europe business is going to stay. Is there another big slug to come out? Don't know. We've got enough flexibility going our capacity plans to deal with it if it does turn out to be needed.
And you would consider doing that even in advance of formal approval of the Virgin Atlantic investment?
Edward H. Bastian
Well, not with -- we obviously don't have any influence right now on what Virgin is doing. So Virgin, we can't -- we don't have those conversations until we have the antitrust immunity and we're closed. And that's not going to be for at least another 6 months is our expectation there.
United Airlines, at Heathrow conference indicated that...
Edward H. Bastian
Where are you? Just put your hand -- okay there. I'm sorry.
So in terms of cost containment on a granular level, United Airlines indicated that their foreign object damage costs were about $260 per departure and the indirect costs of foreign object debris damage was anywhere up to 10x that amount. I was curious what Delta's color is on what their foreign object damage costs are, and what, if anything, were focused on in terms of reducing or eliminating those costs?
Edward H. Bastian
I'll have to take a pass on that. I'll tell you, I do not know what our foreign object damage costs are, they're not a driver to us in terms of the cost challenges that we're looking at. We manage the business, Paul, I don't know if you have any more insight to offer there or not. But sorry, you can get back to us -- Ms. Jill Greer, I'm sure, would be happy to get you information. You can follow-up on that with her. Yes, Mark?
Your peak CapEx was over $4 billion a year. I think right now, you're under $2 billion. And for the foreseeable future, I'm just sort of wondering, are you on a CapEx holiday or is less than $2 billion in CapEx sustainable?
Edward H. Bastian
I think it's a sustainable. I don't know about less than $2 billion, but certainly, and you can see it for the last couple of years, we've been about $2 billion. I do think it's a sustainable. When you look at the domestic restructuring that we're doing, that's all funded and predicated on staying within that bounds. Long term, we do need to evaluate our widebody needs. We currently have one of the younger widebody fleets in the industry. As compared to our domestic this, our widebody fleet is much younger. We've just finished a significant overhaul. We're putting the new product into our international widebodies. We spent over $1 billion doing that in the last 2 years, and we would have not spent that money if we thought we're going to be starting on a large new widebody order. Now there will be opportunities in the marketplace selectively to add to our widebodies, and so we'll be talking to your -- people like Mr. Eccleston here, your next-door neighbor. But we do have a, I think, long-term sustainable strategy in that $2 billion plus or minus $300 million or $400 million given what's going on in any individual year. I see no way that we'd ever get back to that $3 billion to $4 billion run rate the company was 10 years ago. Can't envision that.
You indicated that hedging pretty much tapers off in the second half of the year, is this by design? Is this a change in hedging philosophy? Perhaps, an embrace of more of a U.S. Air-type philosophy in that regard? Or is something else driving that phenomenon?
Edward H. Bastian
No, it's not embracing a non-hedging philosophy or U.S. Air philosophy if that's what it's called. We, with all the unsettledness in the market place, we've decided to be careful about making any long-term decisions in the fuel markets, particularly with what we've seen going on in Congress and with all the whether it be at the end of last year with the fiscal cliff loom down coming and people forecasting there we're going to be big changes in flows, we just eased up a little bit. We still believe in long term. But long term for us is probably 18 months is long term. Long term, maintaining a base level of hedging makes sense, and it's proving results here in the first half of the year. But no, I don't think you're going to see us straight from that. I think, we have, over the last couple of years, gotten smarter though and we've reduced the timeframe and the number of instruments we used to make it a little simpler and easier to follow.
Edward H. Bastian
The question is American-U.S. Airways merger changing the competitive landscape?
Edward H. Bastian
Sure. That obviously remains to be seen. The deal has to go in and we'll find out, we'll all learn from it. We believe, as I think our results indicate, that mergers in this industry generally are a good thing if done well. And I think you've got examples of companies that have done mergers well and a couple of companies that have mergers haven't gone as smoothly. So I can't speak for the American shareholders or customers or if people are going to be impacted by what may happen during the merger, and I hope -- hopefully, that goes well for them. But for us, speaking of Delta, it's going to be a positive. It's just another form of continuing to maintain discipline in a business. It will continue to be as competitive as ever. When you look at the amount of routes that we all fly and the concentration that we have across -- collectively across what will now be the 4 big airline groups, Delta, United, American and Southwest. So I don't think it will be an issue with respect to competition per se as much as disciplined in making good decisions for the business model.
Mark Streeter - JP Morgan Chase & Co, Research Division
I think, that's it.
Edward H. Bastian
Great. Well, thank you everybody. I appreciate you being here.
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