WHEN: Today, Wednesday, April 22, 2020
WHERE: CNBC’s “Squawk on the Street”
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Delta Air Lines CEO Ed Bastian and CNBC’s Phil LeBeau on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Wednesday, April 22nd. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2020/04/22/delta-air-lines-ceo-ed-bastian-full-interview-quarterly-earnings-coronavirus.html.
All references must be sourced to CNBC.
PHIL LEBEAU: Let’s bring in Ed Bastian, CEO of Delta Air Lines, joining us from the company’s headquarters in Atlanta. Ed, you reported Q1 results today. A smaller than expected loss, 51 cents to share, no offense to the hard work you did in the first quarter, but everybody realizes it’s all about Q2 and then the remainder of this year. How bad is business right now?
ED BASTIAN: Well, thanks for joining us today, Phil, and thanks for having us on. Before I answer your question, I do want to share on behalf of the 90,000 men and women of Delta Air Lines that we are doing everything we can to stand with the people of the world to fight this awful pandemic. We’re heart broken. We lost some of our own family members amongst the Delta family to the virus. We want to make sure that everyone knows we’re doing everything we can to find a solution to this awful crisis. The challenge in the business right now is demand. With all the stay-at-home orders and the challenges with respect to travel, it’s well-documented. We’re operating at less than 5% of a normal passenger load. I think today we’re operating about 30,000 passengers on our books. And the important thing to note is that those are essential passengers, those are people out in the business making a difference, whether it’s health care workers, whether it’s people visiting families, whether it’s emergencies, whether it’s transporting PPE and health care items from China to the frontlines of our medical personnel. The Delta people are heroes, they’re out there working hard to keep the nation’s airways open. And we are going to do everything we can to work through this crisis together.
PHIL LEBEAU: Ed, you were talking about those being essential workers. Look, you're right there in Atlanta. Georgia is in the midst of saying we’ll open up the economy again. Do you believe you’ll have many people there in the metropolitan Atlanta area who will say, ‘Yeah, I think it’s time to get back on flights’? Or do you expect it will remain essentially essential travelers only?
ED BASTIAN: Well, for the short-term, I think it will be essential travelers only. And you know, we’ve been open throughout this entire period. But I do believe with proper conservative caution, with taking safeguards, with working with small businesses to ensure that they’re doing everything they can to social distance and start to build the economy and bring the economy back, we’re taking good steps together. We’ve been working through this. We’re providing all the support we can to the local community to help them get back on their feet.
PHIL LEBEAU: Do you think that’s the right decision they’re making in Georgia? That the Governor says let’s start opening up this economy and also, you’re seeing it with Florida and South Carolina?
ED BASTIAN: Well, right now, in Atlanta we’re on stay-at-home orders. I think the Governor has been talking about how to start to rebuild the economy. Starting very slow. Starting in a Phase One effort. And I think it’s going to be challenging. The recovery will take much longer than any of us would like to see. But we need to start building back, in a safe way, the operations of our economy.
JIM CRAMER: Ed, it’s Jim Cramer. Always glad that you and your compadres come on from your business. it seems you have very an open-minded culture. We really salute you for doing that.
ED BASTIAN: Thank you, Jim.
JIM CRAMER: First question. I see you’re offering free flights to medical professionals for those fighting COVID-19 in the hardest hit areas in the United States. Do we have any evidence that those people have a higher expected rate of COVID illness, because they traveling on your planes?
ED BASTIAN: There’s no evidence of that going on airplanes. One thing we said when we started 30 days ago, you know, dealing with this crisis, is that the first priority was to protect our people, protect our customers in the greatest way possible. While we’ve done everything we can to conserve cash in the environment, and we’ll talk about that with respect to liquidity, we’ve doubled down and in fact, tripled down on sanitation, hygiene, cleanliness, making certain every aircraft we’re on is fogged every day. The facilities, the social distancing practices on our planes, making certain people are at least six feet away throughout the cabin, giving -- changing the boarding practices. We now board from the back first, to make sure people are not walking past customers sitting in first class. So, there’s no evidence at all that we are transmitting, by staying open, the virus.
JIM CRAMER: Let’s say you offered that Abbott 5-minute, 15-minute box right before you get on. Do you think it would change things? The reason I say that is because after I heard you say what you said, I want to go -- you have a great flight to San Francisco that I can take. I really want to go to San Francisco. I’m trying to figure out why I’m not going given what you just said?
ED BASTIAN: Well, we are enlisting the very best medical experts. One of the challenges with this virus that we’re all fighting is that it’s turning a bunch of CEOs into health care CEOs overnight. I’m not a health care CEO, I’m an airline CEO. But we’re enlisting the best medical advisers to make certain that we have insight into everything from the diagnostics, and the testing protocols, and what works, and how can we translate that into our business model, all the way through the vaccines--what’s happening in the vaccine world, and does that turn into a position where we have immunity passports that customers are going to be required to enlist? I don’t know the answers specifically to testing, Jim, but I can tell you that we have got people working on it with the right medical experts to try to advance that process. And there’s no question that until customers feel safe traveling, this business, in terms of air travel, is going to return at scale.
JIM CRAMER: What did Warren Buffett say to you when he bolted from your stock? Because he was very excited about your stock at much higher prices. And I don’t hear anything that makes me feel like you did something wrong.
ED BASTIAN: We didn’t do anything wrong. And I think if you asked Mr. Buffett, he would share the same. He sold below the 10% threshold. So, I’m not at liberty to disclose any conversations that we’ve had. But, you know, he’s been a great investor, getting back into the business, and we’ll see what happens.
CARL QUINTANILLA: Hey Ed, it’s Carl. It’s good to talk to you this morning. And I wonder, given this morning the CDC Director is warning that we could see a second spike in concert with the regular flu season later on this winter. But whenever a potential re-emergence in cases comes, how much money do you have to set aside again for another interruption in demand, like the one we’re seeing right now?
ED BASTIAN: Well, thanks, Carl. Good to talk to you, as well. We are actively preserving cash and liquidity. You know, one of the things when we entered this dilemma, we said three simple priorities. First, make sure we’re taking the very best care of our customers and our people. Second, we’re protecting our other precious resource, which is our cash. And third, that we’re taking advantage of the time here to build the business. We want for the future, to accelerate into the future not to rebuild what we had in the past. And it will create some interesting opportunities for us. On the question of cash, our team and the finance team, Paul Jacobson our CFO, has done a great job raising liquidity. $5.5 billion that he’s raised just since March in the private markets. We received on Monday the first installment from the treasury department on the PSP payment, $2.7 billion, we expect to end at the end of June with at least $10 billion of cash in the bank with opportunities to raise more as we go forward. But the other part of the liquidity raise is not just financing, it’s what we’re doing on the cost structure which will separate Delta, continue to separate Delta and differentiate us in the marketplace. In this current quarter, the second quarter that we’re in, we’ve been able to find ways to reduce 50% of our total operating expenses within the current quarter from a standing still position just 30 days ago. Over $5 billion of cash we’re saving in the current quarter alone. So, the team is doing a magnificent job because we know this could take several years before we’re into our new normal of traveling. The other thing about this that I do know to be true, while there’s a lot we don’t know, we have more questions than answers, I do know we’re not only an essential service, we’re a service people want to travel on once they feel safe to experience our product once again.
PHIL LEBEAU: Hey, Ed. It’s Phil again.
CARL QUINTANILLA: On—
PHIL LEBEAU: Oh, go ahead, Carl.
CARL QUINTANILLA: I was going to ask, Phil, on load factors, I think for the quarter it was 73/1. And I wonder, what is the new breakeven load factor for a major these days?
ED BASTIAN: Well, that’s a question I don’t think airline CEOs want to figure out. Because it just causes consternation. The reality is we’re in a cash preservation mode probably for the balance of this year. Realistically, we need to get our load factors back into the 80% level over time. And we’ll walk it through. We have got a lot of capacity on the ground. We’ve got 600 planes are grounded at the present time. We’re only flying about 10%, 15% of our schedule at the present time. But, as we were talking with Jim, once customers feel safe to travel -- and it’s not just physically safe, it’s also financially safe. Because we also have to consider what the impact the markets have had, and the economy has had on discretionary spend, as well. But once that happens, and it may take two, three years to build it back, people will come back.
PHIL LEBEAU: Ed, you were burning about $100 million of cash a day at the end of March. You’re hoping to get down to just $50 million of cash burn a day by the end of June. But you expect to be burning cash even at the end of the year, correct? Is it likely we see you doing a daily cash burn let’s say through the first quarter and second quarter of next year?
ED BASTIAN: It’s really hard to predict, Phil, based on demand and duration of the challenges we’re experiencing on the revenue front. The $100 million a day that we saw in March was true. I do expect that by the month of June. In fact, maybe even the month of May, we’ll have that down to $50 million a day. The team has done a very nice job. But we’re looking through the second half of the year, looking at what we’ll need to do to continue to preserve cash, to keep that 50% of overall savings that we had in the second quarter, keep that same momentum moving through the business, while we work to encourage customer confidence back in our product, in our business.
JIM CRAMER: Ed, I’ve been wondering, a lot of these companies on "Mad Money" that are designed to have success for office at home. There’s just hundreds of thousands of people that I used to see on the planes, the extremely full planes, always guys in suits, making a fortune going these places, flying first class. Do you think something also permanently change? That the Zooms of the world and WebExs of the world, will make it so some of your best customers won’t be able to be flying after this?
ED BASTIAN: I think there will be some behavioral patterns that will change, no question about it, I think it will take some time to understand what that means. I don’t think we’re turning into a telecommuting workforce. I do think we’ll have a portion of travel that will move over to telecommuting. But the reality is the human spirit wants to engage with fellow humans. Business travel is going to come back. People need to be face-to-face doing business together when it’s safe, when that opportunity arises. People are going to want to get out of their homes and go on those experiences whether it’s for leisure or visiting relatives and people they have not seen in some time. But we have to make it safe. We have to make it physically safe. You know, the other thing about this that is really important to remember is that we specialize in safety. In our business, flight safety is everything. We are the safest form of transportation in the world, the U.S. aviation system, bar none. We need to take that same rigor and that same analytical approach and that same focus to personal safety and hygiene as you travel aboard our aircraft, and you work through our facilities, as we have for flight safety for years. We’re confident we’ll get there and we’ll get the business back.
JIM CRAMER: When I go to Delta, I don’t want these, these are the paper ones. I want an N95, made by 3M. Okay. You can give me gloves. I would love to be able to make sure the person sitting next to me has a mask, so they don’t give it to me, which is the real reason why we wear the mask. I want to be able to know the person next to me has the antibodies. Whatever. And I would pay triple to what I used to pay for San Francisco to be able to know when I got there, it’s fine. But what I want to know is how did you guys get to be known as an incubator like you’re a Carnival cruise? If you’re not an incubator and you can demonstrate that with masks that person next to me won’t give it to me, why aren’t people flying? I mean, you have some pretty good bargains right now.
ED BASTIAN: I think there’s a lot in that. Certainly, we do have masks, we do have gloves. All of our staff, our frontline staff are encouraged to wear them. We do have masks for customers if they don’t bring them. The majority of customers are carrying their own masks, as they should. They should wear masks when they travel, at least until the virus has been tamed. But what we’re into, Jim, is a new normal going forward. And it’s going to be very interesting. The reality is that you will find customers will come back to quality. And there will be a premium for quality and reliability and the reputation of service excellence, all of which our brand represents. Delta is known for quality. That’s our hallmark, that’s our calling card. There will be the opportunity to lead with our service excellence, and our people working with medical experts, how do we translate that back into the business model, whether it’s testing, whether safeguards on board the plane, whatever it takes, we’ll do whatever we need to do to re-inspire confidence in business travel, as well as leisure travel going forward.
PHIL LEBEAU: Ed, as if you don’t have enough to deal with, with everything happening here in the U.S. and with your own airline, I’m curious what you think about what’s happening with Virgin Atlantic? You guys own 49% of Virgin Atlantic and Richard Branson was out with a very sobering message yesterday saying, Look, we need help. The British government said, Well, listen you step up if you want help. If the British government says to Virgin Atlantic, look, Delta owns 49% of you, they have to pony up some money before we step in, what would you say?
ED BASTIAN: Well, on the Delta front, we are not in a position to invest any more money into Virgin. We’re already at the ownership cap of 49%. And candidly with the cash that we need to protect our own business, that’s where our focus is. I trust Virgin will work through its challenges with the government and with Richard. If they are required to go through an administrative process in the UK, I’m confident they could re-emerge. There’s a need for the Virgin brand in the UK marketplace. I’m confident once we get through and we understand where this virus is going to get to a point people will feel safe to travel again, you know, the Virgin brand will be strong once more. It could take a legal process to get through that.
PHIL LEBEAU: Ed Bastian, the CEO of Delta Air Lines joining us from the company’s headquarters in Atlanta. Ed, we’re usually down there every quarter. Perhaps next quarter things will allow us to be with you in person. We appreciate you joining us this morning.
ED BASTIAN: I miss seeing you, Phil.
PHIL LEBEAU: We’ll talk to you next time. Carl, Jim, back to you.