Balancing Financial and Environmental Sustainability at Delta Air Lines

Steve TochilinGeneral Manager, Environmental Sustainability

Delta Air Lines

Steve TochilinGeneral Manager, Environmental Sustainability

Balancing Financial &EnvironmentalSustainability

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Company Snapshot

• Delta and Delta Connection carriers offer service to 337 destinations in 62 countries and serve 180 million customers each year.

• Including its SkyTeam and worldwide codeshare partners, Delta offers more than 15,000 daily flights to over 1,000 worldwide destinations in 175 countries.

• 820 mainline aircraft, 9 aircraft types

• 3,300 daily flights serving 435,000 customers

• 84,000 employees

• Hubs/key markets in Atlanta, New York, Boston, Minneapolis-St. Paul, Detroit, Salt Lake City, Los Angeles, Seattle, Amsterdam, Paris, and Tokyo

• 68th on the Fortune 500 with annual revenues of $41B

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Annual Energy Usage2015

Usage Energy (kWh) CO2e (MT) Est CostAircraft 3,980M gal 149,409,200,000 39.3M $7,579,000,000Ground Equipment 10.1M gal 362,474,000 0.0986M $20,200,000Facility Electricity 383.5M kwh 383,500,000 0.216M $23,010,000Airport Electricity 203.4M kwh 203,400,000 0.116M $13,627,800Stationary Combustion 1.23M BTU 361,389,000 0.0687M $7,527,000

Jet fuelEverything else

Energy-savings projects must

generally demonstrate a ROI

≤ 2 years.

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  2015*  Salaries and related costs 8,776  Aircraft fuel and related taxes 6,544  Regional carrier expense              Fuel 1,035            Other 3,206  Contracted services 1,848  Depreciation and amortization 1,848

 Aircraft maintenance materials and outside repairs 1,835

 Passenger commissions and other selling expenses 1,672

  Landing fees and other rents 1,493  Profit sharing 1,490  Passenger service 872  Aircraft rent 250  Other 2,033   Total operating expense 32,902

*$000,000

(includes $13.6M in electricity-related lease fees)

(includes $23M in billed electricity, $7.5M in stationary combustion fuel, and $20.2M in ground vehicle fuel)

Operating CostsEnergy-related costshighlighted in yellow

(11,668 in 2014)

(1,844 in 2014)

Energy represents 24% of operating costs(36% in 2014)

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Customer Service Initiativesoften incur a fuel penaltyDelta strives to be thoughtful, reliable, and innovative:• Excellent operational performance• Service & hospitality• Extensive network• New aircraft & interior refurbishments• Facility upgrades: terminals, Sky Clubs• Amenities: entertainment, larger overhead bins, drinks & snacks• Technology: website, wifi, apps

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SustainabilitySustainability is a natural evolution from Delta’s corporate culture, history, and existing policies and programs:

• Delta’s Rules of the Road• Delta Force for Global Good• SkyTeam Corporate Social Responsibility Statement• Delta Environment and Carbon Emissions Policies

In addition, there is increasing pressure from external stakeholders, including investors, customers, partners, and external ratings agencies, for transparency and beyond-compliance performance.

Goals• Be a positive force for local and global change• Improve external reporting• Implement Climate Change Work Plan• Engage employees, customers, and supply chain

Governance • Corporate Leadership Team• Executive Environmental Leadership Council

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Reducing GHG Emissionsa global sectoral solution under ICAO

The industry has coalesced around three industry-wide aircraft emission mitigation goals:

• 1.5% annual fuel efficiency improvements through 2020• Carbon neutral growth at 2020 (CNG 2020)• 50% reduction in CO2 emissions by 2050, relative to 2005 levels

And a four-pillar approach to achieve the goals:

• Technology enhancements• Operational efficiency improvements• Infrastructure improvements• Positive economic measures

Commercial aviation needs to address:• criticism of its contribution to climate change• economic threat of duplicative emissions charges

Commercial aviation generates ~2% of global CO2 emissions

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Aircraft retirement and fleet renewal• 300 aircraft on order. Newer aircraft are up to 25% more fuel efficient than the

older aircraft that they replace• Challenges: expensive and limited by technology available

Investment in existing fleet• Winglets• Removal of unnecessary weight

Maintenance• Engine compressor washes• Increased vigilance of pressure leaks

& flight control rigging

Biofuels• Delta adheres to 7 biofuel principles that address sustainability, performance,

and economics. Our Trainer, PA refinery allows us to explore biofuel opportunities, although price remains a major hurdle.

To carry an item on a commercial flight requires about 4% of its weight in fuel each hour.

Commercial Aviation’s 4-Pillar Approachtechnology enhancements

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• Flight planning• Taxi procedures• Take-off procedures • Slower cruise speeds

• High-speed tractors• Reduced APU usage• Continuous descent arrivals (OPDs)• Schedule adjustments

Delta’s Fuel Council tracks the impact of these initiatives.

Commercial Aviation’s 4-Pillar Approachoperational efficiency improvements

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Antiquated air traffic management systems increase flight times and fuel burn

• NextGen• Single European Sky

Funding for these initiatives has lagged• Budgetary politics• Airlines reluctant to invest without

government commitment

Commercial Aviation’s 4-Pillar Approachinfrastructure improvements

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• Global market-based measure administered by ICAO

• Carbon management strategy to: access carbon markets address carbon constraints

• Reinvest in aviation and theenvironment

Commercial Aviation’s 4-Pillar Approachpositive economic instruments

Overlapping carbon taxes, surcharges, and trading schemes can result in multiple payments

on the same emissions.

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GHG Emissions• 98.7% from aircraft, with the remainder from:

Delta “owned” facilities: 0.7% Airports: 0.3% GSE: 0.3%

• Emissions have declined over6 million tonnes (14%)since 2005 Lower capacity Improved fuel efficiency Higher load factors

• Carbon-neutral growth since 2012 through purchase of voluntary offsets2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

33,000,000

35,000,000

37,000,000

39,000,000

41,000,000

43,000,000

45,000,000

47,000,000

TBDOffsets

CO2e

Em

issi

ons

(Met

ric T

ons)

Delta’s PerformanceAircraft Fuel Efficiency

• Efficiency per revenue ton mile has improved 6.0% since 2009; projected to improve 12.6% for 2009-2020 period

• Efficiency per available seat mile has improved 4.4% since 2009; projected to improve 12.1% for 2009-2020 period

Factors affecting aircraft fuel efficiency:• Gauge• Stage length• Seat density• Amenities & fuel-savings initiatives

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3.55 3.07 2.61

4.61 3.92

0.84 0.84

0.67

0.84

0.67

1.16 1.16 1.88

1.16 1.88

5.55¢5.07¢ 5.17¢

6.61¢ 6.47¢

Core Cost per Available Seat MileFuel Maintenance Ownership

Fleet PlanningCase Study

Fleet decisions involve a trade-off between fixed and variable costs:• Fixed (ownership): rentals, interest and depreciation• Variable (operations): maintenance and fuel

A 15% savings in fuel burn represents ~0.46¢/ASM at $2/gal and ~0.69¢/ASM at $3/gal

2015actual

(systemaverage)

$2/gal Scenario $3/gal Scenariokeep

existingaircraft

buynew

aircraft

keepexistingaircraft

buynew

aircraft

Regardless of fuel price, improving aircraft fuel efficiency (and reducing emissions) is a key driver.

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WingletsCase Study

• Winglets improve fuel efficiency by 3-5%• ~$1M for new winglets, $200-400k for upgrades or harvesting• 3-6 year payback at $2/gallon; 2-4 year payback at $3/gallon• Aircraft with greater stage lengths have shorter ROIs• May require modifications to ramp procedures and equipment

Winglets increase lift generated at the wingtip and reduce drag caused by wingtip vortices.

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Center-of-gravity on Regional JetsCase Study

Concept: Work with Marketing to create “Green Seats” at rear of regional aircraft

• An aft CG is more fuel efficient than a forward CG: incremental weight in the rear of the aircraft is essentially free, the reduction in trim drag offsetting the induced drag of the increased weight.

 • Additional weight in the front of the airplane costs about twice as much as

cost-to-carry numbers indicate. It’s more challenging to achieve “in limits” CG on shorter aircraft.

Advantages:• Fuel savings• On-time performance• Increased passenger confidence• Reduced need for ballast

Possible incentives include:• Pricing• Carbon offsets• First class or Comfort+ seats

Main challenge is policing compliance

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Does an electric bag tug pay for itself in fuel savings?

180 seats

Equipment cost = $54kCost avoidance: 9 gallons at $2x 365 days = $6.6k/yr8.2-year payback

Eventually.

Case Study

Electric tugs improve air qualityon the ramp and in the bagroom.

$42k(varies with battery)

Charging station ($90k + installation)handles 8 tugs = $12k/tug

Average diesel bag tug burns9 gallons/day

Diesel: Cost and reliability may be adversely impacted by federal and state environmental regulations.

Electric: Potential infrastructure, availability and performance concerns. Batteries may incur reporting and disposal requirements.