Delta Air Lines Announces June Quarter Profit

  • June quarter 2018 GAAP pre-tax income of $1.4 billion, net income of $1.0 billion and earnings per diluted share of $1.47 on record revenue of $11.8 billion
  • June quarter 2018 adjusted pre-tax income of $1.6 billion, adjusted net income of $1.2 billion and adjusted earnings per diluted share of $1.77
  • Delta returned $813 million to shareholders through dividends and share repurchases
  • Board of Directors approved 15 percent increase in dividend and declared $0.35 dividend for September quarter

ATLANTA, July 12, 2018 /PRNewswire/ — Delta Air Lines (NYSE:DAL) today reported financial results for the June quarter 2018.  Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here. 

Delta Air Lines and the Delta Connection carriers offer service to nearly 370 destinations on six continents. For more information visit news.delta.com. (PRNewsFoto/Delta Air Lines)

Adjusted pre-tax income for the June quarter 2018 was $1.6 billion, a $183 million decrease from the June 2017 quarter, as record revenues partially offset the approximately $600 million impact of higher fuel prices.    

“With an expected $2 billion higher fuel bill for 2018, we are now forecasting our full-year earnings to be $5.35 to $5.70 per share. We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter,” said Ed Bastian, Delta’s Chief Executive Officer.  “With strong revenue momentum, an improving cost trajectory, and a reduction of 50-100 bps of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end.”

Revenue Environment

Delta’s adjusted operating revenue of $11.6 billion for the June quarter improved 8 percent, or $880 million versus the prior year.  This quarterly revenue result marks a record for the company, driven by improvements across Delta’s business, including double-digit increases in both cargo and loyalty revenue. 

Total unit revenues excluding refinery sales (TRASM) increased 4.6 percent during the period driven by strong demand across all entities and improving yields.  Foreign exchange drove a nearly one point benefit to the quarter.

“The great service of the Delta people, strong demand for our product, and momentum across our business allowed Delta to deliver the highest quarterly revenue in our history and increase our revenue premium to the industry,” said Glen Hauenstein, Delta’s President. “While we are pleased with our revenue performance in the quarter, accelerating the recapture of the recent fuel price increases is the number one focus for our commercial team.  We expect total unit revenue growth of 3.5 to 5.5 percent for the September quarter as we benefit from our commercial initiatives and recapture higher fuel costs.”

 

Increase (Decrease)

2Q18 versus 2Q17

Change

Unit

Revenue

2Q18 ($M)

YoY

Revenue

Yield

Capacity

Domestic

7,413

7.6  %

2.0  %

2.5  %

5.5  %

Atlantic

1,782

13.9  %

11.2  %

11.1  %

2.4  %

Latin America

709

(0.8) %

0.6  %

2.4  %

(1.3) %

Pacific

642

6.9  %

10.4  %

8.0  %

(3.1) %

Total Passenger

10,546

8.0  %

4.4  %

4.6  %

3.5  %

Cargo Revenue

223

19.1  %

Other Revenue

1,006

27.1  %

Total Revenue

11,775

9.6  %

5.9  %

Third Party Refinery Sales

(216)

Total Revenue, adjusted

11,559

8.2  %

4.6  %

September 2018 Quarter and Full Year Guidance

Delta expects solid top-line growth, an improving cost trajectory, and a return to margin expansion. 

3Q18 Forecast

FY18 Forecast

Earnings per share

$1.65 – $1.85

$5.35 – $5.70

Pre-tax margin

12 – 14%

—–

Fuel price, including taxes and refinery impact

$2.32 – $2.37

$2.20 – $2.30

Total revenue growth (year-over-year)

—–

Up 7% – 8%

Total unit revenue excluding refinery sales (year-over-year)

Up 3.5% – 5.5%

—–

CASM-Excluding fuel and profit sharing (year-over-year)

~ Flat

Up 1 – 2%

System capacity (year-over-year)

Up 3% – 4%

Up ~3%

     See Note A for information about reconciliation of projected non-GAAP financial measures

 

Cost Performance

Total adjusted operating expenses for the June quarter increased $1.1 billion versus the prior year quarter, with more than half of the increase driven by higher fuel prices.

Adjusted fuel expense increased $578 million, or 33 percent, relative to June quarter 2017.  Delta’s adjusted fuel price per gallon for the June quarter was $2.17, which includes $45 million of benefit from the refinery. 

CASM-Ex increased 2.9 percent for the June 2018 quarter compared to the prior year period, a one point improvement from the March quarter.  Cost pressures were driven by higher revenue-related costs and increased aircraft rent and depreciation associated with Delta’s fleet initiatives.    

“We expect the sequential improvement in cost trends to continue in the second half of the year as we see additional benefits from our fleet restructuring, our One Delta initiatives, and annualization of accelerated depreciation as well as prior investments in our product,” said Paul Jacobson, Delta’s Chief Financial Officer. “Our cost structure is an essential component of sustainable performance, and by keeping our cost growth below 2 percent for the year, we are positioning the company to expand margins by year end.”

Adjusted non-operating expense improved by $43 million versus the prior year, driven primarily by pension expense favorability.  Adjusted tax expense declined $255 million for the June quarter primarily due to the reduction in Delta’s book tax rate from 34 percent to 23 percent.

Cash Flow and Shareholder Returns

Delta generated $2.8 billion of operating cash flow and $1.4 billion of free cash flow during the quarter, after the investment of $1.4 billion into the business primarily for aircraft purchases and improvements.

For the June quarter, Delta returned $813 million to shareholders, comprised of $600 million of share repurchases and $213 million in dividends.

The Board of Directors declared a quarterly dividend of $0.35 per share, an increase of 15 percent over previous levels.  This change will bring the total annualized dividend commitment to approximately $950 million, consistent with the company’s target of returning 20 to 25 percent of free cash flow to owners over the long-term.  The September quarter dividend will be payable to shareholders of record as of the close of business on July 26, 2018, to be paid on August 16, 2018.

Strategic Highlights

In the June quarter, Delta achieved a number of milestones across its five key strategic pillars. 

Culture and People

  • Accrued an additional $400 million in profit sharing and paid out $23 million in Shared Rewards as a testament to the outstanding performance made possible by Delta’s more than 80,000 employees around the world.
  • Ranked No. 1 corporate blood donor by the American Red Cross for the most recent year at 11,085 units of blood from 214 Delta sponsored blood drives.
  • Became a National Signature Partner of Junior Achievement’s 3DE program with a $2 million contribution over the next five years.

Operational Reliability

  • Delivered 58 days of zero system cancellations on a year-to-date basis, up 23 days from 2017.
  • Achieved mainline on-time performance (A0) of 71.7 percent year-to-date, up 1.4 percent from the prior year.

Network and Partnerships

  • Launched a joint venture with Korean Air on May 1, expanded reciprocal codeshare flying to more than 50 Korean Air-operated markets and 400 Delta-operated markets, and announced new service from Seattle to Osaka and Minneapolis/St. Paul to Seoul in partnership with Korean Air to begin in 2019.  
  • Continued Delta’s global expansion with the launch of new service including Los Angeles to Paris and Amsterdam; Indianapolis to Paris; and Atlanta to Lisbon. Delta also announced plans to begin nonstop flights between the United States and Mumbai, India, in 2019.

Customer Experience and Loyalty

  • Debuted the first refreshed 777-200ER aircraft featuring the award-winning Delta One suite, the popular Delta Premium Select cabin and 9-abreast seating in the Main Cabin in addition to all new interior features and in-flight entertainment.
  • Launched new uniforms for 64,000 Delta employees worldwide, created by acclaimed designer Zac Posen and built with Lands’ End quality. The designs embrace innovative fit, form and function, and carry Delta into the future in style.
  • Opened the newly renovated Delta Sky Club at Ronald Reagan Washington National Airport (DCA) with an additional 1,800 square feet of space for guests to enjoy.

Investment Grade Balance Sheet

  • Completed a $1.6 billion unsecured debt offering through a mix of three-, five-, and 10-year notes at a blended yield of 3.85 percent. The proceeds from this offering were used to refinance secured debt and will lower Delta’s overall interest expense by $20 million annually on a run-rate basis.
  • Increased revolver capacity by $635 million, to a total of $3.1 billion in undrawn revolving credit facilities.

June Quarter Results

Special items for the quarter consist primarily of mark-to-market adjustments on refinery fuel hedges and unrealized gains/losses on investments.   

GAAP

Adjusted

($ in millions except per share and unit costs)

2Q18

2Q17

2Q18

2Q17

Pre-tax income

1,372

1,831

1,612

1,795

Net income

1,025

1,186

1,235

1,163

Diluted earnings per share

1.47

1.62

1.77

1.59

Operating revenue

11,775

10,747

11,559

10,679

Operating expense

10,095

8,765

9,856

8,750

Fuel expense

2,340

1,687

2,317

1,739

Average fuel price per gallon

2.19

1.61

2.17

1.66

Consolidated unit cost (CASM/CASM-Ex)

14.73

13.23

10.02

9.73

Non-operating expense

308

151

92

135

Total unit revenues (TRASM/TRASM-Ex)

17.19

16.23

16.87

16.13

 

About Delta

Delta Air Lines serves more than 180 million customers each year. In 2018, Delta was named to Fortune’s top 50 Most Admired Companies in addition to being named the most admired airline for the seventh time in eight years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented seven consecutive years. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 324 destinations in 57 countries on six continents. Headquartered in Atlanta, Delta employs more than 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft. The airline is a founding member of the SkyTeam global alliance and participates in the industry’s leading transatlantic joint venture with Air France-KLM and Alitalia as well as a joint venture with Virgin Atlantic. Including its worldwide alliance partners, Delta offers customers more than 15,000 daily flights, with key hubs and markets including Amsterdam, Atlanta, Boston, Detroit, Los Angeles, Mexico City, Minneapolis/St. Paul, New York-JFK and LaGuardia, LondonHeathrow, Paris-Charles de Gaulle, Salt Lake City, São Paulo, Seattle, Seoul, and TokyoNarita. Delta has invested billions of dollars in airport facilities, global products and services, and technology to enhance the customer experience in the air and on the ground. Additional information is available on the Delta News Hub, as well as delta.com, Twitter @DeltaNewsHub and Facebook.com/delta.

Forward Looking Statements 

Statements in this press release that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements.  These risks and uncertainties include, but are not limited to, the cost of aircraft fuel; the impact of fuel hedging activity including rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the availability of aircraft fuel; the performance of our significant investments in airlines in other parts of the world; the possible effects of accidents involving our aircraft; breaches or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on technology in our operations; the restrictions that financial covenants in our financing agreements could have on our financial and business operations; labor issues; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third party regional carriers; failure or inability of insurance to cover a significant liability at Monroe’s Trainer refinery; the impact of environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain senior management and key employees; damage to our reputation and brand if we are exposed to significant adverse publicity through social media; the effects of terrorist attacks or geopolitical conflict; competitive conditions in the airline industry; interruptions or disruptions in service at major airports at which we operate; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions; uncertainty in economic conditions and regulatory environment in the United Kingdom related to the likely exit of the United Kingdom from the European Union; and the effects of the rapid spread of contagious illnesses.

Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our Form 10-Q for the quarterly period ended March 31, 2018.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of July 12, 2018, and which we have no current intention to update.

 

DELTA AIR LINES, INC.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

(in millions, except per share data)

2018

2017

$ Change

% Change

2018

2017

$ Change

% Change

Operating Revenue:

Passenger

$10,546

9,768

778

8%

$19,311

17,946

1,365

8%

Cargo

223

187

36

19%

425

350

75

21%

Other

1,006

792

214

27%

2,007

1,552

455

29%

Total operating revenue

11,775

10,747

1,028

10%

21,743

19,848

1,895

10%

Operating Expense:

Salaries and related costs

2,668

2,521

147

6%

5,252

4,906

346

7%

Aircraft fuel and related taxes

2,341

1,687

654

39%

4,195

3,169

1,026

32%

Regional carriers expense, excluding fuel

883

838

45

5%

1,739

1,702

37

2%

Depreciation and amortization

590

531

59

11%

1,200

1,068

132

12%

Contracted services

540

525

15

3%

1,084

1,029

55

5%

Ancillary businesses and refinery

494

296

198

67%

987

588

399

68%

Passenger commissions and other selling expenses

511

467

44

9%

938

872

66

8%

Aircraft maintenance materials and outside repairs

427

392

35

9%

862

824

38

5%

Landing fees and other rents

407

373

34

9%

780

734

46

6%

Profit sharing

400

338

62

18%

583

489

94

19%

Passenger service

300

284

16

6%

563

518

45

9%

Aircraft rent

97

86

11

13%

191

170

21

12%

Other

437

427

10

2%

849

798

51

6%

Total operating expense

10,095

8,765

1,330

15%

19,223

16,867

2,356

14%

Operating Income

1,680

1,982

(302)

(15)%

2,520

2,981

(461)

(15)%

Non-Operating Expense:

Interest expense, net

(89)

(103)

14

(14)%

(191)

(197)

6

(3)%

Unrealized gain/(loss) on investments, net

(238)

(238)

NM

(220)

(220)

NM

Miscellaneous, net

19

(48)

67

NM

(19)

(104)

85

(82)%

Total non-operating expense, net

(308)

(151)

(157)

NM

(430)

(301)

(129)

43%

Income Before Income Taxes

1,372

1,831

(459)

(25)%

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