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ATLANTA, July 14, 2016 /PRNewswire/ -- Delta Air Lines (NYSE: DAL) today reported financial results for the June 2016 quarter. Highlights of Delta's June 2016 quarter results, including both GAAP and adjusted metrics, are below and incorporated here.
Adjusted pre-tax income for the June 2016 quarter was $1.7 billion, a $42 million increase over June 2015 quarter. Adjusted net income was $1.1 billion or $1.47 per diluted share.
"The Delta people again delivered another quarter of solid profitability, superior operational performance and great customer service, continuing to strengthen our brand and our foundation for the future," said Ed Bastian, Delta's chief executive officer. "As we look to the remainder of the year, the large year-on-year savings driven by lower fuel are largely behind us and it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory."
Revenue Environment
Delta's operating revenue for the June quarter decreased 2 percent, or $260 million, of which $65 million was due to foreign currency pressures. Passenger unit revenues declined 4.9 percent, including 1 point of impact from foreign currency, on a 3.2 percent increase in capacity.
Capacity Actions In Response to Global Events
With the additional foreign currency pressure from the steep drop in the British pound and the economic uncertainty from Brexit, Delta has decided to reduce 6 points of U.S.-U.K. capacity from its winter schedule. These changes, in combination with other network actions, will reduce system capacity by approximately one point in the December 2016 quarter and the company now expects to grow its system capacity by 1 percent year over year during this period.
"While the revenue environment remains challenging, with persistent headwinds from close-in domestic yields and geopolitical uncertainty, we remain focused on achieving our goal of positive unit revenues by year end," said Glen Hauenstein, Delta's president. "We'll continue to move quickly and aggressively with all our commercial levers, including an incremental 1 point reduction in our December quarter capacity levels, to make sure we create the momentum we need to achieve this goal."
|
Increase (Decrease) | ||||||
|
2Q16 versus 2Q15 | ||||||
|
Change |
Unit |
|||||
|
Passenger Revenue |
2Q16 ($M) |
YOY |
Revenue |
Yield |
Capacity | |
|
Mainline |
4,721 |
0.2 % |
(5.2) % |
(4.4) % |
5.6 % | |
|
Regional |
1,499 |
(3.4) % |
(6.4) % |
(5.4) % |
3.2 % | |
|
Total Domestic |
6,220 |
(0.7) % |
(5.6) % |
(4.8) % |
5.2 % | |
|
Atlantic |
1,511 |
(2.6) % |
(4.4) % |
(3.6) % |
2.0 % | |
|
Pacific |
662 |
(8.3) % |
(5.1) % |
(7.0) % |
(3.4) % | |
|
Latin America |
577 |
(4.0) % |
(4.9) % |
(7.8) % |
0.9 % | |
|
Total Passenger |
8,970 |
(1.8) % |
(4.9) % |
(4.7) % |
3.2 % | |
|
Cargo Revenue |
165 |
(20.3) % |
||||
|
Other Revenue |
1,312 |
(3.6) % |
||||
|
Total Revenue |
10,447 |
(2.4) % |
||||
September 2016 Quarter Guidance
Following are Delta's projections for the September 2016 quarter:
|
3Q16 Forecast | |
|
Operating margin |
19% - 21% |
|
Passenger unit revenue (compared to 3Q15) |
Down 4% - 6% |
|
Fuel price, including taxes and refinery impact |
$1.52 - $1.57 |
|
CASM – Ex including profit sharing (compared to 3Q15)* |
~ Flat |
|
System Capacity (compared to 3Q15) |
Up 1% - 2% |
*See note A for information about reconciliation of these non-GAAP financial measures
Cost Performance
Adjusted fuel expense2 declined $408 million compared to the same period in 2015, on 28 percent lower market fuel prices. Hedge losses for the quarter totaled $614 million, including $455 million of early settlements. Delta has no hedge book remaining for 2016.
CASM-Ex3 including profit sharing, was flat for the June 2016 quarter compared to the prior year period driven by strong operational performance and productivity savings realized during the quarter.
Non-operating expense declined by $35 million driven by $34 million of lower interest expense.
"Our commitment to cost productivity is a key part of achieving our long-term financial goals while continuing to make investments in our people, product and service," said Paul Jacobson, Delta's chief financial officer. "Our solid cost performance, combined with our industry-leading revenue premium, helped to produce $2.6 billion of operating cash flow this quarter. We invested a portion of this cash in the business, resulting in the $1.6 billion in free cash flow used to further reduce our debt levels and also return $1.1 billion to our owners through dividends and share repurchases."
Cash Flow, Shareholder Returns, and Adjusted Net Debt
Delta generated $2.6 billion of adjusted operating cash flow and $1.6 billion of free cash flow during the quarter. The company used this strong cash generation to invest $1.0 billion into the business, including roughly $880 million in fleet investments.
Delta made a $135 million contribution to its pension plan during the quarter, completing its planned $1.3 billion in pension contributions for the year.
For the June quarter, the company returned $1.1 billion to shareholders, comprised of $103 million of dividends and $1 billion of share repurchases. At its May analyst meeting, the company announced its third consecutive 50 percent increase to its dividend, which will increase to $0.81 per share annually beginning in the September quarter. In addition, the company announced its plan to complete its existing $5 billion share repurchase authorization by May 2017, ahead of schedule.
Adjusted net debt4 at the end of the quarter stood at $6.8 billion. In recognition of its improved financial strength, Delta's corporate credit rating was upgraded during the quarter by FitchRatings to BBB-, an investment grade rating. This is the second ratings agency to recognize the company with investment grade status.
June 2016 Quarter Results
|
GAAP |
Adjusted | |||
|
($ in millions except per share and unit costs) |
2Q16 |
2Q15 |
2Q16 |
2Q15 |
|
Pre-tax income |
2,350 |
2,366 |
1,682 |
1,640 |
|
Net income |
1,546 |
1,485 |
1,124 |
1,027 |
|
Diluted earnings per share |
2.03 |
1.83 |
1.47 |
1.27 |
|
Fuel Expense (including regional carriers) |
1,447 |
1,752 |
2,064 |
2,472 |
|
Consolidated unit cost |
12.16 |
12.88 |
9.54 |
9.55 |
|
Operating cash flow |
3,215 |
2,745 |
2,615 |
2,476 |
|
Total debt and capital leases (adjusted net debt) |
7,804 |
9,157 |
6,777 |
7,141 |
Special Items
Special items, net of taxes, in the June 2016 quarter totaled $422 million, including $390 million in mark-to-market adjustments and settlements on fuel hedges.
Special items, net of taxes, in the June 2015 quarter totaled $458 million, including $454 million for mark-to-market adjustments and settlements on fuel hedges.
About Delta
Delta Air Lines serves nearly 180 million customers each year. In 2016, Delta was named to Fortune's top 50 Most Admired Companies in addition to being named the most admired airline for the fifth time in six years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented five consecutive years. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 337 destinations in 62 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, Minneapolis/St. Paul, New York-JFK and LaGuardia, London-Heathrow, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. 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, Google.com/+Delta, and Facebook.com/delta.
End Notes
|
(1) |
Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release to the comparable GAAP metric and provides the reasons management uses those measures. |
|
(2) |
Adjusted fuel expense reflects, among other things, the impact of mark-to-market ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. See Note A for a reconciliation of adjusted fuel expense and average fuel price per gallon to the comparable GAAP metric. |
|
(3) |
CASM - Ex, including profit sharing: In addition to fuel expense, Delta believes adjusting for certain other expenses is helpful to investors because other expenses are not related to the generation of a seat mile. These expenses include aircraft maintenance and staffing services Delta provides to third parties, Delta's vacation wholesale operations and refinery cost of sales to third parties. The amounts excluded were $284 million and $346 million for the June 2016 and June 2015 quarters, and $597 million and $639 million for the six months ended June 30, 2016 and 2015, respectively. Management believes this methodology provides a more consistent and comparable reflection of Delta's airline operations. |
|
(4) |
Adjusted net debt includes $22 million of hedge margin receivable, which is cash that we have posted with counterparties as hedge margin. See Note A for additional information about our calculation of adjusted net debt. |
Forward Looking Statements Statements in this investor update 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 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 effects of terrorist attacks or geopolitical conflict; the possible effects of accidents involving our aircraft; the restrictions that financial covenants in our financing agreements will have on our financial and business operations; labor issues; interruptions or disruptions in service at one of our hub or gateway airports; disruptions or security breaches of our information technology infrastructure; our dependence on technology in our operations; 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 management and key employees; competitive conditions in the airline industry; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions including the effects of Brexit; 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 Dec. 31, 2015. Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of Jul. 14, 2016, and which we have no current intention to update.
|
DELTA AIR LINES, INC. | |||||||||||
|
Consolidated Statements of Operations | |||||||||||
|
(Unaudited) | |||||||||||
|
Three Months |
Six Months |
||||||||||
|
Ended June 30, |
Ended June 30, |
||||||||||
|
(in millions, except per share data) |
2016 |
2015 |
$ Change |
% Change |
2016 |
2015 |
$ Change |
% Change | |||
|
Operating Revenue: |
|||||||||||
|
Passenger: |
|||||||||||
|
Mainline |
$ 7,471 |
$ 7,587 |
$ (116) |
(2)% |
$ 13,915 |
$ 14,136 |
$ (221) |
(2)% | |||
|
Regional carriers |
1,499 |
1,552 |
(53) |
(3)% |
2,817 |
2,926 |
(109) |
(4)% | |||
|
Total passenger revenue |
8,970 |
9,139 |
(169) |
(2)% |
16,732 |
17,062 |
(330) |
(2)% | |||
|
Cargo |
165 |
207 |
(42) |
(20)% |
327 |
424 |
(97) |
(23)% | |||
|
Other |
1,312 |
1,361 |
(49) |
(4)% |
2,639 |
2,609 |
30 |
1% | |||
|
Total operating revenue |
10,447 |
10,707 |
(260) |
(2)% |
19,698 |
20,095 |
(397) |
(2)% | |||
|
Operating Expense: |
|||||||||||
|
Salaries and related costs |
2,391 |
2,195 |
196 |
9% |
4,702 |
4,287 |
415 |
10% | |||
|
Aircraft fuel and related taxes |
1,228 |
1,457 |
(229) |
(16)% |
2,455 |
3,292 |
(837) |
(25)% | |||
|
Regional carrier expense |
|||||||||||
|
Fuel |
219 |
295 |
(76) |
(26)% |
386 |
559 |
(173) |
(31)% | |||
|
Other |
877 |
802 |
75 |
9% |
1,716 |
1,591 |
125 |
8% | |||
|
Contracted services |
484 |
457 |
27 |
6% |
960 |
898 |
62 |
7% | |||
|
Depreciation and amortization |
470 |
448 |
22 |
5% |
956 |
918 |
38 |
4% | |||
|
Aircraft maintenance materials and outside repairs |
446 |
499 |
(53) |
(11)% |
895 |
951 |
(56) |
(6)% | |||
|
Passenger commissions and other selling expenses |
437 |
421 |
16 |
4% |
825 |
807 |
18 |
2% | |||
|
Landing fees and other rents |
376 |
388 |
(12) |
(3)% |
724 |
761 |
(37) |
(5)% | |||
|
Profit sharing |
324 |
411 |
(87) |
(21)% |
596 |
547 |
49 |
9% | |||
|
Passenger service |
221 |
227 |
(6) |
(3)% |
410 |
417 |
(7) |
(2)% | |||
|
Aircraft rent |
66 |
60 |
6 |
10% |
132 |
120 |
12 |
10% | |||
|
Other |
485 |
573 |
(88) |
(15)% |
978 |
1,075 |
(97) |
(9)% | |||
|
Total operating expense |
8,024 |
8,233 |
(209) |
(3)% |
15,735 |
16,223 |
(488) |
(3)% | |||
|
Operating Income |
2,423 |
2,474 |
(51) |
(2)% |
3,963 |
3,872 |
91 |
2% | |||
|
Non-Operating Expense: |
|||||||||||
|
Interest expense, net |
(93) |
(127) |
34 |
(27)% |
(200) |
(258) |
58 |
(22)% | |||
|
Miscellaneous, net |
20 |
19 |
1 |
5% |
21 |
(62) |
83 |
NM | |||
|
Total non-operating expense, net |
(73) |
(108) |
35 |
(32)% |
(179) |
(320) |
141 |
(44)% | |||
|
Income Before Income Taxes |
2,350 |
2,366 |
(16) |
(1)% |
3,784 |
3,552 |
232 |
7% | |||
|
Income Tax Provision |
(804) |
(881) |
77 |
(9)% |
(1,292) |
(1,321) |
29 |
(2)% | |||
|
Net Income |
$ 1,546 |
$ 1,485 |
$ 61 |
4% |
$ 2,492 |
$ 2,231 |
$ 261 |
12% | |||
|
Basic Earnings Per Share |
$ 2.04 |
$ 1.85 |
$ 3.25 |
$ 2.75 |
|||||||
|
Diluted Earnings Per Share |
$ 2.03 |
$ 1.83 |
$ 3.23 |
$ 2.72 |
|||||||
|
Basic Weighted Average Shares Outstanding |
758 |
803 |
766 |
811 |
|||||||
|
Diluted Weighted Average Shares Outstanding |
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