Delta Air Lines Announces March Quarter Profit

ATLANTA, April 14, 2016 /PRNewswire/ -- Delta Air Lines (NYSE:DAL) today reported financial results for the March 2016 quarter, including adjusted pre-tax income of $1.56 billion, a $966 million increase over March 2015 quarter.  Adjusted net income was $1.0 billion or $1.32 per diluted share.

"We have started 2016 with tremendous momentum, generating over $1.5 billion in adjusted pre-tax income, delivering industry-leading operations including 49 days of perfect mainline completion factor for our customers, and reaching our goal of becoming an investment grade company.  With these results, the Delta people have proven again that they are the very best in the industry," said Ed Bastian, Delta's incoming chief executive officer.  "We will continue to be disciplined with our business in the face of volatile fuel prices, strengthen our foundation, and prove our position as the airline that consistently delivers top results for our employees, our owners and the customers and communities we serve."

Revenue Environment
Delta's operating revenue for the March quarter decreased 1.5 percent, or $137 million, driven by $125 million in foreign currency pressures and a $5 million impact from the recent events in Brussels.  Passenger unit revenues declined 4.6 percent, including 2 points of impact from foreign currency, on a 2.7 percent increase in capacity.

"The momentum with our commercial initiatives, including corporate share gains, Branded Fares, and our partnership with American Express, allowed us to maintain our top line performance in the March quarter despite 40 percent lower market fuel prices and $125 million of pressure from foreign currency," said Glen Hauenstein, Delta's incoming president.  "We are forecasting a unit revenue decline of 2.5 – 4.5 percent for the June quarter.  While this is an improvement over our March quarter performance, we are focused on getting unit revenues back to a positive trajectory and we will make adjustments to our fall capacity levels if we are not making sufficient progress over the coming months."

June 2016 Quarter Guidance

Following are Delta's projections for the June 2016 quarter:

Cost Performance
Adjusted fuel expense² declined $1.45 billion compared to the same period in 2015, on 40 percent lower market fuel prices.  For the quarter, the refinery produced a loss of $28 million.  Settled hedge losses were $118 million.

CASM-Ex³ including profit sharing, increased 4.5 percent for the March 2016 quarter compared to the prior year period, with foreign exchange and the benefits of Delta's domestic refleeting and other cost initiatives offsetting the company's investments in its products, operations and employees.  Half of the increase was attributable to $136 million of higher profit sharing expense.    

Non-operating expense declined by $106 million from lower foreign exchange losses, improved contribution from Delta's 49 percent equity stake in Virgin Atlantic, and the benefit of the company's debt reduction initiatives which reduced interest expense by $24 million versus prior year.

"The March quarter represented the peak of our non-fuel cost pressures for the year and we expect our performance will improve as we move through the remainder of the year, allowing us to achieve our goal of keeping our non-fuel unit cost growth below 2 percent," said Paul Jacobson, Delta's chief financial officer.  "Our cost discipline, combined with continued low fuel prices and solid outperformance on revenue, is helping to contribute to over $8 billion in operating cash flow this year, which we are using to invest in the business, strengthen the balance sheet and continue to return cash to our owners."

Cash Flow, Shareholder Returns, and Adjusted Net Debt⁴
Delta generated $1.35 billion of adjusted operating cash flow and $497 million of free cash flow during the quarter.  The company used this strong cash generation to invest $871 million into the business, including $764 million in fleet investments. 

Delta made an $825 million cash contribution and a $350 million stock contribution to its pension plans during the quarter.  Subsequently, in April, Delta made an additional $135 million cash contribution, completing all pension funding for the year.

For the March quarter, the company returned $882 million to shareholders, comprised of $107 million of dividends and $775 million of share repurchases.  Included in the share buyback was a $350 million accelerated share repurchase to offset dilution to existing shareholders from the stock contribution made to the pension plans during the quarter.

Adjusted net debt at the end of the quarter stood at $7.0 billion.  Delta is on track to reduce adjusted net debt below $6 billion by the end of 2016. In recognition of its improved financial strength, Delta's corporate credit rating was upgraded during the quarter by Moody's Investors Service to Baa3, an investment grade rating.

GAAP Metrics
Below are GAAP metrics corresponding to the non-GAAP figures cited above.

Special Items
Special items, net of taxes, in the March 2016 quarter totaled $80 million, including $98 million in mark-to-market adjustments on fuel hedges settling in future periods.

Special items, net of taxes, in the March 2015 quarter totaled $374 million primarily comprised of 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 324 destinations in 58 countries on six continents. Headquartered in Atlanta, Delta employs nearly 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 trans-Atlantic 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, Facebook.com/delta and Delta's blog takingoff.delta.com.

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 $313 million and $293 million for the March 2016 and March 2015 quarters, respectively. Management believes this methodology provides a more consistent and comparable reflection of Delta's airline operations.

(4)    Adjusted net debt includes $454 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; 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 Apr. 14, 2016, and which we have no current intention to update.