Delta reports a $768 million net profit in the third quarter, excluding special items

Delta Air Lines (Atlanta) today reported:

  • net income, excluding special items1, for the September 2012 quarter was $768 million, or $0.90 per diluted share.
  • Delta’s September 2012 quarter GAAP net income was $1.0 billion, or $1.23 per diluted share, including mark-to-market gains on open fuel hedges and other special items.
  • Delta’s unit revenues were up 3 percent for the quarter and the company has produced a unit revenue premium to the industry for eighteen consecutive months.
  • Results included $174 million in profit sharing expense, for a total of $309 million year to date, in recognition of Delta employees’ efforts toward the company’s financial targets.  In addition, Delta people have received $67 million in Shared Rewards in 2012 for hitting the company’s operational and customer service targets.
  • Delta ended the September 2012 quarter with $5.1 billion in unrestricted liquidity and adjusted net debt of $11.9 billion.

Revenue Environment

Delta’s operating revenue grew $107 million, or 1 percent, on 1.5 percent lower capacity in the September 2012 quarter compared to the September 2011 quarter.  Load factor for the quarter increased 0.3 points year over year to 86.4 percent.

  • Passenger revenue increased 1 percent, or $124 million, compared to the prior year period.  Passenger unit revenue (PRASM) increased 3 percent, driven by a 3 percent improvement in yield.
  • Cargo revenue decreased 5 percent, or $14 million, with lower cargo yields partially offset by higher volumes.
  • Other revenue decreased $3 million as lower third-party maintenance revenues were partially offset by higher codeshare revenue.

Comparisons of revenue-related statistics are as follows:

Increase (Decrease)
3Q12 versus 3Q11
Passenger Revenue 3Q12 ($M) Change




Yield Capacity
Domestic $     3,690 4% 3% 4% 1%
Atlantic 1,751 (2)% 3% 2% (5)%
Pacific 1,108 5% 6% 3% (1)%
Latin America 468 3% -% (3)% 3%
Total mainline 7,017 2% 3% 3% (1)%
Regional 1,675 (2)% 6% 6% (8)%
Consolidated $     8,692 1% 3% 3% (2)%

“Our solid revenue performance reflects the benefits of capacity discipline, strong operational performance and the investments we have made in our products and service,” said Ed Bastian, Delta’s president.  “We expect our revenue performance to benefit from our continued capacity discipline and further corporate travel gains and we are forecasting our October unit revenues to increase 4 – 5% year over year.”


Excluding mark-to-market adjustments, Delta’s average fuel price2 was $3.14 per gallon for the September quarter, which includes 3 cents per gallon in settled losses from its fuel hedging program.  On a GAAP basis, which includes $440 million of mark-to-market gains on out of period hedges, the company’s average fuel price was $2.71 per gallon.

During the September quarter, jet fuel production began at Delta’s wholly-owned Trainer Refinery and the company expects the plant to be fully operational in the December quarter.  For the December quarter, Delta expects Trainer’s production to generate a contribution of breakeven to $25 million.

Non-Fuel Cost Performance

Consolidated unit cost (CASM3), excluding fuel expense, profit sharing and special items, was 5.6 percent higher in the September 2012 quarter on a year-over-year basis, driven by the impact of capacity reductions, higher maintenance expense, wage increases and service investments.  GAAP consolidated CASM decreased 2 percent primarily due to mark-to-market gains on open fuel hedges.

“With consistent investment in the business, our non-fuel costs have grown in the past few quarters and we expect that trend to continue into the first half of next year,” said Paul Jacobson, Delta’s chief financial officer.  “However, we are in the process of implementing a $1 billion program of structural initiatives that we anticipate will generate significant savings in the second half of 2013, while maintaining the high quality product, network and operation we have built.”

Cash Flow and Liquidity

As of September 30, 2012, Delta had $5.1 billion in unrestricted liquidity, including $3.2 billion in cash and short-term investments and $1.9 billion in undrawn revolving credit facilities.

Operating cash flow during the September 2012 quarter was $545 million, driven by the company’s profitability, which was offset by the normal seasonal decline in advance ticket sales.  Free cash flow for the September 2012 quarter was $120 million.

Capital expenditures during the quarter were $425 million, including $275 million for fleet, including advance payments for 737-900ERs, induction costs for MD-90s and interior modifications to Delta’s international fleet.

During the September quarter, Delta paid $270 million in net debt maturities and capital lease obligations.  At September 30, the company’s adjusted net debt was $11.9 billion, a reduction of $5 billion since the end of 2009.

Subsequent to the end of the quarter, Delta refinanced $1.7 billion in debt and undrawn revolving credit facilities secured by the company’s Pacific routes and slots.  As a result of this transaction, the company has maintained its revolving credit capacity and lowered the interest rate.  Delta expects the transaction will generate more than $30 million in annual interest expense savings.

December 2012 Quarter Guidance

Delta’s projections for the December 2012 quarter are below.

4Q 2012 Forecast
Average fuel price, including taxes and settled hedges $ 3.15 – $3.20
Operating margin 4 – 6%
Capital expenditures $450 – 550 million
Total liquidity at end of period $ 5.2 billion
4Q 2012 Forecast

(compared to 4Q 2011)

Consolidated unit costs – excluding fuel expense and profit sharing Up 5 – 7%
System capacity Down 1 – 3%
     Domestic Down 1 – 3%
     International Down 2 – 4%

Special Items

Delta recorded special items totaling a $279 million gain in the September 2012 quarter, including:

  • a $440 million gain on mark-to-market adjustments on fuel hedges settling in future periods;
  • a $39 million gain associated with the exchange of slots at New York-LaGuardia and Washington-Reagan National;
  • a $12 million loss on extinguishment of debt;
  • a $66 million charge for severance and related costs; and
  • a $122 million charge for facilities, fleet and other, including charges resulting from the closure of Comair.

Delta recorded special items totaling a $216 million charge in the September 2011 quarter, primarily related to mark to market adjustments for open fuel hedges.


(1) Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release and provides the reasons management uses those measures.

(2) Average fuel price per gallon: Delta’s September 2012 quarter average fuel price of $3.14 per gallon reflects the consolidated cost per gallon for mainline and regional operations, including contract carrier operations, and includes the impact of fuel hedge contracts with original maturity dates in the September 2012 quarter.  Settled hedge losses for the quarter were $26 million, or 3 cents per gallon.  On a GAAP basis, fuel price includes $440 million in fuel hedge mark-to-market adjustments recorded in periods other than the settlement period.

(3) CASM – Ex: Delta excludes from consolidated unit cost ancillary businesses which are not related to the generation of a seat mile, including aircraft maintenance and staffing services which Delta provides to third parties and Delta’s vacation wholesale operations (MLT).  The amounts excluded were $214 million and $232 million for the September 2012 quarter and September 2011 quarter, respectively.

Copyright Photo: Tony Storck. Boeing 747-451 N669US (msn 24224) lands at Baltimore/Washington International Thurgood Marshall Airport (BWI).

Delta Air Lines: