Delta Airlines reports a 1Q net profit of $85 million

Delta Air Lines (Atlanta) today reported financial results for the March 2013 quarter.  Highlights from the quarter include:

  • Delta’s net profit for the March 2013 quarter was $85 million, or $0.10 per diluted share, excluding special items1.  This result is a $124 million improvement year-over-year.
  • Including $78 million in special items, Delta’s GAAP net income was $7 million, or $0.01 per diluted share.
  • Results include $20 million of profit sharing expense in recognition of Delta employees’ contributions to the company’s financial performance.
  • Delta generated $1.1 billion of operating cash flow and $457 million of free cash flow in the March 2013 quarter, and ended the period with adjusted net debt of just under $11.0 billion.

“Our results represent Delta’s strongest March quarter financial and operational performance in over a decade and I want to thank Delta people worldwide for all the hard work that went into producing these results for our company.  This performance is proof that we are on the right path to making Delta the airline of choice for our shareholders, employees, and customers,” said Richard Anderson, Delta’s chief executive officer.  “With a solid financial foundation and building momentum from initiatives like our LaGuardia expansion, Virgin Atlantic investment and new Terminal 4 at New York-JFK, we are well positioned to generate significant improvements in Delta’s profitability going forward.”

Revenue Environment
Delta’s operating revenue grew $87 million, or 1.0 percent, in the March 2013 quarter compared to the March 2012 quarter.  Load factor increased to 81.2 percent, with traffic down 0.6 percent on a 2.5 percent decrease in capacity.

  • Passenger revenue increased 1.4 percent, or $107 million, compared to the prior year period.  Passenger unit revenue (PRASM) increased 4.1 percent, driven by a 2.1 percent improvement in yield.
  • Cargo revenue decreased 2.4 percent, or $6 million, on declining freight yields.
  • Other revenue decreased 1.4 percent, or $14 million, as a result of lower third-party maintenance revenue.

Comparisons of revenue-related statistics are as follows:

Increase (Decrease)
1Q13 versus 1Q12
Change Unit
Passenger Revenue 1Q13 ($M) YOY Revenue Yield Capacity
Domestic 3,402 6.1 % 4.9 % 4.5 % 1.2%
Atlantic 1,052 (3.4) % 8.1 % 3.9 % (10.6) %
Pacific 871 3.1 % 3.7 % (0.4) % (0.6) %
Latin America 551 5.5 % 3.3 % (2.5) % 2.1 %
Total mainline 5,876 3.8 % 5.5 % 3.0 % (1.6) %
Regional 1,457 (6.8) % 1.8 % 3.5 % (8.5) %
Consolidated 7,333 1.4 % 4.1 % 2.1 % (2.5) %

“Our March quarter unit revenues grew 4 percent, showing that the investments we have made in operations, products and service, combined with our capacity discipline, have built a solid revenue-producing foundation,” said Ed Bastian, Delta’s president.  “We are taking actions to mitigate the decline in close-in demand we saw in the last part of March, and we expect the impact of the sequester, combined with a softening of leisure demand, to result in a 2 – 3 percent decline in April’s unit revenues.  However, a key benefit from a consolidated industry is that we now see a much stronger correlation between revenue and fuel; so while we are seeing some revenue softness, we are also benefitting from lower fuel costs, allowing us to continue our path of margin expansion even in a sluggish economic environment.”

Cash Flow
Cash from operations during the March 2013 quarter was $1.1 billion, driven by the seasonal increase in advanced ticket sales and March quarter profitability.  The company generated $457 million of free cash flow.

Capital expenditures during the March 2013 quarter were $650 million, including $500 million in fleet investments and $47 million for two sets of slots at London’s Heathrow airport. Capital expenditures included 21 aircraft purchased off lease as part of Delta’s debt reduction efforts.  During the quarter, Delta’s debt maturities and capital leases were $382 million.

Delta ended the quarter with adjusted net debt of just under $11.0 billion and the company has now achieved a $6 billion net debt reduction since 2009.  This debt reduction strategy produced a $50 million year-over-year reduction in interest expense in the March quarter. As of Mar. 31, 2013, Delta had $5.4 billion in unrestricted liquidity, including $3.6 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities.

Fuel
Fuel expense for the March quarter declined $78 million year-over-year, excluding mark to market adjustments, as a result of lower fuel prices and consumption. Delta’s average fuel price2 was $3.24 per gallon for the March quarter, which includes 6 cents per gallon in settled hedge gains. For the March quarter, operations at the Trainer refinery produced a $22 million loss, driven by supply disruptions related to Superstorm Sandy and a short-term outage in a gasoline production unit, which slowed production during the quarter.

Cost Performance
Excluding fuel, total operating expense in the quarter increased year-over-year by $198 million as the impact of operational, service and employee investments was partially offset by savings from Delta’s structural cost initiatives.

Consolidated unit cost excluding fuel expense, profit sharing and special items (CASM-Ex3), was 5.0 percent higher in the March 2013 quarter on a year-over-year basis, driven by the impact of capacity reductions, wage increases, and operational and service investments.  GAAP consolidated CASM increased 5.8 percent.

“Our March quarter non-fuel unit cost growth was lower than expected, as the benefits of our structural cost initiatives limited the cost growth associated with investments in our people, operations, and service,” said Paul Jacobson, Delta’s chief financial officer.  “We should see our cost pressures lessen significantly in the second half of the year, as the benefits of our structural cost initiatives accelerate and we lap the impact of prior year investments.”

Company Highlights
Delta has a strong commitment to its employees, customers and the communities it serves.  Key accomplishments in the March 2013 quarter include:

  • Receiving recognition from leading organizations and publications, including being named FORTUNE’s Most Admired Airline, receiving Aviation Week’s Laureate Award for Innovation, and receiving the International Service Excellence Award for reservation sales;
  • Recognizing the achievements of Delta employees toward meeting the company’s financial and operational goals with $43 million of incentives so far this year, including $20 million in employee profit sharing and $23 million in Shared Rewards;
  • Significantly improving its operational performance, resulting in an on-time arrival rate of 86.2 percent and 12 percent fewer customer complaints compared to 2012;
  • Continuing the company’s ongoing investment in high-quality facilities through the renovation of LaGuardia Terminals C and D with the addition of a connecting bridge and improvements to the Delta Sky Clubs, seating areas and food options, and the development of the Sky Deck, new outdoor seating areas at Delta Sky Clubs in Atlanta and New York-JFK, designed in conjunction with Architectural Digest;
  • Enhancing the SkyMiles Medallion program by introducing Crossover Rewards, the industry-leading joint loyalty partnership with Starwood. The partnership allows members to share program benefits and earn more miles and Starpoints when traveling with either company;
  • Releasing a new Fly Delta app for iPad and iPhone as part of a broader rollout of a significantly improved online and digital customer experience. The new Fly Delta app has added functionality and includes the unique “Glass Bottomed Jet” feature; and
  • Extending Delta’s involvement in the community, as more than 50 Delta employees partnered with SkyMiles Medallion members and Aeromexico employees to build six homes in Puebla, Mexico. This effort was Delta’s ninth international build with Habitat for Humanity.

Special Items
Delta recorded special items totaling a $78 million charge in the March 2013 quarter, including:

  • $24 million in mark-to-market gains for fuel hedges settling in future periods; and
  • a $102 million charge for facilities, fleet and other items.

Delta recorded special items totaling a $163 million gain in the March 2012 quarter, including:

  • $151 million in mark-to-market gains for fuel hedges settling in future periods;
  • a $39 million gain associated with the exchange of slots at New York-LaGuardia and Washington-Reagan National; and
  • a $27 million charge for facilities, fleet and other items.

Copyright Photo: Brian McDonough. Boeing 757-232 WL N694DL (msn 29726) “The Spirit of Freedom” prepares to land at Washington (Reagan National).

Delta Air Lines: AG Slide Show