Delta Air Lines (Atlanta) today reported financial results for theย December 2013 (fourth) quarter.ย Key points include:
- Delta’s net income for theย December 2013ย quarter wasย $558 million, orย $0.65ย per diluted share, excluding special items1.
- Delta’s net income for 2013 wasย $2.7 billion, excluding special items, aย $1.1 billionย increase over 2012.
- Delta’s GAAP net income wasย $8.5 billion, orย $9.89ย per diluted share, for theย December 2013ย quarter andย $10.5 billionย for 2013.ย These results include anย $8.0 billionย non-cash gain associated with the reversal of the company’s tax valuation allowance.
- 2013 results includeย $506 millionย in profit sharing expense, includingย $119 millionย in the December quarter, recognizing Delta employees’ contributions toward meeting the company’s financial goals.
- Delta generated nearlyย $5 billionย of operating cash flow andย $2.1 billionย of free cash flow in 2013, allowing the company to reduce its adjusted net debt at the end of 2013 toย $9.4 billion, contribute an incrementalย $250 millionย above required funding to its defined benefit pension plans, and returnย $350 millionย to shareholders through a combination ofย $100 millionย of dividends andย $250 millionย of share repurchases.
Revenue Environment
Delta’s operating revenue improved 6 percent, orย $474 million, in theย December 2013ย quarter compared to theย December 2012ย quarter.ย Traffic increased 2.0 percent on a 2.9 percent increase in capacity.
- Passenger revenueย increased 6.1 percent, orย $451 million, compared to the prior year period.ย Passenger unit revenue (PRASM) increased 3.0 percent year over year with a 4.0 percent improvement in yield.
- Cargo revenueย decreased 1.0 percent, orย $3 million, as higher freight volumes partially offset declining freight yields.
- Oย ther revenueย increased 2.8 percent, orย $26 million, driven by higher SkyMiles revenue.
Comparisons of revenue-related statistics are as follows:
| Increase (Decrease) | |||||||
| 4Q13 versus 4Q12 | |||||||
| Change | Unit | ||||||
| Passenger Revenue | 4Q13 ($M) | YOY | Revenue | Yield | Capacity | ||
| Domestic | 3,784 | 9.4 % | 6.6 % | 7.9 % | 2.6 % | ||
| Atlantic | 1,208 | 1.9 % | 0.1 % | 0.7 % | 1.8 % | ||
| Pacific | 803 | (1.6) % | (2.2) % | (1.5) % | 0.6 % | ||
| Latin America | 517 | 18.5 % | 1.9 % | 0.3 % | 16.3 % | ||
| Total mainline | 6,312 | 7.0 % | 3.7 % | 4.5 % | 3.3 % | ||
| Regional | 1,562 | 2.3 % | 1.4 % | 3.5 % | 0.8 % | ||
| Consolidated | 7,874 | 6.1 % | 3.0 % | 4.0 % | 2.9 % | ||
Cost Performance
Total operating expense in the quarter increased 1.5 percent, orย $125 million, year-over-year driven by higher volume and revenue-related expenses; the impact of operational, service and employee investments; andย $56 millionย higher profit sharing expense.ย These cost increases were partially offset by lower fuel expense and the savings from Delta’s structural cost initiatives.
Non-operating expense declined byย $116 millionย as a result of prior year special items for early debt extinguishment and lower interest expense from debt reduction.ย These items were partially offset by aย $17 millionย negative impact from changes in foreign exchange rates.
Consolidated unit cost excluding fuel expense, profit sharing and special items (CASM-Ex2), was 1.4 percent higher in theย December 2013quarter on a year-over-year basis, driven by the impact of wage increases and operational and service investments.ย GAAP consolidated CASM decreased 1.4 percent.
Fuel expense, excluding mark-to-market adjustments, declinedย $91 millionย as a result of lower market fuel prices and better settled hedge performance. Delta’s average fuel price3ย wasย $3.05ย per gallon for the December quarter, which includesย $0.06ย in settled hedge gains. ย On a GAAP basis, fuel expense for the December quarter decreasedย $186 millionย year-over-year, driven by lower market fuel prices and mark-to-market gains on hedges in the current quarter.
Operations at the Trainer refinery produced aย $46 millionย loss for the December quarter and aย $116 millionย loss for the full year.ย While lower crack spreads pressured results at the refinery, they also reduced market jet fuel prices and helped lower Delta’s overall fuel expense.
Cash Flow
Cash from operations during theย December 2013ย quarter wasย $1.2 billion, driven by the company’s December quarter profit and working capital initiatives, which were partially offset by the normal seasonal decline in advance ticket sales.ย Cash from operations is net of aย $250 millionย incremental contribution made by Delta to its defined benefit pension plans during the quarter.ย The company generatedย $260 millionof free cash flow.
Capital expenditures during theย December 2013ย quarter wereย $900 million, includingย $835 millionย in fleet investments andย $16 millionย for the purchase of 4 aircraft off lease. During the quarter, Delta’s net debt maturities and capital leases wereย $335 million.
In the December quarter, the company returnedย $200 millionย to shareholders.ย Onย Nov. 26, the company paidย $51 millionย to shareholders, which represents aย $0.06ย per share quarterly dividend.ย In addition, the company repurchased 5.5 million shares at an average price of$27.39ย for a total ofย $150 million.ย The company has completedย $250 millionย of theย $500 millionย share repurchase plan authorized by Delta’s Board of Directors inย May 2013.
Delta ended the quarter with adjusted net debt ofย $9.4 billionย and the company has now achieved overย $7.5 billionย in net debt reduction since 2009.ย This debt reduction strategy produced aย $28 millionย year-over-year reduction in interest expense in the December quarter and aย $153 millionย reduction for 2013.ย
Reversal of Tax Valuation Allowance
Delta’s expectations for sustainable future profitability combined with its consistent and strong profitability over the past four years resulted in the reversal of the company’s tax valuation allowance in the December quarter.ย The reversal of the tax valuation allowance resulted in a non-cash net gain ofย $8.0 billionย in the December quarter.ย Beginning in theย March 2014ย quarter, net income will be reduced to reflect a 39% tax rate; however, there will be no cash impact as Delta’s net operating loss carryforwards will offset cash taxes on more thanย $15 billionย of future taxable income.
Special Items
Delta recorded aย $7.9 billionย special items gain in theย December 2013ย quarter, including:
- anย $8.0 billionย non-cash gain associated with the reversal of the Delta’s tax valuation allowance, as detailed above;
- aย $92 millionย mark-to-market gain on fuel hedges; and
- aย $160 millionย charge for facilities, fleet and other, including charges associated with Delta’s domestic fleet restructuring.
Delta recorded aย $231 millionย special items charge in theย December 2012ย quarter, including:
- aย $122 millionย charge for facilities, fleet and other, including charges associated with the company’s domestic fleet restructuring;
- aย $106 millionย loss on early extinguishment of debt primarily due to the company’s Pacific route credit facility refinancing; and
- aย $3 millionย mark-to-market loss on fuel hedges.
March 201ย 4ย Quarter Guidance
Following are Delta’s projections for theย March 2014ย quarter:
| 1Q 2014 Forecast | |
| Operating margin | 6 โ 8% |
| Fuel price, including taxes, settled hedges and refinery impact | $2.97 – $3.02 |
| Non-operating expense | $235 – $250 million |
| 1Q 2014 Forecast(compared to 1Q 2013) | |
| Consolidated unit costs โ excluding fuel expense and profit sharing | Up 0.5 โ 1.5% |
| System capacity | Up 2 โ 3% |
Other Matters
Included with this press release are Delta’s unaudited Consolidated Statements of Operations for the three and twelve months endedย Dec. 31, 2013ย and 2012; a statistical summary for those periods; selected balance sheet data as ofย Dec. 31, 2013ย and 2012; and a reconciliation of non-GAAP financial measures.
| End Notes | |
| (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) | CASM – Ex: In addition to fuel expense, profit sharing and special items, Delta believes excluding ancillary business costs is helpful to investors because ancillary business costs are not related to the generation of a seat mile. These businesses include aircraft maintenance and staffing services Delta provides to third parties and Delta’s vacation wholesale operations. The amounts excluded were $182 million and $185 million for the December 2013 and December 2012 quarters, respectively. Management believes this methodology provides a more consistent and comparable reflection of Delta’s airline operations. |
| (3) | Average fuel price per gallon: Delta’s December 2013 quarter average fuel price of $3.05 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 December 2013 quarter. On a GAAP basis, fuel price includes $92 million in fuel hedge mark-to-market adjustments recorded in periods other than the settlement period. The net refinery loss for the quarter was $46 million.ย See Note A for a reconciliation of average fuel price per gallon to the comparable GAAP metric. |
Copyright Photo: Tony Storck/AirlinersGallery.com. Delta is adding leased Boeing 717s to the fleet. Formerly painted in the Atlanta Falcons special livery with AirTran Airways, Boeing 717-2BD N891AT (msn 55043) is now plying the skies with Delta. N891AT lands at Baltimore/Washington.
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