Company’s revenue gains, strong operations and capacity discipline key to offsetting $1 billion impact of higher fuel prices
Delta Air Lines (NYSE:DAL) today reported financial results for the September 2011 quarter. Key points include:
- Delta’s net income for the September 2011 quarter was $765 million, or $0.91 per diluted share, excluding special items1.
- Delta’s GAAP net income was $549 million, or $0.65 per diluted share, for the September 2011 quarter.
- Strong top line revenue growth of 10% year over year helped offset the $1 billion impact of higher fuel prices.
- Results include $167 million in profit sharing expense, in recognition of Delta employees’ achievements toward meeting the company’s financial targets, bringing total profit sharing expense for the year to date to $175 million.
- The company ended the September 2011 quarter with $5.1 billion in unrestricted liquidity.
“We are successfully adapting Delta to the challenging economic environment by producing a solidly profitable quarter in the face of $1 billion of fuel price pressure” said Richard Anderson, Delta’s chief executive officer. “Delta people worldwide are committed to building a leading global airline. We are pleased to recognize their contributions with $167 million this quarter for our profit sharing program and we appreciate their hard work.”
Revenue Environment
Delta’s operating revenue grew $866 million, or 10%, in the September 2011 quarter compared to the September 2010 quarter. Load factor increased to 86.1%, with traffic flat on a 1% decrease in capacity.
- Passenger revenue increased 10%, or $793 million, compared to the prior year period. Passenger unit revenue (PRASM) increased 11%, driven by an 11% improvement in yield.
- Cargo revenue increased 13%, or $30 million, on higher cargo yields. ? Other revenue increased 5%, or $43 million, from higher third-party maintenance revenue.
Comparisons of revenue-related statistics are as follows:
Increase (Decrease)
3Q11 versus 3Q10
Change Unit
Passenger Revenue 3Q11 ($M) YOY Revenue Yield Capacity
Domestic $ 3,536 10% 12% 10% (2%)
Atlantic 1,796 6% 10% 10% (4%)
Pacific 1,073 22% 7% 12% 14%
Latin America 452 14% 13% 12% 1%
Total mainline 6,857 11% 11% 11% 0%
Regional 1,711 9% 12% 10% (3%)
Consolidated $ 8,568 10% 11% 11% (1%)
“Our September quarter passenger unit revenue increase of 11% from prior year, a revenue premium to the industry, demonstrates that our plan is working” said Ed Bastian, Delta’s president. “Corporate travel demand remains strong. With continued capacity discipline, coupled with improvements we are making in our product and service, we are well positioned to deal with the impact of today’s high fuel prices and an uncertain economy.”
Cost Performance
In the September 2011 quarter, Delta’s total operating expense increased $1 billion year over year. Higher fuel prices increased fuel expense by $1 billion, which was partially offset by $97 million of settled fuel hedge gains. The remaining year-over-year cost increase includes $65 million of higher revenue-related expenses and $40 million of foreign exchange impact.
Excluding mark to market adjustments, Delta’s average fuel price2 was $3.09 per gallon for the September quarter, an 80 cent, or 35%, increase over the prior year. The September quarter 2011 price included 9 cents per gallon in settled gains from its fuel hedging program.
Consolidated unit cost (CASM3), excluding fuel expense, profit sharing and special items, was 3.3% higher in the September 2011 quarter on a year-over-year basis.
Non-operating expense includes a $31 million loss on foreign exchange translations.
On a GAAP basis, the company’s fuel price (including non-cash mark to market adjustments) was $3.29 per gallon and its consolidated CASM increased 13.5%.
“We are beginning to gain traction with our cost reduction initiatives, slowing September quarter non-fuel cost growth to 3% on a 1% decline in capacity,” said Hank Halter, Delta’s chief financial officer. “With the initiatives we have in place, we remain on track to bring our non-fuel unit costs modestly above 2010 levels in the fourth quarter despite a significant reduction in capacity.”
Liquidity Position
As of September 30, 2011, Delta had $5.1 billion in unrestricted liquidity, including $3.3 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities.
Cash used in operations during the September 2011 quarter was $100 million, as the normal seasonal decline in advance ticket sales was partially offset by the company’s profitability.
Capital expenditures during the quarter were $220 million, including $195 million in aircraft, parts and modifications.
At September 30, 2011, Delta’s adjusted net debt was $14.0 billion. The company remains on track to achieve its $10 billion adjusted net debt target in 2013.
Company Highlights
Delta has a strong commitment to its employees, customers and the communities it serves. Key accomplishments since July include:
- Earning the top ranking in Business Travel News Annual Airline Survey, including the highest ratings from corporate travel buyers in five of 10 categories, and the award for “Best Airline — Business” from Recommend Magazine, a leading travel agent publication;
- Achieving top-tier operational performance in baggage service, on-time arrivals and completion factor, which helped drive a 40% reduction in U.S. Department of Transportation customer complaints. Based on their exceptional operational and service performance, Delta employees have earned $33 million in Shared Rewards this year;
- acing an order for 100 Boeing 737-900ER aircraft for delivery between 2013 and 2018. These aircraft will allow Delta to replace older technology aircraft, improving the company’s profitability while providing customers with an industry-leading, on-board experience;
-Continuing efforts to be the airline of choice in New York with improved products, services and facilities. The company was recently granted final DOT approval for its planned acquisition of 132 slot pairs at New York-La Guardia, which will allow it to increase service out of New York. In addition, the company continues construction on a state of the art international facility at New York-JFK’s Terminal 4, which is slated to open in the spring of 2013;
- nnouncing plans to enter into a long-term, exclusive commercial alliance with Aeromexico, linking Delta's network with Mexico's flagship carrier. As part of the agreement, Delta will invest $65 million in Aeromexico;
-Supporting the Breast Cancer Research Foundation through Delta’s signature pink plane, a Boeing 767-400 featuring the BCRF’s pink ribbon logo. During its support of the program, Delta has raised over $3.5 million for BCRF.
Special Items
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 settling in future periods. These open hedges will continue to fluctuate in value and Delta will record future changes in market value until the hedges settle.
Delta recorded $566 million in special items in the September 2010 quarter, including a $360 million charge for loss on extinguishment of debt; $153 million in costs related to the Comair fleet reduction; and $53 million in merger-related expenses.
December 2011 Quarter Guidance
Delta’s projections for the December 2011 quarter are below.
4Q 2011 Forecast
Fuel price, including taxes and settled hedges $2.98
Operating margin 5 — 7%
Capital expenditures $350 million
Total liquidity at end of period $ 5.0 billion
4Q 2011 Forecast (compared to 4Q 2010)
Consolidated unit costs — excluding fuel expense and profit sharing Flat to Up 2%
System capacity Down 4 — 5%
Domestic Down 3 — 5%
International Down 4 — 6%
Other Matters
Included with this press release are Delta’s unaudited Consolidated Statements of Operations for the three and nine months ended Sept. 30, 2011 and 2010; a statistical summary for those periods; selected balance sheet data as of Sept. 30, 2011 and Dec. 31, 2010; and a reconciliation of certain non-GAAP financial measures.
About Delta
Delta Air Lines serves more than 160 million customers each year, and was named by Fortune magazine as the most admired airline worldwide in its 2011 World's Most Admired Companies airline industry list. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 355 destinations in 65 countries on six continents. Headquartered in Atlanta, Delta employs 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft. A founding member of the SkyTeam global alliance, Delta participates in the industry's leading trans-Atlantic joint venture with Air France-KLM and Alitalia. Including its worldwide alliance partners, Delta offers customers more than 13,000 daily flights, with hubs in Amsterdam, Atlanta, Cincinnati, Detroit, Memphis, Minneapolis-St. Paul, New York-JFK, Paris-Charles de Gaulle, Salt Lake City and Tokyo-Narita. The airline's service includes the SkyMiles frequent flier program, a world-class airline loyalty program; the award-winning BusinessElite service; and more than 50 Delta Sky Clubs in airports worldwide. Delta is investing more than $2 billion through 2013 in airport facilities and global products, services and technology to enhance the customer experience in the air and on the ground. Customers can check in for flights, print boarding passes, check bags and review flight status at delta.com.