Delta Air Lines Announces March Quarter Profit
Delta Air Lines today reported financial results for the March quarter 2017.
Adjusted pre-tax income for the March 2017 quarter was $847 million, a $713 million decrease from the March 2016 quarter, primarily driven by higher fuel prices.
Delta’s Chief Executive Officer, Ed Bastian, “Despite fuel price pressures, the Delta people once again delivered solid results across the board, with double digit operating margins, strong improvements in customer satisfaction, and progress on our international expansion with the closing of our Aeroméxico transaction.”
He continued, “Producing this result in our toughest quarter of the year shows not only how far we’ve come, but also that we have more opportunity in front of us to continue building a better airline for our employees, customers, and owners.”
Last week, severe weather in Atlanta caused significant disruptions to Delta’s operations.
The company cancelled approximately 4,000 flights as a result of the weather and the subsequent operational recovery.
The company returned to normal operations on Sunday afternoon and had a 100 per cent mainline completion factor yesterday.
Delta currently estimates the storm will reduce its June quarter pre-tax income by $125 million.
“We hold ourselves to a high standard and we apologize to all of our customers who were impacted by last week’s events. I also want to thank the Delta people for working through some incredibly tough conditions to take care of our customers and reset our operation. They proved again they are the best in the business” Bastian said.
Delta’s operating revenue for the March quarter was down $103 million versus prior year, including $20 million of lower year over year currency hedge gains.
Passenger unit revenues declined 0.5 per cent on
According to Delta President, Glen Hauenstein, “March marked the first month of positive passenger unit revenues since November 2015 and we are encouraged by the current fare and demand trends across the network. We expect June quarter passenger unit revenues to increase one to three percent and remain positive throughout the year.”
“However, we will keep our full year capacity growth capped at one percent to support this unit revenue momentum and the company’s return to margin expansion” he added.
Adjusted fuel expense increased $327 million compared to the same period in 2016 due to 52 per cent higher market prices.
Delta’s adjusted fuel price per gallon for the March quarter was $1.71, which includes $0.05 cents of benefit from the refinery and $0.09 cents of losses from legacy hedges.
CASM-Ex, including profit sharing increased 5.8 per cent for the March 2017 quarter compared to the prior year period.
Normalised CASM-Ex, including profit sharing increased 3.6 per cent versus the prior year period, primarily driven by investments in employees, maintenance timing and higher depreciation expense.
Adjusted non-operating expense declined $13 million year over year, primarily driven by lower interest expense.
Speaking Delta’s Chief Financial Officer, Paul Jacobson said, “We expect the entirety of our 2017 margin pressure to have occurred in the March quarter from higher fuel prices. With an improving revenue profile and further improvement as our cost growth moderates in the second half, we are on track to expand margins for the balance of the year. Going forward, by remaining disciplined with our costs and capital, we’ll be well positioned to achieve our long-term financial targets.”
Cash Flow, Shareholder Returns, and Adjusted Net Debt
During the quarter, Delta issued $2 billion in unsecured, investment grade debt at a blended rate of just under 3.3 per cent.
The proceeds have been contributed to Delta’s pension plans, pre-funding a portion of the company’s already committed 2018-2020 contributions.
As a result, the company will reduce its planned pension contributions from $1.2 billion to $500 million for each of the next three years.
Delta contributed $2.6 billion in cash, including $1.5 billion of the debt proceeds, and $350 million in company stock to the pension plan during the March quarter.
Subsequently, in April, Delta made an additional $600 million cash contribution, including the remaining debt proceeds, completing all pension funding for the year.
Excluding the $1.5 billion pension contribution, the company generated $0.7 billion of adjusted operating cash flow during the March quarter.
The company continued to invest in the business for the long term with $800 million in aircraft investments, facilities upgrades and technology improvements.
Delta also completed its tender offer for an additional 32 percent of the outstanding capital stock of Grupo Aeroméxico S.A.B. de C.V. for an aggregate purchase price of $620 million.
Delta now owns just over 36 per cent of the outstanding shares of Grupo Aeroméxico and holds options to acquire an additional 13 per cent.
Adjusted net debt at the end of the quarter increased to $8.8 billion as a result of the unsecured debt issuance.
The company remains committed to achieving its $4 billion debt target by 2020.
For the March quarter, the company returned $349 million to shareholders, comprised of $149 million of dividends and $200 million of share repurchases.
Special items for the quarter consist primarily of mark-to-market adjustments on fuel hedges.
Operating cash flow has been adjusted for accelerated pension contribution funded through debt issuance.