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Published on : Tuesday, January 19, 2016
Delta Air Lines today reported financial results for the December 2015 quarter, including adjusted pre-tax income of $1.45 billion, a $430 million increase year over year. Adjusted net income was $926 million or $1.18 per diluted share, up 51 percent from the December quarter of 2014.
“Our 2015 performance was a record for Delta on all fronts – with industry-leading operational performance, superior customer satisfaction, and a $5.9 billionadjusted pre-tax profit. These results show the commitment of the Delta people to running the best airline in the world every day. It’s an honor to reward their performance with $1.5 billion in profit sharing for the year,” said Richard Anderson, Delta’s chief executive officer. “As we look ahead to 2016, we have a significant opportunity to improve our performance even further. With over $3 billion in potential savings from lower fuel prices and numerous commercial, operational and cost initiatives already in place, we expect to again perform in the top tier of the S&P Industrials on earnings growth, margins, and cash flows this year despite global economic challenges.”
Delta’s operating revenue for the December quarter decreased 2 percent, or $145 million, due to $160 million in foreign currency pressures. Passenger unit revenues declined 1.6 percent, which includes approximately 2 points of impact from foreign currency.
“The success of our network actions and commercial initiatives in 2015 allowed us to grow our top line and our unit revenue premium to the industry, while overcoming nearly $700 million of revenue pressure from foreign currency,” said Ed Bastian, Delta’s president. “Looking ahead, the overall demand environment remains solid. The breadth of our network scale allows us to focus our commercial efforts on those areas of the business with the best opportunity such as the domestic marketplace, while reducing our exposure in some weaker international regions. While we expect international volatility and currency pressures to result in unit revenue declines of 2.5 – 4.5 percent for the March quarter, we should see over 10 points of margin improvement given our capacity discipline in the face of a more than 50 percent decline in fuel prices.”
|4Q15 versus 4Q14|
|Passenger Revenue||4Q15 ($M)||YoY||Revenue||Yield||Capacity|
|Mainline||4,366||4.2 %||(0.7) %||(3.2) %||5.0 %|
|Regional||1,422||(5.0) %||(0.8) %||(5.5) %||(4.2) %|
|Total Domestic||5,788||1.8 %||(1.4) %||(4.3) %||3.2 %|
|Atlantic||1,163||(5.4) %||(4.1) %||(5.3) %||(1.3) %|
|Pacific||653||(14.0) %||(2.9) %||(8.1) %||(11.4) %|
|Latin America||521||(7.2) %||(6.6) %||(7.8) %||(0.6) %|
|Total Passenger||8,125||(1.3) %||(1.6) %||(4.4) %||0.3 %|
|Cargo Revenue||193||(20.4) %|
|Other Revenue||1,184||1.3 %|
|Total Revenue||9,502||(1.5) %|
March 2016 Quarter Guidance
Following are Delta’s projections for the March 2016 quarter:
|Passenger unit revenue (compared to 1Q15)||Down 2.5% – 4.5%|
|Operating margin||18% – 20%|
|Fuel price, including taxes, settled hedges and refinery impact||$1.20 – $1.25|
|CASM – Ex including profit sharing (compared to 1Q15)||Up ~5%|
|System capacity (compared to 1Q15)||Up 2 – 3%|
Adjusted fuel expense2 declined $726 million compared to the same period in 2014, on 40 percent lower market fuel prices. For the quarter, the refinery produced a profit of $8 million. Settled hedge losses were $336 million, including $60 million of early hedge settlements.
CASM-Ex3 increased 1.9 percent for the December quarter on a year-over-year basis, with foreign exchange and the benefits of Delta’s domestic refleeting and other cost initiatives offsetting the company’s investments in its employees, products and operations.
Delta’s debt reduction initiative continued to improve the company’s interest expense, producing $35 million in interest savings for the quarter compared to the same period in 2014.
Non-operating expense includes a $75 million loss for the write-off of Delta’s remaining cash holdings in Venezuela.
“Rigorous cost discipline is a key part of the Delta culture, which was proven by our ability to keep non-fuel unit costs flat in 2015 while significantly investing in our people, products and service,” said Paul Jacobson, Delta’s chief financial officer. “The first half of 2016 will see the most pressure to non-fuel unit costs, and we expect performance will improve through the year as we lap last year’s employee wage increases.”
Cash Flow, Shareholder Returns, and Adjusted Net Debt4
Delta generated $1.4 billion of adjusted operating cash flow and $300 million of free cash flow during the quarter. The company used this strong cash generation to reinvest $1.1 billion back into the business, including $900 million for aircraft acquisitions, fleet modifications and six slot pairs at London’s Heathrow airport.
For full year, the company returned $2.6 billion to shareholders, comprised of $360 million of dividends and $2.2 billion of share repurchases for 48 million shares at an average price of $45.50 per share.
Adjusted net debt at the end of the year stood at $6.7 billion, a more than $10 billion reduction since Delta began its balance sheet improvement strategy in 2009.
GAAP Metrics Related to Fuel, Cost Performance and Cash Flow
Below are GAAP metrics corresponding to the non-GAAP figures cited above.
|($ in millions except per share and unit costs)||4Q15||4Q14||$||%|
|Pre-tax income (loss)||1,533||(1,140)||2,673||NM|
|Net income (loss)||980||(712)||1,692||NM|
|Diluted earnings (loss) per share||1.25||(0.86)||2.11||NM|
|Fuel expense (including regional carriers)||1,652||4,435||(2,783)||(63%)|
|Consolidated unit cost (cents)||13.38||18.05||(4.67)||(26%)|
|Operating cash flow||1,479||582||897||NM|
|($ in millions except per share and unit costs)||FY 2015||FY 2014||$||%|
Special items, net of taxes, in the December 2015 quarter totaled $54 million, including:
Special items, net of taxes, in the December 2014 quarter totaled $1.4 billion, net of taxes, including:
Source:- Delta Airlines
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