Delta Air Lines (NYSE:DAL) today reported financial results for the March quarter 2019 and provided its outlook for the June quarter 2019. Highlights of the March quarter 2019 results, including both GAAP and adjusted metrics, are below and incorporated here.
March Quarter Financial Highlights
• Adjusted earnings per share were $0.96, reflecting a 28 percent increase year over year on solid core performance and benefit from the early renewal of the American Express agreement.
• Total adjusted revenue, which excludes refinery sales, grew 7.5 percent to $10.4 billion with 55 percent from premium products and non-ticket sources.
• Total unit revenue, adjusted, increased 2.4 percent driven by double-digit growth in domestic corporate revenue and an approximate one point benefit from the American Express agreement.
• Non-fuel unit cost (CASM-Ex) decreased 0.2 percent compared to the prior year period, marking the third consecutive quarter of strong cost performance.
• Generated $2.0 billion of operating cash flow and $760 million of free cash flow after investing $1.3 billion into the business, primarily for aircraft purchases and modifications.
• Returned $1.6 billion to shareholders, comprised of $1.3 billion of share repurchases and $233 million in dividends.
“Delta is off to a solid start in 2019. Our March quarter performance demonstrates the power of our growing brand preference, our unmatched competitive advantages, and most importantly the Delta people who are committed to providing the best travel experiences for our customers every day. I’m pleased to recognize their efforts with $220 million toward next year’s profit sharing,” said Ed Bastian, Delta’s chief executive officer. “With the momentum in our business and our American Express contract renewal, we have increased confidence in achieving our full-year plan of top-line growth, margin expansion and double-digit earnings growth.”
June Quarter 2019 Outlook
For the June quarter, Delta expects to deliver six to eight percent top-line growth and margin expansion.
Delta’s adjusted operating revenue of $10.4 billion for the March quarter improved 7.5 percent, or $728 million versus the prior year. This revenue result marks a March quarter record for the company, driven by improvements across Delta’s business, including an eight percent increase in premium product ticket revenue and double-digit percentage increases in loyalty and Maintenance, Repair and Overhaul revenue. Cargo revenue declined five percent driven by lower volumes.
“Demand for Delta’s product has never been stronger, as evidenced by our 7.5 percent top line growth in the March quarter. This underpins our expectation that June quarter unit revenue should grow 1.5 to 3.5 percent, with sequential improvement in passenger unit revenue across all entities,” said Glen Hauenstein, Delta’s president. “With our customer-focused commercial initiatives delivering strong customer loyalty and top-line momentum, we now expect full-year revenue growth of five to seven percent, an increase from our prior guidance.”
Total adjusted operating expense for the March quarter increased $510 million versus the prior year quarter. CASM-Ex was down 0.2 percent for the March quarter 2019 compared to the prior year period driven by record operations, a shift in expense timing and strong cost controls.
Adjusted fuel expense increased $87 million, or five percent, relative to March quarter 2018. Delta’s adjusted fuel price per gallon for the March quarter was $2.05, which includes a $34 million loss at the refinery due to low gasoline crack spreads.
Adjusted non-operating expense for the quarter was $69 million higher versus the prior year, driven primarily by lower pension income and earnings pressure from international equity partners.
“Delta’s March quarter operating cash flow improved, driven by top-line growth, strong cost controls and margin expansion. Our cash flow performance allows us to reinvest for Delta’s long-term earnings growth, while maintaining our investment grade balance sheet and consistently returning cash to shareholders,” said Paul Jacobson, Delta’s chief financial officer. “With non-fuel unit cost momentum from our fleet transformation and One Delta efforts, we have clear line of sight to achieve our full year targets of one percent non-fuel unit cost growth and $3 to 4 billion in free cash flow.”
Cash Flow and Shareholder Returns
Delta generated $2 billion of operating cash flow, as improved profitability and the seasonal build of cash were partially offset by the $1.3 billion profit sharing payment to employees for 2018 performance. Delta generated $760 million of free cash flow during the quarter after the investment of $1.3 billion into the business primarily for aircraft purchases and improvements.
Delta accelerated the repurchase of shares in the quarter, funded by a $1 billion short-term loan. During the quarter, the company repaid $300 million of this loan and expects that the remainder will be repaid by year end. Delta returned $1.6 billion to shareholders during the March quarter, comprised of $1.3 billion of share repurchases and $233 million in dividends.
In the March quarter, Delta achieved a number of milestones across its five key strategic pillars.
Culture and People
• Celebrated the commitment of the Delta people through $1.3 billion in profit sharing for 2018 performance, the second largest profit sharing payout in the airline's history.
• Achieved Delta's highest overall ranking in Fortune's Most Admired Companies for 2019 and ranked first for the eighth time in the past nine years as Fortune's Most Admired Airline.
• Introduced a paid day of service for all employees, building on Delta's commitment of donating 1% of profits to charitable organizations, through approximately 640,000 hours of community service.
• Continued Delta’s commitment to the communities of our employees, partners and customers through participation in the 16th Delta Global Build with Habitat for Humanity and celebrating the life of Dr. Martin Luther King, Jr. through a grant to re-open the Martin Luther King, Jr. National Historical Park in Atlanta during the MLK Holiday Weekend after it had remained closed due to lack of federal appropriations.
• Achieved the highest network system completion factor for the first quarter since 2012, continuing to raise the bar on operational excellence and delivering consistency and reliability to our customers.
• Delivered 69 days of zero mainline cancellations, 28 days of zero system cancellations and achieved mainline on-time performance (A0) of 72.0% for the March quarter.
Network and Partnerships
• Celebrated five years of the Delta and Virgin Atlantic partnership, focused on delivering the best customer experience in the trans-Atlantic market, with more than 70 daily nonstop flights between the U.K. and U.S., leading on-time performance, and enhanced terminal and in-cabin technology and service.
• Filed with the U.S. Department of Transportation for additional service to Tokyo-Haneda airport, proposing to expand Delta's operational reliability and exceptional customer service to more customers flying across the Pacific.
Customer Experience and Loyalty
• Signed an 11-year renewal with American Express, ensuring that the two companies continue to work together to deliver best-in-class value to customers, while doubling the expected benefits to Delta to nearly $7 billion annually by 2023 from $3.4 billion in 2018.
• Debuted Delta's state-of-the-art A220, flying from Delta's New York-LaGuardia hub to Dallas/Ft. Worth and Boston and from Delta's Detroit hub to Dallas/Ft. Worth.
• Launched the ability for SkyMiles members to upgrade their experience post-purchase using miles through the Fly Delta App, increasing customer choice and the opportunities for customers to use miles as a form of payment with Delta.
Investment Grade Balance Sheet
• Completed $1.3 billion in share repurchases, opportunistically repurchasing 26 million shares and reaffirming Delta's commitment to consistent shareholder returns.
• Lowered Delta’s borrowing costs while keeping debt balanced by securing a blended 3.2% fixed rate on a $500 million Enhanced Equipment Trust Certificate (EETC) secured by 14 aircraft.
Annual Shareholder Meeting
The Board of Directors has set the airline's annual meeting of shareholders for 7:30 a.m. EDT, June 20, 2019. The meeting will be held at the offices of Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York.
March Quarter Results
Adjusted results primarily exclude the impact of unrealized gains/losses on investments.
Delta Air Lines (NYSE: DAL) is the U.S. global airline leader in products, services, innovation, reliability and customer experience. Powered by its 80,000 people around the world, Delta continues to invest billions in its people, improving the air travel experience and generating industry-leading shareholder returns.
• Delta serves nearly 200 million people every year, taking customers across its industry-leading global network to more than 300 destinations in over 50 countries.
• Headquartered in Atlanta, Delta offers more than 5,000 daily departures and as many as 15,000 affiliated departures including the premier SkyTeam alliance, of which Delta is a founding member.
• Through its innovative alliances with Aeromexico, Air France-KLM, Alitalia, China Eastern, GOL, Korean Air, Virgin Atlantic, Virgin Australia and WestJet, Delta is bringing more choice and competition to customers worldwide.
• Delta operates significant hubs and key markets at airports in Amsterdam, Atlanta, Boston, Detroit, London-Heathrow, Los Angeles, Mexico City, Minneapolis/St. Paul, New York-JFK and LaGuardia, Paris-Charles de Gaulle, Salt Lake City, São Paulo, Seattle, Seoul-Incheon and Tokyo-Narita.
• Delta has been recognized as a Fortune’s top 50 Most Admired Companies in addition to being named the most admired airline for the eighth time in nine years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented eight consecutive years and named one of Fast Company’s Most Innovative Companies Worldwide for two consecutive years.
• As an employer, Delta has been regularly awarded top honors from organizations like Glassdoor and recognized as a top workplace for women and members of the military. Delta CEO Ed Bastian was named among the “World’s Greatest Leaders” by Fortune magazine in 2018.
• More about Delta can be found on the Delta News Hub as well as delta.com, via @DeltaNewsHub on Twitter and Facebook.com/delta.
Forward Looking Statements
Statements in this press release that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the cost of aircraft fuel; the availability of aircraft fuel; the impact of fuel hedging activity including rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the performance of our significant investments in airlines in other parts of the world; the possible effects of accidents involving our aircraft; breaches or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on technology in our operations; the restrictions that financial covenants in our financing agreements could have on our financial and business operations; labor issues; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third parties; failure or inability of insurance to cover a significant liability at Monroe’s Trainer refinery; the impact of environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain senior management and key employees; damage to our reputation and brand if we are exposed to significant adverse publicity through social media; the effects of terrorist attacks or geopolitical conflict; competitive conditions in the airline industry; interruptions or disruptions in service at major airports at which we operate; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions; uncertainty in economic conditions and regulatory environment in the United Kingdom related to the exit of the United Kingdom from the European Union; and the effects of the rapid spread of contagious illnesses.
Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of April 10, 2019, and which we have no current intention to update.