June Quarter Financial Highlights
Adjusted earnings per share were $2.35, reflecting a 32 percent increase year over year with 8.7 percent top-line growth, 2.3 points of operating margin expansion and $1.8 billion of free cash flow.
Total adjusted revenue, which excludes refinery sales, grew nearly $1 billion to $12.5 billion, a new quarterly record, with 52 percent of adjusted revenue from premium products and non-ticket sources.
Total unit revenue, adjusted, increased 3.8 percent driven by healthy growth in leisure and corporate revenue and an approximate one point benefit from the amended American Express agreement announced earlier this year.
Non-fuel unit cost (CASM-Ex) increased 1.4 percent compared to the prior year period, driven by better operations, fleet transformation and efficiency initiatives.
Generated $5.2 billion of operating cash flow and $2.5 billion of free cash flow on a year-to-date basis, after investing $2.7 billion into the business, primarily for aircraft purchases and modifications.
Returned $497 million to shareholders, comprised of $268 million of share repurchases and $229 million in dividends.
“Our record June quarter financial and operating results demonstrate that we are translating our powerful brand and competitive advantages into earnings growth, margin expansion and solid returns for our owners. Our people are the best in the business and I’m proud to recognize their hard work and dedication this quarter with an additional $518 million toward next year’s profit sharing,” said Ed Bastian, Delta’s chief executive officer. “With our strong first half performance and building momentum from our customer-focused initiatives, we are increasing our full-year earnings guidance to $6.75 to $7.25 per share.”
September Quarter 2019 Outlook
For the September quarter, Delta expects to deliver solid top-line growth and margin expansion.
Delta’s adjusted operating revenue of $12.5 billion for the June quarter improved 8.7 percent, $1 billion higher than prior year quarter. This revenue result marks a record for the company, driven by improvements across Delta’s business, including a ten percent increase in premium product ticket revenue and double-digit percentage increases in loyalty and third-party maintenance revenue. Cargo revenue during the quarter declined 17 percent driven by lower volumes and yield. Other revenue declined by $24 million as growth in loyalty and third-party maintenance was offset by $176 million lower third-party refinery sales.
Passenger Revenue by Geographic Region:
- Domestic revenues grew 8.8% in the quarter on 3.6% higher passenger unit revenue (PRASM) and 5.1% higher capacity. Domestic premium product revenue grew 11% and corporate revenue grew 8%, similar to the March quarter.
- Atlantic revenues grew 6.1% in the quarter on 4.6% higher capacity and 1.5% higher PRASM, including a two point headwind from foreign exchange rates and pressure from the cessation of operations of our partner in India. Atlantic unit revenue improved from the March quarter driven by premium cabin performance and strong U.S. point of sale demand.
- Latin revenues grew 5.2% on a 7.8% increase in unit revenue and 2.4% lower capacity. This revenue improvement was driven by double-digit unit revenue growth in Brazil and Mexico beach markets.
- Pacific revenues grew 3.2% in the quarter as 9.7% higher capacity was partially offset by a 5.9% decline in unit revenues. Unit revenue performance was pressured by a 6% increase in length of haul, softer than expected demand in Japan and a roughly 1.5 point currency headwind.
“With record passenger loads, customer satisfaction and $1 billion in revenue growth for the June quarter, demand for Delta’s customer-focused product and service has never been stronger. Our third quarter is off to a great start with a new highest revenue day on record on July 7th,” said Glen Hauenstein, Delta’s president. “We now expect revenue growth of six to seven percent for the year, a $3 billion increase over 2018, as we benefit from our multi-year pipeline of fleet, product, and loyalty initiatives.”
Total adjusted operating expense for the June quarter increased $559 million versus the prior year quarter, with approximately 20% due to higher profit sharing expense. CASM-Ex was up 1.4 percent for the June quarter 2019 compared to the prior year quarter. This performance was driven by industry-leading operations, savings from the company’s fleet transformation and the One Delta efficiency initiative, which partially offset investments in our people and product. During the quarter, the company decided to accelerate retirement of its MD-90 fleet by two years to the end of 2022, which pressured CASM-Ex by approximately $60 million due to higher depreciation expense.
Adjusted fuel expense decreased $35 million, down two percent, relative to June quarter 2018. Delta’s adjusted fuel price per gallon for the June quarter was $2.08, which includes a $37 million benefit from the refinery.
Adjusted non-operating expense for the quarter was $60 million higher versus the prior year quarter, driven primarily by lower pension income and lower results from international equity partners.
Cash Flow and Shareholder Returns
Delta generated $3.3 billion of operating cash flow and $1.8 billion of free cash flow during the quarter after the investment of $1.4 billion into the business primarily for aircraft purchases and improvements. Year-to-date, the company has generated $5.2 billion of operating cash flow and $2.5 billion of free cash flow.
For the June quarter, Delta returned $497 million to shareholders, comprised of $268 million of share repurchases and $229 million in dividends. The company also completed repayment of the $1 billion short-term loan that was used to accelerate the repurchase of shares in the March quarter.
The Board of Directors today declared a quarterly dividend of $0.4025 per share, an increase of 15% over previous levels. This marks the sixth consecutive increase in Delta’s dividend since it was established in 2013. The September quarter dividend will be payable to shareholders of record as of the close of business on July 25, 2019, to be paid on August 15, 2019.
“With efficiency gains from our operations, fleet transformation, and One Delta initiatives, we have solid line of sight to achieve our 1% cost growth target for the year,” said Paul Jacobson, Delta’s chief financial officer. “Our strong financial foundation and cash generation allow us to sustainably invest in the business, while maintaining our investment grade balance sheet and consistently returning cash to shareholders. With our cash flow exceeding original expectations, we are on track to return $3 billion to our owners this year through share repurchases and our increased dividend.”
In the June quarter, Delta achieved a number of milestones across its five key strategic pillars.
Culture and People
- Accrued an additional $518 million in profit sharing and paid $26 million in Shared Rewards as a testament to the outstanding performance made possible by Delta’s more than 80,000 employees around the world.
- Ranked as the number one corporate blood donor by the American Red Cross for the second year in a row with 13,064 units of blood, up 18 percent from the prior year, from 254 Delta sponsored blood drives.
- Recognized as an honoree of The Civic 50 by Points of Light, the world's largest volunteer service organization, for a second consecutive year, a testament to the commitment of the Delta people to everyday social responsibility by celebrating Pride, building homes with Habitat for Humanity and giving blood through the American Red Cross.
- Named to Corporate Responsibility Magazine's annual 100 Best Corporate Citizens ranking, recognized for outstanding environmental, social and governance transparency and performance amongst the 1,000 largest U.S. public companies.
- Delivered 148 days of zero mainline cancellations and 78 days of zero system cancellations for the first half of the year, a 30% improvement over 2018’s record performance.
- Achieved record quarterly system and domestic load factor of 88.0% and 89.0%, up 1.3 points and 2.3 points, respectively, versus the prior year.
- Reached record completion factor for the first half of the year on a system and mainline basis, with mainline completion factor of 99.86%.
Network and Partnerships
- Celebrated the one-year anniversary of the joint venture with Korean Air, building the most comprehensive and reliable network in the trans-Pacific and providing our customers unparalleled access to over 80 destinations in Asia and more than 290 in the U.S.
- Received tentative approval from the U.S. Department of Transportation for new Delta service between Tokyo-Haneda and five U.S. cities, a major milestone for Delta that, once finalized, will increase traveler options and bring more competition to Tokyo.
- Received clearance for the WestJet-Delta proposed U.S./Canada transborder joint venture under Canada’s Competition Act from the Canadian Competition Bureau. The proposed joint venture is still subject to regulatory approval from the U.S. Department of Transportation.
Customer Experience and Loyalty
- Took delivery of Delta's first A330-900neo aircraft, featuring a modern, luxurious interior with all four branded seat products - Delta One suites, Delta Premium Select, Delta Comfort+ and Main Cabin - and thoughtful touches like in-seat power ports, full-spectrum LED ambient lighting, spacious overhead bins and memory foam cushions throughout the aircraft for added comfort.
- Launched Reclaim My Status, an industry-leading program allowing Delta SkyMiles Medallion Members who have experienced a life event that has temporarily affected their ability to travel to resume their status. Its launch is an important step in making our policies more intuitive and customer-friendly and has been extremely well-received by our Medallion Members.
- Began the use of Apple Business Chat, allowing select Medallions and an expanded group of customers in the future to connect with a live Delta representative to receive in-the-moment assistance, or with a Delta Virtual Assistant, to get quick answers to frequently asked questions through the Fly Delta app.
- Completed an initial two-week trial of free Wi-Fi to gather customer feedback from more than 700 flights, a first step toward making Wi-Fi as accessible in the sky as it is when visiting most businesses on the ground.
Investment Grade Balance Sheet
- Completed repayment of a $1 billion short-term loan that was used to accelerate the repurchase of shares in the March quarter, earlier than initially expected.
- Received a reaffirmed investment-grade rating and Stable outlook from Fitch Ratings.
- Achieved a 1.7x adjusted debt to EBITDAR ratio, in line with our long-term leverage ratio target of 1.5x to 2.5x adjusted debt to EBITDAR, which is expected to allow Delta to maintain investment grade ratings through a business cycle.
June 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 July 11, 2019, and which we have no current intention to update.