Delta Announces Quarterly, Annual Profits

Delta Air Lines Announces $158 Million Quarterly Profit and $1.4 Billion Annual Profit, Excluding Special Items

Delta Air Lines Announces $158 Million Quarterly Profit and $1.4 Billion Annual Profit, Excluding Special Items

Reports GAAP quarterly profit of $19 million and annual profit of $593 million

PR Newswire

ATLANTA, Jan. 18, 2011 /PRNewswire/ -- Delta Air Lines (NYSE: DAL) today reported financial results for the December 2010 quarter.  Key points include:

  • Delta's net income for the December 2010 quarter was $158 million, or $0.19 per diluted share, excluding special items(1).  This is a $383 million improvement year over year.  
  • Delta's GAAP net income was $19 million, or $0.02 per diluted share, for the December 2010 quarter.
  • Delta's net income for 2010 was $1.4 billion, excluding special items.  Including $851 million in special items, Delta's net income for 2010 was $593 million.
  • 2010 results include $313 million in profit sharing expense, including $38 million in the December quarter, in recognition of Delta employees' achievements toward meeting the company's financial targets.
  • Delta's adjusted net debt at the end of 2010 was $15.0 billion, a $2.0 billion reduction from prior year.
  • Delta ended 2010 with $5.2 billion in unrestricted liquidity.

"Our 2010 results are among the best in Delta's history.  They would not have been possible without the dedication and determination of Delta employees worldwide and we are pleased we will pay more than $300 million in profit sharing for 2010," said Richard Anderson, Delta's chief executive officer.  "These results are a direct reflection of the success of our merger, cost discipline and debt reduction strategy and give us momentum to deal with the rising fuel prices we face in 2011."  

(Logo:  http://photos.prnewswire.com/prnh/20101123/CL04792LOGO )

Revenue Environment

Total operating revenue for the December 2010 quarter was $7.8 billion, an increase of $1.0 billion, or 14%, compared to the same period last year.

  • Passenger revenue increased 15%, or $889 million, compared to the prior year period on 7% higher capacity.  Passenger unit revenue (PRASM) increased 8%, driven by a 9% improvement in yield.
  • Cargo revenue decreased 7%, or $17 million, due to the elimination of freighter operations, partially offset by higher volume and yield.
  • Other, net revenue increased 14%, or $112 million, primarily due to higher SkyMiles revenue and revenues from ancillary products and services.

Comparisons of revenue-related statistics are as follows:






Increase (Decrease)





4Q10 versus 4Q09





Change

Unit



Passenger Revenue

4Q10 ($M)


YOY

Revenue

Yield

Capacity


Domestic

2,927


11 %

5 %

5 %

6 %


Atlantic

1,226


21 %

8 %

10 %

12 %


Pacific

721


47 %

24 %

26 %

18 %


Latin America

364


13 %

19 %

18 %

(5) %


Total mainline

5,238


17 %

8 %

9 %

8 %


Regional

1,430


9 %

9 %

10 %

0 %


Consolidated

6,668


15 %

8 %

9 %

7 %












"Through the momentum we built in 2010, we expect to maintain our March quarter margins year over year despite more than $350 million in higher costs from the recent steep run-up in fuel prices," said Ed Bastian, Delta's president.  "Industry-wide fare increases, combined with growth in Delta's ancillary products and services, will provide a more long-term, revenue-based solution to addressing the high fuel environment."

Cost Performance

In the December 2010 quarter, operating expense increased $644 million year over year due to higher fuel price, volume- and revenue-related expenses, and profit sharing expense, which were partially offset by incremental merger cost synergies.

Consolidated unit cost (CASM[2]), excluding fuel, profit sharing and special items, decreased 2% in the December 2010 quarter on a year-over-year basis, on 7% higher capacity.  Consolidated CASM, including fuel, profit sharing and special items, increased 2%.

Non-operating expense excluding special items decreased $67 million due to benefits from Delta's debt reduction initiatives.  Including special items, non-operating expense was $36 million lower than in the December 2009 quarter.

Fuel Price and Related Hedges

Delta hedged 58% of its fuel consumption for the December 2010 quarter for an average fuel price(3) of $2.47 per gallon.  The table below represents 2011 fuel hedges in place as of Jan. 14, 2011:



1Q11

2Q11

3Q11

4Q11

Call options

15%

26%

20%

15%

Collars

19%

9%

12%

0%

Swaps

15%

6%

4%

2%

Total

49%

41%

36%

17%






Average crude call strike

$ 84

$ 87

$ 86

$ 87

Average crude collar cap

90

84

89

-

Average crude collar floor

75

73

76

-

Average crude swap

85

91

83

89




Liquidity Position

As of Dec. 31, 2010, Delta had $5.2 billion in unrestricted liquidity, including $3.6 billion in cash and short-term investments, and $1.6 billion in undrawn revolving credit facilities.  During the December 2010 quarter, operating cash flow was $318 million, driven by the company's profitability partially offset by the normal seasonal decline in advance ticket sales.  Free cash flow was $52 million in the December 2010 quarter and $1.6 billion for the full year.  

Cash used in investing during the quarter was $266 million, which included $178 million for investments in aircraft, parts and modifications, as the company began the previously announced investment in its fleet, including winglets, flat-bed seats and enhanced in-seat entertainment.

Debt payments in the December 2010 quarter were $1.3 billion and the company issued $987 million of debt, primarily to refinance a portion of its aircraft debt maturities.  During the quarter, Delta completed a $474 million debt offering and received $270 million in proceeds.  The remaining $204 million will be held in escrow until additional aircraft are refinanced, including 10 aircraft in Delta's 2001-1 enhanced equipment trust certificates, which mature in September 2011.

At Dec. 31, Delta's adjusted net debt was $15.0 billion, a $2.0 billion reduction from Dec. 31, 2009.

"Through the hard work of the Delta team, we ended 2010 with flat non-fuel unit costs and a $2 billion reduction in adjusted net debt, meeting two of our key financial commitments for the year," said Hank Halter, Delta's chief financial officer.  "To mitigate the pressure on our business from higher fuel prices in 2011, we remain committed to maintaining a competitive cost structure and paying down debt."

Company Highlights

Delta has a strong commitment to employees, customers and the communities it serves.  Key accomplishments in 2010 include:

  • Accruing more than $300 million in employee profit sharing, in recognition of the achievements of all Delta employees toward meeting the company's financial targets;
  • Taking major steps toward resolving remaining representation issues, as Delta employees in five elections voted to keep the direct relationship and culture that Delta has maintained over the decades;
  • Implementing a more than $2 billion investment – Delta's largest product investment in a decade – in improved products, services and airport facilities through 2013, including an expanded international terminal in New York-JFK; full flat-bed seats in BusinessElite and individual in-seat entertainment throughout both cabins on all transoceanic aircraft; expanding Wi-Fi to all two-class jets; and improving fuel efficiency by adding winglets to 44 more aircraft in Delta's fleet;
  • Celebrating the 10th anniversary of SkyTeam; welcoming Vietnam Airlines and TAROM, Romania's flag carrier, into SkyTeam; and supporting the applications of China Eastern, Aerolineas Argentinas' and Garuda Indonesia to join SkyTeam;
  • Extending Delta's reach through alliance and codeshare partnerships, including the addition of Alitalia to Delta's industry-leading joint venture with Air France-KLM; signing a new codeshare agreement with Hawaiian Airlines that will offer Delta's customers access to connecting flights within the Hawaiian Islands; and announcing plans to codeshare with GOL airlines, a Brazilian carrier;
  • Expanding Delta's network to offer customers the routes they want worldwide by announcing more frequencies between Delta's U.S. gateways and London-Heathrow; new service to Tokyo-Haneda and the Pacific island of Palau; and increased service to Africa, Shanghai, Manila, Beijing, Guangzhou and Reykjavík, Iceland;
  • Launching a dedicated customer service channel enabling customers to contact Delta in real-time through @DeltaAssist on Twitter; and
  • Furthering Delta's commitment to the communities it serves by raising $1 million in donations for Martin Luther King Jr. National Memorial in Washington, D.C.; pledging $1 million to Atlanta's National Center for Civil and Human Rights and $2 million to Grady Health Foundation in Atlanta; and building houses with Habitat for Humanity in nine U.S. states and Chile.

Special Items

Delta recorded special items totaling $139 million in the December 2010 quarter, including:

  • $88 million in merger-related expenses;
  • $31 million from a loss on extinguishment of debt; and
  • $20 million in costs related to the consolidation of operations at Cincinnati/Northern Kentucky International Airport.

Delta recorded special items totaling a net $200 million credit in the December 2009 quarter, including:

  • $121 million in primarily merger-related expenses; and
  • $321 million non-cash tax benefit related to the impact of fuel hedges in other comprehensive income.

March 2011 Quarter Guidance

Following are Delta's projections for the March 2011 quarter.



1Q 2011 Forecast



Operating margin

1 – 3%

Fuel price, including taxes and hedges

$2.60

Capital expenditures

$375 million

Total liquidity at end of period

$5.3 billion




1Q 2011 Forecast (compared to 1Q 2010)



Consolidated unit costs – excluding fuel expense

Flat – up 2 %



System capacity

Up 5 – 7 %

    Domestic

Flat – up 2 %

    International

Up 12 – 14 %



Mainline capacity

Up 6 – 8 %

    Domestic

Flat – up 2 %

    International

Up 12 – 14 %




Other Matters

Included with this press release are Delta's unaudited Consolidated Statements of Operations for the three and twelve months ended Dec. 31, 2010 and 2009; a statistical summary for those periods; selected balance sheet data as of Dec. 31, 2010 and 2009; and a reconciliation of certain non-GAAP financial measures.

About Delta

Delta Air Lines serves more than 160 million customers each year. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 357 destinations in 67 countries on six continents. Headquartered in Atlanta, Delta employs more than 75,000 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, the world's largest 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.

Endnotes

(1)  Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release and provides the reasons management uses those measures.

(2)  Delta excludes from consolidated unit cost ancillary businesses which are not related to the generation of a seat mile, including aircraft maintenance and staffing services which Delta provides to third parties, Delta's vacation wholesale operations (MLT) and Delta's dedicated freighter operations, which the company discontinued on Dec. 31, 2009. Management believes this classification provides a more consistent and comparable reflection of Delta's consolidated operations.

(3)  Delta's December 2010 quarter average fuel price of $2.47 per gallon reflects the consolidated cost per gallon for mainline and regional operations, including contract carrier operations, net of fuel hedge impact.

Forward-looking Statements

Statements in this news 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 effects of a global recession; the effects of a global financial crisis; the impact of posting collateral in connection with our fuel hedge contracts;  the impact that our indebtedness will have on our financial and operating activities and our ability to incur additional debt; the restrictions that financial covenants in our financing agreements will have on our financial and business operations; labor issues; the ability to realize the anticipated benefits of our merger with Northwest; the integration of the Delta and Northwest workforces; interruptions or disruptions in service at one of our hub airports; our increasing dependence on technology in our operations; our ability to retain management and key employees; the ability of our credit card processors to take significant holdbacks in certain circumstances; the effects of terrorist attacks; the effects of weather, natural disasters and seasonality on our business; and competitive conditions in the airline industry.  

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 Dec. 31, 2009 and our Quarterly Report on Form 10-Q for the quarterly period ended Sep. 30, 2010.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of Jan. 18, 2011, and which we have no current intention to update.


DELTA AIR LINES, INC.

Consolidated Statements of Operations

(Unaudited)



Three Months Ended Dec. 31,





(in millions, except per share data)

2010


2009


$ Change


% Change










Operating Revenue:









Passenger:









   Mainline

$  5,238


$  4,469


$  769


17%


   Regional carriers

1,430


1,310


120


9%


 Total passenger revenue

6,668


5,779


889


15%


Cargo

236


253


(17)


(7)%


Other, net

885


773


112


14%


 Total operating revenue

7,789


6,805


984


14%










Operating Expense:









Aircraft fuel and related taxes

1,928


1,706


222


13%


Salaries and related costs

1,708


1,687


21


1%


Contract carrier arrangements(1)

1,180


941


239


25%


Aircraft maintenance materials and outside repairs

395


284


111


39%


Contracted services

393


419


(26)


(6)%


Depreciation and amortization

372


384


(12)


(3)%


Passenger commissions and other selling expenses

364


336


28


8%


Landing fees and other rents

313


318


(5)


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