Delta Air Lines Announces December Quarter Profit

Delta Air Lines

• Delta’s net income for the December 2012 quarter was $238 million, or $0.28 per diluted share, excluding special items¹.   Results include the $100 million negative impact of Superstorm Sandy on airline and refinery operations.
• Delta’s net income for 2012 was $1.6 billion, excluding special items, a $362 million increase over 2011.
• Delta’s GAAP net income was $7 million, or $0.01 per diluted share, for the December 2012 quarter and $1.0 billion for 2012.
• Delta’s unit revenues were up 4.3 percent for the quarter and the company’s unit revenue gains have outperformed the industry for 21 consecutive months.
• 2012 results include $372 million in profit sharing expense, including $63 million in the December quarter, recognizing Delta employees’ contributions toward meeting the company’s financial goals.
• Delta’s adjusted net debt at the end of 2012 was $11.7 billion, a $5.3 billion reduction from 2009.

“Our December quarter profit caps off a successful 2012 for Delta with strong financial results, industry-leading operational performance, and across the board improvements in customer satisfaction.  I want to thank our employees and I look forward to recognizing them next month with $372 million of profit sharing for 2012,” said Richard Anderson, Delta’s chief executive officer.  “We enter 2013 as a stronger airline, with initiatives in place to build on our 2012 success.  In the year ahead, we will advance our position around the world and continue to build a better airline for our shareholders, customers and employees.”

Revenue Environment
Delta’s operating revenue grew $203 million, or 2 percent, in the December 2012 quarter compared to the December 2011 quarter, despite a $75 million revenue decline associated with Superstorm Sandy.  Load factor increased to 83.3 percent, with traffic up 0.7 percent on a 1.3 percent decrease in capacity.

• Passenger revenue increased 3.0 percent, or $215 million, compared to the prior year period.  Passenger unit revenue (PRASM) increased 4.3 percent, driven by a 2.3 percent improvement in yield. 
• Cargo revenue decreased 5.9 percent, or $15 million, on declining freight yields.
• Other revenue increased 0.3 percent, or $3 million, as higher codeshare revenue was offset by lower third-party maintenance revenue.

Comparisons of revenue-related statistics are as follows:

“Our investments in Delta’s network, products and operations, combined with our capacity discipline, have produced unit revenue growth that has outpaced the industry for 21 consecutive months,” said Ed Bastian, Delta’s president.  “We have built strong revenue momentum going into the year with our customer-focused initiatives, corporate share gains, and capacity actions.  As a result, we project a 4 – 6 percent year over year increase in March quarter unit revenues.”

Cash Flow
Cash from operations during the December 2012 quarter was $585 million, as the company’s profitability and working capital initiatives were partially offset by the normal seasonal decline in advance ticket sales.  Capital expenditures during the December 2012 quarter were $600 million, including $310 million in fleet investments and $70 million of capital investments for the Trainer Refinery.

During the quarter, Delta‘s net debt and capital lease payments were $17 million.  In October, Delta refinanced $1.7 billion in debt and undrawn revolving credit facilities secured by the company’s Pacific routes and slots, which resulted in a lower interest rate.  Delta expects the transaction will generate more than $30 million in annual interest expense savings.

As of Dec. 31, 2012, Delta had $5.2 billion in unrestricted liquidity, including $3.4 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities.  The company ended 2012 with adjusted net debt of $11.7 billion and Delta has now achieved more than $5 billion of its $7 billion debt reduction target since 2009.

“Delta’s results this quarter are remarkable in light of the $100 million negative impact Superstorm Sandy had on our airline and refinery operations,” said Paul Jacobson, Delta’s chief financial officer.  “We have generated $4 billion in free cash flow over the past three years, and we expect to build on that momentum in 2013 with the additional benefits of further debt reduction and $1 billion of structural cost initiatives.”

Cost Performance
Total operating expense increased by $577 million as a result of higher fuel costs and wages.  Interest expense declined $30 million as a result of Delta’s debt reduction strategy.

Consolidated unit cost (CASM³), excluding fuel expense, profit sharing and special items, was 5.7 percent higher in the December 2012 quarter on a year-over-year basis, driven by the impact of capacity reductions, wage increases, and operational and service investments.  GAAP consolidated CASM increased 9 percent.

Fuel
Delta’s average fuel price² was $3.24 per gallon for the December quarter, which includes 5 cents per gallon in settled hedge gains and a 7 cent per gallon loss from the Trainer refinery. 

During the quarter, jet fuel production ramped up at the Trainer Refinery.  However, Superstorm Sandy negatively impacted the refinery start up, slowing production and lowering efficiency levels at the plant.  As a result of the reduced production, the refinery produced a $63 million net loss for the quarter.  At current market prices, Delta expects Trainer to produce a modest profit in the March quarter. 

Company Highlights
Delta has a strong commitment to employees, customers and the communities it serves.  Key accomplishments in 2012 include:

• Recognizing the achievements of Delta employees toward meeting the company’s financial and operational goals with $463 million of incentives, including $372 million in employee profit sharing and $91 million in Shared Rewards;
• Significantly improving its operational performance, resulting in an on-time arrival rate of 86.5 percent, a 25 percent reduction in lost bags, and nearly 40 percent fewer customer complaints compared to 2011;
• Receiving recognition from leading organizations and publications, including the Secretary of Defense Freedom Award and being named the best airline for business, sweeping all 10 categories, by Business Travel News;
• Reaching an agreement to strengthen its network position through an alliance and investment in Virgin Atlantic which will give Delta increased presence at London-Heathrow; and
• Extending Delta’s involvement in the community, as more than 1,800 Delta employees volunteered to work with Habitat for Humanity International to build homes to serve 12 families in six different locations in 2012.  Since the beginning of the Habitat for Humanity partnership, Delta employees have built more than 100 homes.

Special Items
Delta recorded special items totaling a $231 million charge in the December 2012 quarter, including:

• a $122 million charge for facilities, fleet and other, including charges associated with Delta’s domestic fleet restructuring;
• a $106 million loss on early extinguishment of debt primarily due to the company’s Pacific route refinancing; and
• a $3 million mark to market loss on fuel hedges.

Delta recorded special items totaling a $46 million gain in the December 2011 quarter, including:

• a $164 million mark to market gain primarily for open fuel hedges settling in future periods;
• a $43 million gain associated with the divestiture of slots at New York-LaGuardia and Washington-Reagan National;
• an $81 million charge for impairment of intangible assets and grounded aircraft associated with Delta’s capacity reductions; and
• an $80 million charge for severance and other items, including loss on early extinguishment of debt.

March 2013 Quarter Guidance
Following are Delta’s projections for the March 2013 quarter.

Other Matters
Included with this press release are Delta’s unaudited Consolidated Statements of Operations for the three and twelve months ended Dec. 31, 2012 and 2011; a statistical summary for those periods; selected balance sheet data as of Dec. 31, 2012 and 2011; and a reconciliation of non-GAAP financial measures.