01/14/2020 | Press release | Distributed by Public on 01/14/2020 06:01
Delta Air Lines (NYSE:DAL) today reported financial results for the December quarter and full year 2019 and provided its outlook for the March quarter 2020. Highlights of the December quarterand full year 2019 results, including both GAAP and adjusted metrics, are on page four and are incorporated here.
December Quarter Financial Highlights
Full Year Financial Highlights
'2019 was a truly outstanding year on all fronts - the best in Delta's history operationally, financially and for our customers. Our people, and their commitment to bringing best-in-class travel experiences to our 200 million customers, are the foundation for our success. I'm pleased to recognize their outstanding performance with a record $1.6 billion in profit sharing for 2019,' said Ed Bastian, Delta's chief executive officer. 'As we enter 2020, demand for travel is healthy and our brand preference is growing, positioning Delta to deliver another year of strong results, including earnings per share of $6.75 to $7.75.'
For the full year, operating revenue grew to nearly $47 billion, up 7.5% when prior year period is adjusted for third-party refinery sales and the sale of DGS. Premium product ticket revenue increased 9% along with strong double-digit percentage increases from loyalty and third-party maintenance revenue.
Delta's operating revenue of $11.4 billion for the December quarter improved 7.2% or $768 million over the prior year (adjusted for the sale of DGS). This was driven by a 9% increase in premium product ticket revenue, an 18% increase in loyalty revenue and a 31% increase in third-party maintenance revenue, which was partially offset by 13% lower cargo revenue.
December quarter passenger revenue by geographic region:
'Our industry-leading operational performance and the unmatched service our people provide are the reasons why more customers than ever are choosing to fly Delta. Investments in reliability, product and service, airports and technology are reshaping customer perception and driving record satisfaction scores and increasing brand preference.' said Glen Hauenstein, Delta's president. 'We delivered $47 billion in revenue in 2019, a more than $3 billion increase when adjusted over prior year, while sustaining a revenue premium to the industry of more than 110%. Demand trends remain healthy and we expect momentum to continue in 2020, with revenue growth of 5% to 7% in the March quarter.'
For 2019, total expense increased 3.9%, driven by higher revenue- and capacity-related expenses, profit sharing, and pension expense, which were partially offset by $501 million lower fuel cost. CASM-Ex for 2019 increased 2% versus prior year, reflecting Delta's continued investment in our people, product and services.
Total expense for the December quarter increased 6.9% versus the prior year on higher revenue- and capacity-related expenses and profit sharing, which were partially offset by $315 million lower fuel cost. CASM-Ex was up 4.4% for the December quarter compared to the prior year driven by investment in our people, product and services, and a mark-up of benefit-related balance sheet obligations.
Fuel expense decreased 14% relative to December quarter 2018. Delta's fuel price for the December quarter was $2.01 per gallon, including a $24 million benefit from the refinery.
Non-operating expense for the quarter was $256 million higher versus the prior year, driven primarily by pension expense and lower mark-to-market adjustments on investments, including our investment in GOL, which was sold during the December quarter 2019.
'Non-fuel unit costs for 2019 increased 2% versus prior year, in line with our long-term cost target and reflecting Delta's continued investment in our people, product and services,' said Paul Jacobson, Delta's chief financial officer. 'These investments supporting our long-term growth will continue into 2020, and we expect our non-fuel unit costs will increase 2% to 3% for the March quarter and full year.'
Cash Flow and Shareholder Returns
For the full year, Delta generated $8.4 billion of operating cash flow and $4.2 billion of free cash flow. Full year cash flow is net of $1 billion of voluntary pension contributions, including $500 million made in the December quarter.
The company invested $4.5 billion into the business in 2019 including $954 million in the December quarter. This supported the delivery of 88 new aircraft during the year. The company's ongoing fleet transformation is driving higher customer satisfaction, premium seat growth and improved fuel efficiency.
For the December quarter, Delta generated $969 million of operating cash flow and $141 million of free cash flow. Delta returned $484 million to shareholders, comprised of $225 million of share repurchases and $259 million in dividends during the quarter. For the full year, Delta returned $3 billion to shareholders, including $2 billion of share repurchases and $980 million in dividends.
'Strong cash generation continues to set Delta apart and enables consistent reinvestment in the business while maintaining cash returns to owners at 70% of free cash flow,' added Jacobson. 'We expect to generate free cash flow of $4 billion again this year, putting us on track to deliver a three-year cumulative free cash flow of over $10 billion by the end of 2020.'
In 2019, Delta achieved a number of milestones across its five key strategic pillars.
Culture and People
Network and Partnerships
Customer Experience and Loyalty
Investment Grade Balance Sheet
December Quarter and Full Year 2019 Results
Adjusted results primarily exclude the impact of mark-to-market ('MTM') adjustments.
Delta Air Lines (NYSE: DAL) is the U.S. global airline leader in products, services, innovation, reliability and customer experience. Powered by its 90,000 people around the world, Delta continues to invest billions in its people, delivering a world-class travel experience and generating industry-leading shareholder returns. With its constant drive to invest, innovate and expand, Delta today is the No. 1 U.S. global airline by total revenue.
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 January 14, 2020 and which we have no current intention to update.
Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below. Reconciliations may not calculate due to rounding.
Delta sometimes uses information ('non-GAAP financial measures') that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. ('GAAP'). Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The tables below show reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.
Forward Looking Projections. The Company is not able to reconcile forward looking non-GAAP financial measures because the adjusting items such as those used in the reconciliations below will not be known until the end of the period and could be significant.
Free Cash Flow. We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include:
Net redemptions of short-term investments. Net redemptions of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations.
Strategic investments. Cash flows related to our investment in Hanjin-KAL, the largest shareholder of Korean Air, are included in our GAAP investing activities. We adjust free cash flow for this activity because it provides a more meaningful comparison to the airline industry.
Net cash flows related to certain airport construction projects and other. Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures. We have adjusted for these items, which were primarily funded by cash restricted for airport construction, to provide investors a better understanding of the company's free cash flow and capital expenditures that are core to our operational performance in the periods shown.
Net Income, adjusted. We adjust net income for the following items to determine net income, adjusted for the reasons described below.
MTM adjustments and settlements on hedges. Mark-to-market ('MTM') adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the applicable period.
Equity investment MTM adjustments. We record our proportionate share of earnings/loss from our equity investments in Virgin Atlantic and Aeroméxico in non-operating expense. We adjust for our equity method investees' hedge portfolio MTM adjustments to allow investors to understand and analyze our core operational performance in the periods shown.
MTM adjustments on investments. Unrealized gains/losses on our equity investments in GOL, China Eastern, Air France-KLM and Korean Air, which are accounted for at fair value in non-operating expense, are driven by changes in stock prices and foreign currency. During the December 2019 quarter, we sold our GOL investment, which generated a gain in adjusted results that had previously been included in GAAP results. Adjusting for these gains/losses allows investors to better understand and analyze our core operational performance in the periods shown.
DGS sale adjustment. Because we sold DAL Global Services, LLC ('DGS') in December 2018, we have excluded the impact of DGS from 2018 results for comparability.
Operating Revenue, adjusted and Total Revenue Per Available Seat Mile ('TRASM'), adjusted. We adjust operating revenue and TRASM for refinery sales to third parties because refinery sales to third parties are not related to our airline segment. Operating revenue, adjusted and TRASM, adjusted therefore provide a more meaningful comparison of revenue from our airline operations to the rest of the airline industry. We adjust for the DGS sale for the same reason described above under the heading pre-tax income and net income, adjusted.
Non-Fuel Unit Cost or Cost per Available Seat Mile, ('CASM-Ex'). We adjust CASM for the following items to determine CASM-Ex for the reasons described below:
Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes allows investors to understand and analyze our non-fuel costs and year-over-year financial performance.
Ancillary businesses and refinery. We adjust for expenses related to aircraft maintenance we provide to third parties, our vacation wholesale operations, our private jet operations as well as refinery cost of sales to third parties. 2018 results also include staffing services performed by DGS. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these areas to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.
Profit sharing. We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.