Delta Air Lines Reports Annual Profit of $1.2 Billion, Quarterly Profit of $379 Million

Summary Points

Atlanta-based Delta Air Lines today reported their December 2011 and annual profits. For the quarter ending December 2011, Delta posted a profit of $379 million. In 2011, Delta reported a profit of $1.2 billion. Full charts, graphs, and explanations can be found after the jump.

Full Text

The following press release was issued by Delta Air Lines today. Because of its complexity and intricacies, we have decided to reprint the press release below, including all of its original tables and graphs.

“Delta people pulled together in 2011 to produce a solid profit, strong cash generation, and the best operational performance in the industry for our customers.  I want to thank them for their hard work through a challenging year and congratulate them on earning $264 million in profit sharing and $60 million in Shared Rewards for their exceptional performance,” said Richard Anderson, Delta’s chief executive officer.  “Looking forward to 2012, we will continue our commitment to sustained profitability and superior returns by growing and diversifying our revenues, while taking a disciplined approach to capacity, costs and capital spending.”

Revenue Environment

Delta’s operating revenue grew $610 million, or 8%, in the December 2011 quarter compared to the December 2010 quarter.  Load factor increased to 81.7%, with traffic down 3% on a 3.5% decrease in capacity.

  • Passenger revenue increased 8%, or $555 million, compared to the prior year period.  Passenger unit revenue (PRASM) increased 12%, driven by an 11% improvement in yield.
  • Cargo revenue increased 8%, or $20 million, on higher cargo yields.
  • Other revenue increased 4%, or $35 million, from higher third-party maintenance revenue.

Comparisons of revenue-related statistics are as follows:

Increase (Decrease)
4Q11 versus 4Q10
Change Unit
Passenger Revenue 4Q11 ($M) YOY Revenue Yield Capacity
Domestic 3,217 9.9 % 13.2 % 10.6 % (2.9) %
Atlantic 1,226 10.8 % 10.6 % (9.7) %
Pacific 819 13.5 % 13.7 % 20.1 % (0.1) %
Latin America 404 11.2 % 5.9 % 4.8 % 5.0 %
Total mainline 5,666 8.2 % 12.3 % 11.6 % (3.7) %
Regional 1,557 8.9 % 11.5 % 9.3 % (2.5) %
Consolidated 7,223 8.3 % 12.2 % 11.4 % (3.5) %

“With the December quarter’s strong revenue performance, Delta produced a revenue premium to the industry and fully covered our fuel cost increase with higher revenues,” said Ed Bastian, Delta’s president.  “Our revenue momentum has continued into 2012, and we are currently seeing our January consolidated passenger unit revenues up 15% year over year.”

Fuel

During the December 2011 quarter, market fuel prices increased fuel expense by $515 million, which was partially offset by $150 million of settled fuel hedge gains.

Excluding mark to market adjustments, Delta’s average fuel price(2) was $2.97 per gallon for the December quarter, which includes 17 cents per gallon in settled gains from its fuel hedging program.  On a GAAP basis, which includes mark to market gains on open hedges, the company’s average fuel price was $2.79 per gallon.

Cost Performance

Delta’s total operating expense, excluding fuel, was flat in the December 2011 quarter, as the benefits of lower capacity-related costs and maintenance savings were partially offset by higher revenue-related expenses and profit sharing.

The December quarter 2011 consolidated unit cost (CASM(3)), excluding fuel expense, profit sharing and special items, was 1.8% higher on 3.5% lower capacity compared to the prior year.  On a GAAP basis, which includes fuel, profit sharing and special items, consolidated CASM increased 6%.

“Delta’s solid cost performance, in an environment of 25% higher market fuel prices, came as a result of our cost reduction initiatives and benefits from our fuel hedging program,” said Hank Halter, Delta’s chief financial officer.  “We are focused on total cost productivity, including fuel, and implementing the structural initiatives needed to return our non-fuel costs to our targeted level.”

Liquidity Position

As of December 31, 2011, Delta had $5.4 billion in unrestricted liquidity, including $3.6 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities.

Cash from operations during the December 2011 quarter was $1.2 billion, as the company’s profitability and working capital initiatives were partially offset by the normal seasonal decline in advance ticket sales.  The purchase of $675 million of SkyMiles by American Express is included in Delta’s cash from operations for the December 2011 quarter.

Capital expenditures during the December 2011 quarter were $400 million, including $230 million in aircraft, parts and modifications.  The quarter’s expenditures also include Delta’s $100 million investment in GOL and the $15 million net expenditure associated with the company’s slot transaction and the related slot divestitures.

During the quarter, Delta’s debt and capital lease payments were $725 million, which includes $435 million from the early retirement of debt.  At December 31, 2011, Delta’s adjusted net debt was $12.9 billion.  The company has now achieved more than $4 billion of its $7 billion debt reduction target since 2009 and remains on track for $10 billion adjusted net debt in 2013.

Company Highlights

Delta has a strong commitment to employees, customers and the communities it serves.  Key accomplishments in 2011 include:

  • Recognizing the achievements of Delta employees toward meeting the company’s financial and operational goals with $325 million of incentives, including $264 million in employee profit sharing and $60 million in Shared Rewards;
  • Significantly improving its operational performance, resulting in an on-time arrival rate of more than 83%, a 25% reduction in lost bags, and more than 35% fewer customer complaints compared to 2010;
  • Closing on its slot trade agreement with US Airways, allowing Delta to build the leading network position at New York-LaGuardia, with over 250 daily departures by summer 2012;
  • Receiving recognition from leading publications, including being named Fortune‘s Most Admired Airline, best airline for business by Business Travel News, best domestic airline by Travel Weekly, and top tech-friendly airline by PC World;
  • Reaching agreements to strengthen its network position through enhanced alliances and investments in Aeromexico and GOL, which will give Delta unique access to Latin America’s two largest aviation markets; and
  • Extending Delta’s community involvement, including over $2 million raised by Delta employees for United Way.

Special Items

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.  Open hedges will continue to fluctuate in value and Delta will record future changes in market value until the hedges settle;
  • a $43 million gain associated with the divestiture of slots at New York-LaGuardia and Washington-Reagan National in conjunction with the company’s slot transaction;
  • 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 the loss on early extinguishment of debt.

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

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

March 2012 Quarter Guidance

Following are Delta’s projections for the March 2012 quarter.

1Q 2012 Forecast
Operating margin 2 – 4%
Fuel price, including taxes and hedges net of premiums $3.16
Capital expenditures $450 million
Total liquidity at end of period $5.5 billion
1Q 2012 Forecast 
(compared to 1Q 2011)
Consolidated unit costs – excluding fuel expense Up 3 – 5%
System capacity Down 3 – 5%
    Domestic Down 2 – 4%
    International Down 4 – 6%
DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Dec. 31,
(in millions, except per share data) 2011 2010 $ Change % Change
Operating Revenue:
Passenger:
   Mainline $  5,666 $  5,238 $  428 8%
   Regional carriers 1,557 1,430 127 9%
 Total passenger revenue 7,223 6,668 555 8%
Cargo 256 236 20 8%
Other 920 885 35 4%
 Total operating revenue 8,399 7,789 610 8%
Operating Expense:
Aircraft fuel and related taxes 2,020 1,928 92 5%
Salaries and related costs 1,711 1,708 3 -%
Contract carrier arrangements(1) 1,328 1,180 148 13%
Aircraft maintenance materials and outside repairs 367 395 (28) (7)%
Passenger commissions and other selling expenses 393 364 29 8%
Contracted services 383 393 (10) (3)%
Depreciation and amortization 382 372 10 3%
Landing fees and other rents 306 313 (7) (2)%
Passenger service 169 180 (11) (6)%
Aircraft rent 74 82 (8) (10)%
Profit sharing 89 38 51 NM
Restructuring and other items 88 108 (20) (19)%
Other 363 434 (71) (16)%
 Total operating expense 7,673 7,495 178 2%
Operating Income 726 294 432 NM
Other (Expense) Income:
Interest expense, net (218) (219) 1 -%
Amortization of debt discount, net (52) (46) (6) 13%
Loss on extinguishment of debt (30) (31) 1 (3)%
Miscellaneous, net (9) 23 (32) NM
 Total other expense, net (309) (273) (36) 13%
Income Before Income Taxes 417 21 396 NM
Income Tax Benefit (Provision) 8 (2) 10 NM
Net Income $  425 $  19 $  406 NM
Basic Earnings per Share $  0.51 $  0.02
Diluted Earnings per Share $  0.50 $  0.02
Basic Weighted Average Shares Outstanding 840 836
Diluted Weighted Average Shares Outstanding 845 845
(1) Contract carrier arrangements expense includes $494 million and $384 million for the three months ended Dec. 31, 2011 and 2010, respectively, for aircraft fuel and related taxes.
DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
Year Ended Dec. 31,
(in millions, except per share data) 2011 2010 $ Change % Change
Operating Revenue:
Passenger:
   Mainline $  23,864 $  21,408 $  2,456 11%
   Regional carriers 6,393 5,850 543 9%
 Total passenger revenue 30,257 27,258 2,999 11%
Cargo 1,027 850 177 21%
Other 3,831 3,647 184 5%
 Total operating revenue 35,115 31,755 3,360 11%
Operating Expense:
Aircraft fuel and related taxes 9,730 7,594 2,136 28%
Salaries and related costs 6,894 6,751 143 2%
Contract carrier arrangements(1) 5,470 4,305 1,165 27%
Aircraft maintenance materials and outside repairs 1,765 1,569 196 12%
Passenger commissions and other selling expenses 1,682 1,509 173 11%
Contracted services 1,642 1,549 93 6%
Depreciation and amortization 1,523 1,511 12 1%
Landing fees and other rents 1,281 1,281 -%
Passenger service 721 673 48 7%
Aircraft rent 298 387 (89) (23)%
Profit sharing 264 313 (49) (16)%
Restructuring and other items 242 450 (208) (46)%
Other 1,628 1,646 (18) (1)%
 Total operating expense 33,140 29,538 3,602 12%
Operating Income 1,975 2,217 (242) (11)%
Other (Expense) Income:
Interest expense, net (901) (969) 68 (7)%
Amortization of debt discount, net (193) (216) 23 (11)%
Loss on extinguishment of debt (68) (391) 323 (83)%
Miscellaneous, net (44) (33) (11) 33%
 Total other expense, net (1,206) (1,609) 403 (25)%
Income Before Income Taxes 769 608 161 26%
Income Tax Benefit (Provision) 85 (15) 100 NM
Net Income $  854 $  593 $  261 44%
Basic Earnings per Share $  1.02 $  0.71
Diluted Earnings per Share $  1.01 $  0.70
Basic Weighted Average Shares Outstanding 838 834
Diluted Weighted Average Shares Outstanding 844 843
(1) Contract carrier arrangements expense includes $2.1 billion and $1.3 billion for the twelve months ended Dec. 31, 2011 and 2010, respectively, for aircraft fuel and related taxes.
DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)
Three Months Ended
Dec. 31,
Year Ended Dec. 31,
2011 2010 Change 2011 2010 Change
Consolidated
Revenue passenger miles (millions) 44,975 46,233 (3)% 192,767 193,169 -%
Available seat miles (millions) 55,034 57,027 (3)% 234,656 232,684 1%
Passenger mile yield (cents) 16.06 14.42 11% 15.70 14.11 11%
Passenger revenue per available seat mile (cents) 13.12 11.69 12% 12.89 11.71 10%
Operating cost per available seat mile (cents) 13.94 13.14 6% 14.12 12.69 11%
CASM-Ex – See Note A (cents) 8.67 8.52 2% 8.53 8.27 3%
Passenger load factor 81.7% 81.1% 0.6 pts 82.1% 83.0% (0.9) pts
Fuel gallons consumed (millions) 901 936 (4)% 3,856 3,823 1%
Average price per fuel gallon, adjusted – See Note A $ 2.97 $ 2.47 20% $ 3.05 $ 2.33 31%
Number of aircraft in fleet, end of period 775 815 (40) 775 815 (40)
Full-time equivalent employees, end of period 78,392 79,684 (2)% 78,392 79,684 (2)%
Mainline
Revenue passenger miles (millions) 39,035 40,267 (3)% 168,282 168,180 -%
Available seat miles (millions) 47,483 49,286 (4)% 203,450 200,814 1%
Operating cost per available seat mile (cents) 12.71 12.14 5% 12.98 11.62 12%
CASM-Ex – See Note A (cents) 7.90 7.75 2% 7.76 7.46 4%
Fuel gallons consumed (millions) 727 758 (4)% 3,133 3,094 1%
Average fuel price per gallon, adjusted – see Note A $ 2.92 $ 2.46 19% $ 3.01 $ 2.32 30%
Number of aircraft in fleet, end of period 707 722 (15) 707 722 (15)

Note:  except for full-time equivalent employees and number of aircraft in fleet, consolidated data presented includes operations under Delta’s contract carrier arrangements.

DELTA AIR LINES, INC.
Selected Balance Sheet Data
Dec. 31, Dec. 31,
(in millions) 2011 2010
(Unaudited)
Cash and cash equivalents $ 2,657 $ 2,892
Short-term investments 958 718
Restricted cash, cash equivalents and short-term investments(short-term and long-term) 348 447
Total assets 43,499 43,188
Total debt and capital leases, including current maturities 13,791 15,252
Total stockholders’ equity (deficit) (1,396) 897
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