news-and-events

Delta Air Lines Announces December Quarter and Full Year 2018 Profit

Jan 15, 2019
- December quarter 2018 GAAP pre-tax income of $1.3 billion, net income of $1.0 billion and earnings per diluted share of $1.49
- December quarter 2018 adjusted pre-tax income of $1.2 billion, adjusted net income of $890 million and adjusted earnings per diluted share of $1.30
- Full year 2018 GAAP pre-tax income of $5.2 billion and earnings per diluted share of $5.67, resulting in $1.3 billion profit sharing for Delta people
- Full year 2018 GAAP operating cash flow of $7.0 billion used to invest in Delta's business, strengthen its investment grade balance sheet, and fund $2.5 billion of dividends and share repurchases

ATLANTA, Jan. 15, 2019 /PRNewswire/ -- Delta Air Lines (NYSE:DAL) today reported financial results for the December quarter and full year 2018.  Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here.

Delta Air Lines and the Delta Connection carriers offer service to nearly 370 destinations on six continents. For more information visit news.delta.com. (PRNewsFoto/Delta Air Lines)

Adjusted pre-tax income for the December quarter 2018 was $1.2 billion driven by over $700 million of revenue growth, allowing the company to fully recapture the $508 million increase in adjusted fuel expense and produce an 11 percent adjusted pre-tax margin.  Adjusted earnings per share increased by 42 percent year over year to $1.30.

For the full year, adjusted pre-tax income was $5.1 billion, a $137 million decrease relative to 2017 as the company overcame approximately 90 percent of the $2 billion increase in fuel expense.  Full year adjusted earnings per share were $5.65, up 19 percent compared to the prior year as the company recognized benefits from tax reform and a four percent lower share count.

"2018 was a successful year for Delta with record operational reliability, increasing customer satisfaction, and solid financial results in the face of higher fuel costs.  Delta people are the foundation of our success and I am honored to recognize their efforts with $1.3 billion in profit sharing for 2018," said Ed Bastian, Delta's chief executive officer.  "As we move into 2019, we expect to drive double-digit earnings growth through higher revenues, maintaining a cost trajectory below inflation, and the modest benefit from lower fuel costs.  Margin expansion is a business imperative and we remain confident in our full-year earnings guidance of $6 to $7 per share."

Revenue Environment

Delta's adjusted operating revenue of $10.7 billion for the December quarter improved 7.5 percent, or $747 million versus the prior year.  Total unit revenues excluding refinery sales (TRASM, adjusted) increased 3.2 percent during the period driven by healthy leisure and corporate demand offsetting an approximately 0.5 point headwind from unfavorable foreign exchange rates.

For the full year, adjusted operating revenue grew to nearly $44 billion, up eight percent versus prior year on an increasingly diverse revenue base, with 52 percent of revenues from premium products and non-ticket sources.  Premium product ticket revenues increased 14 percent along with double-digit percentage increases from cargo, loyalty, and Maintenance, Repair and Overhaul revenue.

"Delta's strong brand momentum was evident across the business with positive unit revenue growth in all geographic entities for the full year, a record revenue premium to the industry, and double-digit revenue growth from premium products and non-ticket sources," said Glen Hauenstein, Delta's president.  "Our March quarter adjusted unit revenue growth is expected to be flat to up two percent including impacts from the timing of Easter, increasing currency headwinds, and the ongoing government shutdown."






Increase (Decrease)





4Q18 versus 4Q17

Revenue


4Q18 ($M)


Change

YoY

Unit
Revenue

Yield

Capacity

        Domestic

$

7,066


7.7%

2.6%

2.7%

5.0%

Atlantic


1,328


7.2%

4.1%

1.9%

3.0%

Latin America


659


3.6%

1.0%

2.1%

2.6%

Pacific


594


1.0%

(0.2)%

2.5%

1.2%

Total Passenger

$

9,647


6.9%

2.7%

2.8%

4.1%

Cargo Revenue


214


5.4%




Other Revenue


881


(12.3)%




Total Revenue

$

10,742


5.0%

0.9%



       Third Party Refinery Sales


(11)






Total Revenue, adjusted

$

10,731


7.5%

3.2%
















March Quarter 2019 Guidance

For the March quarter, Delta expects to deliver four to six percent total adjusted revenue growth and non-fuel unit cost growth below inflation.


1Q19 Forecast

Earnings per share

$0.70 - $0.90

Pre-tax margin

6.5% - 8.5%

Fuel price, including taxes, settled hedges and refinery impact

$1.95 - $2.05

TRASM, adjusted (year-over-year)

Flat - up 2%

CASM - Excluding fuel and profit sharing (year-over-year)

Up 1% - 2%

System Capacity (year-over-year)

Up ~4%

See Note A for information about reconciliation of projected non-GAAP financial measures

Total adjusted revenue and TRASM, adjusted above exclude refinery sales and DAL Global Services

 

Cost Performance

Total adjusted operating expenses for the December quarter increased $803 million versus the prior year quarter, with more than half of the increase driven by higher fuel prices and profit sharing.

CASM-Ex was down 0.5 percent for the December quarter 2018 compared to the prior year period, the strongest cost performance for the year.  For the full year, CASM-Ex increased 1.4 percent, marking an important inflection in the company's cost trajectory with increasing benefits from efficiency initiatives, Delta's fleet transformation and strong performance from operating units.

Adjusted fuel expense increased $508 million, or 27 percent, relative to December quarter 2017.  Delta's adjusted fuel price per gallon for the December quarter was $2.42 which includes a 16 cent headwind from the Monroe refinery and inventory pre-purchases.  For the full year, adjusted fuel expense increased $2.1 billion, or 29 percent versus prior year.

Adjusted non-operating expense for the quarter improved by $258 million versus the prior year, driven primarily by pension expense favorability and the DAL Global Services transaction (see below for more detail).  For the full year, adjusted non-operating expense improved by $360 million versus the prior year.

"In 2018, we successfully returned to our long-term target of keeping non-fuel unit cost growth below two percent, with December quarter non-fuel unit costs declining 0.5 percent," said Paul Jacobson, Delta's chief financial officer. "With solid momentum from our fleet transformation and One Delta efforts, we have confidence in our path to one percent non-fuel unit cost growth in 2019."

Cash Flow and Shareholder Returns

Delta generated $1.3 billion of adjusted operating cash flow and $45 million of free cash flow during the quarter.  For the full year, Delta generated $6.9 billion of adjusted operating cash flow and $2.3 billion of free cash flow.

The company invested $4.7 billion into the business in 2018 including $1.3 billion in the December quarter.  This enabled delivery of 68 new aircraft in 2018, including five Airbus A350s and four Airbus A220s.  The company's ongoing fleet transformation is driving higher customer satisfaction, premium seat growth, and improved cost efficiency.

During the December quarter, Delta returned $563 million to shareholders, comprised of $325 million of share repurchases and $238 million in dividends.  For the full year, Delta returned $2.5 billion to shareholders, comprised of $1.6 billion of share repurchases and $909 million in dividends.

Strategic Highlights

In 2018, Delta achieved a number of milestones across its five key strategic pillars.

Culture and People

  • Received the Glassdoor Employee's Choice Award for the fourth consecutive year, based entirely on input provided by employees, reiterating the importance of the Delta culture.
  • Announced sustainability improvements including removal of a variety of single-use plastic items from Delta's aircraft and clubs, eliminating more than 300,000 pounds in plastic waste annually.
  • Contributed over $50 million to the communities we serve as part of Delta's commitment to give back at least 1% of net profits to charitable organizations.

Operational Reliability

  • Delivered 143 days of zero system cancellations across the combined mainline and Delta Connection operations on a full year basis, up from 90 days in 2017.
  • Achieved industry-leading operational performance with mainline on-time performance (A14) of 85.7 percent for the year; and top legacy carrier baggage performance as measured in the latest Department of Transportation report.
  • Recognized by FlightGlobal as the 'Most On-time North American Mainline Airline,' 'Most On-time North American Network Airline,' and 'Most On-time International Mainline Airline.'

Network and Partnerships

  • Continued Delta's global and domestic expansion with the announcement of new routes in the December quarter including Boston-Edinburgh, Boston-Lisbon, Minneapolis/St. Paul-Mexico City, and Minneapolis/St. Paul-Shanghai, pending governmental approvals. 

Customer Experience and Loyalty

  • Debuted the first U.S. biometric airport terminal at the Maynard H. Jackson International Terminal in Atlanta, allowing customers flying direct to an international destination on Delta, Aeromexico, Air France-KLM, or Virgin Atlantic Airways to use facial recognition technology from curb to gate.
  • Ranked as the No. 1 U.S. airline by the corporate travel community in the Business Travel News Airline Survey for a historic eighth consecutive year, sweeping all 10 categories.
  • Experienced double-digit growth in co-brand spend, helping drive $3.4 billion of incremental value from Delta's American Express relationship for the full year.  New card acquisitions reached 1 million for the second year in a row and Delta expanded new SkyMiles Members by a record number in one year.

Investment Grade Balance Sheet

  • Established a long-term leverage ratio target of 1.5x to 2.5x adjusted debt to EBITDAR, which should allow Delta to maintain investment grade ratings through a business cycle.  At year end 2018, Delta achieved a 1.9x adjusted debt to EBITDAR ratio.

DAL Global Services Transaction

On December 21, 2018, Delta completed a transaction combining DAL Global Services (DGS) with a subsidiary of Argenbright Holdings.  Delta retained a 49 percent equity stake in the combined company.  As a result of the transaction, Delta recognized an approximately $90 million gain in non-operating expense in the December quarter.

For the full year 2018, DGS operations contributed four cents to Delta's earnings per share, after adjusting for profit sharing.  In 2019, Delta will recognize 49 percent of the combined entity's income in operating expense.  The year over year impact on earnings, margins, and non-fuel unit costs are expected to be immaterial.  For guidance purposes, DGS revenues will be excluded in year-over-year calculations for unit and total revenue to reflect core revenue trends in the business.  In 2018, DGS contributed approximately $60 million in revenue per quarter.

Lease Accounting

In the December quarter, Delta early adopted the new lease accounting standard.  The new standard requires leases to be recorded on the balance sheet as lease liabilities with corresponding right-of-use assets.  The effects of the new standard will be reflected as of January 1, 2018 by recasting prior quarters in the company's 2018 Form 10-K.  This adoption resulted in the recognition of approximately $6 billion in incremental lease liabilities and right-of-use assets on the balance sheet.

In addition, the adoption increased full year 2018 pre-tax income by approximately $50 million after adjusting for profit sharing, a six cent impact to full year earnings per share.  The impact on the December quarter was immaterial and there is no year over year impact on 2019.

December Quarter and Full Year Results

Adjusted results were primarily impacted by unrealized gains/losses on investments.


GAAP

Adjusted

GAAP

Adjusted

($ in millions except per share and unit costs)

4Q18

4Q17

4Q18

4Q17

FY18

FY17

FY18

FY17

Pre-tax income

1,344

1,044

1,182

980

5,151

5,500

5,113

5,250

Net income

1,019

299

890

652

3,935

3,205

3,917

3,442

Diluted earnings per share

1.49

0.42

1.30

0.92

5.67

4.43

5.65

4.76

Operating revenue

10,742

10,229

10,731

9,984

44,438

41,138

43,890

40,636

Fuel expense

2,327

1,802

2,360

1,852

9,020

6,756

9,073

7,015

Pre-tax margin

12.5%

10.2%

11.0%

9.8%

11.6%

13.4%

11.6%

12.9%

Total unit revenues (TRASM/TRASM, adjusted)

17.18

17.03

17.16

16.62

16.87

16.18

16.66

15.98

Operating expense

9,652

9,067

9,673

8,870

39,174

35,172

38,679

34,929

Consolidated unit cost (CASM/CASM-Ex)

15.44

15.10

10.74

10.79

14.87

13.83

10.31

10.17

Average fuel price per gallon

2.39

1.88

2.42

1.93

2.20

1.68

2.21

1.74

Non-operating income/(expense)

254

(118)

124

(134)

(113)

(466)

(98)

(457)

Operating cash flow

1,245

1,891

1,252

1,736

7,014

5,023

6,899

6,793

About Delta

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, Los Angeles, Mexico City, Minneapolis/St. Paul, New York-JFK and LaGuardia, London-Heathrow, 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 seventh time in eight years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented eight consecutive years and for 2018 was named one of Fast Company's Most Innovative Companies Worldwide.
  • 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 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 availability of aircraft fuel; 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 party regional carriers; 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, 2017 and our Form 10-Q for the quarterly period ended March 31, 2018. Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of January 15, 2019, and which we have no current intention to update.

 

DELTA AIR LINES, INC.

Consolidated Statements of Operations

(Unaudited)












Three Months Ended




Year Ended




December 31,




December 31,



(in millions, except per share data)

2018

2017

$ Change

% Change


2018

2017

$ Change

% Change

Operating Revenue:










Passenger

$

9,647


$

9,022


$

625


7%


$

39,755


$

36,947


$

2,808


8%

Cargo

214


203


11


5%


865


744


121


16%

Other

881


1,004


(123)


(12)%


3,818


3,447


371


11%

  Total operating revenue

10,742


10,229


513


5%


44,438


41,138


3,300


8%











Operating Expense:










Salaries and related costs

2,739


2,532


207


8%


10,743


10,058


685


7%

Aircraft fuel and related taxes

2,327


1,802


525


29%


9,020


6,756


2,264


34%

Regional carriers expense, excluding fuel

851


877


(26)


(3)%


3,438


3,466


(28)


(1)%

Depreciation and amortization

570


583


(13)


(2)%


2,329


2,222


107


5%

Contracted services

529


535


(6)


(1)%


2,175


2,108


67


3%

Passenger commissions and other selling expenses

468


457


11


2%


1,941


1,827


114


6%

Ancillary businesses and refinery

299


520


(221)


(43)%


1,695


1,495


200


13%

Landing fees and other rents

408


375


33


9%


1,662


1,501


161


11%

Aircraft maintenance materials and outside repairs

341


377


(36)


(10)%


1,575


1,591


(16)


(1)%

Profit sharing

311


262


49


19%


1,301


1,065


236


22%

Passenger service

286


274


12


4%


1,178


1,123


55


5%

Aircraft rent

103


92


11


12%


394


351


43


12%

Other

420


381


39


10%


1,723


1,609


114


7%

Total operating expense

9,652


9,067


585


6%


39,174


35,172


4,002


11%











Operating Income

1,090


1,162


(72)


(6)%


5,264


5,966


(702)


(12)%











Non-Operating Income/(Expense):










Interest expense, net

(67)


(99)


32


(32)%


(311)


(396)


85


(21)%

Unrealized gain/(loss) on investments, net

184



184


NM


14



14


NM

Miscellaneous, net

137


(19)


156


NM


184


(70)


254


NM

Total non-operating income/(expense), net

254


(118)


372


NM


(113)


(466)


353


(76)%











Income Before Income Taxes

1,344


1,044


300


29%


5,151


5,500


(349)


(6)%











Income Tax Provision

(325)


(745)


420


(56)%


(1,216)


(2,295)


1,079


(47)%











Net Income

$

1,019


$

299


$

720


NM


$

3,935


$

3,205


$

730


23%











Basic Earnings Per Share

$

1.50


$

0.42





$

5.69


$

4.45




Diluted Earnings Per Share

$

1.49


$

0.42





$

5.67


$

4.43














Basic Weighted Average Shares Outstanding

680


707





691


720




Diluted Weighted Average Shares Outstanding

683


711





694


723




 

DELTA AIR LINES, INC.

Passenger Revenue

(Unaudited)










Three Months Ended




Year Ended




December 31,




December 31,



(in millions)

2018

2017

$ Change

% Change


2018

2017

$ Change

% Change

Ticket- Main cabin

$

5,056


$

4,885


$

171


4%


$

21,196


$

20,380


$

816


4%

Ticket- Business cabin and premium products

3,380


3,059


321


10%


13,754


12,087


1,667


14%

Loyalty travel awards

675


577


98


17%


2,651


2,403


248


10%

Travel-related services

536


501


35


7%


2,154


2,077


77


4%

Total passenger revenue

$

9,647


$

9,022


$

625


7%


$

39,755


$

36,947


$

2,808


8%











DELTA AIR LINES, INC.

Other Revenue

(Unaudited)










Three Months Ended




Year Ended




December 31,




December 31,



(in millions)

2018

2017

$ Change

% Change


2018

2017

$ Change

% Change

Ancillary businesses and refinery

$

327


$

541


$

(214)


(40)%


$

1,801


$

1,591


$

210


13%

Loyalty program

384


330


54


16%


1,459


1,269


190


15%

Miscellaneous

170


133


37


28%


558


587


(29)


(5)%

Total other revenue

$

881


$

1,004


$

(123)


(12)%


$

3,818


$

3,447


$

371


11%











Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards.

 

DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)








Three Months Ended



Year Ended



December 31,



December 31,



2018

2017

Change


2018

2017

Change

Revenue passenger miles (millions)

53,241


51,180


4.0

%


225,243


217,712


3.5

%

Available seat miles (millions)

62,523


60,060


4.1

%


263,365


254,325


3.6

%

Passenger mile yield (cents)

18.12


17.63


2.8

%


17.65


16.97


4.0

%

Passenger revenue per available seat mile (cents)

15.43


15.02


2.7

%


15.09


14.53


3.9

%

Total revenue per available seat mile (cents)

17.18


17.03


0.9

%


16.87


16.18


4.3

%

TRASM, adjusted - see Note A (cents)

17.16


16.62


3.2

%


16.66


15.98


4.3

%

Operating cost per available seat mile (cents)

15.44


15.10


2.3

%


14.87


13.83


7.5

%

CASM-Ex - see Note A (cents)

10.74


10.79


(0.5)

%


10.31


10.17


1.4

%

Passenger load factor

85.2

%

85.2

%

pts


85.5

%

85.6

%

(0.1) pts

Fuel gallons consumed (millions)

975


959


1.7

%


4,113


4,032


2.0

%

Average price per fuel gallon

$

2.39


$

1.88


27.1

%


$

2.20


$

1.68


31.0

%

Average price per fuel gallon, adjusted - see Note A

$

2.42


$

1.93


25.3

%


$

2.21


$

1.74


26.8

%

Number of aircraft in fleet, end of period

1,025


999


26

















Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards. Except for number of aircraft in fleet, consolidated data presented includes operations under Delta's contract carrier arrangements.

 

DELTA AIR LINES, INC.
Consolidated Statements of Cash Flows
(Unaudited)



Three Months Ended



December 31,


(in millions)

2018

2017


Cash Flows From Operating Activities:




Net income

$

1,019


$

299



Depreciation and amortization

570


583



Deferred income taxes

504


725



Pension, postretirement and postemployment payments greater than expense

(113)


(28)



Changes in air traffic liability

(873)


(658)



Changes in profit sharing

311


262



Other working capital changes, net

(173)


708



     Net cash provided by operating activities

1,245


1,891







Cash Flows From Investing Activities:




Property and equipment additions:




     Flight equipment, including advance payments

(871)


(798)



     Ground property and equipment, including technology

(492)


(362)



Purchase of equity investments


(450)



Net redemptions of short-term investments

276


132



Other, net

67


173



     Net cash used in investing activities

(1,020)


(1,305)







Cash Flows From Financing Activities:




Payments on long-term debt and capital lease obligations

(312)


(439)



Repurchases of common stock

(325)


(325)



Cash dividends

(238)


(216)



Proceeds from long-term obligations

621


450



Other, net

129


280



     Net cash used in financing activities

(125)


(250)







Net Increase in Cash, Cash Equivalents and Restricted Cash

100


336



Cash, cash equivalents and restricted cash at beginning of period

2,648


1,517



Cash, cash equivalents and restricted cash at end of period

$

2,748


$

1,853







The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to
the total of the same such amounts shown above:







Current assets:




     Cash and cash equivalents

$

1,565


$

1,814



     Restricted cash included in prepaid expenses and other

47


39



Other assets:




     Cash restricted for airport construction

1,136




Total cash, cash equivalents and restricted cash

$

2,748


$

1,853







Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards.


 

DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited)



December 31,


December 31,

(in millions)

2018


2017

ASSETS

Current Assets:





Cash and cash equivalents

$

1,565



$

1,814



Short-term investments

203



825



Accounts receivable, net

2,310



2,377



Fuel inventory

704



916



Expendable parts and supplies inventories, net

463



413



Prepaid expenses and other

1,250



1,499



     Total current assets

6,495



7,844







Property and Equipment, Net:





Property and equipment, net

28,354



26,563







Other Assets:





Operating lease right-of-use assets

5,979





Goodwill

9,781



9,794



Identifiable intangibles, net

4,829



4,847



Cash restricted for airport construction

1,136





Deferred income taxes, net

83



1,354



Other noncurrent assets

3,613



3,309



     Total other assets

25,421



19,304


Total assets

$

60,270



$

53,711







LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:





Current maturities of long-term debt and finance leases

$

1,523



$

2,242



Current maturities of operating leases

960





Air traffic liability

4,661



4,364



Accounts payable

3,130



3,674



Accrued salaries and related benefits

3,287



3,022



Frequent flyer deferred revenue

2,989



2,762



Fuel card obligation

1,075



1,067



Other accrued liabilities

1,129



1,868



     Total current liabilities

18,754



18,999







Noncurrent Liabilities:





Long-term debt and finance leases

8,270



6,592



Pension, postretirement and related benefits

9,176



9,810



Frequent flyer deferred revenue

3,652



3,559



Noncurrent operating leases

5,770





Other noncurrent liabilities

971



2,221



     Total noncurrent liabilities

27,839



22,182







Commitments and Contingencies









Stockholders' Equity:

13,677



12,530


Total liabilities and stockholders' equity

$

60,270



$

53,711







Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards.

 

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.  

Pre-tax Income and Net Income, adjusted. We adjust pre-tax income and net income for mark-to-market ("MTM") adjustments and settlements on fuel hedge contracts, the MTM adjustments recorded by our equity method investees, Virgin Atlantic and Aeroméxico, and unrealized gains/losses on our equity investments accounted for at fair value, to determine pre-tax income and net income, adjusted. We include the income tax effect of adjustments when presenting net income, adjusted.

MTM adjustments and settlements. 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 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' MTM adjustments to allow investors to better understand and analyze our core operational performance in the periods shown.

Unrealized gain/loss on investments. We record the unrealized gains/losses on our equity investments accounted for at fair value in non-operating expense. Adjusting for these gains/losses allows investors to better understand and analyze our core operational performance in the periods shown.

Tax reform charge. As a result of the Tax Cuts and Jobs Act of 2017, Delta recognized a one-time charge in the December 2017 quarter from the revaluation of its deferred tax assets and liabilities. We adjust for this charge to allow investors to understand and analyze the company's core operational performance in the periods shown.

 


Three Months Ended


Three Months Ended


December 31, 2018


December 31, 2018


Pre-Tax


Income


Net


Net Income

(in millions, except per share data)

Income


Tax


Income


 Per Diluted Share

GAAP

$

1,344



$

(325)



$

1,019



$

1.49


Adjusted for:








     MTM adjustments and settlements

(33)



7



(26)




     Equity investment MTM adjustments

55



(12)



43




     Unrealized gain/loss on investments

(184)



38



(146)




Total adjustments

(162)



33



(129)



(0.19)


Non-GAAP

$

1,182



$

(292)



$

890



$

1.30


Year-over-year change







42

%









Three Months Ended


Three Months Ended


December 31, 2017


December 31, 2017


Pre-Tax


Income


Net


Net Income

(in millions, except per share data)

Income


Tax


Income


 Per Diluted Share

GAAP

$

1,044



$

(745)



$

299



$

0.42


Adjusted for:








     MTM adjustments and settlements

(49)



18



(31)




     Equity investment MTM adjustments

(15)



5



(10)




     Tax reform charge



394



394




Total adjustments

(64)



417



353



0.50


Non-GAAP

$

980



$

(328)



$

652



$

0.92











Year Ended


Year Ended


December 31, 2018


December 31, 2018


Pre-Tax


Income


Net


Net Income

(in millions, except per share data)

Income


Tax


Income


 Per Diluted Share

GAAP

$

5,151



$

(1,216)



$

3,935



$

5.67


Adjusted for:








     MTM adjustments and settlements

(53)



27



(26)




     Equity investment MTM adjustments

29



(15)



14




     Unrealized gain/loss on investments

(14)



7



(7)




Total adjustments

(38)



19



(19)



(0.02)


Non-GAAP

$

5,113



$

(1,196)



$

3,917



$

5.65


Year-over-year change

$

(137)







19

%









Year Ended


Year Ended


December 31, 2017


December 31, 2017


Pre-Tax


Income


Net


Net Income

(in millions, except per share data)

Income


Tax


Income


 Per Diluted Share

GAAP

$

5,500



$

(2,295)



$

3,205



$

4.43


Adjusted for:








     MTM adjustments and settlements

(259)



88



(171)




     Equity investment MTM adjustments

8



4



12




     Tax reform charge



394



394




Total adjustments

(251)



486



235



0.33


Non-GAAP

$

5,250



$

(1,808)



$

3,442



$

4.76


 

Operating Revenue, adjusted and Total Revenue Per Available Seat Mile ("TRASM"), adjusted. We adjust operating revenue and TRASM for refinery sales to third parties to determine operating revenue, adjusted and TRASM, adjusted 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.

 


Three Months Ended



(in millions)


December 31, 2018

December 31, 2017


Change

Operating revenue

$

10,742


$

10,229




Adjusted for:





     Third-party refinery sales

(11)


(245)




Operating revenue, adjusted

$

10,731


$

9,984



7.5

%

Year-over-year change



$

747















Year Ended



(in millions)


December 31, 2018

December 31, 2017


Change

Operating revenue

$

44,438


$

41,138




Adjusted for:





     Third-party refinery sales

(548)


(502)




Operating revenue, adjusted

$

43,890


$

40,636



8.0

%


















Three Months Ended





December 31, 2018

December 31, 2017


Change

TRASM (cents)

17.18


17.03




Adjusted for:





     Third-party refinery sales

(0.02)


(0.41)




TRASM, adjusted

17.16


16.62



3.2

%











Year Ended





December 31, 2018

December 31, 2017


Change

TRASM (cents)

16.87


16.18




Adjusted for:





     Third-party refinery sales

(0.21)


(0.20)




TRASM, adjusted

16.66


15.98



4.3

%

 

Fuel expense, adjusted and Average fuel price per gallon, adjusted. The tables below show the components of fuel expense, including the impact of the refinery segment and airline segment hedging on fuel expense and average price per gallon. We then adjust for MTM adjustments and settlements for the same reason described under the heading pre-tax income and net income, adjusted:

 








Average Price Per Gallon



Three Months Ended



Three Months Ended



December 31,



December 31,

(in millions, except per gallon data)

2018

2017



2018

2017

Fuel purchase cost

$

2,318


$

1,805




$

2.38


$

1.89


Airline segment fuel hedge impact

(33)


22




(0.03)


0.02


Refinery segment impact

42


(24)




0.04


(0.03)


Total fuel expense

$

2,327


$

1,802




$

2.39


$

1.88


MTM adjustments and settlements

33


49




0.03


0.05


Total fuel expense, adjusted

$

2,360


$

1,852




$

2.42


$

1.93


Change year-over-year

$

508







Percent change year-over-year

27

%












Average Price Per Gallon



Year Ended



Year Ended



December 31,



December 31,

(in millions, except per gallon data)

2018

2017



2018

2017

Fuel purchase cost

$

9,131


$

6,833




$

2.22


$

1.70


Airline segment fuel hedge impact

(53)


33




(0.01)


0.01


Refinery segment impact

(58)


(110)




(0.01)


(0.03)


Total fuel expense

$

9,020


$

6,756




$

2.20


$

1.68


MTM adjustments and settlements

53


259




0.01


0.06


Total fuel expense, adjusted

$

9,073


$

7,015




$

2.21


$

1.74


Change year-over-year


$

2,057







Percent change year-over-year

29

%






 

Pre-Tax Margin, adjusted. We adjust pre-tax margin for MTM adjustments and settlements, equity investment MTM adjustments and unrealized gain/loss on investments for the same reasons described above under the heading pre-tax income and net income, adjusted. We adjust for third-party refinery sales for the same reason described above under the heading operating revenue and TRASM, adjusted.

 




Three Months Ended


December 31, 2018

December 31, 2017

Pre-tax margin

12.5%

10.2%

Adjusted for:



     MTM adjustments and settlements

(0.3)%

(0.5)%

     Equity investment MTM adjustments

0.5%

(0.2)%

     Unrealized gain/(loss) on investments

(1.7)%

—%

     Third-party refinery sales

—%

0.3%

Pre-tax margin, adjusted

11.0%

9.8%










Year Ended


December 31, 2018

December 31, 2017

Pre-tax margin

11.6%

13.4%

Adjusted for:



     MTM adjustments and settlements

(0.1)%

(0.6)%

     Equity investment MTM adjustments

—%

—%

     Unrealized gain/(loss) on investments

—%

—%

     Third-party refinery sales

0.1%

0.2%

Pre-tax margin, adjusted

11.6%

12.9%















 

Operating Expense, adjusted. We adjust operating expense for MTM adjustments and settlements and third-party refinery sales for the same reasons described above under the headings pre-tax income and net income, adjusted and operating revenue and TRASM, adjusted to determine operating expense, adjusted.

 






Three Months Ended





December 31,

(in millions)


2018

2017

Operating expense



$

9,652


$

9,067


Adjusted for:





     MTM adjustments and settlements


33


49


     Third-party refinery sales


(11)


(245)


Operating expense, adjusted


$

9,673


$

8,870


Year-over-year change



$

803













Year Ended





December 31,

(in millions)


2018

2017

Operating expense



$

39,174


$

35,172


Adjusted for:





     MTM adjustments and settlements


53


259


     Third-party refinery sales


(548)


(502)


Operating expense, adjusted


$

38,679


$

34,929


 

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. These expenses include aircraft maintenance we provide to third parties,our vacation wholesale operations and refinery cost of sales to third parties. Results also include staffing services performed by DAL Global Services. 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.

 





Three Months Ended







December 31, 2018


December 31, 2017


Change

CASM (cents)

15.44



15.10




Adjusted for:






     Aircraft fuel and related taxes

(3.72)



(3.00)




     Ancillary businesses and refinery

(0.48)



(0.87)




     Profit sharing

(0.50)



(0.44)




CASM-Ex

10.74



10.80



(0.5)%













Year Ended







December 31, 2018


December 31, 2017


Change

CASM (cents)

14.87



13.83




Adjusted for:






     Aircraft fuel and related taxes

(3.43)



(2.66)




     Ancillary businesses and refinery

(0.64)



(0.58)




     Profit sharing

(0.49)



(0.42)




CASM-Ex

10.31



10.17



1.4%






























 

Non-operating Income/(Expense), adjusted. We adjust for equity investment MTM adjustments and unrealized gain/loss on investments to determine non-operating income/(expense), adjusted for the same reasons described above in the heading pre-tax income and net income, adjusted.

 




Three Months Ended

(in millions)

December 31, 2018

December 31, 2017

Non-operating income/(expense)

$

254


$

(118)


Adjusted for:



     Equity investment MTM adjustments

55


(15)


     Unrealized gain/loss on investments

(184)



Non-operating income/(expense), adjusted

$

124


$

(134)


Change year-over-year

$

258









Year Ended

(in millions)

December 31, 2018

December 31, 2017

Non-operating income/(expense)

$

(113)


$

(466)


Adjusted for:



     Equity investment MTM adjustments

29


8


     Unrealized gain/loss on investments

(14)



Non-operating income/(expense), adjusted

$

(98)


$

(457)


Change year-over-year

$

360



 

 

Operating Cash Flow, adjusted. We present operating cash flow, adjusted because management believes adjusting for the following items provides a more meaningful measure for investors. Adjustments include:

Hedge deferrals. During the March 2016 quarter, we deferred settlement of a portion of our hedge portfolio until 2017 by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Operating cash flow is adjusted to include the impact of these deferral transactions in order to allow investors to understand the net impact of hedging activities in the period shown.

Reimbursements from third parties related to build-to-suit facilities and other. Management believes investors should be informed that these reimbursements for build-to-suit leased facilities effectively reduce net cash provided by operating activities and related capital expenditures.

Pension plan contribution. In 2017, we contributed $2 billion to our pension plans using net proceeds from issuance of debt. We adjusted operating cash flow to exclude this contribution to allow investors to understand the cash flows related to our core operations in the periods shown.

 

 





Three Months Ended

(in millions)



December 31, 2018

December 31, 2017

Net cash provided by operating activities


$

1,245


$

1,891


Adjustments:




     Hedge deferrals



(51


     Reimbursements from third parties related to build-to-suit facilities and other

7


(104


Net cash provided by operating activities, adjusted


$

1,252


$

1,736












Year Ended

(in millions)



December 31, 2018

December 31, 2017

Net cash provided by operating activities


$

7,014


$

5,023


Adjustments:




     Hedge deferrals


(19)


(224


     Reimbursements from third parties related to build-to-suit facilities and other

(96)


(6


     Pension plan contribution



2,000


Net cash provided by operating activities, adjusted


$

6,899


$

6,793


 

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 purchases (redemptions) of short-term investments. Net purchases (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 free cash flow for this activity, net, to provide investors a better understanding of the company's free cash flow position core to operations.

Reimbursements from third parties related to build-to-suit facilities and other. Management believes investors should be informed that these reimbursements for build-to-suit leased facilities effectively reduce net cash provided by operating activities and related capital expenditures.

 





Three Months Ended

(in millions)



December 31, 2018

Net cash provided by operating activities


$

1,245


Net cash used in investing activities


(1,020


Adjustments:



     Net purchases (redemptions) of short-term investments


(276


     Reimbursements from third parties related to build-to-suit facilities and other

96


Total free cash flow


$

45











Year Ended

(in millions)



December 31, 2018

Net cash provided by operating activities


$

7,014


Net cash used in investing activities


(4,393


Adjustments:



     Net purchases (redemptions) of short-term investments


(621


     Reimbursements from third parties related to build-to-suit facilities and other

264


Total free cash flow


$

2,265


 

Capital Expenditures, net. We present net capital expenditures because management believes investors should be informed that a portion of these capital expenditures are reimbursed by a third party.

 




Three Months Ended

(in millions)


December 31, 2018

Flight equipment, including advance payments


$

871


Ground property and equipment, including technology


492


Reimbursements from third parties related to build-to-suit-facilities and other


(89


Capital expenditures, net


$

1,274









Year Ended

(in millions)


December 31, 2018

Flight equipment, including advance payments


$

3,704


Ground property and equipment, including technology


1,464


Reimbursements from third parties related to build-to-suit-facilities and other


(432


Capital expenditures, net


$

4,736


 

Adjusted Debt to Earnings Before Interest, Taxes, Depreciation, Amortization and Rent ("EBITDAR"), adjusted. We present adjusted debt to EBITDAR, adjusted because management believes this metric is helpful to investors in assessing the company's overall debt profile. Adjusted debt includes LGA bonds and operating lease liabilities. We calculate EBITDAR, adjusted by adding depreciation and amortization to GAAP Operating income and adjusting for the fixed portion of operating lease expense.




Year Ended

(in billions)


December 31, 2018

Debt and finance lease obligations


$

9

Plus: Operating lease liability


7

Adjusted Debt


$

16








Year Ended

(in billions)


December 31, 2018

GAAP operating income


$

5

Adjusted for:



     Depreciation and amortization


2

     Fixed portion of operating lease expense


1

EBITDAR, adjusted



$

8





Adjusted Debt to EBITDAR, adjusted



1.9x

 

 

 

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SOURCE Delta Air Lines

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