Delta reports Q3 results

Eleanor Steed
By Eleanor Steed October 13, 2016 11:01

Delta reports Q3 results

Delta Air Lines has posted adjusted pre-tax income for the September 2016 quarter of $1.9 billion, a $278 million decrease from the September 2015 quarter. The technology outage and subsequent operational recovery Delta experienced over four days in early August reduced pre-tax income for the quarter by an estimated $150 million.

“Delta’s resiliency stood out this quarter as we worked through the outage, continued revenue headwinds, and volatile fuel prices to produce the industry’s best operational reliability and service for our customers along with solid margins, cash flows and returns for our owners,” said Ed Bastian, Delta’s chief executive officer. “With our focus on building a more sustainable and durable business, we will be taking a cautious approach to 2017 by keeping our capacity in line with the December quarter’s 1 percent growth level.”

Delta’s operating revenue for the September quarter decreased 5.6 percent, or $624 million, of which $100 million was due to the outage and $70 million was from prior year Yen hedge gains.  Passenger unit revenues declined 6.8 percent, including nearly 2 points of impact from the outage and Yen hedges, on a 1.5 percent increase in capacity.

“While we were encouraged by our unit revenue trends through the September quarter, we have more work ahead of us to achieve our goal of positive unit revenues,” said Glen Hauenstein, Delta’s president.  “With further slowing of our capacity growth in the December quarter and additional traction on our revenue management initiatives, we should make progress against that goal and we expect our December quarter unit revenues to decline by 3 – 5 percent year over year.”

For the December quarter, Delta is expecting a slight decline in margins year over year, as savings from lower fuel prices and productivity initiatives will be fully offset by declines in unit revenues that the company continues to address through its capacity actions and revenue management initiatives.  The projections for the December quarter do not include any estimates for the company’s potential agreement with its pilots.

Adjusted fuel expense declined $348 million compared to the same period in 2015, on 10 percent lower market fuel prices. Delta’s adjusted fuel price per gallon for the September quarter was $1.48, which includes $0.04 per gallon from losses at the Trainer Refinery.

CASM-Ex including profit sharing, increased 0.1 percent for the September 2016 quarter compared to the prior year period driven by strong operational performance and productivity savings realized during the quarter, in addition to lower profit sharing expense.

The reduction in non-operating expense included $26 million of lower interest expense from Delta’s debt reduction initiatives.

“By leveraging our productivity and operational reliability, we overcame the cost headwinds from the outage to meet our guidance and then used our balanced approach with our cash flows to invest in the business, pay down debt and return cash to our owners,” said Paul Jacobson, Delta’s chief financial officer.  “Looking ahead, our continued cost discipline and focus on free cash flow have positioned us well to successfully weather the inevitable challenges we face in delivering sustainable results for the long-term.”

Delta generated $1.8 billion of adjusted operating cash flow and $1.1 billion of free cash flow during the quarter.  The company used this strong cash generation to invest $680 million into the business for aircraft purchases and improvements, for facilities upgrades and to support its maintenance part-out initiatives.

For the September quarter, the company returned $650 million to shareholders, comprised of $150 million of dividends and $500 million of share repurchases.  Through the end of the September quarter, Delta has returned $2.7 billion to its owners in 2016 through dividends and share repurchases.

Eleanor Steed
By Eleanor Steed October 13, 2016 11:01