Delta Air Lines Announces December Quarter and Full Year 2015 Profit

ATLANTA, Jan. 19, 2016 /PRNewswire/ -- Delta Air Lines (NYSE: DAL) today reported financial results for the December 2015 quarter, including adjusted pre-tax income of $1.45 billion, a $430 million increase year over year.  Adjusted net income was $926 million or $1.18 per diluted share, up 51 percent from the December quarter of 2014.

"Our 2015 performance was a record for Delta on all fronts – with industry-leading operational performance, superior customer satisfaction, and a $5.9 billion adjusted pre-tax profit.  These results show the commitment of the Delta people to running the best airline in the world every day.  It's an honor to reward their performance with $1.5 billion in profit sharing for the year," said Richard Anderson, Delta's chief executive officer.  "As we look ahead to 2016, we have a significant opportunity to improve our performance even further.  With over $3 billion in potential savings from lower fuel prices and numerous commercial, operational and cost initiatives already in place, we expect to again perform in the top tier of the S&P Industrials on earnings growth, margins, and cash flows this year despite global economic challenges."

Revenue Environment
Delta's operating revenue for the December quarter decreased 2 percent, or $145 million, due to $160 million in foreign currency pressures.  Passenger unit revenues declined 1.6 percent, which includes approximately 2 points of impact from foreign currency.

"The success of our network actions and commercial initiatives in 2015 allowed us to grow our top line and our unit revenue premium to the industry, while overcoming nearly $700 million of revenue pressure from foreign currency," said Ed Bastian, Delta's president.  "Looking ahead, the overall demand environment remains solid. The breadth of our network scale allows us to focus our commercial efforts on those areas of the business with the best opportunity such as the domestic marketplace, while reducing our exposure in some weaker international regions.  While we expect international volatility and currency pressures to result in unit revenue declines of 2.5 - 4.5 percent for the March quarter, we should see over 10 points of margin improvement given our capacity discipline in the face of a more than 50 percent decline in fuel prices."

March 2016 Quarter Guidance
Following are Delta's projections for the March 2016 quarter:

Cost Performance
Adjusted fuel expense² declined $726 million compared to the same period in 2014, on 40 percent lower market fuel prices.  For the quarter, the refinery produced a profit of $8 million.  Settled hedge losses were $336 million, including $60 million of early hedge settlements. 

CASM-Ex³ increased 1.9 percent for the December quarter on a year-over-year basis, with foreign exchange and the benefits of Delta's domestic refleeting and other cost initiatives offsetting the company's investments in its employees, products and operations. 

Delta's debt reduction initiative continued to improve the company's interest expense, producing $35 million in interest savings for the quarter compared to the same period in 2014. 

Non-operating expense includes a $75 million loss for the write-off of Delta's remaining cash holdings in Venezuela.

"Rigorous cost discipline is a key part of the Delta culture, which was proven by our ability to keep non-fuel unit costs flat in 2015 while significantly investing in our people, products and service," said Paul Jacobson, Delta's chief financial officer.  "The first half of 2016 will see the most pressure to non-fuel unit costs, and we expect performance will improve through the year as we lap last year's employee wage increases."

Cash Flow, Shareholder Returns, and Adjusted Net Debt⁴
Delta generated $1.4 billion of adjusted operating cash flow and $300 million of free cash flow during the quarter.  The company used this strong cash generation to reinvest $1.1 billion back into the business, including $900 million for aircraft acquisitions, fleet modifications and six slot pairs at London's Heathrow airport. 

For full year, the company returned $2.6 billion to shareholders, comprised of $360 million of dividends and $2.2 billion of share repurchases for 48 million shares at an average price of $45.50 per share.

Adjusted net debt at the end of the year stood at $6.7 billion, a more than $10 billion reduction since Delta began its balance sheet improvement strategy in 2009.

GAAP Metrics Related to Fuel, Cost Performance and Cash Flow
Below are GAAP metrics corresponding to the non-GAAP figures cited above.

Special Items
Special items, net of taxes, in the December 2015 quarter totaled $54 million, including:

• $54 million primarily for mark-to-market adjustments on fuel hedges settling in future periods.

Special items, net of taxes, in the December 2014 quarter totaled $1.4 billion, net of taxes, including:

• A $1.2 billion charge for mark-to-market adjustments on fuel hedges settling in future periods;
• A $75 million charge for mark-to-market adjustments on hedges owned by Virgin Atlantic;
• A $74 million charge for fleet, facilities, and other items; and
• A $29 million gain related to an insurance settlement.

About Delta
Delta Air Lines serves nearly 180 million customers each year. Delta was named to FORTUNE magazine's top 50 World's Most Admired Companies in addition to being named the most admired airline for the fourth time in five years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented five consecutive years. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 328 destinations in 57 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft. The airline is a founding member of the SkyTeam global alliance and participates in the industry's leading trans-Atlantic joint venture with Air France-KLM and Alitalia as well as a joint venture with Virgin Atlantic. Including its worldwide alliance partners, Delta offers customers more than 15,000 daily flights, with key hubs and markets including Amsterdam, Atlanta, Boston, Detroit, Los Angeles, Minneapolis/St. Paul, New York-JFK and LaGuardia, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Delta has invested billions of dollars in airport facilities, global products and services, and technology to enhance the customer experience in the air and on the ground. Additional information is available on the Delta News Hub, as well as delta.com, Twitter @DeltaNewsHub, Google.com/+Delta, Facebook.com/delta and Delta's blog takingoff.delta.com.

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 rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the possible effects of accidents involving our aircraft; the restrictions that financial covenants in our financing agreements will have on our financial and business operations; labor issues; interruptions or disruptions in service at one of our hub or gateway airports; disruptions or security breaches of our information technology infrastructure; our dependence on technology in our operations; 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 management and key employees; competitive conditions in the airline industry; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions; the effects of terrorist attacks or geopolitical conflict; 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 Dec. 31, 2014.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of Jan. 19, 2016, and which we have no current intention to update.

The 2014 Consolidated Balance Sheet has been adjusted to reflect the early adoption of certain accounting standards in order to conform to the current period presentation

Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below.

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. Delta is unable to reconcile certain forward-looking projections to GAAP as the nature or amount of special items cannot be estimated at this time.

Pre-Tax Income and Net Income, adjusted for special items. We adjust for the following items to determine pre-tax income and net income, adjusted for special items, for the reasons described below:

Mark-to-market ("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. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.

Restructuring and other. Because of the variability in restructuring and other, the adjustment for this item is helpful to investors to analyze the company's recurring core performance in the period shown.

Virgin Atlantic MTM adjustments. We record our proportionate share of earnings from our equity investment in Virgin Atlantic in other expense. We adjust for Virgin Atlantic's MTM adjustments to allow investors to better understand and analyze the company's core financial performance in the period shown.

Loss on extinguishment of debt. We adjusted for loss on extinguishment of debt in 2014 to assist investors with their analysis of the company's core financial performance.

Income tax. Pre-tax income is adjusted for the income tax effect of special items. We believe this adjustment allows investors to better understand and analyze the company's core financial performance in the periods shown.

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 hedging on fuel expense and average price per gallon. We then adjust for MTM adjustments and settlements for the reason described below:

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. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.

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 non-fuel financial performance. The adjustment for aircraft fuel and related taxes (including our regional carriers) allows investors to better understand and analyze our non-fuel costs and our year-over-year financial performance.

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.

Restructuring and other. Because of the variability in restructuring and other, the adjustment for this item is helpful to investors to analyze the company's recurring core performance in the periods shown.

Other expenses. Other expenses include aircraft maintenance and staffing services we provide to third parties, our vacation wholesale operations, and refinery cost of sales to third parties. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these sales to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.

Non-Fuel Unit Cost or Cost per Available Seat Mile ("CASM-Ex") (cont.)

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

Hedge deferrals. During the March 2015 quarter, we effectively deferred settlement of a portion of our hedge portfolio until 2016 by entering into fuel derivative transactions that, excluding market movements from the date of the transactions, would provide approximately $150 million in cash receipts during the September 2015 quarter and $150 million in cash receipts for the December 2015 quarter. Additionally, these transactions will require approximately $300 million in cash payments in 2016 (excluding market movements from the date of the transactions). By effectively deferring settlement of a portion of the original derivative transactions, the restructured hedge portfolio provides additional time for the fuel market to stabilize while adding some hedge protection in 2016. Operating cash flow is adjusted to include these deferral transactions in order to allow investors to better understand the net impact of hedging activities in the period shown.

Hedge margin. Operating cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company's core operational performance in the period shown.

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:

Hedge deferrals. During the March 2015 quarter, we effectively deferred settlement of a portion of our hedge portfolio until 2016 by entering into fuel derivative transactions that, excluding market movements from the date of the transactions, would provide approximately $150 million in cash receipts during the September 2015 quarter and $150 million in cash receipts for the December 2015 quarter. Additionally, these transactions will require approximately $300 million in cash payments in 2016 (excluding market movements from the date of the transactions). By effectively deferring settlement of a portion of the original derivative transactions, the restructured hedge portfolio provides additional time for the fuel market to stabilize while adding some hedge protection in 2016. Operating cash flow is adjusted to include these deferral transactions in order to allow investors to better understand the net impact of hedging activities in the period shown.

Hedge margin. Free cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company's core operational performance in the period shown.

Adjusted Net Debt. Delta uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to present estimated financial obligations. Delta reduces adjusted debt by cash, cash equivalents and short-term investments and hedge margin receivable, resulting in adjusted net debt, to present the amount of assets needed to satisfy the debt. Management believes this metric is helpful to investors in assessing the company's overall debt profile. Management has reduced adjusted debt by the amount of hedge margin receivable, which reflects cash posted to counterparties, as we believe this removes the impact of current market volatility on our unsettled hedges and is a better representation of the continued progress we have made on our debt initiatives.

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SOURCE Delta Air Lines