Delta Air Lines has reported financial results for the December quarter and full year 2019 and provided its outlook for the March quarter 2020.
December Quarter Financial Highlights include: Adjusted earnings per share of $1.70, a 31 percent increase year over year; above guidance of $1.20 to $1.50 on stronger revenue, lower fuel and a nine-cent net gain related to the unwinding of the GOL relationship
• Total revenue grew to $11.4 billion, up 7 percent over prior year when prior year period is adjusted for sale of DAL Global Services (DGS)
• Total unit revenue (TRASM), adjusted, increased 2.4 percent, exceeding expectations on strong holiday travel demand
• Non-fuel operating expense on a unit basis (CASM-Ex) up 4.4 percent compared to the prior year period, in line with the company’s expectations of 4 percent to 5 percent.
Full Year Financial Highlights include:
• Adjusted earnings per share of $7.31, a 30 percent increase year over year
• Total revenue increased to a record $47 billion, up 7.5 percent when prior year period is adjusted for third-party refinery sales and the sale of DGS
• Total expense increased 3.9 percent with CASM-Ex up 2 percent, in line with the company’s guidance and long-term cost targets
• Delta’s 90,000 employees will share a record $1.6 billion profit sharing payout on Feb. 14
• Generated $8.4 billion of operating cash flow and $4.2 billion of free cash flow
• Returned $3 billion to shareholders through dividends and share repurchases
“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 percent when prior year period is adjusted for third-party refinery sales and the sale of DGS. Premium product ticket revenue increased 9 percent 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 percent or $768 million over the prior year (adjusted for the sale of DGS). This was driven by a 9 percent increase in premium product ticket revenue, an 18 percent increase in loyalty revenue and a 31 percent increase in third-party maintenance revenue, which was partially offset by 13 percent lower cargo revenue.
December quarter passenger revenue by geographic region:
• Domestic revenue grew 7.7 percent in the quarter on 1.6 percent higher passenger unit revenue (PRASM) and 6 percent higher capacity. Domestic premium product revenue grew 11 percent and corporate revenue grew 6 percent , driven by strength in business and leisure demand through the holiday period. Revenue and margin improved in all domestic hubs with revenue up 10 percent in coastal hubs and 6 percent in core hubs.
• Atlantic revenue grew 0.8 percent in the quarter on 2.4 percent higher capacity and a 1.6 percent decline in PRASM, driven almost entirely by foreign exchange rates.
• Latin revenue grew 6.7 percent on a 6.3 percent increase in unit revenue and 0.4 percent higher capacity. This revenue improvement was driven by continued double-digit unit revenue growth in Brazil and Mexico.
• Pacific revenue was down 0.5 percent versus prior year on a 4.4 percent decline in unit revenue primarily due to continued softness in China. This was a 3.2 point improvement versus the September quarter on improved trends in Japan and strong Delta Premium Select performance.
“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 percent. Demand trends remain healthy and we expect momentum to continue in 2020, with revenue growth of 5 percent to 7 percent in the March quarter.”
For 2019, total expense increased 3.9 percent, 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 percent versus prior year, reflecting Delta’s continued investment in our people, product and services.
Total expense for the December quarter increased 6.9 percent 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 percent 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 percent 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 percent 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 percent to 3 percent 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 percent 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.”