Delta Air Lines has reported financial results for the September quarter 2018.
Highlights of the results include $1.6 billion adjusted pre-tax income for the September quarter 2018 and adjusted earnings per share of $1.80, at the high end of guidance.
Adjusted earnings per share were up 16 percent compared to the prior year quarter, driven by revenue momentum, tax reform benefits and a four percent lower share count.
Results reflect a $30 million negative impact from Hurricane Florence.
“Our solid eight percent revenue growth, combined with flat non-fuel unit cost performance, helped offset 85 percent of the $655 million fuel cost increase in the quarter. These achievements are a testament to the strength of the Delta business model and the hard work of the Delta people, and I am pleased to recognise their performance with an additional $395 million toward 2018 profit sharing,” said Ed Bastian, Delta’s chief executive officer. “Our commercial momentum and improved cost trajectory give us confidence that we are on a path to deliver continued top-line growth and expand margins as we move into 2019.”
Delta’s adjusted operating revenue of $11.8 billion for the September quarter improved eight percent, or $912 million versus the prior year. This quarterly revenue result marks a record for the company, driven by improvements across Delta’s business, including a nearly 20 percent increase in premium product ticket revenues and double-digit percentage increases in cargo, loyalty and Maintenance, Repair and Overhaul revenue.
Total unit revenues excluding refinery sales (TRASM) increased 4.3 percent during the period driven by strong demand and improving yields. Foreign exchange benefit of approximately half a point was offset by the impact of Hurricane Florence.
“We generated record revenues in the September quarter on strong demand across the business and a favorable yield environment. In the December quarter we expect total unit revenue growth of three to five percent, driving full year revenue growth to eight percent, the high end of our guidance,” said Glen Hauenstein, Delta’s president.
“The benefits of our brand, industry-leading network, and relentless focus on the customer are driving revenue growth, improving margins and accelerating the pace of our recapture of higher fuel costs.”
December Quarter 2018
Despite an expected 30 percent increase in fuel price, Delta expects pre-tax margins to stabilize in the December quarter driven by continued top-line growth and improving cost performance.
Total adjusted operating expenses for the September quarter increased $1.0 billion versus the prior year quarter, with more than half of the increase driven by higher fuel prices.
CASM-Ex was flat for the September quarter 2018 compared to the prior year period, a three-point improvement from the June quarter. Efficiency gains successfully offset cost pressures from higher revenue-related costs and product and employee investments.
“The September quarter marked an important inflection point in changing our non-fuel cost trajectory, and we expect to deliver on our full-year target of one to two percent non-fuel unit cost growth,” said Paul Jacobson, Delta’s chief financial officer.
“Continued focus on cost control, along with incremental efficiency gains from refleeting and One Delta, give us confidence in our ability to keep our non-fuel unit cost growth below two percent next year.”
Adjusted fuel expense increased $655 million, or 35 percent, relative to September quarter 2017. Delta’s adjusted fuel price per gallon for the September quarter was $2.22, which includes $12 million of benefit from the refinery.
Adjusted non-operating expense improved by $30 million versus the prior year, driven primarily by pension expense favorability. The company expects 2018 full-year adjusted non-operating expense to be approximately $300 million, representing a $160 million improvement over prior year due to favorable interest and pension expenses, offsetting reduced partner earnings due to higher fuel.
Adjusted tax expense declined $221 million for the September quarter primarily due to the reduction in Delta’s book tax rate from 34 percent to 23 percent.
Cash Flow and Shareholder Returns
Delta generated $1.5 billion of operating cash flow and $655 million of free cash flow during the quarter, after the investment of $865 million primarily for aircraft purchases and modifications.
For the September quarter, Delta returned $566 million to shareholders, comprised of $325 million of share repurchases and $241 million in dividends.