Estimated reading time 19 minutes, 55 seconds.
Delta Air Lines (NYSE:DAL) today reported financial results for the September quarter 2021 and provided its outlook for the December quarter 2021. Highlights of the September quarter 2021 results, including both GAAP and adjusted metrics, are on page six and are incorporated here.
“Our September quarter marked an important milestone in our recovery, with our first quarterly profit since the start of the pandemic,” said Ed Bastian, Delta’s chief executive officer. “Our revenues reached two-thirds of 2019 levels thanks to the industry-leading operational performance our people delivered through a busy summer, once again showing why they are the best in the business.”
“While demand continues to improve, the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter. As the recovery progresses, I am confident in our path to sustained profitability as we continue to provide best-in-class service to our customers, strengthen preference for our brand, while creating a simpler, more efficient airline.”
September Quarter Financial and Operating Results
- Adjusted pre-tax income of $216 million excludes a $1.3 billion net benefit related to the second payroll support program extension (PSP3) partially offset by debt extinguishment charges and mark-to-market adjustments on our investments
- Adjusted operating revenue of $8.3 billion, which excludes refinery sales, was 66 percent recovered versus September quarter 2019 on capacity that was 71 percent restored. Sequentially versus the June quarter 2021, adjusted operating revenue improved by $1.9 billion, or 30 percent, on an 11 percent increase in capacity
- Total operating expense, which includes the remaining $1.8 billion of benefit related to PSP3, decreased $3.5 billion compared to the September quarter 2019. Adjusted for the benefit related to PSP3 and costs from third-party refinery sales, total operating expense decreased $2.6 billion or 25 percent in the September quarter 2021 versus the comparable 2019 period
- Remuneration from American Express in the quarter was just over $1 billion, up 1 percent compared to September quarter 2019
- Generated $151 million of operating cash flow and invested $619 million back in the business
- At the end of the September quarter, the company had $15.8 billion in liquidity, including cash and cash equivalents, short-term investments and undrawn revolving credit facilities
- Led the industry on key operating metrics, including a record combined completion factor of 99.72 in August for both mainline and Delta Connection. These operating results and other enhancements to the customer experience supported domestic net promoter scores above September quarter 2019 levels.
“Generating a profit for the quarter even with a majority of our corporate and international customers still to return is a great achievement. I am also encouraged by our relative revenue performance, as we expect a record September quarter unit revenue premium. Our ability to deliver a sustained unit revenue premium throughout the pandemic demonstrates the success of our customer-centric and revenue diversification strategies,” said Glen Hauenstein, Delta’s president.
“Our revenue recovery has shown strong progression through the course of the year as our customers return to the skies. With robust holiday demand and an expected improvement in corporate and international demand, we expect total December quarter revenue to recover to the low 70s percentage relative to 2019.”
Operating revenue, adjusted of $8.3 billion for the September quarter 2021 improved 30 percent, or $1.9 billion from June quarter 2021. Compared to the same period in 2019, operating revenue, adjusted was 66 percent restored, in line with the company’s initial revenue guidance even as case counts from the COVID-19 variant impacted demand in August and early September. Total passenger revenue was 63 percent recovered in the September quarter 2021 compared to September quarter 2019 on system capacity that was 71 percent restored compared to 2019 levels.
Compared to the June quarter 2021, system yields improved 4 percent and system load factors improved 11 points to 80 percent. As a result, total unit revenue, adjusted improved 17 percent sequentially.
- Domestic and Latin continue to lead recovery, Transatlantic improved the most: Domestic passenger revenue was 72 percent restored compared to September quarter 2019, a 17 point improvement in the rate of recovery versus the June quarter 2021. International passenger revenue recovered to 42 percent of September quarter 2019 levels, a 16 point improvement sequentially. Latin is the most restored entity with passenger revenues 84 percent recovered, followed by Transatlantic at 35 percent restored versus September quarter 2019, up 20 points quarter over quarter driven by border reopenings. Pacific passenger revenue remains the slowest to return at 20 percent recovered with traffic largely still limited to essential travel.
- Premium cabins outperformed main cabin in the most recovered entities: Domestic and short-haul Latin premium product revenue continued to outperform with recovery outpacing main cabin by approximately 10 points. This was driven by an increase in paid premium cabin load factors relative to September quarter 2019, despite business travel being less than 50 percent recovered. This relative outperformance is expected to be reflected at a system level as premium revenue in other entities improves with the return of business and international travel at scale.
- Corporate demand stable despite delay in return to office: Corporate volumes improved in July but paused at approximately 40 percent recovered for the September quarter 2021 compared to September quarter 2019 as corporations delayed the reopening of offices due to the COVID-19 variant. This was a 10 point improvement sequentially from the June quarter, but below expectations set at the outset of the quarter. With the decline in COVID-19 case counts, Delta saw improving domestic corporate volumes exiting September, and that improvement continues in October. Small and Medium Enterprises continue to lead the recovery in business travel.
- American Express remuneration exceeded 2019 levels: American Express remuneration in the quarter exceeded 2019 levels on co-brand spend that was nearly 15 percent higher than 2019 and acquisitions that were approximately 95 percent restored to 2019. Strong portfolio spend more than offset travel-related remuneration. The company expects total remuneration to remain above December quarter 2019 levels in the December quarter 2021.
- Cargo revenue continues to improve on yield strength: Cargo revenue increased to $262 million, a 39 percent improvement compared to the September quarter 2019. This represents the fourth consecutive quarter of growth compared to 2019 comparable periods. Cargo strength relative to 2019 is expected to continue in the December quarter 2021 as constraints in global air cargo capacity during the peak holiday shipping period support continued yield strength.
“Leading the industry on operational performance and achieving our goal of profitability for the quarter with an adjusted pre-tax profit of $216 million are great accomplishments and a testament to the perseverance of the Delta people,” said Dan Janki, Delta’s chief financial officer. “Our focus remains on restoring the airline to prepare for the next leg of the recovery, building upon our leadership position for the years ahead.”
Total operating expenses, adjusted of $7.8 billion in the September quarter 2021 increased 12 percent sequentially, primarily driven by non-fuel costs from the continued restoration of the airline. Compared to September quarter 2019, total operating expenses, adjusted were down $2.6 billion or 25 percent.
Fuel expense, adjusted increased 5 percent compared to the June quarter 2021 as lower fuel prices partially offset an 11 percent increase in capacity during the September quarter 2021. Adjusted fuel price of $1.94 per gallon was down 8 percent compared to the June quarter 2021 driven primarily by a refinery contribution versus a loss in the June quarter 2021. Carbon offsets expensed during the quarter drove a 4¢ impact on fuel prices as Delta fulfills its commitment to be a global carbon neutral airline by pursuing high quality, verified offsets. During the September quarter 2021, fuel efficiency, defined as gallons per 1,000 ASMs, improved 4.2 percent versus the same period in 2019 as a result of our fleet renewal efforts.
Non-fuel costs, adjusted of $6.3 billion increased 14 percent sequentially on an 11 percent increase in capacity and a 30 percent increase in adjusted revenue. Additionally, there was an increase in maintenance, training and other people-related costs required to support the restoration of the airline in the quarter as the company positions for further demand recovery in 2022. Compared to the September quarter of 2019, non-fuel unit costs (CASM-Ex) were 15 percent higher.
Non-operating expense for the September quarter 2021 was $673 million including mark-to-market losses on certain of our investments and losses on the extinguishment of debt. Non-operating expense, adjusted was $219 million, $6 million lower than June quarter 2021 driven by lower net interest expense, partially offset by other non-operating expenses.
Balance Sheet, Cash and Liquidity
“Balance sheet management remains a key priority for Delta as we chart our return to investment grade metrics in the coming years,” Janki said. “Over the last 12 months, we have reduced our financial obligations by $12 billion. During the September quarter, we used excess cash to reduce gross debt and interest expense while rebuilding unencumbered assets and managing our debt maturity profile.”
At the end of the September quarter 2021, the company had total debt and finance lease obligations of $27.8 billion with adjusted net debt of $19.3 billion. The company’s total debt had a weighted average interest rate of 4.2 percent at September quarter-end. In addition to maturities and normal amortization of nearly $184 million, the company completed a $1 billion debt tender offer, acquired aircraft with cash rather than financing those acquisitions and executed $276 million of open market debt repurchases in the September quarter 2021.
Since October 2020, Delta has reduced its financial obligations by $12 billion in aggregate via pension contributions and paydown of debt, including normal amortization. These actions have driven interest savings, freed up previously secured collateral, fully funded the pension on a Pension Protection Act basis and improved the company’s debt maturity profile.
Operating cash flow during the quarter was $151 million. Free cash flow was negative $463 million for the quarter with net capital expenditures reinvested in the business of $619 million.
The company’s Air Traffic Liability was $6.4 billion at September quarter-end, $562 million lower than at the end of the June quarter due to the impact the variant had on cash sales and normal seasonality. Travel credits at September quarter-end accounted for approximately 40 percent of the Air Traffic Liability and represented approximately 8 percent of average daily bookings during the quarter.
Delta ended the September quarter with $15.8 billion in liquidity, including $2.6 billion in undrawn revolver capacity.
Today the company announced the incremental acquisition of two used A350 aircraft with deliveries planned for the December quarter 2021. Year to date and including today’s announcement, the company has finalized several fleet transactions, including the exercise of 55 A321neo options scheduled to deliver between 2022 and 2027 and agreements to acquire 38 gently used aircraft in the secondary market. These opportunistic acquisitions are consistent with the broader fleet strategy, complementing other actions taken over the last 18 months as the company accelerates fleet renewal efforts and prepares for continued recovery. Renewal efforts progress Delta towards a simpler, more efficient and sustainable fleet while also elevating product and customer experience.
Other Highlights from the September Quarter
Culture and People
- Increased vaccination rates to approximately 90 percent of employees, as of October 12, 2021, as Delta continues to prioritize the health and safety of our people
- Safely transported 9,000 evacuees from harm’s way in Afghanistan on Delta aircraft, in partnership with the Department of Defense under the Civil Reserve Air Fleet (CRAF) program
- Partnered with the American Red Cross to transport 40,000 pounds of supplies, including American Red Cross blankets and comfort kits for evacuees on CRAF flights
- Contributed $350,000 to the American Red Cross for disaster relief efforts during the quarter – this contribution is in addition to the $1 million grant to the American Red Cross as an Annual Disaster Giving Program member
- Awarded the Travel Partner of the Year – Global Airline accolade in the U.K. for recognition of our commitment to the health and safety of our customers during the pandemic
Customer Experience and Loyalty
- Continued to lead the industry in operational reliability across key operating metrics. In August, achieved record completion factor performance of 99.72 for both mainline and Delta Connection
- Achieved 116 Brand Perfect Days as of October 11, 2021, on par with pre-pandemic levels. Brand Perfect Days are defined as those days when there are no cancellations across Delta’s mainline and regional operations
- Hired more than 8,000 employees across the organization since the beginning of 2021 to bolster customer service, reduce customer wait times and improve reliability in the summer operation
- For the fifth year in a row, Delta’s SkyMiles program secured the No. 1 spot against all global airlines in U.S. News & World Report’s annual ranking of airline loyalty programs
- Selected by customers as the Skytrax Best Airline in North America for 2021 and recognized for its health, hygiene and safety protocols during the COVID-19 pandemic
- Announced or launched network changes in response to increasing travel demand, including:
- Nonstop service from Boston to Tel Aviv and Athens beginning in 2022
- New flights to Boston’s top 20 Domestic markets with launch of DFW and CLT in October and BWI, DEN and SAN in July 2022
- Doubled flights from August to September 2021 to Canada’s biggest markets following the country’s reopening to fully vaccinated American
- Resumed nonstop service to Johannesburg, South Africa, restoring Delta service to all pre-COVID markets in Africa
- Implemented the following changes to enhance Delta’s customer experience:
- Increased flexibility for our customers by extending waivers for Basic Economy fares through the end of 2021 and by eliminating same-day standby fees
- Led the industry as the only U.S. airline to extend Medallion Status and key SkyMiles benefits to January 2023 to give our most loyal customers more flexibility as travel resumes
- Resumed hot meal service in the premium cabin on coast-to-coast flights, partnering with Souvla, Union Square Events and chefs Jon+Vinny to serve fresh meals in Delta One
- Announced a new Spotify partnership to provide curated playlists, podcasts and elevated audio experience to Delta Studio for a more personalized experience
- Equipped more than 100 aircraft with fast streaming Viasat connectivity and on track for more than 300 aircraft to be equipped by year-end 2021
- Reopened full network of Delta Sky Clubs by July 2021 and re-introduced signature hot food items in Clubs throughout the summer
Environmental, Social and Governance
- Accelerated fleet renewal efforts by exercising options for 30 incremental A321neos in July 2021, which are expected to be 20 percent more efficient than the aircraft being replaced and begin deliveries in 2022
- Partnered with Chevron and Google to analyze sustainable aviation fuel (SAF) emissions data and increase industry transparency
- Signed an agreement with Aemetis for 250 million gallons of SAF to be delivered over the 10-year term of the agreement. With this announcement, Delta anticipates more than 80 million gallons of SAF available for annual consumption beginning in 2025
- Announced our commitment to work with the Science Based Targets initiative (SBTi) to set a net-zero 2050 target and an interim emissions intensity target for our airline operations, consistent with recently issued SBTi guidance for the aviation sector
- Announced plans to join three key climate coalitions – the UN’s Race to Zero initiative, the LEAF Coalition and the World Economic Forum’s Clean Skies for Tomorrow initiative – bolstering our commitment to a future of zero impact aviation
- Continuing commitment to enhanced Inclusion Training with more than 55,000 employees completing DEI (Diversity, Equity & Inclusion) training classes in the last year
- Issued the 2021 “Close the Gap” report, demonstrating our commitment to transparency in our journey to becoming a more diverse, equitable, anti-racist and anti-discrimination organization
This press release was prepared and distributed by Delta Air Lines