ATLANTA, GA – Delta Air Lines today reported financial results for the June 2016 quarter. Highlights of Delta’s June 2016 quarter results, including both GAAP and adjusted metrics, are below and incorporated here.

Adjusted pre-tax income for the June 2016 quarter was $1.7 billion, a $42 million increase over June 2015 quarter. Adjusted net income was $1.1 billion or $1.47 per diluted share.

“The Delta people again delivered another quarter of solid profitability, superior operational performance and great customer service, continuing to strengthen our brand and our foundation for the future,” said Ed Bastian, Delta’s chief executive officer. “As we look to the remainder of the year, the large year-on-year savings driven by lower fuel are largely behind us and it is important to achieving our long-term financial targets that we get unit revenues back to a positive trajectory.”

Revenue Environment

Delta’s operating revenue for the June quarter decreased 2 percent, or $260 million, of which $65 million was due to foreign currency pressures. Passenger unit revenues declined 4.9 percent, including 1 point of impact from foreign currency, on a 3.2 percent increase in capacity.

Capacity Actions In Response to Global Events

With the additional foreign currency pressure from the steep drop in the British pound and the economic uncertainty from Brexit, Delta has decided to reduce 6 points of U.S.-U.K. capacity from its winter schedule. These changes, in combination with other network actions, will reduce system capacity by approximately one point in the December 2016 quarter and the company now expects to grow its system capacity by 1 percent year over year during this period.

“While the revenue environment remains challenging, with persistent headwinds from close-in domestic yields and geopolitical uncertainty, we remain focused on achieving our goal of positive unit revenues by year end,” said Glen Hauenstein, Delta’s president. “We’ll continue to move quickly and aggressively with all our commercial levers, including an incremental 1 point reduction in our December quarter capacity levels, to make sure we create the momentum we need to achieve this goal.”

Increase (Decrease)
2Q16 versus 2Q15
Change Unit
Passenger Revenue 2Q16 ($M) YOY Revenue Yield Capacity

Mainline 4,721 0.2 % (5.2) % (4.4) % 5.6 %
Regional 1,499 (3.4) % (6.4) % (5.4) % 3.2 %
Total Domestic 6,220 (0.7) % (5.6) % (4.8) % 5.2 %
Atlantic 1,511 (2.6) % (4.4) % (3.6) % 2.0 %
Pacific 662 (8.3) % (5.1) % (7.0) % (3.4) %
Latin America 577 (4.0) % (4.9) % (7.8) % 0.9 %
Total Passenger 8,970 (1.8) % (4.9) % (4.7) % 3.2 %
Cargo Revenue 165 (20.3) %
Other Revenue 1,312 (3.6) %
Total Revenue 10,447 (2.4) %

September 2016 Quarter Guidance

Following are Delta’s projections for the September 2016 quarter:
3Q16 Forecast

Operating margin 19% – 21%
Passenger unit revenue (compared to 3Q15) Down 4% – 6%
Fuel price, including taxes and refinery impact $1.52 – $1.57
CASM – Ex including profit sharing (compared to 3Q15)* ~ Flat
System Capacity (compared to 3Q15) Up 1% – 2%
*See note A for information about reconciliation of these non-GAAP financial measures

Cost Performance

Adjusted fuel expense2 declined $408 million compared to the same period in 2015, on 28 percent lower market fuel prices. Hedge losses for the quarter totaled $614 million, including $455 million of early settlements. Delta has no hedge book remaining for 2016.
CASM-Ex3 including profit sharing, was flat for the June 2016 quarter compared to the prior year period driven by strong operational performance and productivity savings realized during the quarter.
Non-operating expense declined by $35 million driven by $34 million of lower interest expense.

“Our commitment to cost productivity is a key part of achieving our long-term financial goals while continuing to make investments in our people, product and service,” said Paul Jacobson, Delta’s chief financial officer. “Our solid cost performance, combined with our industry-leading revenue premium, helped to produce $2.6 billion of operating cash flow this quarter. We invested a portion of this cash in the business, resulting in the $1.6 billion in free cash flow used to further reduce our debt levels and also return $1.1 billion to our owners through dividends and share repurchases.”

Cash Flow, Shareholder Returns, and Adjusted Net Debt
Delta generated $2.6 billion of adjusted operating cash flow and $1.6 billion of free cash flow during the quarter. The company used this strong cash generation to invest $1.0 billion into the business, including roughly $880 million in fleet investments.

Delta made a $135 million contribution to its pension plan during the quarter, completing its planned $1.3 billion in pension contributions for the year.

For the June quarter, the company returned $1.1 billion to shareholders, comprised of $103 million of dividends and $1 billion of share repurchases. At its May analyst meeting, the company announced its third consecutive 50 percent increase to its dividend, which will increase to $0.81 per share annually beginning in the September quarter. In addition, the company announced its plan to complete its existing $5 billion share repurchase authorization by May 2017, ahead of schedule.

Adjusted net debt4 at the end of the quarter stood at $6.8 billion. In recognition of its improved financial strength, Delta’s corporate credit rating was upgraded during the quarter by FitchRatings to BBB-, an investment grade rating. This is the second ratings agency to recognize the company with investment grade status.

June 2016 Quarter Results

GAAP Adjusted
($ in millions except per share and unit costs) 2Q16 2Q15 2Q16 2Q15

Pre-tax income 2,350 2,366 1,682 1,640
Net income 1,546 1,485 1,124 1,027
Diluted earnings per share 2.03 1.83 1.47 1.27
Fuel Expense (including regional carriers) 1,447 1,752 2,064 2,472
Consolidated unit cost 12.16 12.88 9.54 9.55
Operating cash flow 3,215 2,745 2,615 2,476
Total debt and capital leases (adjusted net debt) 7,804 9,157 6,777 7,141

ATLANTA, GA – Delta Air Lines today reported financial results for the June 2015 quarter, including adjusted net income1 of $1.0 billion or $1.27 per diluted share, up 22% from the June quarter of 2014.

“Delta’s record results have allowed the company to invest in its employees through higher wage rates and profit sharing; improve the experience for our customers through new aircraft and innovative partnerships with global carriers; and uniquely deliver value for our shareholders by accelerating our capital returns while also paying down debt,” said Richard Anderson, Delta’s chief executive officer. “We have more work and opportunity ahead of us on all of these fronts as we continue to execute on our long-term plan.”

Anderson continued, “Our significant fuel savings in the September quarter should allow us to produce another record quarter with more than 30% EPS growth, a 19-21% operating margin and $1.9 billion of operating cash flow.”

Revenue Environment

Delta’s operating revenue for the June quarter increased 1%, despite $160 million in foreign currency pressures which reduced unit revenues by approximately 2 points. Passenger unit revenues declined 4.6% on a 3.9% decline in yields.

Delta saw solid progress with several of its revenue initiatives, including Branded Fares, which increased passenger revenues by $56 million, and its enhanced agreement with American Express, which produced an incremental $60 million in revenue.

“Our commercial initiatives continue to gain traction in the marketplace and we will produce summer margins in excess of any achieved in our history,” said Ed Bastian, Delta’s president. “However, unit revenue growth is an important component of our long-term plan to expand margins. We continue to project flat system capacity growth for the fourth quarter of 2015 – a level in line with current demand expectations, which should put the business on the right trajectory to stem the erosion in unit revenues by the end of the year.”
Increase (Decrease)
2Q15 versus 2Q14
Change Unit
Passenger Revenue 2Q15 ($M) YoY Revenue Yield Capacity
Domestic 4,713 4.9 % (1.1) % (1.0) % 6.0 %
Atlantic 1,551 (6.9) % (11.5) % (6.5) % 5.1 %
Pacific 722 (11.8) % (8.5) % (10.6) % (3.7) %
Latin America 601 (0.5) % (7.8) % (6.8) % 7.9 %
Total mainline 7,587 0.1 % (4.4) % (3.4) % 4.7 %
Regional 1,552 (7.8) % (1.6) % (2.8) % (6.4) %
Consolidated 9,139 (1.4) % (4.6) % (3.9) % 3.4 %
Cargo Revenue 207 (10.0) %
Other Revenue 1,361 21.0 %
Total Revenue 10,707 0.8 %

Investment Strengthens Partnership and Expands Global Reach

Strengthening its existing partnership with GOL, Delta recently agreed to purchase up to $56 million in preferred shares as part of a larger rights offering by the Brazilian carrier. In addition to the equity, Delta will guarantee up to $300 million in borrowings by GOL under a term loan with third-party lenders. Delta’s guarantee will be secured by GOL’s interest in SMILES, GOL’s publicly-traded loyalty program. Delta and GOL have also agreed to extend their exclusive commercial agreement for flights between the United States and Brazil, the largest aviation market in Latin America. This transaction is subject to normal closing conditions, including regulatory approvals.

Cost Performance

Adjusted fuel expense2 declined over $463 million compared to the same period in 2014, as 39% lower market fuel prices and a $77 million increase in profit at the refinery offset nearly $600 million in settled hedge losses. For the remainder of 2015, Delta expects its fuel expense to be $1.90 – $2.00 per gallon, a significant reduction to the $2.65 per gallon it realized in the first six months of the year.

CASM-Ex3 decreased 0.8% for the June 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. This marks the eighth consecutive quarter of CASM growth below 2%, in line with the company’s long-term goals.

Delta’s debt reduction initiative continued to improve the company’s interest expense, producing $46 million in interest savings for the quarter compared to the same period in 2014.

“Because of the momentum we’ve built with our cost reduction initiatives, we expect to post our ninth consecutive quarter of sub-2% unit cost growth in September,” said Paul Jacobson, Delta’s chief financial officer. “Cost efficiency has contributed to the record results that allowed us to return $1 billion to shareholders in the June quarter while investing in our employees and customer experience.”

Cash Flow, Shareholder Returns, and Adjusted Net Debt

Delta generated $2.5 billion of adjusted operating cash flow and $1.6 billion of free cash flow during the quarter. The company used this strong cash generation to reinvest nearly $1 billion back into the business, primarily for aircraft purchases. The company returned $1.0 billion to its owners through $72 million of dividends and $925 million of share repurchases, while also strengthening its balance sheet by reducing its adjusted net debt to $7.1 billion.

September 2015 Quarter Guidance

Following are Delta’s projections for the September 2015 quarter:

3Q15 Forecast
Unit Revenue (compared to 3Q14) (4.5%) – (6.5%)
Operating margin 19% – 21%
Fuel price, including taxes, settled hedges and refinery impact $1.90-$1.95
CASM – Ex (compared to 3Q14) Flat
System capacity (compared to 3Q14) ~3%
GAAP Metrics Related to Fuel, Cost Performance and Cash Flow
Below are GAAP metrics corresponding to the non-GAAP figures cited above.
($ in millions except per share and unit costs) Change
2Q15 2Q14 $ %
Net income $1,485 $801 $684 85%
Diluted earnings per share 1.83 0.94 0.89 95%
Fuel expense (including regional carriers) 1,752 2,934 (1,182) (40%)
Consolidated unit cost (¢) 12.88 14.63 (1.75) (12%)
Operating cash flow 2,745 2,056 689 34%

Special Items

Special items, net of taxes, in the June 2015 quarter totaled $458 million, including:

• $454 million for mark-to-market adjustments and settlements on fuel hedges;

• a $16 million charge for fleet and other items, primarily associated with Delta’s domestic fleet restructuring initiative; and

• $20 million for mark-to-market adjustments on hedges owned by Virgin Atlantic.

Special items, net of taxes, in the June 2014 quarter totaled $88 million, including:

• a $69 million charge for debt extinguishment associated with Delta’s debt reduction initiative; and

• a $20 million charge associated with Delta’s domestic fleet restructuring.