“We have started 2016 with tremendous momentum, generating over $1.5 billion in adjusted pre-tax income, delivering industry-leading operations including 49 days of perfect mainline completion factor for our customers, and reaching our goal of becoming an investment grade company. With these results, the Delta people have proven again that they are the very best in the industry,” said Ed Bastian, Delta’s incoming chief executive officer. “We will continue to be disciplined with our business in the face of volatile fuel prices, strengthen our foundation, and prove our position as the airline that consistently delivers top results for our employees, our owners and the customers and communities we serve.”
Delta’s operating revenue for the March quarter decreased 1.5 percent, or $137 million, driven by $125 million in foreign currency pressures and a $5 million impact from the recent events in Brussels. Passenger unit revenues declined 4.6 percent, including 2 points of impact from foreign currency, on a 2.7 percent increase in capacity.
“The momentum with our commercial initiatives, including corporate share gains, Branded Fares, and our partnership with American Express, allowed us to maintain our top line performance in the March quarter despite 40 percent lower market fuel prices and $125 million of pressure from foreign currency,” said Glen Hauenstein, Delta’s incoming president. “We are forecasting a unit revenue decline of 2.5 – 4.5 percent for the June quarter. While this is an improvement over our March quarter performance, we are focused on getting unit revenues back to a positive trajectory and we will make adjustments to our fall capacity levels if we are not making sufficient progress over the coming months.”
Adjusted fuel expense2 declined $1.45 billion compared to the same period in 2015, on 40 percent lower market fuel prices. For the quarter, the refinery produced a loss of $28 million. Settled hedge losses were $118 million.
CASM-Ex3 including profit sharing, increased 4.5 percent for the March 2016 quarter compared to the prior year period, with foreign exchange and the benefits of Delta’s domestic refleeting and other cost initiatives offsetting the company’s investments in its products, operations and employees. Half of the increase was attributable to $136 million of higher profit sharing expense.
Non-operating expense declined by $106 million from lower foreign exchange losses, improved contribution from Delta’s 49 percent equity stake in Virgin Atlantic, and the benefit of the company’s debt reduction initiatives which reduced interest expense by $24 million versus prior year.
“The March quarter represented the peak of our non-fuel cost pressures for the year and we expect our performance will improve as we move through the remainder of the year, allowing us to achieve our goal of keeping our non-fuel unit cost growth below 2 percent,” said Paul Jacobson, Delta’s chief financial officer. “Our cost discipline, combined with continued low fuel prices and solid outperformance on revenue, is helping to contribute to over $8 billion in operating cash flow this year, which we are using to invest in the business, strengthen the balance sheet and continue to return cash to our owners.”
Cash Flow, Shareholder Returns, and Adjusted Net Debt4
Delta generated $1.35 billion of adjusted operating cash flow and $497 million of free cash flow during the quarter. The company used this strong cash generation to invest $871 million into the business, including $764 million in fleet investments.
Delta made an $825 million cash contribution and a $350 million stock contribution to its pension plans during the quarter. Subsequently, in April, Delta made an additional $135 million cash contribution, completing all pension funding for the year.
For the March quarter, the company returned $882 million to shareholders, comprised of $107 million of dividends and $775 million of share repurchases. Included in the share buyback was a $350 million accelerated share repurchase to offset dilution to existing shareholders from the stock contribution made to the pension plans during the quarter.
Adjusted net debt at the end of the quarter stood at $7.0 billion. Delta is on track to reduce adjusted net debt below $6 billion by the end of 2016. In recognition of its improved financial strength, Delta’s corporate credit rating was upgraded during the quarter by Moody’s Investors Service to Baa3, an investment grade rating.
Special items, net of taxes, in the March 2016 quarter totaled $80 million, including $98 million in mark-to-market adjustments on fuel hedges settling in future periods.
Special items, net of taxes, in the March 2015 quarter totaled $374 million primarily comprised of mark-to-market adjustments and settlements on fuel hedges.