Delta Optimistic Despite Large Fourth Quarter Loss

By Benét J. Wilson / Published January 20, 2015

Delta CEO Richard Anderson. Image Courtesy of Delta Air Lines

Despite losing $712 million in the fourth quarter largely due to adjustments on fuel hedges, executives at Delta Air Lines remained upbeat on the carrier’s prospects in 2015 during an earnings call today, noting the carrier had topped analysts’ estimates and offering a positive outlook for 2015.

According to Delta CEO Richard Anderson, his carrier sees “significant opportunity” from lower fuel prices in 2015. He noted that lower fuel prices drove more than $2 billion in fuel savings in 2014.

“Jet fuel savings are good, and we’re diligent about adding them to the bottom line, setting up for a strong first quarter and showing a strong trend for 2015,” Anderson said during the company’s earnings call earlier today.

In response to a question about lower fuel as a windfall, Anderson said that the first order of use for any extra cash is to decrease Delta’s net debt and higher returns to shareholders. “We actually use pretty high fuel prices in all our planning. Planning with low fuel prices will only disappoint.  When planning with high fuel prices, if you’re wrong, you will be pleased,” he said.

Excluding mark-to-market adjustments, fuel expense declined $342 million driven by lower market prices and higher refinery profits.  Delta’s average fuel price was $2.62 per gallon for the December quarter, which includes $180 million in settled hedge losses. Operations at the carrier’s refinery produced a $105 million profit during the quarter, a $151 million improvement year-over-year.

EXTRA: ANALYSIS: Delta Delivers Solid Financial Results But Worrying Signs Emerge

In the third quarter, Senior Business Analyst Vinay Bhaskara expressed worry over Delta’s aggressive hedging and its operation of the Trainer refinery. “Delta is not as well positioned as other US airlines to take advantage of the recent decline in the dollar-denominated oil price. Delta’s management claims that it will still be able to participate in `80 percent’ of the improvement in fuel prices,” he wrote then.

An aerial shot of Hartsfield-Jackson Airport. Image Courtesy of AirwaysNews

Inside the Numbers

Pre-tax income in the fourth quarter was $1 billion, excluding special items, up $474 million year over year. Net income in the quarter was $649 million, and operating margin was 12.6 percent, excluding special items. Looking at the full year, the airline’s pre-tax income, excluding special items, was $4.5 billion, up $1.9 billion from 2013.  Delta’s net income in 2014 was $2.8 billion, with an operating margin of 13.1 percent, excluding special items.

EXTRA: Delta Posts Excellent Fourth Quarter and Full Year 2013 Earnings Results; Analysis

On a GAAP basis including special items, Delta’s December quarter pre-tax loss was $1.1 billion, with a net loss was $712 million, or $0.86 per share.  2014 pre-tax income reached $1.1 billion, operating margin was 5.5 percent and net income was $659 million.

Delta’s operating revenue improved 6 percent, or $571 million, in the December 2014 quarter compared to the December 2013 quarter.  Traffic increased 4 percent on a 3.7 percent increase in capacity.

A rendering of Delta’s A350. Image Courtesy of Airbus

Cash from operations during the December 2014 quarter was $1.5 billion, driven by the company’s December quarter profit, and free cash flow was $834 million. Capital expenditures during the December 2014 quarter were $620 million, including $444 million in fleet investments. During the quarter, Delta’s net debt maturities and capital leases were $354 million.

EXTRA: UPDATED ANALYSIS: Delta Order for A350; A330neo Hinged on Pricing, Availability

With its strong cash generation in the December 2014 quarter, the company returned $575 million to shareholders. The company paid $75 million in cash dividends and repurchased 12.2 million shares at an average price of $40.96 for $500 million.  In 2014, the company returned a total of $1.35 billion to shareholders by paying $251 million in quarterly dividends and spending $1.1 billion to repurchase 28.6 million shares.

EXTRA: Delta Unveils New Inflight Cabin Family of Products

The Delta One first class cabin on Delta Air Lines. Image courtesy of Delta Air Lines

Other highlights in the quarter included:

• Ordering for 50 new widebody aircraft — 25 Airbus A350-900s and 25 A330-900neos — to be delivered starting in 2017;
• Opening a new Delta Arrivals Lounge at London Heathrow Airport; and
• Unveiling the new cabin options of Delta One (formerly Business Elite), Delta Comfort+ (formerly Economy Comfort), Main Cabin, and Basic Economy. option for the most price-sensitive consumers.

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Contact the editor at benet.wilson@airwaysnews.com

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