Delta Air Lines Results

Delta Air Lines Announces June 2017 Quarter Profit

Delta Air Lines

Delta Air Lines (NYSE:  DAL) today reported financial results for the June quarter 2017.  Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here.

Adjusted pre-tax income for the June 2017 quarter was $1.85 billion, a $172 million increase from the June 2016 quarter, primarily driven by higher revenue.  Delta recorded a June quarter 2017 adjusted operating margin of 18.4 percent.  Delta delivered these results despite a $125 million negative impact from the operational disruption following severe storms in Atlanta in early April.

"The June quarter ranks among the best in Delta's history as our people delivered top financial, operational, and customer satisfaction results – and it is an honor to recognize that performance with an additional $338 million toward our 2017 profit sharing," said Ed Bastian, Delta's chief executive officer.   "While 2017 is a transition period for Delta, we are encouraged by the improvement in unit revenues, leading to increasing conviction in our ability to expand margins as we move through the back half of the year."

Revenue Environment

Delta's record operating revenue of $10.8 billion for the June quarter was up $344 million versus prior year, despite a $115 million headwind from April's operational disruption.    

Passenger revenue increased $261 million, including $100 million from Delta's Branded Fares initiatives.  Passenger unit revenues increased 2.5 percent on 0.4 percent higher capacity. 

Cargo revenue increased 11 percent, driven by higher volumes in freight and mail.  Other revenue increased 5 percent primarily due to higher SkyMiles revenue and third-party refinery sales. 

"The June quarter marked Delta's return to unit revenue growth after two and a half years. This improvement resulted from a strengthening demand environment and our commercial initiatives to provide customers more choice, an innovative experience, and a broader global network," said Glen Hauenstein, Delta's president.  "We expect this momentum to continue in the September quarter, with passenger unit revenue growth of 2.5 to 4.5 percent as we focus on driving a sustainable revenue premium to the industry."

 

Increase (Decrease)

2Q17 versus 2Q16

Change

Unit

Revenue

2Q17 ($M)

YoY

Revenue

Yield

Capacity

Mainline 

4,962

5.1  %

2.5  %

1.9  %

2.5  %

Regional

1,532

2.2  %

5.1  %

4.6  %

(2.8) %

  Total Domestic

6,494

4.4  %

2.8  %

2.1  %

1.6  %

Atlantic

1,501

(0.6) %

(1.9) %

(7.1) %

1.3  %

Pacific

578

(12.9) %

(2.2) %

(0.1) %

(10.9) %

Latin America

658

14.1  %

10.8  %

6.4  %

3.0  %

Total Passenger

9,231

2.9  %

2.5  %

0.8  %

0.4  %

Cargo Revenue

183

10.9  %

Other Revenue

1,377

4.9  %

Total Revenue

10,791

3.3  %

2.7  %

See Note A for reconciliation of non-GAAP financial measures

September 2017 Quarter Guidance

For the September quarter, Delta is expecting its margins to expand relative to prior year, as unit revenue improvement continues and fuel prices and non-fuel cost pressures moderate.

Cost Performance

 

3Q17 Forecast

Operating margin

18% - 20%

Fuel price, including taxes and refinery impact

$1.55 - $1.60

Compared to 3Q16

     Passenger unit revenue

Up 2.5% - 4.5%

     CASM-Ex, including profit sharing2

Up ~4%

     Normalized CASM-Ex, including profit sharing3

Up ~2%

     System Capacity

Up ~2%

See Note A for information about reconciliation of projected non-GAAP financial measures

 

Adjusted fuel expense4 decreased $325 million compared to the same period in 2016 as prior year hedge settlements offset higher market fuel prices.  Delta's adjusted fuel price per gallon for the June quarter was $1.66, which includes $0.01 of benefit from the refinery. 

CASM-Ex, including profit sharing increased 7.3 percent for the June 2017 quarter compared to the prior year period.  Normalized CASM-Ex, including profit sharing increased 5.5 percent versus the prior year period, driven by employee wage increases, product investments, and 1 point of pressure from April's operational disruption. 

Interest expense increased $10 million year-over-year from debt issuances in the March quarter used to fund Delta's defined benefit pension liabilities.

"The June quarter represented the peak for non-fuel cost pressures this year and we expect our CASM trajectory to moderate to approximately 2 percent for the September quarter as we annualize product investments, improve productivity through upgauging and better asset utilization, and lap one-time costs from last August's technology outage," said Paul Jacobson, Delta's chief financial officer.  "Our cost foundation is an essential component of sustainable performance, allowing the benefits of our commercial initiatives to drive margin improvements in the future."

Cash Flow, Shareholder Returns, and Adjusted Net Debt 

Delta generated $2.8 billion of adjusted operating cash flow and $1.9 billion of free cash flow during the quarter.  The company used this strong cash generation to invest nearly $1 billion into the business for aircraft purchases and improvements, facilities upgrades and technology. 

In the first half of 2017, Delta contributed $3.5 billion to its defined benefit pension plans, bringing its unfunded pension liability to $6.9 billion, down $3.7 billion versus year-end 2016. 

Adjusted net debt at the end of the quarter was $8.4 billion, up $2.3 billion versus year-end 2016 as a result of Delta's March quarter 2017 unsecured debt issuance. 

For the June quarter, the company returned $748 million to shareholders, comprised of $148 million of dividends and $600 million of share repurchases. 

June Quarter Results

Special items for the quarter consist primarily of mark-to-market adjustments on fuel hedges. 

 

GAAP

Adjusted

($ in millions except per share and unit costs)

2Q17

2Q16

2Q17

2Q16

Pre-tax income

1,891

2,350

1,854

1,682

Net income

1,224

1,546

1,201

1,124

Diluted earnings per share

1.68

2.03

1.64

1.47

Operating margin

18.8%

23.2%

18.4%

17.4%

Fuel expense (including regional carriers)

1,687

1,447

1,739

2,064

Average fuel price per gallon

1.61

1.38

1.66

1.97

Consolidated unit cost (CASM/CASM-Ex)

13.23

12.16

10.24

9.54

Operating cash flow

2,386

3,215

2,818

2,615

Total debt and capital leases (adjusted net debt)

9,014

7,804

8,399

6,777

About Delta

Delta Air Lines serves more than 180 million customers each year. In 2017, Delta was named to Fortune's top 50 Most Admired Companies in addition to being named the most admired airline for the sixth time in seven years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented six consecutive years. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 334 destinations in 62 countries on six continents. Headquartered in Atlanta, Delta employs more than 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft. The airline is a founding member of the SkyTeam global alliance and participates in the industry's leading transatlantic joint venture with Air France-KLM and Alitalia as well as a joint venture with Virgin Atlantic. Including its worldwide alliance partners, Delta offers customers more than 15,000 daily flights, with key hubs and markets including Amsterdam, Atlanta, Boston, Detroit, Los Angeles, Minneapolis/St. Paul, New York-JFK and LaGuardia, London-Heathrow, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Delta has invested billions of dollars in airport facilities, global products and services, and technology to enhance the customer experience in the air and on the ground. 

 

End Notes

(1)    Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release to the comparable GAAP metric and provides the reasons management uses those measures.

(2)    CASM - Ex, including profit sharing: In addition to fuel expense, Delta believes adjusting for certain other expenses is helpful to investors because other expenses are not related to the generation of a seat mile. These expenses include aircraft maintenance and staffing services Delta provides to third parties, Delta's vacation wholesale operations and refinery cost of sales to third parties. The amounts excluded were $296 million and $284 million for the June 2017 and June 2016 quarters, and $588 million and $597 million for the six months ended June 30, 2017 and 2016, respectively. Management believes this methodology provides a more consistent and comparable reflection of Delta's airline operations.

(3)    Normalized cost comparison: Delta's new pilot contract was ratified on December 1, 2016 and was retroactive to January 1, 2016. As a result, Delta recognized $475 million in retroactive wages and other benefits in the December 2016 quarter.  Prior year cost comparisons are normalized for the portion of the pilot contract expense recognized in the December quarter 2016 attributable to the June quarter 2016. On a normalized basis, approximately $107 million of this amount related to the June 2016 quarter. We believe that adjusting this period allows investors to better understand and analyze the company's core operational performance on a year-over-year basis.

(4)    Adjusted fuel expense reflects, among other things, the impact of mark-to-market ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. See Note A for a reconciliation of adjusted fuel expense and average fuel price per gallon to the comparable GAAP metric.

 

DELTA AIR LINES, INC.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

(in millions, except per share data)

2017

2016

$ Change

% Change

2017

2016

$ Change

% Change

Operating Revenue:

Passenger:

        Mainline

$         7,699

$         7,471

$          228

3%

$       14,103

$       13,915

$            188

1%

        Regional carriers

1,532

1,499

33

2%

2,816

2,817

(1)

-%

Total passenger revenue

9,231

8,970

261

3%

16,919

16,732

187

1%

Cargo

183

165

18

11%

343

327

16

5%

Other

1,377

1,312

65

5%

2,677

2,639

38

1%

Total operating revenue

10,791

10,447

344

3%

19,939

19,698

241

1%

Operating Expense:

Salaries and related costs

2,616

2,391

225

9%

5,089

4,702

387

8%

Aircraft fuel and related taxes

1,448

1,228

220

18%

2,688

2,455

233

9%

Regional carriers expense

        Fuel

239

219

20

9%

481

386

95

25%

        Other

842

877

(35)

(4)%

1,710

1,716

(6)

-%

Depreciation and amortization

535

470

65

14%

1,075

956

119

12%

Contracted services

543

484

59

12%

1,066

960

106

11%

Aircraft maintenance materials and outside repairs

475

446

29

7%

993

895

98

11%

Passenger commissions and other selling expenses

458

437

21

5%

862

825

37

4%

Landing fees and other rents

379

376

3

1%

744

724

20

3%

Passenger service

271

221

50

23%

491

410

81

20%

Profit sharing

338

324

14

4%

489

596

(107)

(18)%

Aircraft rent

86

66

20

30%

170

132

38

29%

Other

533

485

48

10%

1,000

978

22

2%

Total operating expense

8,763

8,024

739

9%

16,858

15,735

1,123

7%

Operating Income

2,028

2,423

(395)

(16)%

3,081

3,963

(882)

(22)%

Non-Operating Expense:

Interest expense, net

(103)

(93)

(10)

11%

(197)

(200)

3

(2)%

Miscellaneous, net

(34)

20

(54)

NM

(78)

21

(99)

NM

Total non-operating expense, net

(137)

(73)

(64)

88%

(275)

(179)

(96)

54%

Income Before Income Taxes

1,891

2,350

(459)

(20)%

2,806

3,784

(978)

(26)%

Income Tax Provision

(667)

(804)

137

(17)%

(979)

(1,292)

313

(24)%

Net Income

$         1,224

$         1,546

$        (322)

(21)%

$         1,827

$         2,492

$          (665)

(27)%

Basic Earnings Per Share

$           1.68

$           2.04

$           2.51

$           3.25

Diluted Earnings Per Share

$           1.68

$           2.03

$           2.50

$           3.23

Basic Weighted Average Shares Outstanding

728

758

728

766

Diluted Weighted Average Shares Outstanding

731

763

731

772

 

DELTA AIR LINES, INC.

Statistical Summary

(Unaudited)

Three Months Ended 

June 30,

Six Months Ended 

June 30,

2017

2016

Change

2017

2016

Change

Consolidated:

Revenue passenger miles (millions)

57,575

56,415

2.1%

105,527

104,140

1.3%

Available seat miles (millions)

66,227

65,979

0.4%

124,098

124,124

-%

Passenger mile yield (cents)

16.03

15.90

0.8%

16.03

16.07

(0.2%)

Passenger revenue per available seat mile (cents)

13.94

13.59

2.5%

13.63

13.48

1.1%

Total revenue per available seat mile (cents)

16.29

15.83

2.9%

16.07

15.87

1.3%

TRASM, excluding refinery- see Note A (cents)

16.19

15.76

2.7%

15.96

15.77

1.3%

Operating cost per available seat mile (cents)

13.23

12.16

8.8%

13.58

12.68

7.1%

CASM-Ex, including profit sharing - see Note A (cents)

10.24

9.54

7.3%

10.56

9.91

6.6%

Passenger load factor

86.9%

85.5%

1.4 pts

85.0%

83.9%

1.1 pts

Fuel gallons consumed (millions)

1,047

1,046

0.1%

1,965

1,976

(0.6%)

Average price per fuel gallon

$       1.61

$       1.38

16.7%

$         1.61

$         1.44

11.8%

Average price per fuel gallon, adjusted - see Note A

$       1.66

$       1.97

(15.7%)

$         1.68

$         1.67

0.6%

Number of aircraft in fleet, end of period

986

944

42

Full-time equivalent employees, end of period

87,263

84,791

2.9%

Mainline:

Revenue passenger miles (millions)

52,135

50,847

2.5%

95,209

93,633

1.7%

Available seat miles (millions)

59,611

59,173

0.7%

111,100

110,883

0.2%

Operating cost per available seat mile (cents)

12.79

11.60

10.3%

13.09

12.18

7.5%

CASM-Ex, including profit sharing - see Note A (cents)

9.94

9.10

9.2%

10.22

9.49

7.7%

Fuel gallons consumed (millions)

893

891

0.2%

1,665

1,675

(0.6%)

Average price per fuel gallon

$       1.61

$       1.37

17.5%

$         1.61

$         1.46

10.3%

Average price per fuel gallon, adjusted - see Note A

$       1.67

$       2.06

(18.9%)

$         1.69

$         1.74

(2.9%)

Number of aircraft in fleet, end of period

847

822

25

Note: except for full-time equivalent employees and number of aircraft in fleet, consolidated data presented includes operations under Delta's contract carrier arrangements.

 

DELTA AIR LINES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended

June 30, 

(in millions)

2017

2016

Cash Flows From Operating Activities:

Net income 

$                 1,224

$               1,546

Depreciation and amortization

535

470

Hedge derivative contracts

(1)

(414)

Deferred income taxes

651

791

Pension, postretirement and postemployment payments greater than expense

(602)

(61)

Changes in:

Hedge margin

-

427

Air traffic liability

(45)

(33)

Profit sharing

338

324

Other working capital changes, net

286

165

Net cash provided by operating activities

2,386

3,215

Cash Flows From Investing Activities:

Property and equipment additions:

Flight equipment, including advance payments

(697)

(880)

Ground property and equipment, including technology

(291)

(166)

Net redemptions (purchases) of short-term investments

(4)

(80)

Other, net

14

14

Net cash used in investing activities

(978)

(1,112)

Cash Flows From Financing Activities:

Payments on long-term debt and capital lease obligations

(276)

(690)

Repurchases of common stock

(600)

(1,026)

Cash dividends

(148)

(103)

Fuel card obligation

7

(137)

Other, net

(57)

(193)

Net cash used in financing activities

(1,074)

(2,149)

Net Increase (Decrease) in Cash and Cash Equivalents

334

(46)

Cash and cash equivalents at beginning of period

1,907

1,708

Cash and cash equivalents at end of period

$                 2,241

$               1,662

 

DELTA AIR LINES, INC.

Consolidated Balance Sheets

(Unaudited)

June 30, 

December 31,

(in millions)

2017

2016

ASSETS

Current Assets:

Cash and cash equivalents

$               2,241

$               2,762

Short-term investments

747

487

Accounts receivable, net

2,164

2,064

Fuel inventory

537

519

Expendable parts and supplies inventories, net

401

372

Prepaid expenses and other

1,087

1,247

Total current assets

7,177

7,451

Property and Equipment, Net:

Property and equipment, net

25,367

24,375

Other Assets:

Goodwill

9,794

9,794

Identifiable intangibles, net

4,855

4,844

Deferred income taxes, net

2,077

3,064

Other noncurrent assets

2,545

1,733

Total other assets

19,271

19,435

Total assets

$             51,815

$             51,261

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Current maturities of long-term debt and capital leases

$               1,098

$               1,131

Air traffic liability

6,365

4,626

Accounts payable

2,726

2,572

Accrued salaries and related benefits

2,259

2,924

Frequent flyer deferred revenue

1,726

1,648

Other accrued liabilities

2,457

2,338

Total current liabilities

16,631

15,239

Noncurrent Liabilities:

Long-term debt and capital leases

7,916

6,201

Pension, postretirement and related benefits

9,623

13,378

Frequent flyer deferred revenue

2,281

2,278

Other noncurrent liabilities

1,885

1,878

Total noncurrent liabilities

21,705

23,735

Commitments and Contingencies

Stockholders' Equity

13,479

12,287

Total liabilities and stockholders' equity

$             51,815

$             51,261

Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below.

Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. ("GAAP"). Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The tables below show reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.

Forward Looking Projections. The Company does not reconcile forward looking non-GAAP financial measures because MTM adjustments and settlements will not be known until the end of the period and could be significant.  

Pre-Tax Income and Net Income, adjusted. We adjust for the following items to determine pre-tax income and net income, adjusted, for the reasons described below:

Mark-to-Market ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to understand and analyze our core operational performance in the periods shown.

Virgin Atlantic MTM adjustments. We record our proportionate share of earnings from our equity investment in Virgin Atlantic in non-operating expense. We adjust for Virgin Atlantic's MTM adjustments to allow investors to understand and analyze the company's core financial performance in the periods shown.

Income tax. We included the income tax effect of adjustments when presenting net income, adjusted. We believe that presenting the income tax effect of adjustments allows investors to understand and analyze the company's core financial performance in the periods shown.

 

Three Months Ended

Three Months Ended

June 30, 2017

June 30, 2017

Pre-Tax

Income

Net

Net Income

(in millions, except per share data)

Income

Tax

Income

Per Diluted Share

GAAP

$                1,891

$         (667)

$                   1,224

$                               1.68

Adjusted for:

     MTM adjustments and settlements

(52)

19

(33)

     Virgin Atlantic MTM adjustments

15

(5)

10

Total adjustments

(37)

14

(23)

(0.04)

Non-GAAP

$                1,854

$         (653)

$                   1,201

$                               1.64

Year-over-year change

172

Three Months Ended

Three Months Ended

June 30, 2016

June 30, 2016

Pre-Tax

Income

Net

Net Income

(in millions, except per share data)

Income

Tax

Income

Per Diluted Share

GAAP

$                2,350

$         (804)

$                   1,546

$                               2.03

Adjusted for:

     MTM adjustments and settlements

(617)

227

(390)

     Virgin Atlantic MTM adjustments

(51)

19

(32)

Total adjustments

(668)

246

(422)

(0.56)

Non-GAAP

$                1,682

$         (558)

$                   1,124

$                               1.47

Operating Margin, adjusted. We adjust for the following items to determine operating margin, adjusted, as described below. Adjusting for these items allows investors to understand and analyze our core operational performance in the periods shown:

MTM adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period.

Refinery sales. Delta's refinery segment provides jet fuel to the airline segment from its own production and from jet fuel obtained through agreements with third parties. Activities of the refinery segment are primarily for the benefit of the airline. However, from time to time, the refinery sells fuel by-products to third parties. These sales are recorded gross within other revenue and other operating expense.

Pilot contract impact, normalized. Delta's new pilot contract was ratified on December 1, 2016 and was retroactive to January 1, 2016. As a result, Delta recognized $380 million in retroactive wages and other benefits in the December 2016 quarter. On a normalized basis, approximately $107 million of this amount related to the June 2016 quarter.

 

Three Months Ended

June 30,

2017

2016

Operating margin

18.8 %

23.2 %

Adjusted for:

     MTM adjustments and settlements

(0.5)%

(5.9)%

     Refinery sales

0.1 %

0.1 %

Operating margin, adjusted

18.4 %

17.4 %

    Pilot contract impact, normalized

—%

(1.1)%

Operating margin, adjusted, including pilot contract impact, normalized

18.4 %

16.3 %

Total Revenue Per Available Seat Mile "TRASM", excluding refinery. We adjust TRASM for refinery sales to third parties to determine TRASM, adjusted because these revenues are not related to our airline segment.  TRASM, adjusted therefore provides a more meaningful comparison of revenue from our airline operations to the rest of the airline industry.

 

Three Months Ended

Three Months Ended

June 30, 2017

June 30, 2016

Change

TRASM (cents)

16.29

15.83

2.9%

Adjusted for:

     Third party refinery sales

(0.10)

(0.07)

TRASM, excluding refinery

16.19

15.76

2.7%

Six Months Ended

Six Months Ended

June 30, 2017

June 30, 2016

TRASM (cents)

16.07

15.87

Adjusted for:

     Third party refinery sales

(0.11)

(0.10)

TRASM, excluding refinery

15.96

15.77

Fuel expense, adjusted and Average fuel price per gallon, adjusted. The tables below show the components of fuel expense, including the impact of the refinery segment and airline segment hedging on fuel expense and average price per gallon. We then adjust for MTM adjustments and settlements for the reason described below:

MTM adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to understand and analyze our core operational performance in the periods shown.

 

Consolidated:

Average Price Per Gallon

Three Months Ended

Three Months Ended

June 30,

June 30,

(in millions, except per gallon data)

2017

2016

2017

2016

Fuel purchase cost

$                   1,676

$                   1,440

$            1.60

$          1.37

Airline segment fuel hedge impact

17

(3)

0.02

-

Refinery segment impact

(6)

10

(0.01)

0.01

Total fuel expense

$                   1,687

$                   1,447

$            1.61

$          1.38

MTM adjustments and settlements

52

617

0.05

0.59

Total fuel expense, adjusted

$                   1,739

$                   2,064

$            1.66

$          1.97

Year-over-year change

$                     (325)

Six Months Ended

Six Months Ended

June 30,

June 30,

(in millions, except per gallon data)

2017

2016

2017

2016

Fuel purchase cost

$                   3,207

$                   2,533

$            1.63

$          1.28

Airline segment fuel hedge impact

12

270

0.01

0.14

Refinery segment impact

(50)

38

(0.03)

0.02

Total fuel expense

$                   3,169

$                   2,841

$            1.61

$          1.44

MTM adjustments and settlements

136

462

0.07

0.23

Total fuel expense, adjusted

$                   3,305

$                   3,303

$            1.68

$          1.67

Mainline:

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Mainline average price per gallon

$                     1.61

$                     1.37

$            1.61

$          1.46

MTM adjustments and settlements

0.06

0.69

0.08

0.28

Mainline average price per gallon, adjusted

$                     1.67

$                     2.06

$            1.69

$          1.74

Non-Fuel Unit Cost or Cost per Available Seat Mile, Including Profit Sharing ("CASM-Ex"). We adjust CASM for the following items to determine CASM-Ex, including profit sharing for the reasons described below:

Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes (including our regional carriers) allows investors to understand and analyze our non-fuel costs and year-over-year financial performance.

Other expenses. Other expenses include aircraft maintenance and staffing services we provide to third parties, our vacation wholesale operations, and refinery cost of sales to third parties. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these sales to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.

Pilot contract impact, normalized. Delta's new pilot contract was ratified on December 1, 2016 and was retroactive to January 1, 2016. As a result, Delta recognized $380 million in retroactive wages and other benefits in the December 2016 quarter. On a normalized basis, approximately $107 million of this amount related to the June 2016 quarter.

 

Consolidated CASM-Ex:

Three Months Ended

Six Months Ended

June 30, 2017

June 30, 2016

Change

June 30, 2017

June 30, 2016

CASM (cents)

13.23

12.16

13.58

12.68

Adjusted for:

     Aircraft fuel and related taxes

(2.55)

(2.19)

(2.55)

(2.29)

     Other expenses

(0.44)

(0.43)

(0.47)

(0.48)

CASM-Ex

10.24

9.54

7.3%

10.56

9.91

Adjusted for:

     Pilot contract impact, normalized

0.16

CASM-Ex, adjusted for pilot contract impact, normalized

10.24

9.70

5.5%

Mainline CASM-Ex:

Three Months Ended

Six Months Ended

June 30, 2017

June 30, 2016

June 30, 2017

June 30, 2016

Mainline CASM (cents)

12.79

11.60

13.09

12.18

Adjusted for:

     Aircraft fuel and related taxes

(2.41)

(2.08)

(2.40)

(2.21)

     Other expenses

(0.44)

(0.42)

(0.47)

(0.48)

Mainline CASM-Ex

9.94

9.10

10.22

9.49

Operating Cash Flow, adjusted. We adjusted operating cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for capital expenditures, debt service or general corporate initiatives. Adjustments include:

Pension contribution. In the second quarter, we contributed $500 million to our pension plans using net proceeds from our debt issuance. We adjusted operating cash flow to exclude this contribution to allow investors to understand the cash flows related to our core operations in the periods shown.

Hedge deferrals, including early settlements. During the March 2015 quarter, we effectively deferred settlement of a portion of our fuel hedge portfolio by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2015 and require approximately $300 million in cash payments in 2016. During the March 2016 quarter, we further deferred settlement of a portion of our hedge portfolio until 2017 by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Additionally, during the June 2016 quarter, we early terminated certain of our outstanding deferral transactions and made cash payments of $170 million, including normal settlements. Operating cash flow is adjusted to include the impact of these deferral transactions in order to allow investors to understand the net impact of hedging activities in the periods shown.

Hedge margin and other. Operating cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to understand and analyze the company's core operational performance in the periods shown.

 

Three Months Ended

Three Months Ended

(in millions)

June 30, 2017

June, 2016

Net cash provided by operating activities (GAAP)

$                      2,386

$                        3,215

Adjustments:

     Pension contribution

500

     Hedge deferrals, including early settlements

(68)

(170)

     Hedge margin and other

(430)

Net cash provided by operating activities, adjusted

$                      2,818

$                        2,615

Free Cash Flow. We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include:

Pension contribution. In the second quarter, we contributed $500 million to our pension plans using net proceeds from our debt issuance. We adjusted free cash flow to exclude this contribution to allow investors to understand the cash flows related to our core operations in the period shown.

Hedge deferrals. During the March 2016 quarter, we deferred settlement of a portion of our hedge portfolio until 2017 by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Free cash flow is adjusted to include the impact of these deferral transactions in order to allow investors to understand the net impact of hedging activities in the period shown.

 

Three Months Ended

(in millions)

June 30, 2017

Net cash provided by operating activities

$                       2,386

Net cash used in investing activities

(978)

Adjustments:

     Pension contribution

500

     Hedge deferrals

(68)

     Net purchases of short-term investments and other

14

Total free cash flow

$                       1,854

Adjusted Net Debt. Delta uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to present estimated financial obligations. Delta reduces adjusted debt by cash, cash equivalents and short-term investments, and hedge margin receivable, resulting in adjusted net debt, to present the amount of assets needed to satisfy the debt. Management believes this metric is helpful to investors in assessing the company's overall debt profile. Management has reduced adjusted debt by the amount of hedge margin receivable, which reflects cash posted to counterparties, as we believe this removes the impact of current market volatility on our unsettled hedges and represents the continued progress we have made on our debt initiatives.

 

(in millions)

June 30, 2017

June 30, 2016

December 31, 2016

Debt and capital lease obligations

$             9,014

$             7,804

$             7,332

Plus: unamortized discount, net and debt issuance costs

108

112

104

Adjusted debt and capital lease obligations

$             9,122

$             7,916

$             7,436

Plus: 7x last twelve months' aircraft rent

2,265

1,834

1,995

Adjusted total debt

11,387

9,750

9,431

Less: cash, cash equivalents and short-term investments

(2,988)

(2,951)

(3,249)

Less: hedge margin receivable

(22)

(38)

Adjusted net debt

$             8,399

$             6,777

$             6,144



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