DAL
$55.65
Delta Air Lines
$.20
.36%
Earnings Details
2nd Quarter June 2018
Thursday, July 12, 2018 7:00:00 AM
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Summary

Delta Air Lines Beats

Delta Air Lines (DAL) reported 2nd Quarter June 2018 earnings of $1.77 per share on revenue of $11.8 billion. The consensus earnings estimate was $1.72 per share on revenue of $11.6 billion. The Earnings Whisper number was $1.68 per share. Revenue grew 9.1% on a year-over-year basis.

The company said it expects third quarter earnings of $1.65 to $1.85 per share and 2018 earnings of $5.35 to $5.70 per share. The current consensus earnings estimate is $1.82 per share for the quarter ending September 30, 2018 and $5.70 per share for the year ending December 31, 2018.

Delta Air Lines Inc provides scheduled air transportation for passengers and cargo throughout the United States and around the world. The Company' business segments are airline and refinery.

Results
Reported Earnings
$1.77
Earnings Whisper
$1.68
Consensus Estimate
$1.72
Reported Revenue
$11.78 Bil
Revenue Estimate
$11.62 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Delta Air Lines Announces June Quarter Profit

  • June quarter 2018 GAAP pre-tax income of $1.4 billion, net income of $1.0 billion and earnings per diluted share of $1.47 on record revenue of $11.8 billion
  • June quarter 2018 adjusted pre-tax income of $1.6 billion, adjusted net income of $1.2 billion and adjusted earnings per diluted share of $1.77
  • Delta returned $813 million to shareholders through dividends and share repurchases
  • Board of Directors approved 15 percent increase in dividend and declared $0.35 dividend for September quarter

ATLANTA, July 12, 2018 /PRNewswire/ -- Delta Air Lines (NYSE:DAL) today reported financial results for the June quarter 2018.  Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here. 

Delta Air Lines and the Delta Connection carriers offer service to nearly 370 destinations on six continents. For more information visit news.delta.com. (PRNewsFoto/Delta Air Lines)

Adjusted pre-tax income for the June quarter 2018 was $1.6 billion, a $183 million decrease from the June 2017 quarter, as record revenues partially offset the approximately $600 million impact of higher fuel prices.    

"With an expected $2 billion higher fuel bill for 2018, we are now forecasting our full-year earnings to be $5.35 to $5.70 per share. We have seen early success in addressing the fuel cost increase and offset two-thirds of the impact in the June quarter," said Ed Bastian, Delta's Chief Executive Officer.  "With strong revenue momentum, an improving cost trajectory, and a reduction of 50-100 bps of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end."

Revenue Environment

Delta's adjusted operating revenue of $11.6 billion for the June quarter improved 8 percent, or $880 million versus the prior year.  This quarterly revenue result marks a record for the company, driven by improvements across Delta's business, including double-digit increases in both cargo and loyalty revenue. 

Total unit revenues excluding refinery sales (TRASM) increased 4.6 percent during the period driven by strong demand across all entities and improving yields.  Foreign exchange drove a nearly one point benefit to the quarter.

"The great service of the Delta people, strong demand for our product, and momentum across our business allowed Delta to deliver the highest quarterly revenue in our history and increase our revenue premium to the industry," said Glen Hauenstein, Delta's President. "While we are pleased with our revenue performance in the quarter, accelerating the recapture of the recent fuel price increases is the number one focus for our commercial team.  We expect total unit revenue growth of 3.5 to 5.5 percent for the September quarter as we benefit from our commercial initiatives and recapture higher fuel costs."

 





Increase (Decrease)





2Q18 versus 2Q17





Change

Unit



Revenue

2Q18 ($M)


YoY

Revenue

Yield

Capacity


Domestic

7,413


7.6  %

2.0  %

2.5  %

5.5  %


Atlantic

1,782


13.9  %

11.2  %

11.1  %

2.4  %


Latin America

709


(0.8) %

0.6  %

2.4  %

(1.3) %


Pacific

642


6.9  %

10.4  %

8.0  %

(3.1) %

Total Passenger

10,546


8.0  %

4.4  %

4.6  %

3.5  %

Cargo Revenue

223


19.1  %




Other Revenue

1,006


27.1  %




Total Revenue

11,775


9.6  %

5.9  %




Third Party Refinery Sales

(216)






Total Revenue, adjusted

11,559


8.2  %

4.6  %



September 2018 Quarter and Full Year Guidance

Delta expects solid top-line growth, an improving cost trajectory, and a return to margin expansion. 


3Q18 Forecast

FY18 Forecast

Earnings per share

$1.65 - $1.85

$5.35 - $5.70

Pre-tax margin

12 - 14%

-----

Fuel price, including taxes and refinery impact

$2.32 - $2.37

$2.20 - $2.30

Total revenue growth (year-over-year)

-----

Up 7% - 8%

Total unit revenue excluding refinery sales (year-over-year)

Up 3.5% - 5.5%

-----

CASM-Excluding fuel and profit sharing (year-over-year)

~ Flat

Up 1 - 2%

System capacity (year-over-year)

Up 3% - 4%

Up ~3%


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


 

Cost Performance

Total adjusted operating expenses for the June quarter increased $1.1 billion versus the prior year quarter, with more than half of the increase driven by higher fuel prices.

Adjusted fuel expense increased $578 million, or 33 percent, relative to June quarter 2017.  Delta's adjusted fuel price per gallon for the June quarter was $2.17, which includes $45 million of benefit from the refinery. 

CASM-Ex increased 2.9 percent for the June 2018 quarter compared to the prior year period, a one point improvement from the March quarter.  Cost pressures were driven by higher revenue-related costs and increased aircraft rent and depreciation associated with Delta's fleet initiatives.    

"We expect the sequential improvement in cost trends to continue in the second half of the year as we see additional benefits from our fleet restructuring, our One Delta initiatives, and annualization of accelerated depreciation as well as prior investments in our product," said Paul Jacobson, Delta's Chief Financial Officer. "Our cost structure is an essential component of sustainable performance, and by keeping our cost growth below 2 percent for the year, we are positioning the company to expand margins by year end."

Adjusted non-operating expense improved by $43 million versus the prior year, driven primarily by pension expense favorability.  Adjusted tax expense declined $255 million for the June quarter primarily due to the reduction in Delta's book tax rate from 34 percent to 23 percent.

Cash Flow and Shareholder Returns

Delta generated $2.8 billion of operating cash flow and $1.4 billion of free cash flow during the quarter, after the investment of $1.4 billion into the business primarily for aircraft purchases and improvements.

For the June quarter, Delta returned $813 million to shareholders, comprised of $600 million of share repurchases and $213 million in dividends.

The Board of Directors declared a quarterly dividend of $0.35 per share, an increase of 15 percent over previous levels.  This change will bring the total annualized dividend commitment to approximately $950 million, consistent with the company's target of returning 20 to 25 percent of free cash flow to owners over the long-term.  The September quarter dividend will be payable to shareholders of record as of the close of business on July 26, 2018, to be paid on August 16, 2018.

Strategic Highlights

In the June quarter, Delta achieved a number of milestones across its five key strategic pillars. 

Culture and People

  • Accrued an additional $400 million in profit sharing and paid out $23 million in Shared Rewards as a testament to the outstanding performance made possible by Delta's more than 80,000 employees around the world.
  • Ranked No. 1 corporate blood donor by the American Red Cross for the most recent year at 11,085 units of blood from 214 Delta sponsored blood drives.
  • Became a National Signature Partner of Junior Achievement's 3DE program with a $2 million contribution over the next five years.

Operational Reliability

  • Delivered 58 days of zero system cancellations on a year-to-date basis, up 23 days from 2017.
  • Achieved mainline on-time performance (A0) of 71.7 percent year-to-date, up 1.4 percent from the prior year.

Network and Partnerships

  • Launched a joint venture with Korean Air on May 1, expanded reciprocal codeshare flying to more than 50 Korean Air-operated markets and 400 Delta-operated markets, and announced new service from Seattle to Osaka and Minneapolis/St. Paul to Seoul in partnership with Korean Air to begin in 2019.  
  • Continued Delta's global expansion with the launch of new service including Los Angeles to Paris and Amsterdam; Indianapolis to Paris; and Atlanta to Lisbon. Delta also announced plans to begin nonstop flights between the United States and Mumbai, India, in 2019.

Customer Experience and Loyalty

  • Debuted the first refreshed 777-200ER aircraft featuring the award-winning Delta One suite, the popular Delta Premium Select cabin and 9-abreast seating in the Main Cabin in addition to all new interior features and in-flight entertainment.
  • Launched new uniforms for 64,000 Delta employees worldwide, created by acclaimed designer Zac Posen and built with Lands' End quality. The designs embrace innovative fit, form and function, and carry Delta into the future in style.
  • Opened the newly renovated Delta Sky Club at Ronald Reagan Washington National Airport (DCA) with an additional 1,800 square feet of space for guests to enjoy.

Investment Grade Balance Sheet

  • Completed a $1.6 billion unsecured debt offering through a mix of three-, five-, and 10-year notes at a blended yield of 3.85 percent. The proceeds from this offering were used to refinance secured debt and will lower Delta's overall interest expense by $20 million annually on a run-rate basis.
  • Increased revolver capacity by $635 million, to a total of $3.1 billion in undrawn revolving credit facilities.

June Quarter Results

Special items for the quarter consist primarily of mark-to-market adjustments on refinery fuel hedges and unrealized gains/losses on investments.   


GAAP

Adjusted

($ in millions except per share and unit costs)

2Q18

2Q17

2Q18

2Q17

Pre-tax income

1,372

1,831

1,612

1,795

Net income

1,025

1,186

1,235

1,163

Diluted earnings per share

1.47

1.62

1.77

1.59

Operating revenue

11,775

10,747

11,559

10,679

Operating expense

10,095

8,765

9,856

8,750

Fuel expense

2,340

1,687

2,317

1,739

Average fuel price per gallon

2.19

1.61

2.17

1.66

Consolidated unit cost (CASM/CASM-Ex)

14.73

13.23

10.02

9.73

Non-operating expense

308

151

92

135

Total unit revenues (TRASM/TRASM-Ex)

17.19

16.23

16.87

16.13

 

About Delta

Delta Air Lines serves more than 180 million customers each year. In 2018, Delta was named to Fortune's top 50 Most Admired Companies in addition to being named the most admired airline for the seventh time in eight years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented seven consecutive years. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 324 destinations in 57 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, Mexico City, Minneapolis/St. Paul, New York-JFK and LaGuardia, London-Heathrow, Paris-Charles de Gaulle, Salt Lake City, São Paulo, Seattle, Seoul, 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. Additional information is available on the Delta News Hub, as well as delta.com, Twitter @DeltaNewsHub and Facebook.com/delta.

Forward Looking Statements 

Statements in this press release that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements.  These risks and uncertainties include, but are not limited to, the cost of aircraft fuel; the impact of fuel hedging activity including rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the availability of aircraft fuel; the performance of our significant investments in airlines in other parts of the world; the possible effects of accidents involving our aircraft; breaches or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on technology in our operations; the restrictions that financial covenants in our financing agreements could have on our financial and business operations; labor issues; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third party regional carriers; failure or inability of insurance to cover a significant liability at Monroe's Trainer refinery; the impact of environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain senior management and key employees; damage to our reputation and brand if we are exposed to significant adverse publicity through social media; the effects of terrorist attacks or geopolitical conflict; competitive conditions in the airline industry; interruptions or disruptions in service at major airports at which we operate; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions; uncertainty in economic conditions and regulatory environment in the United Kingdom related to the likely exit of the United Kingdom from the European Union; and the effects of the rapid spread of contagious illnesses.

Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our Form 10-Q for the quarterly period ended March 31, 2018.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of July 12, 2018, and which we have no current intention to update.

 

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)

2018

2017

$ Change

% Change


2018

2017

$ Change

% Change


Operating Revenue:












Passenger

$10,546

9,768

778

8%


$19,311

17,946

1,365

8%



Cargo

223

187

36

19%


425

350

75

21%



Other

1,006

792

214

27%


2,007

1,552

455

29%




Total operating revenue

11,775

10,747

1,028

10%


21,743

19,848

1,895

10%















Operating Expense:












Salaries and related costs

2,668

2,521

147

6%


5,252

4,906

346

7%



Aircraft fuel and related taxes

2,341

1,687

654

39%


4,195

3,169

1,026

32%



Regional carriers expense, excluding fuel

883

838

45

5%


1,739

1,702

37

2%



Depreciation and amortization

590

531

59

11%


1,200

1,068

132

12%



Contracted services

540

525

15

3%


1,084

1,029

55

5%



Ancillary businesses and refinery

494

296

198

67%


987

588

399

68%



Passenger commissions and other selling expenses

511

467

44

9%


938

872

66

8%



Aircraft maintenance materials and outside repairs

427

392

35

9%


862

824

38

5%



Landing fees and other rents

407

373

34

9%


780

734

46

6%



Profit sharing

400

338

62

18%


583

489

94

19%



Passenger service

300

284

16

6%


563

518

45

9%



Aircraft rent

97

86

11

13%


191

170

21

12%



Other

437

427

10

2%


849

798

51

6%




Total operating expense

10,095

8,765

1,330

15%


19,223

16,867

2,356

14%















Operating Income

1,680

1,982

(302)

(15)%


2,520

2,981

(461)

(15)%















Non-Operating Expense:












Interest expense, net

(89)

(103)

14

(14)%


(191)

(197)

6

(3)%



Unrealized gain/(loss) on investments, net

(238)

-

(238)

NM


(220)

-

(220)

NM



Miscellaneous, net

19

(48)

67

NM


(19)

(104)

85

(82)%




Total non-operating expense, net

(308)

(151)

(157)

NM


(430)

(301)

(129)

43%















Income Before Income Taxes

1,372

1,831

(459)

(25)%


2,090

2,680

(590)

(22)%















Income Tax Provision

(347)

(645)

298

(46)%


(518)

(933)

415

(44)%















Net Income

$             1,025

$             1,186

(161)

(14)%


$             1,572

$             1,747

(175)

(10)%















Basic Earnings Per Share

$               1.47

$               1.63




$               2.25

$               2.40




Diluted Earnings Per Share

$               1.47

$               1.62




$               2.24

$               2.39

















Basic Weighted Average Shares Outstanding

695

728




699

728




Diluted Weighted Average Shares Outstanding

697

731




701

731











































DELTA AIR LINES, INC.


Passenger Revenue


(Unaudited)

















Three Months Ended




Six Months Ended




(in millions)

2018

2017

$ Change

% Change


2018

2017

$ Change

% Change


Ticket

$             9,308

$             8,606

$              702

8%


$           16,961

$           15,711

$           1,250

8%


Loyalty travel awards

680

622

58

9%


1,298

1,204

94

8%


Travel-related services

558

540

18

3%


1,052

1,031

21

2%


Total passenger revenue

$           10,546

$             9,768

$              778

8%


$           19,311

$           17,946

$           1,365

8%
























































DELTA AIR LINES, INC.




Other Revenue




(Unaudited)


















Three Months Ended




Six Months Ended




(in millions)

2018

2017

$ Change

% Change


2018

2017

$ Change

% Change


Ancillary businesses and refinery

$                522

$                320

$              202

63%


$             1,042

$                632

$              410

65%


Loyalty program

358

316

42

13%


705

621

84

14%


Miscellaneous

126

156

(30)

(19)%


260

299

(39)

(13)%


Total other revenue

$             1,006

$                792

$              214

27%


$             2,007

$             1,552

$              455

29%















Note: The prior periods presented here have been recast to reflect adoption of new accounting standards.


 

DELTA AIR LINES, INC.

Statistical Summary

(Unaudited)










Three Months Ended
June 30,



Six Months Ended
June 30,



2018

2017

Change


2018

2017

Change

Revenue passenger miles (millions)

59,406

57,575

3.2%


108,682

105,527

3.0%

Available seat miles (millions)

68,514

66,227

3.5%


127,967

124,098

3.1%

Passenger mile yield (cents)

17.75

16.97

4.6%


17.77

17.01

4.5%

Passenger revenue per available seat mile (cents)

15.39

14.75

4.4%


15.09

14.46

4.4%

Total revenue per available seat mile (cents)

17.19

16.23

5.9%


16.99

15.99

6.3%

TRASM, adjusted- see Note A (cents)

16.87

16.13

4.6%


16.66

15.89

4.8%

Operating cost per available seat mile (cents)

14.73

13.23

11.3%


15.02

13.59

10.5%

CASM-Ex - see Note A (cents)

10.02

9.73

2.9%


10.52

10.17

3.4%

Passenger load factor

86.7%

86.9%

(0.2) pts


84.9%

85.0%

(0.1) pts

Fuel gallons consumed (millions)

1,067

1,047

2.0%


2,003

1,965

1.9%

Average price per fuel gallon

$           2.19

$           1.61

36.0%


$           2.10

$           1.61

30.4%

Average price per fuel gallon, adjusted - see Note A

$           2.17

$           1.66

30.7%


$           2.10

$           1.68

24.7%

Number of aircraft in fleet, end of period

1,031

986

45






Note: The prior periods presented here have been recast to reflect adoption of new accounting standards.  Except for 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)

2018


2017





Cash Flows From Operating Activities:








Net income 

$                       1,025


$                     1,186





Depreciation and amortization

590


531





Deferred income taxes

334


629





Pension, postretirement and postemployment payments greater than expense

(62)


(602)





Changes in air traffic liability

127


(31)





Changes in profit sharing liability

400


337





Other working capital changes, net

393


319






Net cash provided by operating activities

2,807


2,369














Cash Flows From Investing Activities:








Property and equipment additions:









Flight equipment, including advance payments

(1,272)


(697)






Ground property and equipment, including technology

(308)


(291)





Net redemptions (purchases) of short-term investments

4


(4)





Other, net

31


34






Net cash used in investing activities

(1,545)


(958)














Cash Flows From Financing Activities:








Payments on long-term debt and capital lease obligations

(1,848)


(275)





Repurchases of common stock

(600)


(600)





Cash dividends

(213)


(148)





Proceeds from long-term obligations

3,124


-





Other, net

53


(51)






Net cash provided by (used in) financing activities

516


(1,074)














Net Increase in Cash, Cash Equivalents and Restricted Cash

1,778


337





Cash, cash equivalents and restricted cash at beginning of period

1,482


1,968





Cash, cash equivalents and restricted cash at end of period

$                       3,260


$                     2,305























The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:














Current assets:








     Cash and cash equivalents

$                       1,886


$                     2,241





     Restricted cash included in prepaid expenses and other

48


64





Other assets:








     Cash restricted for airport construction

1,326


-





Total cash, cash equivalents and restricted cash

$                       3,260


$                     2,305













Note: The prior periods presented here have been recast to reflect adoption of new accounting standards.

 



DELTA AIR LINES, INC.




Consolidated Balance Sheets




(Unaudited)












June 30,


December 31,


(in millions)

2018


2017




ASSETS


Current Assets:






Cash and cash equivalents

$                     1,886


$                     1,814



Short-term investments

520


825



Accounts receivable, net

2,427


2,377



Fuel inventory

1,149


916



Expendable parts and supplies inventories, net

440


413



Prepaid expenses and other

1,219


1,499




Total current assets

7,641


7,844









Property and Equipment, Net:






Property and equipment, net

28,124


26,563









Other Assets:






Goodwill

9,794


9,794



Identifiable intangibles, net

4,839


4,847



Cash restricted for airport construction

1,326


-



Deferred income taxes, net

804


1,354



Other noncurrent assets

3,268


3,309




Total other assets

20,031


19,304


Total assets

$                   55,796


$                   53,711











LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities:






Current maturities of long-term debt and capital leases

$                     1,342


$                     2,242



Air traffic liability

6,360


4,364



Accounts payable

3,749


3,674



Accrued salaries and related benefits

2,436


3,022



Frequent flyer deferred revenue

2,799


2,762



Fuel card obligation

1,062


1,067



Other accrued liabilities

1,521


1,868




Total current liabilities

19,269


18,999









Noncurrent Liabilities:






Long-term debt and capital leases

8,562


6,592



Pension, postretirement and related benefits

9,052


9,810



Frequent flyer deferred revenue

3,692


3,559



Other noncurrent liabilities

2,365


2,221




Total noncurrent liabilities

23,671


22,182









Commitments and Contingencies












Stockholders' Equity

12,856


12,530


Total liabilities and stockholders' equity

$                   55,796


$                   53,711









Note: The prior periods presented here have been recast to reflect adoption of new accounting standards.

 

Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below. Reconciliations may not calculate due to rounding.

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 is not able to reconcile certain forward looking non-GAAP financial measures because the adjusting items such as those used in the reconciliations below will not be known until the end of the period and could be significant.

Pre-tax Income and Net Income, adjusted. We adjust pre-tax income and net income for mark-to-market ("MTM") adjustments and settlements on fuel hedge contracts, the MTM adjustments recorded by our equity method investees, Virgin Atlantic and Aeroméxico, and unrealized gains/losses on our investments in GOL, China Eastern and Air France-KLM, to determine pre-tax income and net income, adjusted. We include the income tax effect of adjustments when presenting net income, adjusted.

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.

Equity investment MTM adjustments. We record our proportionate share of earnings/loss from our equity investments in Virgin Atlantic and Aeroméxico in non-operating expense. We adjust for our equity method investees' MTM adjustments to allow investors to better understand and analyze our core operational performance in the periods shown.

Unrealized gain/loss on investments. We record the unrealized gains/losses on our investments in GOL, China Eastern and Air France-KLM in non-operating expense. Adjusting for these gains/losses allows investors to better understand and analyze our core operational performance in the periods shown.

 


Three Months Ended


Three Months Ended


June 30, 2018


June 30, 2018


Pre-Tax


Income


Net


Net Income

(in millions, except per share data)

Income


Tax


Income


Per Diluted Share

GAAP

$                     1,372


$            (347)


$                   1,025


$                                       1.47

Adjusted for:








     MTM adjustments and settlements

24


(6)


18



     Equity investment MTM adjustments

(22)


5


(17)



     Unrealized gain/loss on investments

238


(29)


209



Total adjustments

240


(30)


210


0.30

Non-GAAP

$                     1,612


$            (376)


$                   1,235


$                                       1.77

Year-over-year change

$                       (183)


$            (255)






















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

$                     1,831


$            (645)


$                   1,186


$                                       1.62

Adjusted for:








     MTM adjustments and settlements

(52)


19


(33)



     Equity investment MTM adjustments

15


(5)


10



Total adjustments

(37)


14


(23)


(0.03)

Non-GAAP

$                     1,795


$            (631)


$                   1,163


$                                       1.59









 

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

 



Three Months Ended



(in millions)

June 30, 2018


June 30, 2017


Change

Operating revenue

$                     11,775


$                     10,747


9.6%

Adjusted for:






     Third-party refinery sales

(216)


(67)



Operating revenue, adjusted

$                     11,559


$                     10,679


8.2%

Year-over-year change

$                          880





















Three Months Ended





June 30, 2018


June 30, 2017


Change

TRASM (cents)

17.19


16.23


5.9%

Adjusted for:






     Third-party refinery sales

(0.32)


(0.10)



TRASM, adjusted

16.87


16.13


4.6%
















Six Months Ended





June 30, 2018


June 30, 2017


Change

TRASM (cents)

16.99


15.99


6.3%

Adjusted for:






     Third-party refinery sales

(0.33)


(0.11)



TRASM, adjusted

16.66


15.89


4.8%







 

Operating Expense, adjusted. We adjust operating expense for MTM adjustments and settlements and third-party refinery sales for the same reasons described above under the headings pre-tax income and net income, adjusted and operating revenue and TRASM, adjusted to determine operating expense, adjusted.

 





Three Months Ended





June 30,

(in millions)




2018

2017

Operating expense



$         10,095

$            8,765

Adjusted for:






     MTM adjustments and settlements



(24)

52

     Third-party refinery sales



(216)

(67)

Operating expense, adjusted



$           9,856

$            8,750

Year-over-year change



$           1,106








 

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 same reason described under the heading pre-tax income and net income, adjusted:

 








Average Price Per Gallon




Three Months Ended



Three Months Ended




June 30,



June 30,

(in millions, except per gallon data)


2018

2017



2018

2017

Fuel purchase cost


$                         2,361

$                         1,676



$                 2.21

$              1.60

Airline segment fuel hedge impact


25

17



0.02

0.02

Refinery segment impact


(45)

(6)



(0.04)

(0.01)

Total fuel expense


$                         2,341

$                         1,687



$                 2.19

$              1.61

MTM adjustments and settlements


(24)

52



(0.02)

0.05

Total fuel expense, adjusted


$                         2,317

$                         1,739



$                 2.17

$              1.66

Year-over-year change


$                            578






Year-over-year % change


33%



























Six Months Ended



Six Months Ended




June 30,



June 30,

(in millions, except per gallon data)


2018

2017



2018

2017

Fuel purchase cost


$                         4,289

$                         3,207



$                 2.14

$              1.63

Airline segment fuel hedge impact


(5)

12



-

0.01

Refinery segment impact


(89)

(50)



(0.04)

(0.03)

Total fuel expense


$                         4,195

$                         3,169



$                 2.10

$              1.61

MTM adjustments and settlements


4

136



0.00

0.07

Total fuel expense, adjusted


$                         4,199

$                         3,305



$                 2.10

$              1.68










 

Non-Fuel Unit Cost or Cost per Available Seat Mile, ("CASM-Ex"). We adjust CASM for the following items to determine CASM-Ex 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 allows investors to understand and analyze our non-fuel costs and year-over-year financial performance.

Ancillary businesses and refinery. These 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 areas to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.

Profit sharing. We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

 





Three Months Ended







June 30, 2018


June 30, 2017


Change

CASM (cents)



14.73


13.23



Adjusted for:








     Aircraft fuel and related taxes



(3.41)


(2.55)



     Ancillary businesses and refinery


(0.72)


(0.44)



     Profit sharing



(0.58)


(0.51)



CASM-Ex

10.02


9.73


2.9%

Improvement from March quarter







(1)%














Three Months Ended







March 31, 2018


March 31, 2017


Change

CASM (cents)



15.35


14.00



Adjusted for:








     Aircraft fuel and related taxes



(3.12)


(2.56)



     Ancillary businesses and refinery


(0.83)


(0.51)



     Profit sharing



(0.30)


(0.26)



CASM-Ex

11.10


10.67


3.9%
































Six Months Ended







June 30, 2018


June 30, 2017


Change

CASM (cents)



15.02


13.59



Adjusted for:








     Aircraft fuel and related taxes



(3.28)


(2.55)



     Ancillary businesses and refinery


(0.76)


(0.48)



     Profit sharing



(0.46)


(0.39)



CASM-Ex

10.52


10.17


3.4%










 

Non-operating Expense, adjusted. We adjust for equity investment MTM adjustments and unrealized gain/loss on investments to determine non-operating expense, adjusted for the same reasons described above in the heading pre-tax income and net income, adjusted.

 







Three Months Ended







June 30,

(in millions)





2018

2017

Non-operating expense





$                         (308)

$                        (151)

Adjusted for:







     Equity Investment MTM adjustments




(22)

15

     Unrealized gain/loss on investments




238

-

Non-operating expense, adjusted




$                            (92)

$                        (135)

Year-over-year change





$                             43










 

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:

Net purchases (redemptions) of short-term investments. Net purchases (redemptions) of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust free cash flow for this activity, net, to provide investors a better understanding of the company's free cash flow position core to operations.

Reimbursements from third parties related to build-to-suit facilities and other. Management believes investors should be informed that these reimbursements for build-to-suit leased facilities effectively reduce net cash provided by operating activities and related capital expenditures.

 







Three Months Ended

(in millions)





June 30, 2018

Net cash provided by operating activities





$                              2,807

Net cash used in investing activities





(1,545)

Adjustments:






     Net redemptions of short term investments





(4)

     Reimbursements from third parties related to build-to-suit facilities and other





134

Total free cash flow





$                              1,392








 

Capital Expenditures, net. We present net capital expenditures because management believes investors should be informed that a portion of these capital expenditures are reimbursed by a third party.          

 




Three Months Ended

(in millions)



June 30, 2018

Flight equipment, including advance payments


$                           1,272

Ground property and equipment, including technology


308

Reimbursements from third parties related to build-to suit-facilities and other

(166)

Capital expenditures, net


$                           1,414





 

 

 

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SOURCE Delta Air Lines