Delta Airlines Announces December Quarter, Full Year 2020 Financial Results    

                                               

 … December quarter 2019 pre-tax income of $1.4 billion, net income of $1.1 billion and earnings per diluted share of $1.71

…Delta ended 2020 with $16.7 billion in liquidity

 

Posted by Sade Williams

 

Delta Airlines has reported financial results for the December quarter and full year 2020 and provided its outlook for the March quarter 2021.  Highlights of the December quarter and full year 2020 results, including both GAAP and adjusted metrics, are also provided.

 

Speaking on the results, Ed Bastian, Delta’s chief executive officer, said: “Our December quarter results capped the toughest year in Delta’s history.  I want to thank the Delta people who have risen to the occasion, focusing on delivering results for all of our stakeholders by putting our customers at the center of our recovery. While our challenges continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation.”

 

December Quarter Financial Results 

  • Adjusted pre-tax loss of $2.1 billion excludes nearly $1 billion of items directly related to the impact of, and our response to, COVID-19, including charges associated with employee pay and benefit changes, which were offset by the benefit of the CARES Act payroll support program (PSP) grant recognized in the quarter
  • Adjusted operating revenue of $3.5 billion declined 69 percent on 62 percent lower sellable capacity (see Note A) versus the prior year period
  • Total operating expense, which includes $930 million of items described above, decreased $5.2 billion over prior year period.  Adjusted for those items and third-party refinery sales, total operating expense decreased $4.6 billion or 47 percent in the December quarter compared to the prior year period, driven by lower capacity- and revenue-related expenses and strong cost management across the business
  • During the December quarter cash burn (see Note B) averaged $12 million per day, marking an approximate 90 percent reduction in cash burn since late March
  • At the end of 2020, the company had $16.7 billion in liquidity, including cash and cash equivalents, short-term investments and undrawn revolving credit facilities

 

Full Year 2020 Financial Results 

  • Adjusted pre-tax loss of $9.0 billion excludes a net of $6.6 billion of items primarily related to the impact of, and our response to, COVID-19
  • Adjusted operating revenue of $15.9 billion declined 66 percent on 61 percent lower sellable capacity versus the prior year
  • Total operating expense, which includes $4.3 billion of COVID- related and other items, decreased $10.8 billion over prior year.  Adjusted for those items and third-party refinery sales, total operating expense decreased $16.0 billion or 40 percent in 2020 compared to the prior year

 

March Quarter 2021 Outlook

 

  1Q21 Forecast
Scheduled Capacity 1 Down ~35%
Sellable Capacity 1 Down ~55%
Total Revenue 1, 2 Down 60% – 65%
Total Operating Expense 1, 2 Down 35% – 40%
Consolidated CASM 1, 2 Down 5% – 10%
Capital Expenditures ~$350 million
Average Daily Cash Burn 2 $10-15 million
Liquidity 3 $18-19 billion
Adjusted Net Debt 2, 3 ~$18 billion

                                                                                            1 Compared to March quarter 2019

                                                                                            2 Non-GAAP measure

                                                                                            3 Includes estimated PSP funds of ~$3.0 billion

 

Revenue Environment

 

Delta’s adjusted operating revenue of $3.5 billion for the December quarter was down 69 percent versus the prior year period, a 10-point improvement from September quarter 2020.  Passenger revenues declined 74 percent on 62 percent lower sellable capacity.  Non-ticket revenues outperformed passenger revenues, with cargo revenues up 10 percent versus the prior year period and total loyalty revenues down 54 percent.

For the full year, adjusted operating revenue declined to $15.9 billion, down 66 percent versus 2019, as the global pandemic severely affected air travel.  Passenger revenues declined 70 percent on 61 percent lower sellable capacity.  Total loyalty revenues were down 51 percent and American Express remuneration declined 30 percent compared to prior year to $2.9 billion.

“We see three distinct phases in 2021.  The early part of the year will be characterized by choppy demand recovery and a booking curve that remains compressed, followed by an inflection point, and finally a sustained demand recovery as customer confidence gains momentum, vaccinations become widespread and offices re-open,” said Glen Hauenstein, Delta’s president.  “For each phase, Delta has the levers to pull to successfully react to the emerging demand environment, including tightly matching our sellable capacity to expected demand.”

 

Cost Performance

 

Total adjusted operating expense for the December quarter decreased $4.6 billion or 47 percent versus the prior year period excluding items related to the company’s response to COVID-19 and the $1.4 billion CARES Act benefit, resulting in Delta’s consolidated CASM, adjusted being 4.5 percent lower than the prior year period.  This performance was driven by a $1.3 billion, or 64 percent reduction in fuel expense versus the prior year period, a 51 percent reduction in maintenance expense and lower volume- and revenue-related expenses.  Salaries and related costs were down 34 percent compared to the prior year period as a result of approximately 20 percent of our workforce, or nearly 18,000 employees, electing to voluntarily depart the company, in addition to the impact of voluntary unpaid leaves, work hour reductions and other cost-saving initiatives.

Non-operating expense for the December quarter was up $248 million versus the prior year period, driven primarily by higher interest expense from increased debt the company has incurred during the COVID-19 pandemic.

“We reduced our average daily cash burn to $12 million in the December quarter, a reduction of nearly 90 percent since the early days of the pandemic in March, as we progress to achieving cash breakeven in the spring,” said Gary Chase, Delta’s interim co-chief financial officer.  “Remaining agile and disciplined with our cost structure will be key to our success, and when combined with an improving demand environment, will allow us to return to the free cash flow generation needed for debt reduction.”

 

Balance Sheet, Cash and Liquidity

 

Delta ended the December quarter with $16.7 billion in liquidity.  Cash used in operations during the quarter was $1.3 billion.  Daily cash burn averaged $12 million for the quarter, down from $24 million per day in the September quarter.

The company anticipates receiving approximately $3 billion from the U.S. Treasury under the PSP extension in the March quarter.  With these funds and an estimated $10 to $15 million in average daily cash burn for the March quarter, the company expects to end the March quarter with approximately $18 to $19 billion in liquidity.

At the end of the December quarter, the company had total debt and finance lease obligations of $29.2 billion with adjusted net debt of $18.8 billion, $8.3 billion higher year over year.  The company’s total debt had a weighted average interest rate of 4.6 percent at year-end.  During the quarter, the company repaid $2.6 billion under its revolving credit facilities drawn down in March 2020, $3 billion associated with the 364-day term loan entered into in March 2020 and a $450 million unsecured debt maturity.  The company currently has $9 to $10 billion in unencumbered assets, primarily consisting of aircraft, engines and spare parts.

At the end of the December quarter, the company’s Air Traffic Liability stood at $4.5 billion, including a current liability of $4.0 billion and a non-current liability of $0.5 billion.  Travel credits represent approximately 65 percent of the Air Traffic Liability at the end of the December quarter.  The company refunded more than $3 billion to customers in 2020 and extended the use of certain travel credits through December 2022 to provide additional flexibility to customers.

 

Highlights from 2020

 

In 2020, Delta undertook a number of initiatives related to our culture and people, our customers’ experience and loyalty and other actions to protect and restore the business and serve our communities.

Culture and People: Delta’s number one priority during the pandemic has been taking care of our people.  The following measures were taken to preserve our culture, create a more inclusive environment and protect the health and safety of our people

  • Avoiding involuntary furloughs of U.S. employees by providing generous voluntary separation and early retirement programs, voluntary unpaid leaves, job sharing and other initiatives
  • Slowing the COVID-19 spread with an extensive employee testing program, while helping ease the strain on the health system by offering free flu shots for all U.S. employees
  • Protecting employees with pay protection programs for those diagnosed, exposed or at high risk from COVID-19
  • Addressing systemic racial inequity with a commitment to double our spend with Black-owned businesses and double the percentage of Black Officers and Directors by 2025; a commitment to increase Black representation on our Board of Directors; enhanced employee inclusion training; and joining forces with organizations and coalitions that advance equity and justice, including OneTen, Operation HOPE and others
  • Recognized by Glassdoor as one of the Best Places to Work for the fifth year, ranking No. 7 on the 2021 list of 100 large companies, the highest rank Delta has ever received

 

Customer Experience and Loyalty: Delta’s innovative, customer-centric approach focused on customer health and safety and improving the travel experience during the challenges of the pandemic

  • Blocking middle seats through at least March 30, 2021 – the only major U.S. airline to make such a commitment
  • Launched the industry’s first COVID-tested flights from Atlanta to Rome and Atlanta to Amsterdam with no quarantine on arrival
  • Created a Global Cleanliness organization and implemented the Delta CareStandard, our ongoing, organization-wide commitment to cleanliness and safety that includes mask requirements, regular sanitization of surfaces, onboard use of industrial-grade HEPA filters and more than 100 other measures to ensure a safe travel experience
  • Eliminated change fees for U.S. customers and discontinued redeposit/reissuance fees for SkyMiles members; extended Medallion member benefits through January 2022
  • Unveiled Phase I of the new Salt Lake City airport, with accelerated investment in Los Angeles and New York-LaGuardia airports to provide customers state of the art facilities across our domestic network

 

Actions Taken to Protect and Restore the Business: Delta took quick and decisive action to mitigate liquidity risk at the onset of the global pandemic. Financing transactions and efficiency initiatives have created a long-term competitive cost structure that will aid in the recovery of the airline

  • Completed more than $25 billion in financing transactions in 2020, including Delta’s $9 billion SkyMiles financing, the largest debt financing in aviation history
  • Received $5.6 billion in PSP proceeds through the CARES Act legislation passed in March 2020, with $4.0 billion in grant funds, $1.6 billion in low-interest rate loans and issuance of warrants for over 6.7 million shares – Delta’s shareholder dilution of 1 percent in 2020 was primarily attributable to warrants issued under the CARES Act
  • Restructured our aircraft orderbook, reducing aircraft purchase commitments by $2 billion in 2020 and $5 billion through 2022
  • Accelerated its fleet simplification strategy with 227 aircraft retirements in 2020, reducing the number of fleet families from 13 to 11.  Delta anticipates the cumulative retirement of nearly 400 aircraft through 2025, further simplifying fleet families down to nine
  • Reduced total adjusted operating expense by 40 percent during the full year 2020, with a nearly 50 percent or greater reduction in each of the June, September and December quarters

 

Serving our Communities: Continued to exhibit the Delta values of serving our communities and giving back to those in need

  • Supported healthcare workers by manufacturing 70,000 face shields to extend the life of essential N95 mask respirators, donating 800,000 pounds of snacks and drinks to hospitals in 20 different countries, and provided more than 350 free flights for medical professionals traveling to assist states that were heavily impacted by the pandemic
  • Donated more than one million pounds of food across the globe and millions of amenity kits, blankets and dishware to social service agencies
  • Maintained our commitment to serving our communities by partnering with KABOOM! to build five playgrounds, building 750 bikes and contributing 1,300 toys and $735,000 in donations to Toys for Tots
  • Donated more than 10,000 pints of blood to the American Red Cross, serving as the No. 1 American Red Cross corporate blood donor for the third straight year
  • Supported and encouraged Delta people who volunteered their time and talents to numerous charities and organizations

 

CARES Act Accounting and Other COVID-19 Related Charges

 

In the December quarter, the remaining $1.4 billion of the CARES Act PSP grant was recognized as a contra-expense, which is reflected as “CARES Act grant recognition” on the Consolidated Statements of Operations.

During the December quarter, the company recorded $421 million in restructuring charges primarily related to employees benefits and other matters within operating expense.

 

December Quarter and Full Year 2020 Results

 

December quarter and full year results have been adjusted primarily for the CARES Act grant recognition, restructuring charges, and impairment charges described in this release.

 

  GAAP Adjusted GAAP Adjusted
($ in millions except per share and unit costs) 4Q20 4Q19 4Q20 4Q19 FY20 FY19 FY20 FY19
Pre-tax (loss)/income (1,108)   1,397   (2,121)   1,417   (15,587)   6,198   (8,996)   6,214  
Net (loss)/income (755)   1,099   (1,604)   1,098   (12,385)   4,767   (6,839)   4,776  
Diluted (loss)/earnings per share (1.19)   1.71   (2.53)   1.70   (19.49)   7.30   (10.76)   7.32  
Operating revenue 3,973   11,439   3,532   11,384   17,095   47,007   15,945   46,718  
Operating expense 4,831   10,040   5,314   9,961   29,564   40,389   24,130   40,082  
Total cost per available seat mile (CASM) 13.21   15.34   14.53   15.21   22.01   14.67   17.96   14.56  
CASM-Ex     12.57   11.59       15.61   10.88  
Fuel expense 723   2,012   717   1,983   3,176   8,519   3,166   8,477  
Total debt and finance lease obligations 29,157   11,160   18,823   10,489   29,157   11,160   18,823   10,489  
Total revenue per available seat mile (TRASM) 10.86   17.47   9.66   17.39   12.73   17.07   11.87   16.97  
Average fuel price per gallon 1.45   2.01   1.44   1.99   1.64   2.02   1.64   2.01  

 

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