Delta Air Lines, Inc. (NYSE:DAL) reported financial results for theSeptember 2015 quarter, including adjusted net income1 of $1.4 billion or $1.74 per diluted share, up 45% from the September quarter of 2014.

“Despite currency volatility and global economic uncertainty which drove a modest decline in revenues, we expanded operating margins by over five points to 21%, grew earnings per share by 45%, and generated $1.4 billion of free cash flow in the September quarter as demand remains solid and fuel prices have dropped materially.  We expect that strong performance to continue in the December quarter with operating margins of 16 to 18% and over 40% earnings per share growth,” said Richard Anderson, Delta’s chief executive officer.  “It’s an honor to recognize the hard work of 80,000 outstanding Delta employees with over $1 billion of profit sharing accrued so far this year.  Our team consistently delivers best-in-class operations and service to our customers, develops innovative solutions with our global partners, and produces strong returns for our shareholders.”

Revenue Environment

Delta’s operating revenue for the September quarter decreased 0.6%, or $71 million, including $235 million in foreign currency pressures.  Passenger unit revenues declined 4.9%, which includes approximately 2.5 points of impact from foreign currency.

Delta continues to successfully implement its Branded Fares initiative, increasing paid first class load factor by 8 points to 56% and expanding its Basic Economy product to over 450 markets.  In total, Branded Fares products produced more than $75 million in incremental revenue in the September quarter.

“Our commercial initiatives are delivering solid benefits as we’ve expanded our revenue premium to the industry, strengthened our hubs in New York, Seattle and Los Angeles, and deepened our partnerships around the globe.  However, low fuel prices and foreign currency have pressured our revenue performance,” said Ed Bastian, Delta’s president.  “By keeping our system capacity flat for the December quarter, we are taking action to drive improvement in our unit revenues which we forecast will decline 2.5-4.5% for the quarter including 2 points of impact from foreign currency.  Our conservative growth in this low fuel environment is evidence of our commitment to getting RASM back on a positive trajectory, which is a key component to achieving our long-term margin targets.”

Bastian continued, “As we look ahead, fuel prices remain volatile and we are not recasting the business for low fuel prices.  Our plan is for 2016 capacity growth of 0-2%, which we believe is the appropriate level to balance supply and demand and to ensure the momentum in our business continues.”

Increase (Decrease)

3Q15 versus 3Q14



Passenger Revenue

3Q15 ($M)







3.8  %

(2.3) %

(2.5) %

6.3  %



(5.9) %

(2.3) %

(4.3) %

(3.7) %

Total Domestic


1.3  %

(3.0) %

(3.6) %

4.4  %



(5.6) %

(9.5) %

(7.8) %

4.3  %



(12.7) %

(9.3) %

(13.1) %

(3.7) %

Latin America


(3.8) %

(5.3) %

(6.3) %

1.6  %

Total Passenger


(1.9) %

(4.9) %

(5.4) %

3.2  %

Cargo Revenue


(19.7) %

Other Revenue


13.6  %

Total Revenue


(0.6) %

December 2015 Quarter Guidance
Following are Delta’s projections for the December 2015 quarter:

4Q15 Forecast

Passenger unit revenue (compared to 4Q14)

(2.5%) – (4.5%)

Operating margin

16% – 18%

Fuel price, including taxes, settled hedges and refinery impact


CASM – Ex (compared to 4Q14)

Up ~2%

System capacity (compared to 4Q14)


Cost Performance
Adjusted fuel expense2 declined over $1.1 billion compared to the same period in 2014, as 50% lower market fuel prices and an $87 million increase in profit at the refinery offset $250 million in settled hedge losses.

CASM-Ex3 increased 0.9% for the September quarter on a year-over-year basis, with foreign exchange and the benefits of Delta’s domestic refleeting and other cost initiatives offsetting the company’s investments in its employees, products and operations.  The September quarter also included approximately 1 point of unit cost pressure from benefit accruals related to recently announced pay increases for Delta employees.

Delta’s debt reduction initiative continued to improve the company’s interest expense, producing $33 million in interest savings for the quarter compared to the same period in 2014.

“We continue to benefit from the decline in fuel prices, which provided a $1 billion-plus tailwind this quarter and, at current prices, will drive a $750 million benefit in the December quarter,” said Paul Jacobson, Delta’s chief financial officer.  “With volatile fuel prices and revenues under pressure, we are using the current environment to evaluate and prune costs across all parts of the business, including our overhead functions, making sure we’re investing in the right parts of the airline and at levels we can sustain over time.”

Cash Flow, Shareholder Returns, and Adjusted Net Debt4
Delta generated $2.4 billion of adjusted operating cash flow and $1.4 billion of free cash flow during the quarter.  The company used this strong cash generation to reinvest $1.0 billion back into the business, including$450 million for its 3.5% ownership position in China Eastern.  The company returned $532 million to its owners through $107 million of dividends and $425 million of share repurchases, while also strengthening its balance sheet by reducing its adjusted net debt to $6.4 billion.

During the quarter, Delta refinanced its senior secured credit facility ahead of its scheduled maturity. The new borrowings include a $1.5 billion undrawn revolver, a $500 million term loan, and a $500 million EETC with a blended rate of 3.77%.  The improved strength of Delta’s balance sheet allowed it to lower the overall rate on the borrowing and increase its revolver capacity by $275 million.  In addition, the company reduced the outstanding principal amount by $320 million as it continues toward its $4 billion debt target by 2017.

“The strong cash flows we are producing are allowing us to reinvest in our business and our employees, while working toward achieving an investment grade balance sheet and also returning increasing levels of cash to shareholders,” Jacobson continued.  “Since initiating our capital return program, we have already retired 8% of Delta’s outstanding share count while reducing our adjusted net debt by nearly $4 billion over that same time period.”

GAAP Metrics Related to Fuel, Cost Performance and Cash Flow
Below are GAAP metrics corresponding to the non-GAAP figures cited above.

($ in millions except per share and unit costs)






Net income





Diluted earnings per share





Fuel expense (including regional carriers)





Consolidated unit cost





Operating cash flow





Special Items

Special items, net of taxes, in the September 2015 quarter totaled $69 million, including:

  • A $69 million charge primarily for mark-to-market adjustments on fuel hedges settling in future periods.

Special items, net of taxes, in the September 2014 quarter totaled $657 million, including:

  • a $397 million charge for fleet and other items;
  • a $215 million charge for mark-to-market adjustments on fuel hedges settling in future periods;
  • an $87 million charge for debt extinguishment and other items; and
  • a $42 million gain related to a litigation settlement. (Original Source)

Shares of Delta Air Lines closed yesterday at $47.73. DAL has a 1-year high of $51.06 and a 1-year low of $30.43. The stock’s 50-day moving average is $45.76 and its 200-day moving average is $44.36.

On the ratings front, Delta Air Lines has been the subject of a number of recent research reports. In a report issued on October 5, Deutsche Bank analyst Michael Linenberg maintained a Buy rating on DAL, with a price target of $51, which implies an upside of 6.9% from current levels. Separately, on October 2, Cowen’s Helane Becker reiterated a Buy rating on the stock .

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Michael Linenberg and Helane Becker have a total average return of 25.2% and 30.3% respectively. Linenberg has a success rate of 68.4% and is ranked #33 out of 3773 analysts, while Becker has a success rate of 81.5% and is ranked #4.

Overall, 8 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $57.00 which is 19.4% above where the stock closed yesterday.

Delta Air Lines Incprovides scheduled air transportation for passengers and cargo throughout the United States and around the world.The Company’s business segments areairline and refinery.