In: Finance
1) Discuss Delta Airlines Financial position and important financial activities for the fiscal year 2019.
Full Year Financial Highlights
"2019 was a truly outstanding year on all fronts – the best in Delta's history operationally, financially.
March Quarter 2020 Outlook
1Q20 Forecast |
|
Total revenue growth (year-over-year) |
Up 5% to 7% |
Pre-tax margin (year-over-year) |
~ Flat |
Fuel price, including taxes and refinery impact |
$2.00 to $2.20 |
TRASM, adjusted (year-over-year) |
Flat to up 2% |
CASM-Ex (year-over-year) |
Up 2% to 3% |
See Note A for information about reconciliation of projected non-GAAP financial measures |
For the full year, operating revenue grew to nearly $47 billion, up
7.5% when prior year period is adjusted for third-party refinery
sales and the sale of DGS. Premium product ticket revenue increased
9% along with strong double-digit percentage increases from loyalty
and third-party maintenance revenue.
Delta's operating revenue of $11.4 billion for the December quarter improved 7.2% or $768 million over the prior year (adjusted for the sale of DGS). This was driven by a 9% increase in premium product ticket revenue, an 18% increase in loyalty revenue and a 31% increase in third-party maintenance revenue, which was partially offset by 13% lower cargo revenue.
December quarter passenger revenue by geographic region:
"Our industry-leading operational performance and the unmatched service our people provide are the reasons why more customers than ever are choosing to fly Delta. Investments in reliability, product and service, airports and technology are reshaping customer perception and driving record satisfaction scores and increasing brand preference." said Glen Hauenstein, Delta's president. "We delivered $47 billion in revenue in 2019, a more than $3 billion increase when adjusted over prior year, while sustaining a revenue premium to the industry of more than 110%. Demand trends remain healthy and we expect momentum to continue in 2020, with revenue growth of 5% to 7% in the March quarter."
Cost Performance
For 2019, total expense increased 3.9%, driven by higher revenue- and capacity-related expenses, profit sharing, and pension expense, which were partially offset by $501 million lower fuel cost. CASM-Ex for 2019 increased 2% versus prior year, reflecting Delta's continued investment in our people, product and services.
Total expense for the December quarter increased 6.9% versus the prior year on higher revenue- and capacity-related expenses and profit sharing, which were partially offset by $315 million lower fuel cost. CASM-Ex was up 4.4% for the December quarter compared to the prior year driven by investment in our people, product and services, and a mark-up of benefit-related balance sheet obligations.
Fuel expense decreased 14% relative to December quarter 2018. Delta's fuel price for the December quarter was $2.01 per gallon, including a $24 million benefit from the refinery.
Non-operating expense for the quarter was $256 million higher versus the prior year, driven primarily by pension expense and lower mark-to-market adjustments on investments, including our investment in GOL, which was sold during the December quarter 2019.
"Non-fuel unit costs for 2019 increased 2% versus prior year, in line with our long-term cost target and reflecting Delta's continued investment in our people, product and services," said Paul Jacobson, Delta's chief financial officer. "These investments supporting our long-term growth will continue into 2020, and we expect our non-fuel unit costs will increase 2% to 3% for the March quarter and full year."
Cash Flow and Shareholder Returns
For the full year, Delta generated $8.4 billion of operating cash flow and $4.2 billion of free cash flow. Full year cash flow is net of $1 billion of voluntary pension contributions, including $500 million made in the December quarter.
The company invested $4.5 billion into the business in 2019 including $954 million in the December quarter. This supported the delivery of 88 new aircraft during the year. The company's ongoing fleet transformation is driving higher customer satisfaction, premium seat growth and improved fuel efficiency.
For the December quarter, Delta generated $969 million of operating cash flow and $141 million of free cash flow. Delta returned $484 million to shareholders, comprised of $225 million of share repurchases and $259 million in dividends during the quarter. For the full year, Delta returned $3 billion to shareholders, including $2 billion of share repurchases and $980 million in dividends.
"Strong cash generation continues to set Delta apart and enables consistent reinvestment in the business while maintaining cash returns to owners at 70% of free cash flow," added Jacobson. "We expect to generate free cash flow of $4 billion again this year, putting us on track to deliver a three-year cumulative free cash flow of over $10 billion by the end of 2020."
Strategic Highlights
In 2019, Delta achieved a number of milestones across its five key strategic pillars.
Culture and People
Operational Reliability
Network and Partnerships
Customer Experience and Loyalty
Investment Grade Balance Sheet
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