Delta Air Lines, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are to Q1 2022 unless noted. Delta operates an airline business and a refinery. Interim statements are unaudited; the independent auditor conducted a review, not an audit. Delta cautions that seasonal results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $12.759 billion | $9.348 billion |
| Operating loss | $277 million | $783 million |
| Net loss | $363 million | $940 million |
| Loss per diluted share | $0.57 | $1.48 |
| Operating cash flow | $2.235 billion | $1.771 billion |
| Capital expenditures | $1.0 billion | $1.8 billion |
- Revenue rose 36%, primarily on stronger travel demand, higher yields, and 18% higher capacity. Passenger revenue increased 51%; cargo revenue decreased 28%, and total other revenue was nearly flat.
- Operating expenses increased 29% to $13.036 billion. Major increases included $864 million in pilot-agreement and related expenses, $584 million in fuel expense, and $560 million in salaries and related costs.
- GAAP operating margin was approximately negative 2.2%, versus negative 8.4% a year earlier. Delta reported adjusted operating income of $546 million, compared with an adjusted operating loss of $793 million; this non-GAAP measure excludes specified items, including pilot-agreement expenses.
- CASM increased 9%; non-GAAP CASM-Ex increased approximately 5% (reported as 4.7% in MD&A). TRASM increased 15%, and adjusted TRASM rose 23%.
- Net cash provided by operations was $2.235 billion. Delta reported non-GAAP free cash flow of $1.853 billion, which includes adjustments such as adding back the $735 million one-time pilot payment. Cash, cash equivalents and restricted cash declined $44 million during the quarter.
Financial position and liquidity
- At March 31, 2023, cash and cash equivalents were $3.215 billion and short-term investments were $3.396 billion. Delta reported $9.5 billion of liquidity, defined to include cash, cash equivalents, short-term investments, and available revolving-credit commitments.
- Debt and finance lease obligations had a reported principal amount of $22.1 billion. The balance sheet reported $20.320 billion of debt, net of discounts and issuance costs, and $1.639 billion of current and noncurrent finance lease liabilities. Delta repaid $1.2 billion of debt and finance lease obligations and had $2.9 billion available under revolving facilities.
- Total assets were $73.134 billion; total stockholders’ equity was $6.260 billion. Current liabilities were $28.417 billion, including $11.187 billion of air traffic liability. The company was in compliance with debt covenants.
Material changes and management commentary
- Passenger demand and yields improved substantially year over year as travel recovery continued. Capacity was 18% higher; Delta said it planned full-year 2023 system capacity close to 2019 levels.
- In March, pilots ratified a four-year agreement effective January 1, 2023, including an initial 18% pay-rate increase and a $735 million one-time ratification payment. Delta also recorded approximately $130 million of other benefit-related adjustments.
- Delta had approximately 13,000 more employees than a year earlier, implemented a 4% base-pay increase in May 2022, and announced another 5% increase effective April 1, 2023.
- Delta’s refinery segment reported $222 million of operating income, versus $53 million. The refinery supplied approximately 75% of Delta’s fuel consumption through production and exchanges.
Outlook, risks and contingencies
- Management expected positive operating cash flow for the rest of 2023 and said it anticipated meeting near-term liquidity needs from available liquidity and operating cash flows. The filing did not provide specific full-year revenue or earnings guidance.
- Expected 2023 capital spending was approximately $5.5 billion, excluding the LaGuardia project. Delta expected approximately $500 million of LaGuardia project spending in 2023; total net project costs were estimated at $4.3 billion, with completion expected by 2025. Delta bears construction and potential cost-overrun risk. The LAX redevelopment was expected to finish in 2023 at an estimated total cost of $2.4 billion; Delta guarantees the related financing obligations of the RAIC.
- Management expected fuel prices to remain volatile in 2023. Fuel expense was 21% of operating expense in the quarter. Higher fuel prices, labor and other operating costs, demand changes, and seasonality may affect results.
- Future aircraft purchase commitments totaled approximately $18.7 billion for 322 aircraft. Delta projected a 2023 effective tax rate of 23%–26%.
- Delta reported a $38 million net fair-value obligation for renewable-fuel compliance costs and noted that the EPA had not finalized the applicable 2022 compliance deadline. It also cited ongoing legal proceedings but did not expect their resolution to have a material adverse effect; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether demand, yields, capacity recovery, and premium-cabin growth persist beyond the seasonal first quarter.
- How recurring labor costs under the new pilot agreement and subsequent employee pay increases affect margins after the one-time payment.
- Whether fuel prices, refinery performance, and renewable-fuel compliance costs materially change operating results.
- How debt reduction, aircraft commitments, and airport construction spending affect liquidity and free cash flow; note that Delta’s free cash flow figure is non-GAAP and includes adjustments.
- Performance relative to any later full-year guidance, which this filing does not specify for revenue or earnings.