Delta Air Lines, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited interim financial statements received an independent accountant’s review, not a full audit.
Business context and results
Delta reported continuing recovery in travel demand after the COVID-19 downturn. Results reflect higher passenger volumes and fares, sharply higher fuel costs, and the absence of prior-year Payroll Support Program grant benefits.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $13.975B | $9.154B | $37.147B | $20.429B |
| Operating income | $1.456B | $2.205B | $2.191B | $1.623B |
| Net income | $695M | $1.212B | $489M | $688M |
| Diluted EPS | $1.08 | $1.89 | $0.76 | $1.07 |
| Operating margin | 10.4% | 24.1% | 5.9% | 7.9% |
| Operating cash flow | $869M | Not provided for quarter | $5.175B | $2.708B |
Q3 passenger revenue rose 59% year over year; total revenue increased 53%. Versus Q3 2019, revenue was 11% higher, but operating income was 30% lower on 17% less capacity. Q3 operating margin is calculated from reported GAAP figures.
Financial position, cash flow and liquidity
- At September 30, cash and cash equivalents were $7.023B and short-term investments were $1.345B. Reported liquidity, including $2.8B available under revolving credit facilities, was $11.2B.
- Debt was $21.523B net carrying amount, down from $25.084B at December 31, 2021. Debt and finance-lease principal was $23.4B. Delta repaid $4.190B of debt and finance-lease obligations in the first nine months, including a $1.5B cash tender offer.
- Total assets were $72.596B; stockholders’ equity was $4.590B. Current liabilities were $25.870B, including $8.947B of air traffic liability.
- Year-to-date investing activities used $2.189B, including $4.166B in capital expenditures, partly offset by investment redemptions. Financing activities used $4.230B. Cash, cash equivalents and restricted cash declined $1.244B from the start of the year.
- Delta said it expected liquidity to meet needs for the next 12 months and reported compliance with debt covenants at quarter-end.
Material changes and operating drivers
- Q3 operating expense increased 80% year over year to $12.519B. Fuel expense rose 114% to $3.318B, reflecting an 83% increase in market jet-fuel price and higher consumption. Q3 fuel cost averaged $3.57 per gallon versus $1.97.
- The prior-year comparison included $1.822B of government grant proceeds recorded as a reduction of expenses in Q3 2021; year-to-date 2021 grant recognition was $4.512B. Q3 2022 also included $237M of profit-sharing expense.
- Q3 total revenue was 11% above Q3 2019, while operating expenses were 19% higher. Versus 2019, Delta cited fuel costs 48% higher and passenger revenue roughly flat on 17% lower system capacity.
- Q3 available seat miles increased 17% year over year but remained 17% below 2019. Total revenue per available seat mile was 22.18 cents; CASM was 19.87 cents and adjusted non-fuel CASM was 12.43 cents.
- Year-to-date net income includes a $613M net loss on investments, compared with a $251M net gain in the prior-year period. Q3 included a $245M net investment loss and $34M loss on debt extinguishment.
Outlook, risks and contingencies
- Management expected Q4 2022 system capacity to recover to 91%–92% of Q4 2019 levels, positive operating cash flow, and continued elevated fuel prices. It expected full-year 2022 non-fuel costs to be approximately 18% above 2019, primarily due to reduced second-half capacity.
- Management expected international revenue recovery to continue trailing domestic recovery in Q4, while business-travel demand was expected to increase. Pacific travel restrictions and the conflict in Ukraine were noted as relevant market conditions.
- Key sensitivities include volatile fuel prices, demand and capacity recovery, operating reliability, inflation, and changing customer travel behavior. Ticket and travel-credit rebooking flexibility extends through December 31, 2023 for travel through 2024, making unused-ticket revenue estimates uncertain.
- Aircraft purchase commitments totaled approximately $19.9B for 338 aircraft. Delta estimated 2022 capital spending of about $5.7B, excluding the LaGuardia project. LaGuardia project costs were estimated at $3.5B, with Delta bearing construction and potential overrun risk; LAX redevelopment was estimated at $2.3B, and Delta guaranteed the related project credit facility.
- Delta reported a $291M net fair-value obligation for renewable-fuel compliance costs. The company cited legal proceedings but did not expect their resolution to materially adversely affect its financial statements. It also noted that sustainable aviation fuel is not yet available at scale or competitive prices.
- Delta was evaluating the Inflation Reduction Act’s 15% corporate alternative minimum tax and did not then expect a material effect. Forward-looking statements are subject to risks described in the company’s 2021 Form 10-K.
Important facts for investors to verify
- Whether revenue recovery and pricing can continue to offset fuel, labor and other operating-cost inflation, particularly if fuel prices remain elevated.
- Progress on capacity restoration, operational reliability and international demand, including management’s Q4 capacity and business-travel expectations.
- Debt reduction, cash generation and liquidity relative to aircraft commitments, planned capital spending and airport-project obligations.
- Future changes in investment valuations, ticket-credit usage and breakage estimates, and renewable-fuel compliance costs.
- Updates to major project budgets, construction risks, legal matters and the financial effects of tax or regulatory changes.