Delta Air Lines, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are generally in millions. Delta reported continued recovery in travel demand following the COVID-19 pandemic. The interim financial statements received an independent accountant’s review, not an audit; the accountant reported no material modifications needed for GAAP conformity.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $13,824 | $7,126 | $23,173 | $11,276 |
| Operating income (loss) | $1,519 | $816 | $735 | $(582) |
| Net income (loss) | $735 | $652 | $(205) | $(525) |
| Diluted earnings (loss) per share | $1.15 | $1.02 | $(0.32) | $(0.82) |
| Operating cash flow | $2.5 billion (quarter, per MD&A) | — | $4.306 billion | $2.557 billion |
- Q2 operating margin was approximately 11.0%; net margin was approximately 5.3%.
- Six-month operating expenses were $22.438 billion, including $5.315 billion of aircraft fuel expense. Q2 fuel expense was $3.223 billion.
- At June 30, cash and cash equivalents were $9.221 billion and short-term investments were $1.549 billion. Reported liquidity, including available revolving credit, was $13.6 billion.
- Total debt was $23.065 billion on the balance sheet; Delta separately reported $25.0 billion of principal debt and finance leases. Approximately $2.8 billion was available under revolving credit facilities. Debt covenants were in compliance.
- Six-month capital expenditures were $2.724 billion. Cash payments on debt and finance lease obligations were $2.395 billion.
Material changes versus comparable periods
- Q2 revenue rose 94% year over year, led by passenger revenue, which increased 105% to $10.958 billion as demand and capacity recovered. Q2 capacity was up 21% from 2021 but 18% below 2019.
- Q2 operating income increased $703 million year over year, but Q2 2021 included $1.5 billion of payroll-support grants recorded as expense reductions. Compared with Q2 2019, 2022 operating income was $609 million lower; Delta cited fuel expense 41% higher and passenger revenue 4% lower on reduced capacity.
- Q2 operating expenses rose 95% year over year. Fuel expense increased $1.736 billion, reflecting a 119% rise in market jet-fuel price and 25% higher consumption. Costs also rose with staffing, premium pay, overtime, maintenance, and restored operations.
- For the first half, revenue increased 106% and operating income improved from a $582 million loss to $735 million. The period nevertheless ended with a $205 million net loss, including a $368 million net loss on investments.
- Compared with Q2 2019, Q2 CASM was 44% higher and CASM-Ex, a non-GAAP unit-cost measure, was 22% higher. The company attributed unit-cost pressure partly to operating at lower capacity.
Outlook, commentary, and risks
- Management expected September-quarter capacity to be 83%–85% of the 2019 level. It revised its 2022 capacity expectation to approximately 85% of 2019, from an initial 90%, and expected full-year non-fuel costs to be approximately 17% above 2019, versus initial expectations of 7%–10% higher.
- Delta expected elevated jet-fuel prices to continue through 2022, citing market conditions and geopolitical events. It expected positive operating cash flow for the remainder of 2022 and forecast approximately $6.0 billion of 2022 capital expenditures, excluding the LaGuardia project.
- Management said domestic demand and business-travel sales were improving; international revenue recovery was expected to trail domestic recovery through 2022. Travel restrictions, particularly in the Pacific region, remained a constraint. The filing cautions that pandemic effects, seasonality, fuel-price volatility, and other factors make interim results an uncertain indicator of full-year results.
- Liquidity was expected to cover needs for the next 12 months. Delta said it expected liquidity to be $5–$6 billion by 2024 as it reduced obligations and reinvested in the business.
- Future aircraft purchase commitments totaled approximately $15.06 billion. The LaGuardia redevelopment was estimated at $3.5 billion in net project costs, with Delta bearing construction and potential overrun risks; the LAX project was estimated at $2.3 billion. The JFK Terminal 4 expansion is expected to increase lease liabilities payable through 2043.
- The refinery had a $556 million net fair-value obligation for renewable-fuel compliance. Delta disclosed legal proceedings but said their resolution was not expected to materially adversely affect the financial statements; it reported no material changes to previously disclosed risk factors.
- Other unusual items include $221 million of Q2 net investment losses, $41 million of Q2 debt-extinguishment losses, and $239 million of Q2 fuel-hedge losses (with settlements partly offset by higher refinery operating profits). Delta also reported $72 million of carbon-offset expense for the first half.
Important facts for investors to verify
- Whether demand, pricing, and capacity recovery meet management’s stated 2022 expectations, particularly the 83%–85% September capacity estimate.
- Whether fuel prices, labor and operating costs, and unit costs remain elevated, and how these affect margins and cash generation.
- Progress on debt repayment, the $13.6 billion liquidity position, and the expected reduction in liquidity to $5–$6 billion by 2024.
- Funding, timing, lease impacts, and potential cost overruns on aircraft commitments and airport redevelopment projects.
- Changes in travel-credit and air-traffic-liability estimates, renewable-fuel compliance costs, and fair-value investment results.