DELTA AIR LINES, INC. annual report, FY2023

Delta Air Lines, Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; it does not provide standalone fourth-quarter results in the supplied text. Delta operates a global passenger and cargo airline and refinery segment, and served more than 190 million customers in 2023.

Financial performance and position

Metric	2023	2022	Change
Operating revenue	$58.0 billion	$50.6 billion	Up 15%
Operating income	$5.5 billion	$3.7 billion	Up $1.9 billion
Net income	$4.6 billion	$1.3 billion	Up $3.3 billion
Diluted earnings per share	$7.17	$2.06	Up $5.11
Operating cash flow	$6.5 billion	$6.4 billion	Up $0.1 billion
Capital expenditures	$5.3 billion	$6.4 billion	Down $1.1 billion

Operating margin was approximately 9.5%, compared with 7.2% in 2022; net margin was approximately 7.9%, compared with 2.6% (calculated from reported figures).
Management-reported adjusted operating income, a non-GAAP measure, was $6.3 billion, versus $3.6 billion. The 2023 figure excludes $864 million in pilot-agreement-related expenses and includes adjustments for hedge items.
Passenger revenue rose 22% to $48.9 billion. Premium-product ticket revenue grew 26% and main-cabin ticket revenue 20%. Cargo revenue fell 31% to $723 million; other revenue declined 10%, primarily due to lower third-party refinery sales.
Total operating expenses increased 12% to $52.5 billion. Salaries and related costs rose 23%, including wage increases, workforce growth and pilot agreement costs. Fuel expense declined 4% to $11.1 billion as lower prices more than offset increased consumption.
CASM decreased 4% to 19.31 cents, while adjusted non-fuel CASM-Ex increased 2.3% to 13.17 cents. Passenger load factor increased to 85% from 84%.
Management’s non-GAAP free cash flow was $2.0 billion. This calculation includes adjustments such as net redemptions of short-term investments and adds back the $735 million pilot ratification payment; it is not the same as GAAP cash flow less capital expenditures.
Year-end liquidity was $6.8 billion, including cash, cash equivalents, short-term investments and available revolving credit. Cash and cash equivalents alone were $2.7 billion; approximately $2.9 billion was undrawn and available under revolving facilities.
Principal debt and finance lease obligations were $20.1 billion at year-end. Delta repaid approximately $4.1 billion during 2023. Debt maturities include $2.6 billion in 2024 and $2.0 billion in 2025. The company reported compliance with debt covenants.
Delta reinstated its quarterly dividend in 2023, paying $0.10 per share in each of the September and December quarters.

Material changes versus 2022

Capacity increased 17%, with passenger revenue up 22%; international passenger revenue rose 49%, led by transatlantic travel and the recovery of Pacific demand.
Operating income improved substantially, while non-operating results swung to $87 million of income from $1.7 billion of expense. The 2023 result included $1.3 billion of net investment gains, including a $786 million mark-to-market gain on Wheels Up.
Delta recorded $864 million of pilot agreement and related expenses, including a $735 million one-time ratification payment and approximately $130 million of benefit-related adjustments. Profit-sharing expense rose to $1.4 billion from $563 million.
Refinery segment operating income declined to $385 million from $777 million. The refinery completed a planned turnaround from mid-September to mid-November, during which it produced no refined products.
Debt and finance lease repayments and operating cash flow supported a reduction in reported debt balances; the balance sheet also reflected higher equity investments, partly from the Wheels Up transaction and investment valuation changes.

Outlook, commentary and risks

The filing does not provide a quantified 2024 earnings or revenue forecast. Management expects moderate, single-digit domestic capacity growth and expects fuel consumption to rise with capacity, partly offset by fleet efficiency improvements.
Management expects elevated jet fuel prices relative to historical levels at the beginning of 2024, citing market conditions and geopolitical events. It expects to meet near-term liquidity needs through cash, investments and operating cash flow.
Management expects a 2024 effective tax rate of 23%–25%. It expects approximately $5 billion of 2024 capital spending, excluding the LaGuardia project, and will continue to seek opportunities for debt prepayment.
American Express remuneration totaled $6.8 billion in 2023; Delta expects it to increase 10% in 2024 and has stated a long-term expectation of $10 billion.
Key exposures include volatile fuel prices and supply, labor costs and potential work disruptions, intense fare and network competition, weather and airport or technology disruptions, cybersecurity and third-party risks, geopolitical events, and extensive regulation.
Environmental regulation and the cost and limited availability of sustainable aviation fuel (SAF) create uncertainty. Delta’s net-zero-by-2050 objective depends on future technology, SAF production, policy support and investment; the filing says these solutions are not yet available at scale.
The DOT’s renewal review of antitrust immunity for the Aeroméxico cooperation agreement remained pending; existing immunity continued while the matter awaited final adjudication. A long-running airline capacity antitrust case also remained unresolved, with Delta stating it believes the claims lack merit.
Other notable exposures include $17.5 billion of aircraft purchase commitments, $8.8 billion of minimum obligations under third-party regional carrier agreements, and construction cost risk on the LaGuardia redevelopment. Delta expected LaGuardia substantial completion by the end of 2024 and estimated its net project cost at approximately $3.8 billion.

Most important facts for investors to verify

Reconcile reported GAAP performance with adjusted measures, especially free cash flow and adjusted operating income, and assess the effect of the pilot payment and investment mark-to-market gains.
Track cash generation, liquidity composition, debt maturities, lease obligations and covenant requirements; liquidity includes undrawn credit and is not equivalent to cash on hand.
Monitor premium and international demand, capacity growth, unit revenue and non-fuel unit costs, including whether CASM-Ex growth persists.
Assess fuel-price sensitivity: Delta estimates that a one-cent-per-gallon increase would add approximately $40 million in annual fuel expense at consumption of about four billion gallons.
Review the valuation and volatility of the Wheels Up investment, which contributed materially to 2023 non-operating gains, and the status of the Aeroméxico antitrust-immunity renewal.
Track delivery timing and funding for aircraft commitments and major airport projects, as well as SAF costs, environmental rules and related contingencies.