Delta Air Lines, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited; Ernst & Young performed an interim review and reported that it was not aware of material modifications needed for GAAP conformity.
Business context and results
Delta said its results continued to reflect the COVID-19 recovery. Demand accelerated during the quarter, but capacity remained below 2019 levels. Comparisons with Q1 2021 are affected by the $1.2 billion of payroll support grants recognized as an expense reduction in that prior-year quarter.
| Metric | Q1 2022 | Q1 2021 | Q1 2019 |
|---|---|---|---|
| Operating revenue | $9.348 billion | $4.150 billion | $10.472 billion |
| Operating loss | $783 million | $1.398 billion | $1.020 billion operating income |
| Net loss | $940 million | $1.177 billion | Not provided in the cited comparison |
| Loss per diluted share | $1.48 | $1.85 | Not provided in the cited comparison |
| Operating cash flow | $1.771 billion | $691 million | $1.942 billion |
| Free cash flow (non-GAAP) | $197 million | $710 million | $751 million |
Revenue increased 125% year over year, including passenger revenue of $6.907 billion, up 151%. Revenue was 11% below Q1 2019, while available seat miles were 17% below 2019. Compared with Q1 2021, operating expenses rose 83% to $10.131 billion, including higher fuel, operating-volume costs, and the absence of prior-year grant recognition. Adjusted operating expense, a non-GAAP measure, was $8.954 billion versus $6.261 billion in Q1 2021 and $9.354 billion in Q1 2019.
Key operating measures: total revenue per available seat mile (TRASM) was 18.04 cents; adjusted TRASM was 15.75 cents; cost per available seat mile (CASM) was 19.56 cents; CASM-Ex was 13.24 cents. Passenger load factor was 75%, compared with 45% in Q1 2021 and 83% in Q1 2019. Fuel expense was $2.092 billion, with an average price of $2.79 per gallon versus $1.87 a year earlier.
Financial position and liquidity
- Cash and cash equivalents were $7.705 billion and short-term investments were $2.250 billion at March 31, 2022. Delta reported total liquidity of $12.8 billion, including $2.9 billion available under revolving credit facilities.
- Debt and finance lease obligations were $25.8 billion in principal amount. Balance-sheet debt was $23.770 billion, down from $25.084 billion at December 31, 2021. Delta repaid about $1.4 billion of debt and finance leases during the quarter. It was in compliance with debt covenants.
- Operating activities generated $1.771 billion; investing activities used $749 million and financing activities used $1.456 billion. Capital expenditures were $1.766 billion. Cash, cash equivalents and restricted cash equivalents totaled $8.135 billion at quarter-end.
- Current liabilities were $24.060 billion, including $8.809 billion of air traffic liability. Air traffic liability increased approximately $2.8 billion during the quarter as advance ticket sales recovered.
Material changes and unusual items
- Operating loss improved by $615 million versus Q1 2021, primarily on increased passenger revenue, partly offset by higher fuel and other costs and the prior-year $1.2 billion payroll support grant benefit. Against Q1 2019, Delta moved from operating income to a loss, with passenger revenue 25% lower.
- Non-operating expense was $417 million, versus $117 million in Q1 2021. Q1 2022 included a $147 million net loss on investments, while the prior-year period had a $262 million net gain.
- Delta’s former 51% Aeroméxico interest was effectively eliminated in Aeroméxico’s restructuring. Delta received a 20% interest in the reorganized airline in exchange for debtor-in-possession receivables, $100 million, and an agreement to provide expanded commercial services.
- Delta reported a $430 million net fair-value obligation for renewable fuel compliance costs; the EPA had not finalized the relevant compliance deadlines. It also recognized $47 million of carbon-offset expense related to a portion of 2021 airline emissions.
Outlook, management commentary, and risks
- Management expected Q2 2022 system capacity to be about 85% recovered versus Q2 2019, with the ability to return to 2019 capacity by year-end if demand warranted. It expected positive operating cash flow for the remainder of 2022.
- Delta expected elevated jet fuel costs to persist through 2022, citing market disruptions and geopolitical events. It expected international revenue recovery to trail domestic recovery through at least Q2 2022; Pacific travel remained particularly constrained. Business-travel recovery was improving, but its pace remained uncertain.
- Management expected liquidity of $5 billion to $6 billion by 2024 as Delta reduced obligations and reinvested. Expected 2022 capital expenditures were approximately $6.0 billion, excluding the LaGuardia project.
- Aircraft purchase commitments totaled approximately $15.3 billion. The LaGuardia redevelopment was estimated to cost $3.5 billion, with Delta expecting to spend about $750 million in 2022 and bearing construction cost-overrun risk. The JFK Terminal 4 expansion was estimated at $1.5 billion; Delta estimated annual rent under the related agreement of about $300 million in 2024, subject to project costs and operating factors.
- Other uncertainties include continued effects of COVID-19, volatile fuel prices, changing travel restrictions and customer behavior affecting unused-ticket revenue estimates, and renewable-fuel compliance costs. Delta stated that its legal proceedings and risk factors had no material changes from its 2021 Form 10-K.
Important facts for investors to verify
- Whether demand, fares, and domestic and international business travel recovered as management anticipated, and whether capacity expansion was supported by demand.
- Whether fuel prices and operating costs pressured margins, and how refinery results and fuel-hedge effects influenced reported performance.
- Whether operating cash generation and advance ticket sales supported liquidity while Delta continued debt repayment and elevated capital spending.
- The final costs, rent obligations, financing and timing of the JFK, LaGuardia, and LAX projects, along with aircraft commitments.
- How Aeroméxico and other airline investments, renewable-fuel obligations, ticket-credit use, and related estimation uncertainties affected later results.