Delta Air Lines, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; comparisons are with Q3 2022 unless otherwise noted. The interim financial statements were reviewed by Ernst & Young, not audited. Management cautions that seasonal travel demand and fuel-price volatility mean interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Operating revenue | $15.488 billion | $13.975 billion | +11% |
| Operating income | $1.984 billion | $1.456 billion | +$528 million |
| Net income | $1.108 billion | $695 million | +$413 million |
| Diluted EPS | $1.72 | $1.08 | +$0.64 |
| Operating cash flow | $1.076 billion | Not provided for the quarter | — |
- Passenger revenue rose 14% to $13.119 billion; premium-product ticket revenue increased 17%. Cargo revenue fell 36%, and other revenue declined 2%, mainly reflecting lower third-party refinery sales.
- Operating expenses increased 8% to $13.504 billion. Salaries and related costs rose 23%, including wage increases, a larger workforce and profit sharing; fuel expense fell 12% as the average fuel price per gallon declined 23%.
- Operating margin was approximately 12.8%, compared with 10.4% in Q3 2022, based on reported operating income and revenue. CASM decreased 7%; non-GAAP CASM-Ex increased 1.3%.
- Non-operating expense was $463 million, including a $206 million net investment loss and $196 million net interest expense.
Nine-month results and financial position
- For the nine months ended September 30, revenue was $43.825 billion, up 18%; operating income was $4.199 billion, versus $2.191 billion; net income was $2.572 billion, versus $489 million. Diluted EPS was $4.00, versus $0.76.
- Nine-month operating cash flow was $5.919 billion, compared with $5.175 billion. Capital expenditures were $3.7 billion; debt and finance-lease repayments were $3.710 billion. Cash, cash equivalents and restricted cash declined by $504 million to $2.969 billion. Quarter-end liquidity, including short-term investments and undrawn revolvers, was $7.8 billion.
- At September 30, total debt was $18.028 billion, down from $21.381 billion at December 31, 2022; principal debt and finance leases were $19.6 billion. About $2.8 billion was undrawn under revolving credit facilities. Delta reported compliance with debt covenants.
- Total assets were $73.247 billion and stockholders’ equity was $9.226 billion. Air traffic liability was $8.738 billion; loyalty-program deferred revenue totaled $8.373 billion.
- Delta paid a $0.10-per-share dividend in August and declared another $0.10 dividend payable in November.
Material changes, outlook and risks
- Passenger demand and capacity strengthened: Q3 capacity increased 16%, with particular growth in international travel and premium products. Total passenger revenue increased 14%; international passenger unit revenue was up 7% on 26% more capacity.
- The new four-year pilot agreement includes an initial 18% pay increase and a $735 million one-time ratification payment. Delta also recorded approximately $130 million of related benefit adjustments in Q1 2023; nine-month pilot-agreement and related expense was $864 million.
- Delta expects positive operating cash flow for the remainder of 2023 and says it expects to meet liquidity needs over the next 12 months using cash, short-term investments and operating cash flow. It expects the 2023 effective tax rate to be 22%–24%, subject to factors including investment mark-to-market changes. Expected 2023 capital spending was approximately $5.5 billion, excluding the LaGuardia project.
- Management expects fuel prices to remain volatile through the remainder of 2023 and into 2024. Fuel costs remain high relative to historical levels, and increased capacity is expected to raise full-year 2023 fuel consumption versus 2022.
- The Monroe refinery began a planned five-year maintenance turnaround in mid-September, with completion expected in mid-November 2023; production was expected to be suspended during the work. Refinery operating income fell to $119 million in Q3 from $192 million.
- Delta contributed $150 million to a Wheels Up term loan and made a $100 million liquidity facility available if Wheels Up’s liquidity falls below $100 million; none had been drawn at quarter-end. Delta reported a 39% equity stake, subject to expected dilution, and capped voting rights of 29.9%. Wheels Up was not consolidated.
- Aircraft purchase commitments totaled approximately $17.8 billion for 313 aircraft. Delta also bears construction and potential cost-overrun risk on the LaGuardia project, with expected net project costs of approximately $4.3 billion.
- Delta is defending capacity antitrust litigation. In August 2023, the court denied defendants’ summary-judgment motions; Delta sought interlocutory appeal or reconsideration. Management says it believes the claims are without merit and does not expect current legal matters to have a material adverse effect.
Important facts for investors to verify
- Whether demand, premium and international revenue trends persist, and how capacity growth affects unit revenue and costs.
- Fuel-price exposure, refinery turnaround completion and the refinery’s effect on airline fuel costs and results.
- Progress on debt reduction, actual cash generation, liquidity and the level of capital spending against aircraft commitments and airport projects.
- The future cost effects of pilot-contract pay increases and profit sharing.
- Wheels Up’s financial condition, any draw on Delta’s liquidity facility, and the valuation and dilution of Delta’s investment.
- Developments in the antitrust case, aircraft commitments and airport-project construction costs.