Delta Air Lines : Earnings Document

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Delta Air Lines Announces June Quarter 2023 Financial Results

Delivered highest quarterly revenue and profitability in Delta's history

Strong June quarter operating cash flow enabled accelerated debt reduction

Expect record September quarter revenue, mid-teens operating margin and EPS of $2.20 - $2.50

Raising full year EPS outlook to $6 - $7 and reiterating free cash flow guide of $3 billion

ATLANTA, July 13, 2023 - Delta Air Lines (NYSE: DAL) today reported financial results for the June quarter and provided its outlook for the September quarter 2023. Highlights of the June quarter, including both GAAP and adjusted metrics, are on page five and incorporated here.

"Thanks to the incredible work of our entire team, Delta is delivering for our customers by providing strong operational performance and best in class service during this busy summer period. With this performance, we generated record revenue and profitability in the June quarter. Our people are the best professionals in the industry, and I'm proud to recognize their achievements with $667 million in the first half toward next year's profit sharing payment," said Ed Bastian, Delta's chief executive officer.

"Consumer demand for air travel remains robust. Against this constructive backdrop, we are increasing our 2023 earnings guidance to $6 to $7 per share and reiterating our recently updated outlook for $3 billion of free cash flow."

June Quarter 2023 GAAP Financial Results

• Record operating revenue of $15.6 billion
• Record operating income of $2.5 billion with an operating margin of 16.0 percent
• Pre-taxincome of $2.3 billion with a pre-tax margin of 14.9 percent
• Earnings per share of $2.84
• Operating cash flow of $2.6 billion
• Payments on debt and finance lease obligations of $1.8 billion
• Total debt and finance lease obligations of $20.2 billion at quarter end

June Quarter 2023 Adjusted Financial Results

• Record operating revenue of $14.6 billion, 19 percent higher than the June quarter 2022
• Record operating income of $2.5 billion with an operating margin of 17.1 percent
• Pre-taxincome of $2.2 billion with a pre-tax margin of 15.2 percent
• Earnings per share of $2.68
• Operating cash flow of $2.6 billion
• Free cash flow of $1.1 billion
• Adjusted net debt of $19.8 billion at quarter end

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September Quarter and Full Year Outlook1

	3Q23 Forecast	FY 2023 Forecast
Total Revenue YoY	+11% - 14%	+17% - 20%
Operating Margin	Mid-Teens	>12%
Earnings Per Share	$2.20 - $2.50	$6 - $7

1 Non-GAAP measures; Refer to Non-GAAP reconciliations for comparison figures

Additional metrics for financial modeling can be found in the Supplemental Information section under Quarterly Results on ir.delta.com.

Revenue Environment and Outlook

"We delivered record revenue in the June quarter, with total revenues 19 percent higher than the June quarter of 2022. These results reflect the strength of the demand environment, the hard work of our people and the momentum of Delta's brand," said Glen Hauenstein, Delta's president. "Robust demand is continuing into the September quarter where we expect total revenue to be similar to the June quarter, up 11 percent to 14 percent compared to the September quarter 2022 on capacity that is 16 percent higher."

• Unit revenue strength continues: June quarter total unit revenue (TRASM) was up 1 percent versus 2022 on 17 percent higher capacity driven by improved load factors and yields.
• Record international performance: Record June quarter international passenger revenue was 61 percent higher year over year with record profitability. Transatlantic was driven by strong U.S. consumer demand, with southern European destinations leading results. Transpacific benefited from the re-opening of Japan and performance of the Korean Air joint venture. Latin America strength continued, driven by demand for travel to South America and the Caribbean with integration of the LATAM joint venture progressing well.
• Domestic demand remains robust: June quarter domestic passenger revenue was up 8 percent year over year on a similar increase in capacity. Corporate revenue grew year over year with recent corporate survey results indicating that 93 percent of companies expect their travel will increase or stay the same sequentially in the September quarter.
• Premium and Loyalty revenue drive revenue diversification: Premium revenue growth continues to outpace main cabin, increasing 25 percent year over year. Loyalty revenue improved 20 percent driven by strong co-brandacquisitions and spend growth. American Express remuneration for the June quarter was $1.7 billion, approximately 22 percent higher than June quarter 2022.

Cost Performance and Outlook

"Non-fuel unit costs have reached an important inflection point with our rebuild substantially behind us, core maintenance normalizing and the benefits of scale and efficiency increasing into the second half," said Dan Janki, Delta's chief financial officer. "We expect September quarter non-fuel unit costs to decline 1 percent to 3 percent year over year, consistent with our outlook for low-single digit declines in the second half of the year."

June Quarter 2023 Cost Performance

• June quarter operating expense of $13.1 billion and total adjusted operating expense of $12.1 billion
• June quarter adjusted non-fuel costs of $9.0 billion
• June quarter non-fuel CASM was 2.4 percent higher year over year
• Adjusted fuel expense of $2.5 billion was down 24 percent compared to the June quarter 2022
• Adjusted fuel price of $2.52 per gallon declined 34 percent versus 2022 and includes a refinery benefit of 4¢ per gallon
• Fuel efficiency, defined as gallons per 1,000 ASMs, was 14.4, a 1 percent improvement versus 2022

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Balance Sheet, Cash and Liquidity

"Delta delivered $2.9 billion of free cash flow in the first half of the year, while consistently reinvesting in the business," Janki said. "With an outlook for $3 billion of free cash flow in 2023, we are accelerating debt repayment with a goal of retiring over $4 billion in debt this year. We are on track to reduce leverage to 3x by the end of this year and achieve investment grade metrics in 2024. During the quarter, we also reinstated the quarterly dividend, an important milestone that opens the shareholder base to yield-focused investors."

• Adjusted net debt of $19.8 billion at June quarter end, a reduction of $2.5 billion from the end of 2022
• Payments on debt and finance lease obligations of $1.8 billion in the June quarter. This included $0.8 billion of maturities and the early repayment of $1.0 billion of debt instruments with an average interest rate of 7 percent
• Weighted average interest rate of 4.6 percent with 88 percent fixed rate debt and 12 percent variable rate debt
• Adjusted operating cash flow was a June quarter record of $2.6 billion, and with gross capital expenditures of $1.6 billion, free cash flow was $1.1 billion
• Air Traffic Liability ended the quarter at $10.4 billion, up $0.5 billion year over year
• Liquidity* of $8.8 billion at quarter-end, including $2.8 billion in undrawn revolver capacity

*Includes cash and cash equivalents, short-term investments and undrawn revolving credit facilities

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June Quarter Highlights

Operations, Network and Fleet

• Earned the #1 spot on The Points Guy's list of best U.S. Airlines for the fifth year in a row, consistently scoring high in reliability, customer experience, network and the loyalty program
• Implemented largest ever trans-Atlantic summer schedule in Delta's history with more than 650 weekly flights to 32 destinations and a 20 percent increase in seat capacity versus summer 2022
• Delta and LATAM announced new and enhanced service, with U.S.-Colombia routes and LATAM's first Atlanta route
• Signed an agreement with EL AL Israel Airlines to launch a strategic partnership with more convenient connections for customers, reciprocal codeshare and frequent flyer benefits
• Took delivery of 18 aircraft this year and 12 this quarter, including the A321neo, A220-300 and A330-900; exercised option to purchase 12 additional A220s and added one A330-900 to the order book

Culture and People

• Welcomed Mike Spanos as Chief Operating Officer and Alicia Tillman as Chief Marketing Officer
• Accrued $595 million toward profit sharing in the June quarter, resulting in $667 million accrued in the first half, more than the entire year of 2022
• Provided a 5 percent base pay increase for eligible employees worldwide, effective April 1, 2023, maintaining our philosophy of industry-leading pay for industry-leading performance
• Ranked No. 1 in Strategic Clarity and No. 2 on Leadership Alignment in the Return On Leadership 100 Ranking of the top 100 Fortune 500 companies with a top 20 ranking overall
• Named one of the Best Employers for Diversity by Forbes, along with one of the top companies for career growth by LinkedIn
• Awarded this year's Industrial Sector Leader as one of the most community-minded companies in the U.S. and recognized on The Civic 50 by Points of Light for the sixth consecutive year
• Recognized as the No. 1 corporate blood drive sponsor with the American Red Cross for the sixth consecutive year with record units of blood collected

Customer Experience and Loyalty

• Welcomed over 3 million new SkyMiles members in the quarter marking the second consecutive record quarter
• Generated record American Express remuneration with increasing premium card acquisitions
• Continued to roll out fast, free Wi-Fi for SkyMiles members across the fleet, bringing total to more than 540 aircraft with full availability across Delta's global fleet planned by the end of 2024
• Launched Delta Sync, the first-of-its-kind platform providing curated onboard experiences for customers
• Named best airline in North America by millions of airline customers at Skytrax World Airline Awards; Earned No. 1 ranking for Best Airline Staff Service in North America
• Named No. 1 for Premium Economy by J.D. Power for 2023
• Delta's new Terminal C at LGA and Terminal 3 at LAX made The Condé Nast Traveler's 2023 Hot List in its "ultimate guide to planning your perfect trip"
• Opened a third Delta Sky Club at Minneapolis-Saint Paul International Airport, the largest at MSP with seating for more than 450 and a first-of-its-kind Sky Deck for MSP
• Opened five new gates at SLC, with the eastern portion of Concourse A expected by year-end

Environmental, Social and Governance

• Issued Delta's annualESG Reportwhich shares examples from 2022 of how Delta is creating a safer, more equitable workplace, reflecting the communities we serve while pushing towards a more sustainable future
• Accelerating commitment to SAF with the purchase of 10 million gallons of SAF from Shell Aviation to be delivered over a two-year period for use at Los Angeles International Airport.
• Completed electrification of nearly all core ground service equipment at hubs in SLC and BOS with goals to extend to ATL, LAX, SEA, MSP, JFK, LGA and others
• Participated in SkyTeam's Sustainable Flight Challenge

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June Quarter Results

June quarter results have been adjusted primarily for the third-party refinery sales, unrealized gains on investments and loss on extinguishment of debt as described in the reconciliations in Note A.

	GAAP			$		%
($ in millions except per share and unit costs)	2Q23	2Q22		Change		Change
Operating income	2,491	1,519	972		64 %
Operating margin	16.0 %	11.0 %		5.0 pts	45 %
Pre-tax income	2,317	1,033	1,284		NM
Pre-tax margin	14.9 %	7.5 %		7.4 pts	99 %
Net income	1,827	735	1,092		NM
Diluted earnings per share	2.84	1.15	1.69		NM
Operating revenue	15,578	13,824	1,754		13 %
Total revenue per available seat mile (TRASM) (cents)	22.58	23.47	(0.89)		(4)%
Operating expense	13,087	12,305	782		6 %
Cost per available seat mile (CASM) (cents)	18.97	20.89	(1.92)		(9)%
Fuel expense	2,516	3,223	(707)		(22)%
Average fuel price per gallon	2.52	3.74	(1.22)		(33)%
Operating cash flow	2,609	2,535	74		3 %
Capital expenditures	1,452	958	494		52 %
Total debt and finance lease obligations	20,205	24,839	(4,634)		(19)%

	Adjusted			$		%
($ in millions except per share and unit costs)	2Q23	2Q22		Change	Change
Operating income	2,494	1,445	1,049		73 %
Operating margin	17.1 %	11.7 %	5.4	pts	46 %
Pre-tax income	2,220	1,222	998		82 %
Pre-tax margin	15.2 %	9.9 %	5.3	pts	54 %
Net income	1,723	921	802		87 %
Diluted earnings per share	2.68	1.44	1.24		86 %
Operating revenue	14,613	12,311	2,302		19 %
TRASM (cents)	21.18	20.90	0.28		1 %
Operating expense	12,119	10,866	1,253		12 %
Non-fuel cost	9,011	7,516	1,495		20 %
Non-fuel unit cost (CASM-Ex) (cents)	13.06	12.76	0.30		2.4 %
Fuel expense	2,513	3,296	(783)		(24)%
Average fuel price per gallon	2.52	3.82	(1.30)		(34)%
Operating cash flow	2,648	2,465	183		7 %
Free cash flow	1,094	1,608	(514)		(32)%
Gross capital expenditures	1,572	864	708		82 %
Adjusted net debt	19,841	19,578	263		1 %

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