Delta Expects to Make $7 Billion From Its Amex Credit Card Relationship by 2023. But How? – Skift

Delta Expects to Make $7 Billion From Its Amex Credit Card Relationship by 2023. But How? - Skift
Delta beats Wall Street forecasts with record revenue and big jump in first-quarter profit
Delta Air Lines announced Wednesday that it generated record revenue in the first quarter and that its profit and sales for the period beat Wall Streets expectations.

“Demand for Deltas product has never been stronger,” President Glen Hauenstein said in a statement announcing the earnings. “With our customer-focused commercial initiatives delivering strong customer loyalty and top-line momentum, we now expect full-year revenue growth of five to seven percent, an increase from our prior guidance.”

Delta Air Lines Announces 2019 March Quarter Profit

The Atlanta-based carrier earned 96 cents a share, on an adjusted basis, in the first quarter compared with an average of 90 cents expected by analysts polled by Refinitiv.

Delta generated $10.47 billion in revenue, compared with $10.42 billion forecast by analysts. Its sales jumped 5.1 percent, up from $9.97 billion during the first three months of last year.

On an unadjusted basis, the companys profit surged 31 percent to $730 million, or $1.09 per share, up from $557 million or 79 cents a share a year earlier.

Investors were expecting a strong quarter from Delta, especially after it raised its earnings and revenue guidance last week, citing healthy demand that helped drive record performance.

Delta said it would keep capacity consistent into the summer months, which will alleviate investor concerns that scheduling too many flights during peak travel season would lower fares and reduce revenue.

It forecast an even stronger second quarter, telling investors that its earnings per share will fall between $2.05 and $2.35 and total operating revenue will rise by 6% to 8% over the same quarter last year. It expects to boost its flight capacity by 4% to 4.5%, year over year.

Deltas revenue per available seat mile, a key industry metric of how much airlines are bringing in for each seat they fly a mile, rose 2.4% in the first three months of 2019, compared with the year-earlier period. The carrier said it expects this figure to rise between 1.5% and 3.5% in the second quarter of this year.

Delta also said its contract renewal with American Express helped drive revenue in the first quarter. The partnership, which focuses on the SkyMiles credit cards, will run through 2029.

The airline has also escaped the fallout from the prolonged grounding of Boeings 737 Max jets after two fatal crashes over five months that killed a total of 346 people. Wall Street analysts recently downgraded Boeing and Southwest Airlines, and American Airlines, which has 737 Max jets in its fleet, cut its revenue guidance for the first quarter and canceled 1,200 flights. Southwest also cut its guidance after canceling 10,000 flights over bad weather, unexpected maintenance and Max groundings.

“Our hearts go out to all who are impacted,” Delta CEO Ed Bastian said Wednesday morning on CNBCs “Squawk Box.” “This is not something we want to compete around. Im confident Boeing will get to the right answer with respect to the fix and hope they get the product back in the sky as soon as possible.”

Correction: This story has been updated to correct who is holding a call with analysts Wednesday. Its Delta executives.

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March quarter 2019 GAAP pre-tax income of $946 million, net income of $730 million and earnings per diluted share of $1.09 on total revenue of $10.5 billion

March quarter 2019 adjusted pre-tax income of $832 million, adjusted net income of $639 million and adjusted earnings per diluted share of $0.96 on total adjusted revenue of $10.4 billion

ATLANTA, April 10, 2019 /PRNewswire/ — Delta Air Lines (NYSE: DAL) today reported financial results for the March quarter 2019 and provided its outlook for the June quarter 2019. Highlights of the March quarter 2019 results, including both GAAP and adjusted metrics, are below and incorporated here.

"Delta is off to a solid start in 2019.  Our March quarter performance demonstrates the power of our growing brand preference, our unmatched competitive advantages, and most importantly the Delta people who are committed to providing the best travel experiences for our customers every day.  Im pleased to recognize their efforts with $220 million toward next years profit sharing," said Ed Bastian, Deltas chief executive officer. "With the momentum in our business and our American Express contract renewal, we have increased confidence in achieving our full-year plan of top-line growth, margin expansion and double-digit earnings growth."

For the June quarter, Delta expects to deliver six to eight percent top-line growth and margin expansion.

Total adjusted revenue and TRASM, adjusted above exclude refinery sales and DAL Global      Services (due to the sale of DGS in December 2018)

Deltas adjusted operating revenue of $10.4 billion for the March quarter improved 7.5 percent, or $728 million versus the prior year. This revenue result marks a March quarter record for the company, driven by improvements across Deltas business, including an eight percent increase in premium product ticket revenue and double-digit percentage increases in loyalty and Maintenance, Repair and Overhaul revenue.  Cargo revenue declined five percent driven by lower volumes.

"Demand for Deltas product has never been stronger, as evidenced by our 7.5 percent top line growth in the March quarter.  This underpins our expectation that June quarter unit revenue should grow 1.5 to 3.5 percent, with sequential improvement in passenger unit revenue across all entities," said Glen Hauenstein, Deltas president. "With our customer-focused commercial initiatives delivering strong customer loyalty and top-line momentum, we now expect full-year revenue growth of five to seven percent, an increase from our prior guidance."

Total adjusted operating expense for the March quarter increased $510 million versus the prior year quarter.  CASM-Ex was down 0.2 percent for the March quarter 2019 compared to the prior year period driven by record operations, a shift in expense timing and strong cost controls.

Adjusted fuel expense increased $87 million, or five percent, relative to March quarter 2018.  Deltas adjusted fuel price per gallon for the March quarter was $2.05, which includes a $34 million loss at the refinery due to low gasoline crack spreads.

Adjusted non-operating expense for the quarter was $69 million higher versus the prior year, driven primarily by lower pension income and earnings pressure from international equity partners.

"Deltas March quarter operating cash flow improved, driven by top-line growth, strong cost controls and margin expansion.  Our cash flow performance allows us to reinvest for Deltas long-term earnings growth, while maintaining our investment grade balance sheet and consistently returning cash to shareholders," said Paul Jacobson, Deltas chief financial officer.  "With non-fuel unit cost momentum from our fleet transformation and One Delta efforts, we have clear line of sight to achieve our full year targets of one percent non-fuel unit cost growth and $3 to 4 billion in free cash flow."

Delta generated $2 billion of operating cash flow, as improved profitability and the seasonal build of cash were partially offset by the $1.3 billion profit sharing payment to employees for 2018 performance.  Delta generated $760 million of free cash flow during the quarter after the investment of $1.3 billion into the business primarily for aircraft purchases and improvements.

Delta accelerated the repurchase of shares in the quarter, funded by a $1 billion short-term loan.  During the quarter, the company repaid $300 million of this loan and expects that the remainder will be repaid by year end.  Delta returned $1.6 billion to shareholders during the March quarter, comprised of $1.3 billion of share repurchases and $233 million in dividends.

The Board of Directors has set the airlines annual meeting of shareholders for 7:30 a.m. EDT, June 20, 2019. The meeting will be held at the offices of Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York.

Delta Air Lines (NYSE: DAL) is the U.S. global airline leader in products, services, innovation, reliability and customer experience. Powered by its 80,000 people around the world, Delta continues to invest billions in its people, improving the air travel experience and generating industry-leading shareholder returns.

Statements in this press release that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements.  These risks and uncertainties include, but are not limited to, the cost of aircraft fuel; the availability of aircraft fuel; the impact of fuel hedging activity including rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the performance of our significant investments in airlines in other parts of the world; the possible effects of accidents involving our aircraft; breaches or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on technology in our operations; the restrictions that financial covenants in our financing agreements could have on our financial and business operations; labor issues; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third parties; failure or inability of insurance to cover a significant liability at Monroes Trainer refinery; the impact of environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain senior management and key employees; damage to our reputation and brand if we are exposed to significant adverse publicity through social media; the effects of terrorist attacks or geopolitical conflict; competitive conditions in the airline industry; interruptions or disruptions in service at major airports at which we operate; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions; uncertainty in economic conditions and regulatory environment in the United Kingdom related to the exit of the United Kingdom from the European Union; and the effects of the rapid spread of contagious illnesses.

Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.  Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of April 10, 2019, and which we have no current intention to update.

Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards.

Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards. Except for number of aircraft in fleet, consolidated data presented includes operations under Deltas contract carrier arrangements.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:

Note: The prior periods presented here have been recast to reflect adoption of certain new accounting standards.

Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below. Reconciliations may not calculate due to rounding.

Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. ("GAAP"). Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The tables below show reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.

Forward Looking Projections. The Company is not able to reconcile forward looking non-GAAP financial measures because the adjusting items such as those used in the reconciliations below will not be known until the end of the period and could be significant.  

Pre-tax Income and Net Income, adjusted. We adjust pre-tax income and net income for mark-to-market ("MTM") adjustments and settlements on fuel hedge contracts, the MTM adjustments recorded by our equity method investees, Virgin Atlantic and Aeroméxico, unrealized gains/losses on our equity investments accounted for at fair value, and the DGS sale to determine pre-tax income and net income, adjusted. We include the income tax effect of adjustments when presenting net income, adjusted.

MTM adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period (defined below).

Equity investment MTM adjustments. We record our proportionate share of earnings/loss from our equity investments in Virgin Atlantic and Aeroméxico in non-operating expense. We adjust for our equity method investees MTM adjustments to allow investors to better understand and analyze our core operational performance in the periods shown.

Unrealized gain/loss on investments. We record the unrealized gains/losses on our equity investments accounted for at fair value in non-operating expense. Adjusting for these gains/losses allows investors to better understand and analyze our core operational performance in the periods shown.

DGS sale adjustment. Because we sold DAL Global Services, LLC ("DGS") in December 2018, we have excluded the impact of DGS from historical results for comparability.

Operating Revenue, adjusted and Total Revenue Per Available Seat Mile ("TRASM"), adjusted. We adjust operating revenue and TRASM for refinery sales to third parties to determine operating revenue, adjusted and TRASM, adjusted because refinery sales to third parties are not related to our airline segment. Operating revenue, adjusted and TRASM, adjusted therefore provide a more meaningful comparison of revenue from our airline operations to the rest of the airline industry. We adjust for the DGS sale for the same reason described above under the heading pre-tax income and net income, adjusted.

Non-Fuel Unit Cost or Cost per Available Seat Mile, ("CASM-Ex"). We adjust CASM for the following items to determine CASM-Ex for the reasons described below:

Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes allows investors to understand and analyze our non-fuel costs and year-over-year financial performance.

Ancillary businesses and refinery. These expenses include aircraft maintenance we provide to third parties, our vacation wholesale operations and refinery cost of sales to third parties. 2018 results also include staffing services performed by DAL Global Services. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these areas to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.

Profit sharing. We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

Free Cash Flow. We present free cash flow because management believes this metric is helpful to investors to evaluate the companys ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include:

Net purchases (redemptions) of short-term investments. Net purchases (redemptions) of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust free cash flow for this activity, net, to provide investors a better understanding of the companys free cash flow core to operations.

Net cash flows related to certain airport construction projects. Management believes investors should be informed that cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures. We have adjusted for these items, which were primarily funded by cash restricted for airport construction, to provide investors a better understanding of the companys free cash flow and capital expenditures that are core to our operational performance in the periods shown.

Capital Expenditures, net. We present net capital expenditures because management believes investors should be informed that a portion of these capital expenditures are reimbursed by a third party.

Operating Expense, adjusted. We adjust operating expense for MTM adjustments and settlements, third-party refinery sales and DGS sale adjustment for the same reasons described above under the headings pre-tax income and net income, adjusted and operating revenue and TRASM, adjusted to determine operating expense, adjusted.

Fuel expense, adjusted and Average fuel price per gallon, adjusted. The tables below show the components of fuel expense, including the impact of the refinery segment and airline segment hedging on fuel expense and average price per gallon. We then adjust for MTM adjustments and settlements for the same reason described under the heading pre-tax income and net income, adjusted.

Non-operating Expense, adjusted. We adjust for equity investment MTM adjustments and unrealized gain/loss on investments to determine non-operating expense, adjusted for the same reasons described above in the heading pre-tax income and net income, adjusted.