- Pretax Earnings: $380 million.
- Earnings Per Share (EPS): $0.45 per share, a $0.20 improvement over last year.
- Revenue: 6% increase to a new record for first quarter, $12.6 billion.
- Free Cash Flow: $1.4 billion.
- Return on Invested Capital: Nearly 14%, top half of the S&P 500.
- Profit Sharing: $1.4 billion recognized for employees' efforts.
- Remuneration from American Express: Record quarterly remuneration of $1.7 billion.
- Full Year Guidance: Earnings of $6 to $7 per share, free cash flow of $3 billion to $4 billion, leverage of 2.5x.
- June Quarter Forecast: Highest quarterly revenue in history, mid-teens operating margin, earnings of $2.20 to $2.50 per share, pretax profit of approximately $2 billion.
- Managed Corporate Travel Sales: Grew 14% over the prior year.
- Premium Revenue: Up 10% over prior year.
- Loyalty Revenue: Grew 12%.
- June Quarter Revenue Growth: Expected 5% to 7% on capacity growth of 6% to 7%.
- Nonfuel CASM: 1.5% above last year.
- Fuel Prices: Averaged $2.76 per gallon.
- Refinery Profit: $49 million.
- Debt Repayment: $700 million repaid during the quarter.
- Leverage Ratio: Improved to 2.9x.
- June Quarter Operating Margin: Expected 14% to 15%.
- June Quarter Fuel Prices: Expected to be $2.70 to $2.90 per gallon.
- Nonfuel Unit Costs: Expected to be approximately 2% higher than last year.
Release Date: April 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Delta Air Lines Inc (DAL, Financial) reported pretax earnings of $380 million or $0.45 per share, a $0.20 improvement over last year.
- Revenue increased by 6% to a new record for the first quarter.
- Free cash flow was strong at $1.4 billion, with a return on invested capital of nearly 14%.
- Operational reliability was industry-leading, with mainline cancellations down 85% and new records for completion factor in both Q4 and Q1.
- Delta's partnership with American Express continues to strengthen, with record quarterly remuneration of $1.7 billion.
Negative Points
- Despite strong performance, higher fuel prices impacted the results, with fuel averaging $2.76 per gallon, $0.16 higher than the midpoint of guidance.
- The refinery profit was down $173 million from last year due to more normalized refining margins.
- Total unit revenue growth was down 0.7%, including nearly a 1-point headwind from cargo and MRO.
- International unit revenue declined by 3% due to capacity investments in the rebuild of Latin and Pacific franchises.
- There is a headwind from the normalization of travel credits, which affects revenue performance.
Q & A Highlights
Q: Can you speak to maintenance expense and the outlook relative to your expectations?
A: Daniel Charles Janki (Delta Air Lines, Inc. - Executive VP & CFO): Maintenance is on plan and performing as expected, with a full-year expectation of being up year-over-year by $350 million. The first quarter was on plan, and the team is executing well. Investments in fleet health will continue through the year, and the proactive maintenance visits are showing positive results, with mainline cancellations down significantly.
Q: Are you seeing a decrease in average trip length for corporate travel?
A: Glen W. Hauenstein (Delta Air Lines, Inc. - President): We're seeing both shorter and longer trips, with some blending leisure with business travel. Booking curves have changed, with purchases a bit further out due to the elimination of change fees.
Q: Can you quantify the impact of the normalization of travel credits on June Q RASM?
A: Glen W. Hauenstein: We've previously disclosed headwinds of up to a couple of points, but we're not going into the details beyond that.
Q: Can you give us an update on the status of the appeal process with the DOT on Aeromexico?
A: Peter W. Carter (Delta Air Lines, Inc. - EVP of External Affairs): The DOT's tentative order is seen as regulatory overreach, and Delta has challenged it. Discussions with the administration are ongoing for less punitive solutions. It may take several months for the DOT to issue a final order, but we're cautiously optimistic.
Q: What's your visibility to second half RASM inflection, and do you see more upside or downside risk to flat RASM?
A: Glen W. Hauenstein: We're ahead of our internal plan to get to flattish RASM for the year, and the comps get easier as we move through the year. Industry capacity seems to peak in 2Q, setting up a favorable backdrop for the second half of the year.
Q: Do you think there is a seasonal shift from Q3 into Q2 relative to what we used to see?
A: Glen W. Hauenstein: Yes, the seasonality has changed due to schools in the south starting earlier in August, making Q2 stronger and Q3 a bit weaker.
Q: When do you think you can start using the balance sheet for other uses of cash like CapEx or cash return?
A: Edward H. Bastian (Delta Air Lines, Inc. - CEO & Director): We're not in a position yet to make decisions on that. Debt reduction remains the first call on cash. We'll discuss more at our Investor Day in November.
Q: How might the Paris Olympics impact travel demand in 2Q and early 3Q?
A: Glen W. Hauenstein: The Olympics generally aren't good for airline revenues. Business travel to local markets typically ceases as the Olympics approach, so it's expected to be a headwind.
Q: How is the rebuild of your core hubs impacting domestic capacity growth this summer?
A: Glen W. Hauenstein: We're focused on restoring our most profitable core hubs, which have a higher unit revenue base than our coastal gateways. This should have a positive impact on total revenues.
Q: Can you talk about the differentiation in Latin America between short-haul and long-haul markets?
A: Glen W. Hauenstein: South America is performing well with minimal impact on unit revenues despite capacity being up 30-40%. Short-haul leisure markets faced oversupply in the first quarter, but profitability remains solid.
Q: How are you thinking about the cadence of capacity as we move into the back half of the year?
A: Glen W. Hauenstein: We expect to be at the high end of the 3% to 5% growth range, potentially right at that 5% depending on completion factors.
Q: What is driving the MRO headwinds in the ancillary revenue line?
A: Daniel Charles Janki: Constraints in the industry around materials and turnaround times are impacting third-party activity. The focus has been on the Delta fleet, but the constraint continues to be material and turnaround times.
Q: How valuable will Delta TechOps be over the next 10 years given aging fleets across the industry?
A: Daniel Charles Janki: TechOps is a unique advantage, and our fleet has gotten younger. We've restored the network into our flex fleet and expect natural retirements to start in the back half of the year. TechOps will be even more valuable in the next couple of years as the industry returns to more normalized growth.
