Delta Air Lines today reported financial results for the June quarter 2017. Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here.

Adjusted pre-tax income for the June 2017 quarter was $1.85 billion, a $172 million increase from the June 2016 quarter, primarily driven by higher revenue. Delta recorded a June quarter 2017 adjusted operating margin of 18.4 percent. Delta delivered these results despite a $125 million negative impact from the operational disruption following severe storms in Atlanta in early April.

“The June quarter ranks among the best in Delta’s history as our people delivered top financial, operational, and customer satisfaction results — and it is an honor to recognize that performance with an additional $338 million toward our 2017 profit sharing,” said Ed Bastian, Delta’s Chief Executive Officer. “While 2017 is a transition period for Delta, we are encouraged by the improvement in unit revenues, leading to increasing conviction in our ability to expand margins as we move through the back half of the year.”

Revenue Environment

Delta’s record operating revenue of $10.8 billion for the June quarter was up $344 million versus prior year, despite a $115 million headwind from April‘s operational disruption.

Passenger revenue increased $261 million, including $100 million from Delta’s Branded Fares initiatives. Passenger unit revenues increased 2.5 percent on 0.4 percent higher capacity.

Cargo revenue increased 11 percent, driven by higher volumes in freight and mail. Other revenue increased 5 percent primarily due to higher SkyMiles revenue and third-party refinery sales.

“The June quarter marked Delta’s return to unit revenue growth after two and a half years. This improvement resulted from a strengthening demand environment and our commercial initiatives to provide customers more choice, an innovative experience, and a broader global network,” said Glen Hauenstein, Delta’s President. “We expect this momentum to continue in the September quarter, with passenger unit revenue growth of 2.5 to 4.5 percent as we focus on driving a sustainable revenue premium to the industry.”

September 2017 Quarter Guidance

For the September quarter, Delta is expecting its margins to expand relative to prior year, as unit revenue improvement continues and fuel prices and non-fuel cost pressures moderate.

Cost Performance

Adjusted fuel expense4 decreased $325 million compared to the same period in 2016 as prior year hedge settlements offset higher market fuel prices. Delta’s adjusted fuel price per gallon for the June quarter was $1.66, which includes $0.01 of benefit from the refinery.

CASM-Ex, including profit sharing increased 7.3 percent for the June 2017 quarter compared to the prior year period. Normalized CASM-Ex, including profit sharing increased 5.5 percent versus the prior year period, driven by employee wage increases, product investments, and 1 point of pressure from April’s operational disruption.

Interest expense increased $10 million year-over-year from debt issuances in the March quarter used to fund Delta’s defined benefit pension liabilities.

“The June quarter represented the peak for non-fuel cost pressures this year and we expect our CASM trajectory to moderate to approximately 2 percent for the September quarter as we annualize product investments, improve productivity through upgauging and better asset utilization, and lap one-time costs from last August’s technology outage,” said Paul Jacobson, Delta’s Chief Financial Officer. “Our cost foundation is an essential component of sustainable performance, allowing the benefits of our commercial initiatives to drive margin improvements in the future.”

Cash Flow, Shareholder Returns, and Adjusted Net Debt

Delta generated $2.8 billion of adjusted operating cash flow and $1.9 billion of free cash flow during the quarter. The company used this strong cash generation to invest nearly $1 billion into the business for aircraft purchases and improvements, facilities upgrades and technology.

In the first half of 2017, Delta contributed $3.5 billion to its defined benefit pension plans, bringing its unfunded pension liability to $6.9 billion, down $3.7 billion versus year-end 2016.

Adjusted net debt at the end of the quarter was $8.4 billion, up $2.3 billion versus year-end 2016 as a result of Delta’s March quarter 2017 unsecured debt issuance.

For the June quarter, the company returned $748 million to shareholders, comprised of $148 million of dividends and $600 million of share repurchases.

June Quarter Results
Special items for the quarter consist primarily of mark-to-market adjustments on fuel hedges.