Delta reported GAAP and adjusted pre-tax income of $1.9 billion and produced a 19 percent GAAP and adjusted operating margin* for the September quarter of 2016.

The airline was able to generate $1.9 billion of operating cash flow, and $1.1 billion of free cash flow* in the third quarter after investing $680 million in aircraft purchases and improvements, facilities upgrades and maintenance part-out initiatives. It also returned $650 million to shareholders and added $325 million to next year’s employee profit sharing payout.  

Delta’s operational performance continued to be strong in the fourth quarter. Despite four days of operational impacts from the technology outage in August that reduced pre-tax income for the quarter by an estimated $150 million, Delta people managed to achieve 99 percent completion factor and an 84 percent on-time rate. And of the 22 “brand perfect” days where 100 percent of mainline and Delta Connection flights were completed, 21 occurred after the outage.

CEO Ed Bastian said, “Delta’s resiliency stood out this quarter as we worked through the outage, continued revenue headwinds, and volatile fuel prices to produce the industry’s best operational reliability and service for our customers along with solid margins, cash flows and returns for our owners.”

In the challenging revenue environment Delta saw a 6.8 percent year-over-year dip in passenger unit revenues – the amount of money collected for every mile each seat is flown – for the quarter but attributed two points to the technology outage and prior year Yen hedge gains.  

President Glen Hauenstein said, “With further slowing of our capacity growth in the December quarter and additional traction on our revenue management initiatives ... we expect our December quarter unit revenues to decline by 3-5 percent year over year.”

After growing capacity conservatively at 1.5 percent for the September quarter, Delta plans to slow growth to 1 percent for the December quarter and into 2017 so it can get back to positive unit revenues, likely sometime early next year.

While Delta’s fuel expense declined $424 million and adjusted fuel expense* declined $348 million compared to 3Q15, the airline expects market fuel prices to be higher year over year in the December quarter for the first time in several years.  However, CFO Paul Jacobson is optimistic about Delta’s strategy:

“Looking ahead, our continued cost discipline and focus on free cash flow have positioned us well to successfully weather the inevitable challenges we face in delivering sustainable results for the long-term,” he said.

*Non-GAAP financial measure.  

Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below.

Delta sometimes uses information that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S.. 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 article to the most directly comparable GAAP financial measures.

Forward Looking Projections. The Company does not reconcile forward looking non-GAAP financial measures because MTM adjustments and settlements will not be known until the end of the period and could be significant.

Pre-Tax Income and Net Income, adjusted. We adjust for the following items to determine pre-tax income and net income, adjusted, for the reasons described below:

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. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the period shown.

Virgin Atlantic MTM adjustments. We record our proportionate share of earnings from our equity investment in Virgin Atlantic in non-operating expense. We adjust for Virgin Atlantic's MTM adjustments to allow investors to better understand and analyze the company’s core financial performance in the period shown.

Income tax. We included the income tax effect of adjustments when presenting net income, adjusted. We believe that presenting the income tax effect of adjustments allows investors to better understand and analyze the company’s core financial performance in the period shown.



Operating Margin, adjusted. We adjust for the following item to determine operating margin, adjusted for the reason described below:

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. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the period shown.



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

Hedge deferrals.  During the March 2016 quarter, we deferred settlement of a portion of our hedge portfolio until 2017 by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Free cash flow is adjusted to include the impact of these deferral transactions in order to allow investors to better understand the net impact of hedging activities in the period shown.

Hedge margin. Free cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company’s core operational performance in the period shown.



Fuel expense, adjusted. The table below shows the components of fuel expense, including the impact of the refinery segment and hedging on fuel expense. We adjust for MTM adjustments and settlements for the reason described below:

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. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.