Delta Air has announced $676 million pre-tax income for Q1 2018, a $104 million decrease from the March 2017 quarter, as record revenues were offset by higher fuel prices and other increased costs including a $44 million impact from severewinter weather.
“The Delta people delivered a strong March quarter, and our record revenue was a direct result of the great service andoperational reliability they provided for our customers. It’s an honor to recognize their hard work with $183 million toward our2018 profit sharing,” said Ed Bastian, Delta’s chief executive officer. “We have confidence in our plan to grow earnings in2018 through top-line growth, improving our cost trajectory, and leveraging our international partnerships.”
Revenue Environment
Delta’s adjusted operating revenue of $9.8 billion for the March quarter improved 8 percent, or $715 million versus the prioryear. This revenue result marks a March quarter record for the company, and was driven by improvements across Delta’sbusiness, including a 23 percent increase in cargo revenue and a
$78 million increase in total loyalty revenue. Delta’s Branded Fares initiative drove $421 million in premium up-sellrevenue in the period, a 23 percent increase from the prior year.
Total unit revenues excluding refinery sales (TRASM) increased 5.0 percent during the period, with foreign currencycontributing just over 0.5 points of benefit. This marks the fourth consecutive quarter of year-over-year growth, with allgeographic regions delivering positive results.
“We are seeing Delta’s best revenue momentum since 2014, with positive domestic unit revenues, improvements in all ourinternational entities, strong demand for corporate travel and double-digit increases in our loyalty revenues,” said GlenHauenstein, Delta’s president. “With our solid pipeline of commercial initiatives, delivered with industry-leading Deltaservice, we expect to maintain this momentum and deliver total revenue growth of 4 to 6 percent for the full year.”
Total adjusted operating expenses for the March quarter increased $817 million, driven by higher fuel prices, investmentsin employee wages and profit sharing, and higher depreciation expense.
Adjusted fuel expense increased $317 million, or 20 percent relative to March quarter 2017, as the year- over-year increasein market fuel prices was tempered by the lapping of prior year hedge losses and improved fuel efficiency. Delta’s adjustedfuel price per gallon for the March quarter was $2.01, which includes $0.05 of benefit from the refinery.
CASM-Ex increased 3.9 percent for the March 2018 quarter compared to the prior year period driven by April 2017 wageincreases and accelerated depreciation due to aircraft retirements. Unit costs were further pressured by approximately 1point from the impact of severe weather and foreign exchange. Delta expects this period will mark the highest non-fuelexpense growth for the year.
“We expect unit cost growth of 1 to 3 percent in the June quarter, as we lap prior year investments in our people and ourbusiness,” said Paul Jacobson, Delta’s chief financial officer. “As we move through depreciation pressure from our fleetretirements and gain benefits from our upgauging and One Delta initiatives later in the year, we are on track for our 0 to 2percent full year unit cost target.”
Adjusted non-operating expense was flat year-on-year for the March quarter as a $62 million improvement in pensionexpense was offset by higher interest costs and the seasonality of joint venture partner earnings. The company expects2018 full-year adjusted non-operating expense to be $200-250 million lower than 2017, due to pension expense savings.
Tax expense declined $117 million for the March quarter, primarily due to the reduction in Delta’s book tax rate from 34percent to 23 percent.
Cash Flow and Shareholder Returns
Delta generated $1.3 billion of operating cash flow, as the seasonal build of cash was partially offset by the $1.1 billion profitsharing payment to employees and a $500 million voluntary pension contribution in the March quarter, completing fundingfor the full year. Delta generated $173 million of free cash flow during the quarter, after the investment of $1.2 billion into thebusiness primarily for aircraft purchases and improvements.
