Delta Beats 2019 Profit Estimates, Sets Revenue Record

Operating revenue for cargo operations at Delta Air Lines fell 13% for the fourth quarter ($187 million) and the full year ($753 million) compared to the same periods in 2018, a small blip in an otherwise upbeat earnings report.

Delta Air Lines DAL reported that fourth quarter adjusted earnings per share grew 31% to $1.70 year-over-year, well above guidance of $1.20 to $1.50 per share, with net income up 8% to $1.1 billion. The profit gains were attributed to a 7% boost in revenue to $11.4 billion, adjusted for the sale of a former unit, the unwinding of the codeshare partnership with Brazilian carrier Gol following the new joint venture with LATAM Airlines and $315 million in lower fuel costs.

Strong holiday travel helped increase total unit revenue by 2.4% on an adjusted basis. Nonfuel operating expenses grew 4.4% year-over-year, in line with company projections.

On a full-year basis, Delta's adjusted earnings per share grew 30% to $7.31 on the strength of record revenue of $47 billion, up 7.5%, excluding sales from its refinery. Total expense increased 3.9% with cost-per-available-seat mile up 2%, in line with the company's guidance and long-term cost targets. The company generated $8.4 billion of operating cash flow and $4.2 billion of free cash flow.

Delta's first-quarter 2020 outlook calls for another 5% to 7% increase in total revenue year-over-year, flat pretax margin, fuel expenses of $2 to $2.20, total unit revenue that is flat to up 2% and unit costs up 2% to 3%. Officials said they expect to equal free cash flow in 2020, which would put the airline on track to deliver a three-year cumulative free cash flow of more than $10 billion.

Delta's 1-year stock performance. (Source: FreightWaves SONAR)

"Investments in reliability, product and service, airports and technology are reshaping customer perception and driving record satisfaction scores and increasing brand preference," said President Glen Hauenstein in a statement. "We delivered $47 billion in revenue in 2019, a more than $3 billion increase when adjusted over prior year, while sustaining a revenue premium to the industry of more than 110%. Demand trends remain healthy and we expect momentum to continue in 2020."

The company invested $4.5 billion into the business in 2019, including $954 million in the December quarter. The capital expenditure helped support the delivery of 88 new aircraft during the year, including the new Airbus A220-100 regional jet and the A330-900neo.

Delta is setting domestic industry standards for reliability. In 2019 it had 281 days of zero mainline cancellations and 165 days of zero cancellations across its entire system, an improvement of 12% and 15%, respectively, compared with 2018. It hit that mark while carrying a record 204 million passengers, up 6% from the prior year, with a record load factor of 86.3%.

Delta said it improved fuel efficiency by 2% by replacing older aircraft with more efficient ones and other initiatives.

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