Delta Air Lines reported financial results for the December quarter and full year 2016.  Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here.

Adjusted pre-tax income for the December 2016 quarter was $923 million, a $524 million decrease from the December 2015 quarter, primarily driven by the new pilot agreement.  For the full year, adjusted pre-tax income increased 4 percent year over year to $6.1 billion.

“Delta had a year of record-breaking performance in 2016 – financially, operationally and for our customers – and it’s an honor to recognize our employees’ efforts this year with over $1 billion in profit sharing,” said Ed Bastian, Delta’s chief executive officer.  “As we move into 2017, we are seeing our unit revenues turn positive which should return the company to margin expansion by the back half of the year.  This will allow us to produce the solid returns and cash flows that investors rely upon from Delta.”                                                                                                     

Revenue Environment

Delta’s operating revenue for the December quarter was down $44 million versus prior year.  Passenger unit revenues declined 2.7 percent on a 0.9 percent increase in capacity.

“Delta’s commercial strategies and capacity actions combined with improving demand continue to drive benefit as we transition back into sustained positive unit revenues.  For the March quarter, we expect a unit revenue increase of flat to up 2 percent, stemming the declines that have been ongoing for two years,” said Glen Hauenstein, Delta’s president.  “We will remain conservative and keep our capacity growth in check until we see a further firming of these revenue trends in the near-term and longer-term, a return to our 17-19 percent operating margin target.”

March 2017 Quarter Guidance

For the March quarter, Delta is expecting pressures on margins as the pace of change in unit revenue will not match the cost impact of higher fuel prices and employee wage increases.  This margin pressure is likely to peak in the March quarter, and the company expects margins to expand beginning in the second half of the year. 
 
Cost Performance

Adjusted fuel expense declined $240 million compared to the same period in 2015, as 12 percent higher market prices were offset by prior year hedge losses.  Delta’s adjusted fuel price per gallon for the December quarter was $1.60.

CASM-Ex3 including profit sharing increased 10.6 percent for the December 2016 quarter compared to the prior year period primarily driven by the impact of the new pilot agreement ratified on December 1, 2016 with retroactive effect to January 1, 2016.  Results for the December quarter include the full 2016 impact of the new contract totaling $475 million of expense, of which $380 million relates to the first three quarters of the year.

Non-operating expense declined $116 million for the quarter due to a $75 million loss in prior year for the write-off of Venezuela currency and $10 million of lower interest expense from Delta’s debt reduction initiatives.

“Delta’s cost and capital discipline has allowed us to consistently invest in our people and the customer experience, and do so in a way that keeps our unit cost growth manageable over time and generates sufficient cash flow for debt reduction and shareholder returns,” said Paul Jacobson, Delta’s chief financial officer.  “We’ll continue to take this balanced approach – investing across the business to drive future earnings growth, further strengthening our investment grade balance sheet, and returning cash to our owners – as we drive sustainability for the long term.”

Cash Flow, Shareholder Returns, and Adjusted Net Debt

Delta generated $1.2 billion of adjusted operating cash flow and $640 million of free cash flow during the quarter.  The company used this strong cash generation to invest $600 million into the business for aircraft modifications, facilities upgrades and technology improvements.

For the December quarter, the company returned $449 million to shareholders, comprised of $149 million of dividends and $300 million of share repurchases.  Delta returned $3.1 billion to its owners in 2016 through dividends and share repurchases.

Adjusted net debt at the end of the quarter stood at $6.1 billion, a $500 million reduction compared to the end of 2015.