Delta Just Released Its 2020 Results And They Aren’t Pretty

Showing just how hard the airline industry has been hit by the Covid pandemic, Delta just released its 2020 results and they aren’t pretty. In fact they are downright ugly.

Last week Delta Air Lines reported financial results for the December quarter and full year 2020 and provided its outlook for the March quarter 2021.  

“Our December quarter results capped the toughest year in Delta’s history.  I want to thank the Delta people who have risen to the occasion, focusing on delivering results for all of our stakeholders by putting our customers at the center of our recovery,” said Ed Bastian, Delta’s chief executive officer.  “While our challenges continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation.”

Full Year 2020 Financial Results  

  • Adjusted pre-tax loss of $9.0 billion excludes a net of $6.6 billion of items primarily related to the impact of, and our response to, COVID-19 
  • Adjusted operating revenue of $15.9 billion declined 66 percent on 61 percent lower sellable capacity versus the prior year 
  • Total operating expense, which includes $4.3 billion of COVID- related and other items, decreased $10.8 billion over prior year.  Adjusted for those items and third-party refinery sales, total operating expense decreased $16.0 billionor 40 percent in 2020 compared to the prior year

March Quarter 2021 Outlook

1Q21 Forecast
Scheduled Capacity 1Down ~35%
Sellable Capacity 1Down ~55%
Total Revenue 1, 2Down 60% – 65%
Total Operating Expense 1, 2Down 35% – 40%
Consolidated CASM 1, 2Down 5% – 10%
Capital Expenditures~$350 million
Average Daily Cash Burn 2$10-15 million
Liquidity 3$18-19 billion
Adjusted Net Debt 2, 3~$18 billion
Compared to March quarter 2019
Non-GAAP measure
3 Includes estimated PSP funds of ~$3.0 billion

Delta Airlines revenue shrunk by nearly $30 billion last year, resulting in a whopping $17 billion loss. But they are optimistic for 2021.

Revenue Environment

Delta’s adjusted operating revenue of $3.5 billion for the December quarter was down 69 percent versus the prior year period, a 10-point improvement from September quarter 2020.  Passenger revenues declined 74 percent on 62 percent lower sellable capacity.  Non-ticket revenues outperformed passenger revenues, with cargo revenues up 10 percent versus the prior year period and total loyalty revenues down 54 percent.

For the full year, adjusted operating revenue declined to $15.9 billion, down 66 percent versus 2019, as the global pandemic severely affected air travel.  Passenger revenues declined 70 percent on 61 percent lower sellable capacity.  Total loyalty revenues were down 51 percent and American Express remuneration declined 30 percent compared to prior year to $2.9 billion.

“We see three distinct phases in 2021.  The early part of the year will be characterized by choppy demand recovery and a booking curve that remains compressed, followed by an inflection point, and finally a sustained demand recovery as customer confidence gains momentum, vaccinations become widespread and offices re-open,” said Glen Hauenstein, Delta’s president.  “For each phase, Delta has the levers to pull to successfully react to the emerging demand environment, including tightly matching our sellable capacity to expected demand.”

Cost Performance

Total adjusted operating expense for the December quarter decreased $4.6 billion or 47 percent versus the prior year period excluding items related to the company’s response to COVID-19 and the $1.4 billion CARES Act benefit, resulting in Delta’s consolidated CASM, adjusted being 4.5 percent lower than the prior year period.  This performance was driven by a $1.3 billion, or 64 percent reduction in fuel expense versus the prior year period, a 51 percent reduction in maintenance expense and lower volume- and revenue-related expenses.  Salaries and related costs were down 34 percent compared to the prior year period as a result of approximately 20 percent of our workforce, or nearly 18,000 employees, electing to voluntarily depart the company, in addition to the impact of voluntary unpaid leaves, work hour reductions and other cost-saving initiatives. 

Non-operating expense for the December quarter was up $248 million versus the prior year period, driven primarily by higher interest expense from increased debt the company has incurred during the COVID-19 pandemic. 

“We reduced our average daily cash burn to $12 million in the December quarter, a reduction of nearly 90 percent since the early days of the pandemic in March, as we progress to achieving cash breakeven in the spring,” said Gary Chase, Delta’s interim co-chief financial officer.  “Remaining agile and disciplined with our cost structure will be key to our success, and when combined with an improving demand environment, will allow us to return to the free cash flow generation needed for debt reduction.”

Balance Sheet, Cash and Liquidity

Delta ended the December quarter with $16.7 billion in liquidity.  Cash used in operations during the quarter was $1.3 billion.  Daily cash burn averaged $12 million for the quarter, down from $24 million per day in the September quarter. 

The company anticipates receiving approximately $3 billion from the U.S. Treasury under the PSP extension in the March quarter.  With these funds and an estimated $10 to $15 million in average daily cash burn for the March quarter, the company expects to end the March quarter with approximately $18 to $19 billion in liquidity.

At the end of the December quarter, the company had total debt and finance lease obligations of $29.2 billion with adjusted net debt of $18.8 billion, $8.3 billion higher year over year.  The company’s total debt had a weighted average interest rate of 4.6 percent at year-end.  During the quarter, the company repaid $2.6 billion under its revolving credit facilities drawn down in March 2020, $3 billion associated with the 364-day term loan entered into in March 2020 and a $450 million unsecured debt maturity.  The company currently has $9 to $10 billion in unencumbered assets, primarily consisting of aircraft, engines and spare parts.

At the end of the December quarter, the company’s Air Traffic Liability stood at $4.5 billion, including a current liability of $4.0 billion and a non-current liability of $0.5 billion.  Travel credits represent approximately 65 percent of the Air Traffic Liability at the end of the December quarter.  The company refunded more than $3 billion to customers in 2020 and extended the use of certain travel credits through December 2022 to provide additional flexibility to customers.

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