Fuel Price Drop Adds to Delta’s Bottom Line in 2014

By Benét J. Wilson / Published December 11th, 2014

Delta CEO Richard Anderson. Image Courtesy of Delta Air Lines

Lower fuel prices will add $1.7 billion to Delta Air Lines’ profit and the carrier expects it will return a minimum of $1.5 billion to shareholders through share buybacks and dividends in 2015, said CEO Richard Anderson at an Investor Day presentation. He also noted that Delta was raising its operating margin forecast to 11.5-12.5 percent, up from 10-12 percent in the fourth quarter, with margins of 8.5 percent a year earlier.

EXTRA: ANALYSIS: Delta Delivers Solid Financial Results But Worrying Signs Emerge

Anderson asserted that 2015 will be a fantastic year. “This year, we’re ending at $4.5 billion in pretax income. In 2015, with the fuel rundown, pre-tax income will be well in in excess of $5 billion,” he said.

EXTRA: Delta Snubs Boeing Again with Airbus Widebody Aircraft Order

A rendering of Delta’s A350. Image Courtesy of Airbus

Delta’s net debt has been driven down to $6 billion by end of 2015 and may be lower, said Anderson. “We will finish our current share repurchase authorization that we got from our board in May 2014,” he said. “We really accelerated that when our stock price dipped during the Ebola scare and I hope you all bought too. We will finish our share repurchase a year early.”

EXTRA: Delta Posts Excellent Fourth Quarter and Full Year 2013 Earnings Results; Analysis

Other highlights Anderson pointed out in his presentation included:

• Record profitability with 7 percent top line growth, four points of margin expansion and over $3 billion of free cash flow;
• Improving on all aspects of our financial performance in 2015 as a solid revenue environment and lower fuel prices, coupled with Delta-specific initiatives, are expected to produce over $5 billion in pre-tax income;
• Capacity growth, pricing improvement and cost productivity combine to generate long-term revenue growth, margin expansion and greater cash generation;
• Pre-tax income of $4.5 billion, an increase of 70 percent, or $1.9 billion;
• Generated a 20 percent return on invested capital;
• Record earnings result in more than $1 billion profit sharing for Delta employees; and
• $6 billion of operating cash flow and over $3 billion of free cash flow, allowing for $2 billion in debt reduction and $1.35 billion returned to shareholders.

EXTRA: Delta Unveils New Inflight Cabin Family of Products

It’s good to see profitability across the [airline] industry, said Anderson. “Delta is part of the broader part of the industry, and we want the broader industry to be successful,” he said. “It’s remarkable how the industry has recovered from deregulation and tumultuous times. Consolidation has been good for the industry, which is good for airlines, passengers, communities and shareholders.”

The check-in area at Delta’s expanded Terminal 4 at JFK Airport.
Image Courtesy of AirwaysNews

EXTRA: Analysis of Delta’s Widebody Replacement Options for 767-300ER and 747-400

The marketplace is now very rational, said Anderson. “We have three super international airline flag carriers, one large domestic airline, two or three super regionals in Seattle and New York City, and a group of ultra low-cost carriers, the Dollar General of airlines,” he said, adding that it creates a rational industrial organization.

Delta President Ed Bastian also announced that the carrier is renewing its relationship with American Express for another six years even though the deal wasn’t due to expire until 2016. “They are one of our biggest partners, bringing in $2 billion co-branded revenue stream across brands like a co-branded card, membership rewards and Sky Club,” he said. “These brands go well together and we’re excited about the success of our partnership over the years.”

The Delta Sky Club at JFK Airport. Image Courtesy of AirwaysNews

EXTRA: Inside Delta Air Lines

The partners worked together on an early renewal so that both sides can continue to focus on serving customers, said Bastian. “The early renewal is effective on Jan 1, 2015, and shows a significant vote of confidence from Amex in Delta and vice versa,” he said.

Anderson noted that Delta was named “Airline of the Year” by Air Transport World magazine, one of Fortune’s “Most Admired Companies, “Most Preferred Corporate Carrier” by Morgan Stanley’s corporate travel survey and “Best Airline” by Business Travel News for the fourth year in a row.

—–

Contact the editor at benet.wilson@airwaysnews.com

The post Fuel Price Drop Adds to Delta’s Bottom Line in 2014 appeared first on Airchive.