ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited Consolidated Financial Statements and related notes included in our 2021 Form 10-K.
June 2022 Quarter Financial Overview
Although our business remained affected by the impact of the COVID-19 pandemic in the first two months of the year, we have seen continued improvement during the June 2022 quarter, which we expect to continue throughout 2022. Given the drastic and unprecedented impact of the COVID-19 pandemic on our operating results in 2021 and 2020, we believe that a comparison of our results in the June 2022 quarter to both the June 2021 and June 2019 quarters in this overview section allows for a better understanding of the full impact of the COVID-19 pandemic and the progress of our recovery.
The table below shows selected key financial and statistical measures for the three months ended June 30, 2022, 2021 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | 2022 vs. 2021 % Increase (Decrease) (1) | 2022 vs. 2019 % Increase (Decrease) (1) |
(in millions) | 2022 | | 2021 | | 2019 |
Total operating revenue | $ | 13,824 | | | $ | 7,126 | | | $ | 12,536 | | 94 | % | 10 | % |
Total operating expense | 12,305 | | | 6,310 | | | 10,408 | | 95 | % | 18 | % |
Operating income | 1,519 | | | 816 | | | 2,128 | | 86 | % | (29) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Available seat miles ("ASM") | 58,903 | | | 48,529 | | | 71,754 | | 21 | % | (18) | % |
Our operating income for the June 2022 quarter was $1.5 billion, an improvement of $703 million compared to the June 2021 quarter. This improvement was primarily due to a $5.6 billion, or 105%, increase in passenger revenue as a result of increased demand and capacity, partially offset by a $1.7 billion increase in fuel expense and increases in other volume-related expenses as we continue to restore our operation. Operating income in the June 2021 quarter also benefited from the recognition of $1.5 billion of Payroll Support Programs ("PSP") grant proceeds.
Compared to operating income of $2.1 billion in the June 2019 quarter, our operating income in the June 2022 quarter was lower primarily from a 41% increase in fuel expense and a 4% decrease in passenger revenue on 18% lower system capacity, as we continue to rebuild our operations following the COVID-19 pandemic.
Revenue. Compared to the June 2021 quarter, our operating revenue increased $6.7 billion, or 94%, due primarily to increased travel demand and higher refinery third party sales.
Compared to the June 2019 quarter, our operating revenue was $1.3 billion higher, or 10%, due primarily to higher refinery third party sales and improved yield. We expect system capacity to be 83% to 85% recovered in the September 2022 quarter compared to the September 2019 quarter.
Consumer demand continued to improve through the June 2022 quarter with a strong beginning to the summer season. The sale of tickets to domestic business customers (i.e., both corporate and contracted small- and medium-sized enterprises), including tickets for travel during and beyond the quarter (“advance sales”), continued to improve during the June 2022 quarter.
International revenue has lagged the recovery in domestic travel, but improved in the June 2022 quarter to approximately 80% recovered compared to the June 2019 quarter as travel restrictions eased and many countries ended testing requirements, including the U.S. The sale of tickets to international business customers (i.e., both corporate and contracted small- and medium-sized enterprises), including advance sales, also significantly improved during the June 2022 quarter, led by the Atlantic region. Despite the recent policy changes and improved advance sales, we still expect the recovery of international revenue to continue to trail domestic revenue through 2022.
Delta Air Lines, Inc. June 2022 Form 10-Q 19
Operating Expense. Total operating expense in the June 2022 quarter increased $6.0 billion, or 95%, compared to the June 2021 quarter, primarily resulting from increased fuel costs, due to both an increase in fuel price and increased capacity, as well as higher salaries and related costs, including premium pay and overtime as we continue to rebuild the operation, and an increase in expenses related to refinery sales to third parties, reflected in ancillary businesses and refinery expense. The increase also resulted from $1.5 billion of PSP grant proceeds recognized during the June 2021 quarter, which reduced expenses in that quarter. Total operating expense, adjusted (a non-GAAP financial measure) for the June 2022 quarter increased $3.9 billion, or 55%, compared to the June 2021 quarter. Adjustments were primarily to exclude expenses related to PSP grant proceeds in the June 2021 quarter and refinery sales to third parties.
Total operating expense in the June 2022 quarter increased $1.9 billion, or 18%, compared to the June 2019 quarter, primarily resulting from increased fuel costs and increased expenses related to refinery sales to third parties, reflected in ancillary businesses and refinery expense. Total operating expense, adjusted for the June 2022 quarter increased $558 million, or 5%, compared to the June 2019 quarter. Adjustments were primarily to exclude expenses related to refinery sales to third parties.
Our total operating cost per available seat mile ("CASM") increased 44% to 20.89 cents compared to the June 2019 quarter, primarily due to the higher costs discussed above and an 18% decrease in capacity. Non-fuel unit costs ("CASM-Ex", a non-GAAP financial measure) increased 22% to 12.76 cents primarily due to the 18% decrease in capacity.
We now expect non-fuel costs for the full year 2022 to be approximately 17% higher than 2019, which is eight points above the mid-point of our initial expectations from the beginning of 2022 of 7% to 10% higher. The increased unit costs are primarily due to lower capacity and additional costs associated with rebuilding our network and restoring the operational reliability and integrity that we believe is one of our competitive advantages. We now expect capacity for the full year 2022 to be approximately 85% restored to 2019, which is five percentage points lower than our initial expectations from the beginning of 2022 of 90% restored to 2019.
Cash Flow. Our cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity") as of June 30, 2022 was $13.6 billion. During the June 2022 quarter, operating activities generated $2.5 billion.
During the June 2022 quarter, the air traffic liability increased $805 million. We sell tickets for air travel in advance of the customer's travel date and the cash received on these advance sales is recorded as deferred revenue in our air traffic liability. Passenger revenue is recognized and the air traffic liability is reduced when we provide transportation services. The increase in the air traffic liability exceeds our historical seasonal increase, reflecting the continued restoration of our business and a robust demand environment.
As discussed above, consumer demand for travel accelerated through the quarter. Domestic corporate advance sales for the June 2022 quarter were nearly 80% recovered compared to the June 2019 quarter which was approximately 25 percentage points higher compared to the domestic advance sales recovery in the March 2022 quarter. The international corporate advance sales recovery for the June 2022 quarter was approximately 65% compared to the June 2019 quarter which was approximately 30 percentage points higher as compared to the March 2022 quarter, primarily driven by improvement in the Atlantic region.
Additionally, total cash sales to American Express were $1.4 billion in the June 2022 quarter up 35% compared to the June 2019 quarter.
Also during the quarter, investing activities used a net of $152 million, primarily for capital expenditures, partially offset by net redemptions of short-term investments. During the June 2022 quarter we had cash outflows of approximately $952 million related to repayments of our debt and finance leases.
The non-GAAP financial measure referenced above for operating expense, adjusted is defined and reconciled in "Supplemental Information" below.
Environmental Sustainability. During 2022, we are continuing to develop our climate transition plan and to have our medium- and long-term climate goals, including our goal of achieving net zero greenhouse gas emissions no later than 2050, validated by the Science Based Targets initiative, as described in our 2021 Form 10-K. We expect our path toward achievement of these goals to depend heavily on improved fuel efficiency from fleet renewal, increased use of sustainable aviation fuel ("SAF") which is not presently available at scale or at prices competitive to jet fuel, operational initiatives and technological innovation. In the six months ended June 30, 2022, we incurred $72 million of expense related to carbon offset credits, which relates to a portion of our airline segment's 2021 carbon emissions.
Delta Air Lines, Inc. June 2022 Form 10-Q 20
Item 2. MD&A - Results of Operations
Results of Operations - Three Months Ended June 30, 2022 and 2021
Operating Revenue | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | |
(in millions)(1) | 2022 | 2021 | |
Ticket - Main cabin | $ | 5,664 | | $ | 2,752 | | | $ | 2,912 | | 106 | % | |
Ticket - Premium products | 4,109 | | 1,801 | | | 2,308 | | 128 | % | |
Loyalty travel awards | 744 | | 428 | | | 316 | | 74 | % | |
Travel-related services | 441 | | 358 | | | 83 | | 23 | % | |
Total passenger revenue | $ | 10,958 | | $ | 5,339 | | | $ | 5,619 | | 105 | % | |
Cargo | 272 | | 251 | | | 21 | | 8 | % | |
Other | 2,594 | | 1,536 | | | 1,058 | | 69 | % | |
Total operating revenue | $ | 13,824 | | $ | 7,126 | | | $ | 6,698 | | 94 | % | |
| | | | | | |
TRASM (cents) | 23.47 | ¢ | 14.68 | ¢ | | 8.79 | ¢ | 60 | % | |
Third-party refinery sales | (2.57) | | (1.60) | | | (0.97) | | 61 | % | |
| | | | | | |
TRASM, adjusted(2) | 20.90 | ¢ | 13.08 | ¢ | | 7.82 | ¢ | 60 | % | |
(1)Total amounts in the table above may not calculate exactly due to rounding.
(2)TRASM, adjusted is a non-GAAP financial measure. For additional information on adjustments to TRASM, see "Supplemental Information" below.
Compared to the June 2021 quarter, our operating revenue increased $6.7 billion, or 94%, due to the continued recovery in demand from the COVID-19 pandemic and higher refinery third party sales. The increase in operating revenue, on a 21% increase in capacity, resulted in a 60% increase in total revenue per available seat mile ("TRASM") and TRASM, adjusted compared to the June 2021 quarter. The growth in passenger revenue was due to increased demand in both main cabin and premiums products, with paid load factor and yield growth in premium products outpacing main cabin.
See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales recorded in other revenue.
We have historically generated cargo revenues in domestic and international markets through the use of cargo space on regularly scheduled passenger aircraft. In 2020 and 2021, following the onset of the COVID-19 pandemic, reduced industry cargo capacity drove a significant increase in our cargo yield. The increase in revenue compared to the June 2021 quarter was primarily driven by additional cargo volume as yield stabilized. We expect capacity growth in the industry to pressure yields in the September 2022 quarter as the industry rebuilds international networks to pre-pandemic levels.
Passenger Revenue by Geographic Region
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Increase (Decrease) vs. Three Months Ended June 30, 2021 |
(in millions) | Three Months Ended June 30, 2022 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor |
Domestic | $ | 8,318 | | 86 | % | 31 | % | 9 | % | 41 | % | 70 | % | 15 | | pts |
Atlantic | 1,701 | | 491 | % | 402 | % | 158 | % | 18 | % | 129 | % | 41 | | pts |
Latin America | 745 | | 53 | % | 19 | % | (4) | % | 29 | % | 59 | % | 16 | | pts |
Pacific | 194 | | 121 | % | 174 | % | (21) | % | (19) | % | 181 | % | 46 | | pts |
Total | $ | 10,958 | | 105 | % | 55 | % | 21 | % | 33 | % | 69 | % | 18 | | pts |
Domestic
Domestic passenger unit revenue ("PRASM") increased in the June 2022 quarter compared to the June 2021 quarter as a result of demand increasing faster than capacity during the June 2022 quarter.
The June 2022 quarter domestic consumer revenue was above June 2021 quarter levels. Domestic consumer revenue also now exceeds pre-pandemic levels, even though capacity has not been fully restored, as consumers continue to return to travel and we believe spending patterns are shifting post-pandemic to experiences instead of goods.
Delta Air Lines, Inc. June 2022 Form 10-Q 21
Item 2. MD&A - Results of Operations
We also remain optimistic about the ultimate recovery of business travel, which is comprised of both corporate managed travel and small- and medium-sized businesses, and expect the recovery of both of these components to continue to increase throughout 2022. Business travel demand in the June 2022 quarter was the highest since the onset of the COVID-19 pandemic.
International
International passenger revenue for the June 2022 quarter increased compared to the June 2021 quarter in each geographic region, with the Atlantic region experiencing the most significant improvement.
In November 2021, travel restrictions for fully vaccinated foreign visitors to the United States were lifted. This action made travel to the U.S. by many foreign nationals possible for the first time in 18 months. Further, in June 2022, the United States lifted its testing requirement for international travel. Since the removal of U.S. pre-departure test requirements, we have seen a modest improvement in international demand.
While some countries have removed or eased travel restrictions, others still maintain international testing requirements and travel restrictions (primarily in the Pacific region), which continue to restrain demand in some markets
The Atlantic region has shown the greatest recovery of the international regions, despite the ongoing conflict in Ukraine, as western European countries removed or eased travel restrictions. Revenue in this region has nearly restored to pre-pandemic levels in the June 2022 quarter as consumers continue to show increased desire for trans-Atlantic travel. This has been led by demand for premium leisure products and demand for leisure destinations in Europe.
Latin America region revenue was near pre-pandemic levels during the June 2022 quarter, due to continued strong demand for leisure destinations in the Caribbean, Mexico and Central America. We expect this trend to continue throughout 2022 as demand for leisure destinations remains strong and travel to South America continues to recover.
The Pacific region continues to be the most impacted by travel restrictions, although we began to experience some demand improvement in the June 2022 quarter as South Korea and Australia re-opened to international tourists and travel restrictions to Japan are easing.
Overall, we still expect a lower international revenue environment through 2022, with the recovery of international revenue continuing to trail domestic revenue.
Ticket Validity Flexibility
In order to provide our customers more flexibility and time to plan or rebook their travel, we announced in January 2022 that all existing travel credit holders will have until December 31, 2023 to rebook their ticket for travel throughout 2024. Additionally, all Delta customers with upcoming 2022 travel or who purchase a ticket in 2022 will also have the flexibility to rebook their ticket through December 31, 2023, and travel throughout 2024.
We estimate the value of ticket breakage and recognize the related revenue at the scheduled flight date. Our ticket breakage estimates are primarily based on historical experience, ticket contract terms and customers’ travel behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the elimination of change fees for most tickets, our estimates of revenue that will be recognized from the air traffic liability for unused tickets may vary in future periods.
Delta Air Lines, Inc. June 2022 Form 10-Q 22
Item 2. MD&A - Results of Operations
Other Revenue | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | |
(in millions) | 2022 | 2021 | |
Refinery | $ | 1,514 | | $ | 777 | | | $ | 737 | | 95 | % | |
Loyalty program | 650 | | 439 | | | 211 | | 48 | % | |
Ancillary businesses | 206 | | 185 | | | 21 | | 11 | % | |
Miscellaneous | 224 | | 135 | | | 89 | | 66 | % | |
Total other revenue | $ | 2,594 | | $ | 1,536 | | | $ | 1,058 | | 69 | % | |
| | | | | | |
Refinery. This represents refinery sales to third parties. These sales increased $737 million compared to the June 2021 quarter. The increase in third-party refinery sales resulted from higher pricing and production during the June 2022 quarter compared to the June 2021 quarter. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales recorded in other revenue.
Loyalty Program. This relates to brand usage by third parties and other performance obligations embedded in miles sold, including redemption of miles for non-travel awards. These revenues are mainly driven by customer spend on American Express cards and new cardholder acquisitions. As co-brand card spend and card acquisitions continue to be strong, revenues from our relationship with American Express increased in the June 2022 quarter compared to the June 2021 quarter.
Ancillary Businesses. This represents revenues from aircraft maintenance services we provide to third parties and our vacation wholesale operations.
Miscellaneous. This is primarily composed of revenues related to lounge access, including access provided to certain American Express cardholders, and codeshare agreements. The volume of these transactions has increased compared to the June 2021 quarter due to the ongoing recovery of our business. Our network of Delta Sky Club lounges was fully reopened by the end of July 2021 after some lounges temporarily closed at the onset of the pandemic in 2020.
Delta Air Lines, Inc. June 2022 Form 10-Q 23
Item 2. MD&A - Results of Operations
Operating Expense | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease)(1) | |
(in millions) | 2022 | 2021 | |
Salaries and related costs | $ | 2,955 | | $ | 2,328 | | | $ | 627 | | 27 | % | |
Aircraft fuel and related taxes | 3,223 | | 1,487 | | | 1,736 | | 117 | % | |
Ancillary businesses and refinery | 1,718 | | 939 | | | 779 | | 83 | % | |
Contracted services | 791 | | 570 | | | 221 | | 39 | % | |
Landing fees and other rents | 546 | | 460 | | | 86 | | 19 | % | |
Regional carrier expense | 528 | | 403 | | | 125 | | 31 | % | |
Depreciation and amortization | 510 | | 501 | | | 9 | | 2 | % | |
Aircraft maintenance materials and outside repairs | 522 | | 287 | | | 235 | | 82 | % | |
Passenger commissions and other selling expenses | 526 | | 222 | | | 304 | | 137 | % | |
Passenger service | 369 | | 175 | | | 194 | | 111 | % | |
Aircraft rent | 127 | | 104 | | | 23 | | 22 | % | |
Profit sharing | 54 | | — | | | 54 | | NM | |
| | | | | | |
Government grant recognition | — | | (1,504) | | | 1,504 | | NM | |
Other | 436 | | 338 | | | 98 | | 29 | % | |
Total operating expense | $ | 12,305 | | $ | 6,310 | | | $ | 5,995 | | 95 | % | |
(1)Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.
Salaries and Related Costs. During 2021, we continued to offer voluntary unpaid leaves of absence in response to the COVID-19 pandemic for periods ranging from 30 days up to 12 months and approximately 8,000 of our employees elected to take a leave of absence during the June 2021 quarter. In the June 2022 quarter, we no longer offered these leaves of absence as the program terminated by the end of the September 2021 quarter. Additionally, we have hired approximately 18,000 employees since the June 2021 quarter, in certain areas, including flight operations, in-flight service, reservations and customer care and airport customer service, in order to support our operations as demand and capacity returns. These actions, a 4% base pay increase effective May 1, 2022 for eligible employees, and additional premium pay and overtime resulted in the increases in salaries and related costs during the June 2022 quarter compared to the June 2021 quarter.
Aircraft Fuel and Related Taxes. Fuel expense increased $1.7 billion compared to the June 2021 quarter primarily due to a 119% increase in the market price of jet fuel and a 25% increase in consumption. We expect elevated jet fuel prices to continue throughout 2022 due to current market conditions, further exacerbated by geopolitical events.
Additionally, during the June 2022 quarter, we purchased and retired $25 million of carbon offset credits, which relate to a portion of our airline segment's 2021 carbon emissions. During the June 2021 quarter, we purchased and retired $20 million of carbon offset credits, which related to a portion of our airline segment's 2020 and 2021 carbon emissions. In the table below, these costs are shown in the carbon offset costs line item.
See "Refinery Segment" below for additional details on the refinery's operations.
| | | | | | | | | | | | | | | | | | | | | | |
Fuel expense and average price per gallon |
| | | | | Average Price Per Gallon |
| Three Months Ended June 30, | Increase (Decrease) | Three Months Ended June 30, | Increase (Decrease) |
(in millions, except per gallon data) | 2022 | 2021 | | 2022 | 2021 | |
Fuel purchase cost(1) | $ | 3,540 | | $ | 1,286 | | | $ | 2,254 | | $ | 4.10 | | $ | 1.87 | | | $ | 2.23 | |
Carbon offset costs | 25 | | 20 | | | 5 | | 0.03 | | 0.03 | | | — | |
Fuel hedge impact | (73) | | 24 | | | (97) | | (0.08) | | 0.03 | | | (0.11) | |
Refinery segment impact | (269) | | 157 | | | (426) | | (0.31) | | 0.23 | | | (0.54) | |
Total fuel expense | $ | 3,223 | | $ | 1,487 | | | $ | 1,736 | | $ | 3.74 | | $ | 2.16 | | | $ | 1.58 | |
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Delta Air Lines, Inc. June 2022 Form 10-Q 24
Item 2. MD&A - Results of Operations
Ancillary Businesses and Refinery. Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations. Increased expenses were primarily related to refinery sales to third parties. The refinery cost of sales increased $737 million compared to the June 2021 quarter. The increase in third-party refinery sales resulted from higher pricing and production during the June 2022 quarter compared to the June 2021 quarter.
Contracted Services. During the June 2022 quarter, demand and capacity increased compared to the June 2021 quarter due to the ongoing recovery from the COVID-19 pandemic. The continued restoration of our operations and associated higher volume-related expenses was the primary driver for the increase in contracted services.
Regional Carrier Expense. Regional carrier expense increased compared to the June 2021 quarter due to an increase in utilization and volume-related expenses as a result of increased demand.
Aircraft Maintenance Materials and Outside Repairs. Maintenance expense increased compared to the June 2021 quarter as we returned aircraft to service and to support our operational reliability.
Passenger Commissions and Other Selling Expenses. Compared to the June 2021 quarter, passenger revenue increased 105% in the June 2022 quarter, leading to higher volume-related expenses, which was the primary reason for the increase in passenger commissions and other selling expenses.
Passenger Service. Passenger service expenses increased compared to the June 2021 quarter due to higher volume-related expenses associated with increased demand.
Profit Sharing. Our profit sharing program pays 10% to all eligible employees for the first $2.5 billion of annual pre-tax profit and 20% of annual pre-tax profit above $2.5 billion, as defined by the terms of the program.
Government Grant Recognition. During the June 2021 quarter, we recognized $1.5 billion of government PSP grant proceeds as contra-expense that were used exclusively for the payment of employee wages, salaries and benefits.
Delta Air Lines, Inc. June 2022 Form 10-Q 25
Item 2. MD&A - Results of Operations
Results of Operations - Six Months Ended June 30, 2022 and 2021
Operating Revenue | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | |
(in millions)(1) | 2022 | 2021 | |
Ticket - Main cabin | $ | 9,111 | | $ | 4,105 | | | $ | 5,006 | | 122 | % | |
Ticket - Premium products | 6,648 | | 2,725 | | | 3,923 | | 144 | % | |
Loyalty travel awards | 1,287 | | 669 | | | 618 | | 92 | % | |
Travel-related services | 819 | | 588 | | | 231 | | 39 | % | |
Total passenger revenue | $ | 17,865 | | $ | 8,087 | | | $ | 9,778 | | 121 | % | |
Cargo | 561 | | 466 | | | 95 | | 20 | % | |
Other | 4,747 | | 2,723 | | | 2,024 | | 74 | % | |
Total operating revenue | $ | 23,173 | | $ | 11,276 | | | $ | 11,897 | | 106 | % | |
| | | | | | |
TRASM (cents) | 20.93 | ¢ | 12.72 | ¢ | | 8.21 | ¢ | 65 | % | |
Third-party refinery sales(2) | (2.44) | | (1.49) | | | (0.95) | | 64 | % | |
| | | | | | |
TRASM, adjusted | 18.49 | ¢ | 11.23 | ¢ | | 7.26 | ¢ | 65 | % | |
(1)Total amounts in the table above may not calculate exactly due to rounding.
(2)TRASM, adjusted in a non-GAAP financial measure. For additional information on adjustments to TRASM, see "Supplemental Information" below.
Unless otherwise discussed below, the changes in operating revenue line items, as well as the underlying reasons for these changes, compared to the six months ended June 30, 2021 are consistent with the discussion above under Results of Operations - Three Months Ended June 30, 2022 and 2021.
Compared to the six months ended June 30, 2021, our operating revenue increased $11.9 billion, or 106%, due to the continued recovery in demand from the COVID-19 pandemic and higher refinery third party sales. The increase in operating revenue, on a 25% increase in capacity, resulted in a 65% increase in TRASM and TRASM, adjusted compared to the six months ended June 30, 2021. See "Refinery Segment" below for additional details on the refinery's operations, including third party refinery sales recorded in other revenue.
Passenger Revenue by Geographic Region | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Increase (Decrease) vs. Six Months Ended June 30, 2021 |
(in millions) | Six Months Ended June 30, 2022 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor |
Domestic | $ | 13,881 | | 105 | % | 57 | % | 18 | % | 31 | % | 74 | % | 21 | | pts |
Atlantic | 2,240 | | 421 | % | 375 | % | 139 | % | 10 | % | 118 | % | 39 | | pts |
Latin America | 1,425 | | 90 | % | 48 | % | (2) | % | 28 | % | 95 | % | 28 | | pts |
Pacific | 319 | | 112 | % | 144 | % | (10) | % | (13) | % | 137 | % | 31 | | pts |
Total | $ | 17,865 | | 121 | % | 76 | % | 25 | % | 25 | % | 77 | % | 23 | | pts |
Domestic passenger unit revenue for the six months ended June 30, 2022 increased compared to the six months ended June 30, 2021 as a result of the higher levels of capacity and demand during the six months ended June 30, 2022 due to the ongoing recovery in the period. International passenger revenue for the six months ended June 30, 2022 increased 200% on 44% higher capacity compared to the six months ended June 30, 2021.
Other Revenue | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | |
(in millions) | 2022 | 2021 | |
Refinery | $ | 2,700 | | $ | 1,317 | | | $ | 1,383 | | 105 | % | |
Loyalty program | 1,221 | | 807 | | | 414 | | 51 | % | |
Ancillary businesses | 416 | | 371 | | | 45 | | 12 | % | |
Miscellaneous | 410 | | 228 | | | 182 | | 80 | % | |
Total other revenue | $ | 4,747 | | $ | 2,723 | | | $ | 2,024 | | 74 | % | |
Delta Air Lines, Inc. June 2022 Form 10-Q 26
Item 2. MD&A - Results of Operations
Operating Expense | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) | |
(in millions) | 2022 | 2021 | |
Salaries and related costs | $ | 5,782 | | $ | 4,530 | | | $ | 1,252 | | 28 | % | |
Aircraft fuel and related taxes | 5,315 | | 2,504 | | | 2,811 | | 112 | % | |
Ancillary businesses and refinery | 3,100 | | 1,645 | | | 1,455 | | 88 | % | |
Contracted services | 1,544 | | 1,089 | | | 455 | | 42 | % | |
Landing fees and other rents | 1,050 | | 953 | | | 97 | | 10 | % | |
Regional carrier expense | 1,018 | | 804 | | | 214 | | 27 | % | |
Depreciation and amortization | 1,016 | | 993 | | | 23 | | 2 | % | |
Aircraft maintenance materials and outside repairs | 988 | | 581 | | | 407 | | 70 | % | |
Passenger commissions and other selling expenses | 838 | | 332 | | | 506 | | 152 | % | |
Passenger service | 644 | | 294 | | | 350 | | 119 | % | |
Aircraft rent | 249 | | 208 | | | 41 | | 20 | % | |
Profit sharing | 54 | | — | | | 54 | | NM | |
| | | | | | |
Government grant recognition | — | | (2,689) | | | 2,689 | | NM | |
Other | 840 | | 614 | | | 226 | | 37 | % | |
Total operating expense | $ | 22,438 | | $ | 11,858 | | | $ | 10,580 | | 89 | % | |
Unless otherwise discussed below, the changes in operating expense line items, as well as the underlying reasons for these changes, compared to the six months ended June 30, 2021 are consistent with the discussion above under Results of Operations - Three Months Ended June 30, 2022 and 2021.
Aircraft Fuel and Related Taxes. Fuel expense increased $2.8 billion compared to the six months ended June 30, 2021 due to a 31% increase in consumption and a 98% increase in the market price per gallon of jet fuel.
Additionally, during the six months ended June 30, 2022, we purchased and retired $72 million of carbon offset credits, which relate to a portion of our airline segment's 2021 carbon emissions. During the six months ended June 30, 2021, we purchased and retired $40 million of carbon offset credits, which related to a portion of our airline segment's 2020 and 2021 carbon emissions. In the table below, these costs are shown in the carbon offset costs line item.
See "Refinery Segment" below for additional details on the refinery's operations.
| | | | | | | | | | | | | | | | | | | | | | |
Fuel expense and average price per gallon |
| | | | | Average Price Per Gallon |
| Six Months Ended June 30, | Increase (Decrease) | Six Months Ended June 30, | Increase (Decrease) |
(in millions, except per gallon data) | 2022 | 2021 | | 2022 | 2021 | |
Fuel purchase cost(1) | $ | 5,643 | | $ | 2,180 | | | $ | 3,463 | | $ | 3.50 | | $ | 1.77 | | | $ | 1.73 | |
Carbon offset costs | 72 | | 40 | | | 32 | | 0.04 | | 0.03 | | | 0.01 | |
Fuel hedge impact | (77) | | 1 | | | (78) | | (0.05) | | — | | | (0.05) | |
Refinery segment impact | (323) | | 283 | | | (606) | | (0.20) | | 0.23 | | | (0.43) | |
Total fuel expense | $ | 5,315 | | $ | 2,504 | | | $ | 2,811 | | $ | 3.29 | | $ | 2.03 | | | $ | 1.26 | |
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Ancillary Businesses and Refinery. The changes in ancillary businesses and refinery expenses were primarily related to refinery sales to third parties, which increased by $1.4 billion compared to the six months ended June 30, 2021.
Government Grant Recognition. During the six months ended June 30, 2021, we recognized $2.7 billion of government PSP grant proceeds as contra-expense that were used exclusively for the payment of employee wages, salaries and benefits.
Delta Air Lines, Inc. June 2022 Form 10-Q 27
Item 2. MD&A - Non-Operating Results
Non-Operating Results | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Favorable (Unfavorable) | | Six Months Ended June 30, | Favorable (Unfavorable) |
(in millions) | 2022 | 2021 | | | 2022 | 2021 |
Interest expense, net | $ | (269) | | $ | (338) | | | $ | 69 | | | $ | (543) | | $ | (700) | | $ | 157 | |
Equity method results | (12) | | — | | | (12) | | | (12) | | (54) | | 42 | |
Gain/(loss) on investments, net | (221) | | 211 | | | (432) | | | (368) | | 473 | | (841) | |
Loss on extinguishment of debt | (41) | | (26) | | | (15) | | | (66) | | (83) | | 17 | |
Pension and related benefit/(expense) | 73 | | 119 | | | (46) | | | 145 | | 226 | | (81) | |
Miscellaneous, net | (16) | | (6) | | | (10) | | | (58) | | (19) | | (39) | |
Total non-operating expense, net | $ | (486) | | $ | (40) | | | $ | (446) | | | $ | (902) | | $ | (157) | | $ | (745) | |
Interest expense, net. Interest expense, net includes interest expense and interest income. This decreased compared to the prior year periods as a result of our debt reduction initiatives since the December 2020 quarter. During 2021, we made payments of approximately $5.8 billion related to our debt and finance leases, which included approximately $3.8 billion for early repayments. We have continued to pay down our debt during the six months ended June 30, 2022 with $2.4 billion of payments on debt and finance lease obligations, including $839 million for the early repurchase of various secured and unsecured notes through repurchases on the open market. We continue to seek opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities, during the remainder of 2022 and beyond.
Equity method results. Equity method results in 2022 consist of our share of Aeroméxico's net losses and in 2021 reflected our share of Virgin Atlantic's net losses. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for additional information on our equity investments.
Gain/(loss) on investments, net. Changes in the valuation of investments accounted for at fair value are recorded in gain/(loss) on investments, net and are driven by changes in stock prices, foreign currency fluctuations and other valuation techniques for investments in companies without publicly-traded shares. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for additional information on our equity investments measured at fair value on a recurring basis.
Loss on extinguishment of debt. Loss on extinguishment of debt reflects the losses incurred in the early repayment of the notes mentioned above.
Pension and related benefit/(expense). Pension and related benefit/(expense) reflects the net periodic benefit/(cost) of our pension and other postretirement and postemployment benefit plans. Based on our funded status as of December 31, 2021, we have modified the strategic asset allocation mix to reduce the investment risk of the portfolio. As a result of the lower risk profile of the portfolio, the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost is 7.0%.
Miscellaneous, net. Miscellaneous, net primarily includes foreign exchange gains/(losses) and charitable contributions.
Income Taxes
We project that our annual effective tax rate for 2022 will be approximately 25%. In certain interim periods, we may have adjustments to our net deferred tax assets as a result of changes in prior year estimates and tax laws enacted during the period, which will impact the effective tax rate for that interim period.
Delta Air Lines, Inc. June 2022 Form 10-Q 28
Item 2. MD&A - Refinery Segment
Refinery Segment
The refinery operated by Monroe primarily produces gasoline, diesel and jet fuel. Monroe exchanges the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations. Historically, the jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day, or approximately 75% of our pre-COVID-19 pandemic consumption, for use in our airline operations.
During the three and six months ended June 30, 2022, the refinery operated at near pre-pandemic production levels and a summary of the refinery results is shown below.
| | | | | | | | | | | | | | | | | | | | | | |
Refinery segment financial information |
| Three Months Ended June 30, | | Increase (Decrease) | Six Months Ended June 30, | Increase (Decrease) | |
(in millions, except per gallon data) | 2022 | 2021 | | 2022 | 2021 | |
Exchange products | $ | 982 | | $ | 536 | | | $ | 446 | | $ | 1,791 | | $ | 1,039 | | $ | 752 | | |
Sales of refined products | 96 | | 13 | | | 83 | | 122 | | 17 | | 105 | | |
Sales to airline segment | 761 | | 108 | | | 653 | | 1,053 | | 108 | | 945 | | |
Third party refinery sales | 1,514 | | 777 | | | 737 | | 2,700 | | 1,317 | | 1,383 | | |
Operating revenue | $ | 3,353 | | $ | 1,434 | | | $ | 1,919 | | $ | 5,666 | | $ | 2,481 | | $ | 3,185 | | |
| | | | | | | | |
Operating income/(loss) | $ | 269 | | $ | (157) | | | $ | 426 | | $ | 323 | | $ | (283) | | $ | 606 | | |
Refinery segment impact on airline average price per fuel gallon | $ | (0.31) | | $ | 0.23 | | | $ | (0.54) | | $ | (0.20) | | $ | 0.23 | | $ | (0.43) | | |
Refinery revenues increased compared to the three and six months ended June 30, 2021 due primarily to higher pricing and production. The refinery generated operating income in the three and six months ended June 30, 2022 compared to an operating loss in the three and six months ended June 30, 2021, which was driven by the revenue and production increases described in the Results of Operations section above, and partially offset by higher crude oil acquisition costs and increased expense associated with the higher levels of production.
A refinery is subject to annual U.S. Environmental Protection Agency ("EPA") requirements to blend renewable fuels into the gasoline and on-road diesel fuel it produces. Alternatively, a refinery may purchase Renewable Identification Numbers ("RINs") from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Observable RINs prices increased during 2022 and Monroe incurred $223 million and $308 million in RINs compliance costs during the three and six months ended June 30, 2022, respectively, compared to $252 million and $410 million in the three and six months ended June 30, 2021, respectively. The higher expense in the 2021 periods resulted from a larger increase in observable RINs prices during that period compared to the increase in the 2022 periods.
At June 30, 2022, we had a net fair value obligation of $556 million related to RINs compliance costs. Our obligation as of June 30, 2022 was calculated using the Renewable Fuel Standard ("RFS") volume requirements, which were finalized in June 2022. The compliance deadlines to retire our obligations for 2020 and 2021 are in the fourth quarter of 2022 and first quarter of 2023, respectively.
For more information regarding the refinery's results, see Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. June 2022 Form 10-Q 29
Item 2. MD&A - Operating Statistics
Operating Statistics | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | 2022 vs. 2021 Increase (Decrease) | 2022 vs. 2019 Increase (Decrease) | | |
Consolidated(1) | 2022 | 2021 | 2019 | | |
Revenue passenger miles (in millions) ("RPM") | 51,519 | | 33,285 | | 63,173 | | 55 | | % | (18) | | % | | | | |
Available seat miles (in millions) ("ASM") | 58,903 | | 48,529 | | 71,754 | | 21 | | % | (18) | | % | | | | |
Passenger mile yield | 21.27 | ¢ | 16.04 | ¢ | 18.00 | ¢ | 33 | | % | 18 | | % | | | | |
Passenger revenue per available seat mile ("PRASM") | 18.60 | ¢ | 11.00 | ¢ | 15.84 | ¢ | 69 | | % | 17 | | % | | | | |
Total revenue per available seat mile ("TRASM") | 23.47 | ¢ | 14.68 | ¢ | 17.47 | ¢ | 60 | | % | 34 | | % | | | | |
TRASM, adjusted(2) | 20.90 | ¢ | 13.08 | ¢ | 17.35 | ¢ | 60 | | % | 20 | | % | | | | |
Cost per available seat mile ("CASM") | 20.89 | ¢ | 13.00 | ¢ | 14.51 | ¢ | 61 | | % | 44 | | % | | | | |
CASM-Ex(2) | 12.76 | ¢ | 11.42 | ¢ | 10.47 | ¢ | 12 | | % | 22 | | % | | | | |
| | | | | | | | | | | |
Passenger load factor | 87 | % | 69 | % | 88 | % | 18 | | pts | (1) | | pt | | | | |
Fuel gallons consumed (in millions) | 863 | | 690 | | 1,099 | | 25 | | % | (22) | | % | | | | |
Average price per fuel gallon(3) | $ | 3.74 | | $ | 2.16 | | $ | 2.08 | | 73 | | % | 80 | | % | | | | |
Average price per fuel gallon, adjusted(2)(3) | $ | 3.82 | | $ | 2.12 | | $ | 2.07 | | 80 | | % | 85 | | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Six Months Ended June 30, | 2022 vs. 2021 Increase (Decrease) | 2022 vs. 2019 Increase (Decrease) |
Consolidated(1) | | | | 2022 | 2021 | 2019 |
Revenue passenger miles (in millions) ("RPM") | | | | | | | | 90,218 | | 51,233 | | 114,790 | | 76 | | % | (21) | | % |
Available seat miles (in millions) ("ASM") | | | | | | | | 110,713 | | 88,647 | | 134,169 | | 25 | | % | (17) | | % |
Passenger mile yield | | | | | | | | 19.80 | ¢ | 15.79 | ¢ | 17.96 | ¢ | 25 | | % | 10 | | % |
Passenger revenue per available seat mile ("PRASM") | | | | | | | | 16.14 | ¢ | 9.12 | ¢ | 15.37 | ¢ | 77 | | % | 5 | | % |
Total revenue per available seat mile ("TRASM") | | | | | | | | 20.93 | ¢ | 12.72 | ¢ | 17.15 | ¢ | 65 | | % | 22 | | % |
TRASM, adjusted(2) | | | | | | | | 18.49 | ¢ | 11.23 | ¢ | 17.01 | ¢ | 65 | | % | 9 | | % |
Cost per available seat mile ("CASM") | | | | | | | | 20.27 | ¢ | 13.38 | ¢ | 14.80 | ¢ | 51 | | % | 37 | | % |
CASM-Ex(2) | | | | | | | | 12.98 | ¢ | 12.14 | ¢ | 10.95 | ¢ | 7 | | % | 19 | | % |
| | | | | | | | | | | | | | |
Passenger load factor | | | | | | | | 81 | % | 58 | % | 86 | % | 23 | | pts | (5) | | pts |
Fuel gallons consumed (in millions) | | | | | | | | 1,613 | | 1,235 | | 2,061 | | 31 | | % | (22) | | % |
Average price per fuel gallon(3) | | | | | | | | $ | 3.29 | | $ | 2.03 | | $ | 2.07 | | 62 | | % | 59 | | % |
Average price per fuel gallon, adjusted(2)(3) | | | | | | | | $ | 3.34 | | $ | 2.03 | | $ | 2.06 | | 65 | | % | 62 | | % |
(1)Includes the operations of our regional carriers under capacity purchase agreements.
(2)Non-GAAP financial measures defined and reconciled to TRASM, CASM and average fuel price per gallon, respectively, in "Supplemental Information" below.
(3)Includes the impact of fuel hedge activity, refinery segment results and carbon offset costs.
Delta Air Lines, Inc. June 2022 Form 10-Q 30
Item 2. MD&A - Fleet Information
Fleet Information
Our operating aircraft fleet, purchase commitments and options at June 30, 2022 are summarized in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Mainline aircraft information by fleet type |
| Current Fleet(1) | | | Commitments(1) |
Fleet Type | Owned | Finance Lease | Operating Lease | Total | Average Age (Years) | | Purchase | Options |
A220-100 | 41 | | 4 | | — | | 45 | | 2.5 | | | |
A220-300 | 11 | | — | | — | | 11 | | 1.3 | | 39 | | 50 | |
A319-100 | 57 | | — | | — | | 57 | | 20.3 | | | |
A320-200 | 60 | | — | | — | | 60 | | 26.7 | | | |
A321-200 | 69 | | 22 | | 36 | | 127 | | 3.5 | | | |
A321-200neo | 3 | | — | | — | | 3 | | 0.2 | | 152 | | 70 | |
A330-200 | 11 | | — | | — | | 11 | | 17.2 | | | |
A330-300 | 28 | | — | | 3 | | 31 | | 13.4 | | | |
A330-900neo | 7 | | 3 | | 5 | | 15 | | 1.6 | | 23 | | |
A350-900 | 15 | | — | | 11 | | 26 | | 3.9 | | 18 | | |
B-717-200 | 10 | | 50 | | 4 | | 64 | | 21.0 | | | |
B-737-800 | 73 | | 4 | | — | | 77 | | 20.8 | | | |
B-737-900ER | 108 | | 2 | | 49 | | 159 | | 6.4 | | 4 | | |
B-757-200 | 100 | | — | | — | | 100 | | 24.9 | | | |
B-757-300 | 16 | | — | | — | | 16 | | 19.4 | | | |
B-767-300ER | 42 | | — | | — | | 42 | | 25.9 | | | |
B-767-400ER | 21 | | — | | — | | 21 | | 21.5 | | | |
Total | 672 | | 85 | | 108 | | 865 | | 14.3 | | 236 | | 120 | |
(1)Includes both active and temporarily parked aircraft. Excludes certain aircraft we own or lease or that are operated by regional carriers on our behalf shown in the table below. We have also committed to purchase one CRJ-900 aircraft for Endeavor Air, Inc.
The table below summarizes the aircraft operated by regional carriers on our behalf at June 30, 2022.
| | | | | | | | | | | | | | | | | | | | |
Regional aircraft information by fleet type and carrier |
| Fleet Type(1) | |
Carrier | CRJ-200 | CRJ-700 | CRJ-900 | Embraer 170 | Embraer 175 | Total |
Endeavor Air, Inc.(2) | 51 | | 18 | | 126 | | — | | — | | 195 | |
SkyWest Airlines, Inc. | 9 | | 6 | | 44 | | — | | 71 | | 130 | |
Republic Airways, Inc. | — | | — | | — | | 11 | | 46 | | 57 | |
Total | 60 | | 24 | | 170 | | 11 | | 117 | | 382 | |
(1)Includes both active and temporarily parked aircraft.
(2)Endeavor Air, Inc. is a wholly owned subsidiary of Delta.
Delta Air Lines, Inc. June 2022 Form 10-Q 31
Item 2. MD&A - Financial Condition and Liquidity
Financial Condition and Liquidity
As of June 30, 2022, we had $13.6 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities ("liquidity"). We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments, restricted cash equivalents and cash flows from operations. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. We are continuing to evaluate the appropriate level of liquidity to maintain following the COVID-19 pandemic although, at least in the near term, we expect this level to be higher than the liquidity maintained prior to the pandemic. By 2024, we expect liquidity to be between $5 billion and $6 billion as we work to reduce our financial obligations and reinvest in the business.
Sources and Uses of Liquidity
Operating Activities
We generated cash flows from operations of $4.3 billion and $2.6 billion in the six months ended June 30, 2022 and 2021, respectively. We expect to continue generating positive cash flows from operations during the remainder of 2022.
Our operating cash flow is impacted by the following factors:
Seasonality of Advance Ticket Sales. We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in air traffic liability. The air traffic liability typically increases during the winter and spring months as advance ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months.
From the onset of the COVID-19 pandemic in the March 2020 quarter through 2021, reduced demand for air travel resulted in a lower level of advance bookings and the associated cash received than we had historically experienced, which had been impacting the typical seasonal trend of air traffic liability. However, demand has improved during 2022 as consumers have regained confidence to travel and increased ticket purchases for travel further in advance. Air traffic liability increased approximately $805 million during the June 2022 quarter, which exceeds our historical seasonal change, reflecting the continued restoration of our business and robust demand environment. Our air traffic liability remains above historical levels with no material change to the travel credit balance compared to December 31, 2021.
Fuel. Fuel expense represented approximately 24% and 21% of our total operating expense for the six months ended June 30, 2022 and 2021, respectively. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. The average fuel price per gallon increased substantially during the six months ended June 30, 2022. We expect elevated jet fuel prices to continue throughout 2022 due to current market conditions, further exacerbated by geopolitical events. Fuel consumption was also higher during the six months ended June 30, 2022 compared to the prior year period due to the increase in capacity. We expect that fuel consumption will continue to increase throughout 2022, compared to 2021, as we expect to return closer to pre-pandemic levels of capacity and demand for air travel, partially offset by increases in fuel efficiency of our fleet.
New York-JFK Airport Expansion. During 2021, the Port Authority of New York and New Jersey ("Port Authority") approved modified project plans to renovate and expand Terminal 4 in order to facilitate Delta's relocation from Terminal 2 and consolidation of its operations into the single facility. The project will add 10 new gates and other complementary facilities, including an additional Delta Sky Club and a new Delta One lounge. The project is estimated to cost approximately $1.5 billion and will be funded primarily with bonds issued in April 2022 by the New York Transportation Development Corporation ("NYTDC") for which our landlord, JFK International Air Terminal LLC, is the obligor. In April 2022, we amended our sublease to provide for the expansion project, including the adjustment of our subleased space and rentals. Based on our assessment of the project, we concluded that we do not control the underlying assets being constructed, and therefore, we do not have the project asset or related obligation recorded on our balance sheet. The majority of project costs are being used to expand or modify Delta's leased premises, and thus will increase Delta's lease liability which we will pay via rent through 2043. Construction started in late 2021, with Delta's portion of the project estimated to be complete by the end of 2023.
Delta Air Lines, Inc. June 2022 Form 10-Q 32
Item 2. MD&A - Financial Condition and Liquidity
Investing Activities
Short-Term Investments. During the six months ended June 30, 2022, we redeemed a net of $1.8 billion in short-term investments. See Note 3 of the Notes to the Condensed Consolidated Financial Statements for further information on these investments.
Capital Expenditures. Our capital expenditures were $2.7 billion and $1.2 billion for the six months ended June 30, 2022 and 2021, respectively. Our capital expenditures are primarily related to the purchases of aircraft, airport construction projects, fleet modifications and technology enhancements.
We have committed to future aircraft purchases and have obtained, but are under no obligation to use, long-term financing commitments for a substantial portion of the purchase price of the aircraft. Excluding the New York-LaGuardia airport project discussed below, our expected 2022 capital expenditures of approximately $6.0 billion will be primarily for aircraft, including deliveries and advance deposit payments, as well as fleet modifications and technology enhancements and may vary depending on financing decisions.
New York-LaGuardia Redevelopment. As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state-of-the-art terminal facility. Completion is expected by 2025. In June 2022, we achieved a significant milestone by opening the 455,000 square foot headhouse, the terminal roadways and Concourse E - the second of four new concourses to be built. Construction is approximately 75% complete and will continue to be phased to support airline operations while minimizing customer inconvenience.
We currently expect our net project costs to be approximately $3.5 billion and we bear the risks of project construction, including any potential cost over-runs. Using funding primarily provided by existing financing arrangements, we expect to spend approximately $725 million on this project during 2022, of which $402 million was incurred in the six months ended June 30, 2022.
Los Angeles International Airport ("LAX"). The City of Los Angeles ("the City") owns and operates LAX and we have an ongoing terminal redevelopment project at LAX to modernize, update and provide post-security connection to Terminals 2 and 3. In April 2022, we reached the next major phasing milestone of the project with the opening of a new consolidated headhouse for both terminals, which includes ticketing, security, baggage claim and a new Delta Sky Club lounge, and in May opened the Terminal 3 concourse with the initial three of 14 planned new gates. Construction is expected to be completed in 2023 and the project is expected to cost approximately $2.3 billion. A substantial majority of the project costs are being funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using a revolving credit facility provided by a group of lenders. The credit facility was executed in 2017 and we have guaranteed the obligations of the RAIC under the credit facility. The revolving credit facility agreement was amended in January 2022, increasing the revolver capacity from $800 million to $1.1 billion. Loans made under the credit facility are being repaid with the proceeds from the City's purchase of completed project assets.
Financing Activities
Debt and Finance Leases. In the six months ended June 30, 2022, we had cash outflows of approximately $2.4 billion related to repayments of our debt and finance lease obligations, including $839 million for the early repurchase of various secured and unsecured notes. We continue to seek opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities, during the remainder of 2022 and beyond.
The principal amount of our debt and finance leases was $25.0 billion at June 30, 2022.
Undrawn Lines of Credit
As of June 30, 2022, we had approximately $2.8 billion undrawn and available under our revolving credit facilities. In addition, we had outstanding letters of credit as of June 30, 2022, including approximately $100 million that reduced the availability under our revolving credit facilities and approximately $300 million that did not affect the availability of our revolving credit facilities.
Covenants
We were in compliance with the covenants in our debt agreements at June 30, 2022.
Delta Air Lines, Inc. June 2022 Form 10-Q 33
Item 2. MD&A - Critical Accounting Estimates
Critical Accounting Estimates
Except as set forth below, for information regarding our Critical Accounting Estimates, see the "Critical Accounting Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.
Defined Benefit Pension Plans
Expected Long-Term Rate of Return. Based on our funded status as of December 31, 2021, we have modified the strategic asset allocation mix to reduce the investment risk of the portfolio. As a result of the lower risk profile of the portfolio, the weighted average expected long-term rate of return on our defined benefit pension plan assets for 2022 net periodic benefit cost is 7.0%.
Recent Accounting Standards
Fair Value of Equity Investments. In 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." Under this standard, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The standard also requires certain disclosures for equity securities that are subject to contractual restrictions. The ASU becomes effective January 1, 2024, and we are evaluating the potential impact of this standard on our investments.
Delta Air Lines, Inc. June 2022 Form 10-Q 34
Item 2. MD&A - Supplemental Information
Supplemental Information
We sometimes use information (non-GAAP financial measures) that is derived from the Condensed Consolidated Financial Statements, but that is not presented in accordance with GAAP. Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.
Included below are reconciliations of non-GAAP measures used within this Form 10-Q to the most directly comparable GAAP financial measures. Reconciliations below may not calculate exactly due to rounding. These reconciliations include certain adjustments to GAAP measures that are directly related to the impact of COVID-19 and our response. These adjustments are made to provide comparability between the reported periods, if applicable, as indicated below:
•Restructuring charges. During 2020, we recorded restructuring charges for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the June 2022 quarter, we recognized $1 million of net adjustments to certain of those restructuring charges, representing changes in our estimates, compared to $8 million of net adjustments in the June 2021 quarter.
•Government grant recognition. We recognized $1.5 billion and $2.7 billion of the grant proceeds from the payroll support program extensions as contra-expense during the June 2021 quarter and six months ended June 2021, respectively. We recognized the grant proceeds as contra-expense based on the periods that the funds were intended to compensate and have fully used all proceeds from the payroll support program extensions.
We also regularly adjust certain GAAP measures for the following items, if applicable, for the reasons indicated below:
•MTM adjustments and settlements on hedges. Mark-to-market ("MTM") adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period, and therefore we remove this impact to allow investors to better understand and analyze our core performance. Settlements represent cash received or paid on hedge contracts settled during the applicable period.
•Third-party refinery sales. Refinery sales to third parties, and related expenses, are not related to our airline segment. Excluding these sales therefore provides a more meaningful comparison of our airline operations to the rest of the airline industry.
•Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.
•Profit sharing. We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.
•Delta Private Jets adjustment. Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability.
| | | | | | | | | | | | | | | |
Operating expense, adjusted reconciliation |
| | Three Months Ended June 30, |
(in millions) | 2022 | | 2021 | 2019 |
Operating expense | $ | 12,305 | | | $ | 6,310 | | $ | 10,408 | |
Adjusted for: | | | | |
Restructuring charges | 1 | | | (8) | | — | |
Government grant recognition | — | | | 1,504 | | — | |
MTM adjustments and settlements on hedges | 73 | | | (24) | | (10) | |
Third-party refinery sales | (1,514) | | | (777) | | (40) | |
Delta Private Jets adjustment | — | | | — | | (50) | |
Operating expense, adjusted | $ | 10,866 | | | $ | 7,005 | | $ | 10,308 | |
| | | | | |
| | | | | |
| | | | | |
Delta Air Lines, Inc. June 2022 Form 10-Q 35
Item 2. MD&A - Supplemental Information
| | | | | | | | | | | | | | | | | | | | | | | |
Fuel expense, adjusted reconciliation |
| | | | | Average Price Per Gallon |
| Three Months Ended June 30, | | Three Months Ended June 30, |
(in millions, except per gallon data) | 2022 | 2021 | 2019 | | 2022 | 2021 | 2019 |
Total fuel expense | $ | 3,223 | | $ | 1,487 | | $ | 2,291 | | | $ | 3.74 | | $ | 2.16 | | $ | 2.08 | |
Adjusted for: | | | | | | | |
MTM adjustments and settlements on hedges | 73 | | (24) | | (10) | | | 0.08 | | (0.03) | | (0.01) | |
Delta Private Jets adjustment | — | | — | | (8) | | | — | | — | | (0.01) | |
Total fuel expense, adjusted | $ | 3,296 | | $ | 1,463 | | $ | 2,274 | | | $ | 3.82 | | $ | 2.12 | | $ | 2.07 | |
| | | | | | | |
| | | | | Average Price Per Gallon |
| Six Months Ended June 30, | | Six Months Ended June 30, |
(in millions, except per gallon data) | 2022 | 2021 | 2019 | | 2022 | 2021 | 2019 |
Total fuel expense | $ | 5,315 | | $ | 2,504 | | $ | 4,269 | | | $ | 3.29 | | $ | 2.03 | | $ | 2.07 | |
Adjusted for: | | | | | | | |
MTM adjustments and settlements on hedges | 77 | | (1) | | (17) | | | 0.05 | | — | | (0.01) | |
Delta Private Jets adjustment | — | | — | | (15) | | | — | | — | | (0.01) | |
Total fuel expense, adjusted | $ | 5,392 | | $ | 2,504 | | $ | 4,237 | | | $ | 3.34 | | $ | 2.03 | | $ | 2.06 | |
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TRASM, adjusted reconciliation |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | 2021 | 2019 | | 2022 | 2021 | 2019 |
TRASM (cents) | 23.47 | ¢ | 14.68 | ¢ | 17.47 | ¢ | | 20.93 | ¢ | 12.72 | ¢ | 17.15 | ¢ |
Adjusted for: | | | | | | | |
Third-party refinery sales | (2.57) | | (1.60) | | (0.06) | | | (2.44) | | (1.49) | | (0.07) | |
Delta Private Jets adjustment | — | | — | | (0.07) | | | — | | — | | (0.07) | |
TRASM, adjusted | 20.90 | ¢ | 13.08 | ¢ | 17.35 | ¢ | | 18.49 | ¢ | 11.23 | ¢ | 17.01 | ¢ |
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CASM-Ex reconciliation |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | 2021 | 2019 | | 2022 | 2021 | 2019 |
CASM (cents) | 20.89 | ¢ | 13.00 | ¢ | 14.51 | ¢ | | 20.27 | ¢ | 13.38 | ¢ | 14.80 | ¢ |
Adjusted for: | | | | | | | |
Restructuring charges | — | | (0.02) | | — | | | 0.01 | | 0.04 | | — | |
Government grant recognition | — | | 3.10 | | — | | | — | | 3.03 | | — | |
Aircraft fuel and related taxes | (5.47) | | (3.06) | | (3.19) | | | (4.80) | | (2.82) | | (3.18) | |
Third-party refinery sales | (2.57) | | (1.60) | | (0.06) | | | (2.44) | | (1.49) | | (0.07) | |
Profit sharing | (0.09) | | — | | (0.72) | | | (0.05) | | — | | (0.55) | |
Delta Private Jets adjustment | — | | — | | (0.06) | | | — | | — | | (0.06) | |
CASM-Ex | 12.76 | ¢ | 11.42 | ¢ | 10.47 | ¢ | | 12.98 | ¢ | 12.14 | ¢ | 10.95 | ¢ |
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Delta Air Lines, Inc. June 2022 Form 10-Q 36