Delta Airlines reported highest ever quarterly revenue of $14.6bn, 19% higher than the June quarter 2022 and record operating income of $2.5bn with an operating margin of 17.1% in the second quarter of 2023 (Q2). The airline reported a pre-tax income of $2.2 billion with a pre-tax margin of 15.2% with earnings of $2.68 per share.
The airline’s adjusted net debt stood at $19.8 billion at June quarter end, a reduction of $2.5 billion from the end of 2022. The airline made payments on debt and finance lease obligations of $1.8 billion including the $0.8 billion of maturities and the early repayment of $1.0 billion of debt instruments with an average interest rate of 7%.
Adjusted operating cash flow was a June quarter record of $2.6 billion, and with gross capital expenditures of $1.6 billion, free cash flow was $1.1 billion. The airline’s air traffic liability stood at $10.4 billion, up $0.5 billion year over year.
"Thanks to the incredible work of our entire team, Delta is delivering for our customers by providing strong operational performance and best in class service during this busy summer period. With this performance, we generated record revenue and profitability in the June quarter. Our people are the best professionals in the industry, and I'm proud to recognize their achievements with $667 million in the first half toward next year's profit-sharing payment," said Ed Bastian, chief executive officer, Delta.
"Consumer demand for air travel remains robust. Against this constructive backdrop, we are increasing our 2023 earnings guidance to $6 to $7 per share and reiterating our recently updated outlook for $3 billion of free cash flow,” Bastian added.
Delta reported a 61% rise in the international passenger revenue year-on-year (Y-O-Y) with record profitability. Towards the end of Q2 domestic passenger revenue was up 8% Y-O-Y on a similar increase in capacity, Atlantic segment revenue rose 22% to $2.80B, and Latin America segment revenue was up 16% to $926 million. Total unit revenue per available seat mile was up 1% on 17% higher capacity driven by improved load factors and yields. Delta's (DAL) load factor was up one percentage point to 88%
"We delivered record revenue in the June quarter, with total revenues 19% higher than the June quarter of 2022. These results reflect the strength of the demand environment, the hard work of our people and the momentum of Delta's brand," said Glen Hauenstein, president, Delta. "Robust demand is continuing into the September quarter where we expect total revenue to be similar to the June quarter, up 11% to 14% compared to the September quarter 2022 on capacity that is 16% higher."
The airline reported operating expense of $13.1 billion and total adjusted operating expense of $12.1 billion and adjusted non-fuel costs of $9.0 billion.
"Delta delivered $2.9 billion of free cash flow in the first half of the year, while consistently reinvesting in the business," Janki said. "With an outlook for $3 billion of free cash flow in 2023, we are accelerating debt repayment with a goal of retiring over $4 billion in debt this year. We are on track to reduce leverage to 3x by the end of this year and achieve investment grade metrics in 2024. During the quarter, we also reinstated the quarterly dividend, an important milestone that opens the shareholder base to yield-focused investors."
The airline implemented its largest ever trans-Atlantic summer schedule in Delta's history with more than 650 weekly flights to 32 destinations and a 20% increase in seat capacity versus summer 2022.
Delta took delivery of 18 aircraft this year and 12 this quarter, including the A321neo, A220-300 and A330-900; exercised option to purchase 12 additional A220s and added one A330-900 to the order book.
"Management expects to grow 3Q 23 ASMs to 16% Y-O-Y, slightly below our forecast for 17% growth. Encouragingly, management is optimistic that CASMex will fall in 2H 23 given that front loaded spending on restoring capacity and elevated 1H23 maintenance spend are in the rearview," commented Helane Becker, managing director, Cowen. "Management also anticipates getting a benefit from efficiency improvements in 2H as new employees become more proficient, and the company gains scale at key airports. The company is guided to CASMex falling 1-3% y/y, better than our forecast decline of down 1.3%."
"Management anticipates paying down $4bn in debt in 2023 and finishing the year with leverage at 3x. It is on track to return to IG metrics in 2024. We think the shares will trade up on the strong beat and positive guide. They continue to look attractive at only 6.6x FY2 EPS," Becker concluded.