DAL 6.30.2015 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
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Or |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-5424
DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware
I.R.S. Employer Identification No.: 58-0218548
Post Office Box 20706, Atlanta, Georgia 30320-6001
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | þ | Accelerated filer | o | Non-accelerated filer | o | Smaller reporting company | o |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Number of shares outstanding by each class of common stock, as of June 30, 2015:
Common Stock, $0.0001 par value - 795,398,332 shares outstanding
This document is also available through our website at http://ir.delta.com/.
Unless otherwise indicated, the terms “Delta,” “we,” “us,” and “our” refer to Delta Air Lines, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q (or otherwise made by us or on our behalf) that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to Delta are described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (“Form 10-K”), other than risks that could apply to any issuer or offering. All forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Delta Air Lines, Inc.
We have reviewed the consolidated balance sheet of Delta Air Lines, Inc. (the Company) as of June 30, 2015, and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2015 and 2014 and condensed consolidated statements of cash flows for the six-month periods ended June 30, 2015 and 2014. These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Delta Air Lines, Inc. as of December 31, 2014 and the related consolidated statements of operations, comprehensive (loss) income, cash flows and stockholders' equity for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 10, 2015.
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Atlanta, Georgia | /s/ Ernst & Young LLP |
July 15, 2015 | |
DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited) |
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(in millions, except share data) | June 30, 2015 | | December 31, 2014 |
ASSETS |
Current Assets: | | | |
Cash and cash equivalents | $ | 2,293 |
| | $ | 2,088 |
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Short-term investments | 1,494 |
| | 1,217 |
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Accounts receivable, net of an allowance for uncollectible accounts of $10 and $11 at June 30, 2015 and December 31, 2014, respectively | 1,966 |
| | 2,297 |
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Hedge margin receivable | 134 |
| | 925 |
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Fuel inventory | 553 |
| | 534 |
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Expendable parts and supplies inventories, net of an allowance for obsolescence of $120 and $127 at June 30, 2015 and December 31, 2014, respectively | 328 |
| | 318 |
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Hedge derivatives asset | 966 |
| | 1,078 |
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Deferred income taxes, net | 2,892 |
| | 3,275 |
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Prepaid expenses and other | 815 |
| | 733 |
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Total current assets | 11,441 |
| | 12,465 |
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Property and Equipment, Net: | | | |
Property and equipment, net of accumulated depreciation and amortization of $10,140 and $9,340 at June 30, 2015 and December 31, 2014, respectively | 22,480 |
| | 21,929 |
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Other Assets: | | | |
Goodwill | 9,794 |
| | 9,794 |
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Identifiable intangibles, net of accumulated amortization of $802 and $793 at June 30, 2015 and December 31, 2014, respectively | 4,594 |
| | 4,603 |
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Deferred income taxes, net | 3,374 |
| | 4,320 |
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Other noncurrent assets | 1,098 |
| | 1,010 |
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Total other assets | 18,860 |
| | 19,727 |
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Total assets | $ | 52,781 |
| | $ | 54,121 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
Current Liabilities: | | | |
Current maturities of long-term debt and capital leases | $ | 1,659 |
| | $ | 1,216 |
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Air traffic liability | 6,039 |
| | 4,296 |
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Accounts payable | 2,803 |
| | 2,622 |
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Accrued salaries and related benefits | 2,112 |
| | 2,266 |
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Hedge derivatives liability | 1,440 |
| | 2,772 |
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Frequent flyer deferred revenue | 1,561 |
| | 1,580 |
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Other accrued liabilities | 1,468 |
| | 2,127 |
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Total current liabilities | 17,082 |
| | 16,879 |
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Noncurrent Liabilities: | | | |
Long-term debt and capital leases | 7,598 |
| | 8,561 |
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Pension, postretirement and related benefits | 13,869 |
| | 15,138 |
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Frequent flyer deferred revenue | 2,347 |
| | 2,602 |
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Other noncurrent liabilities | 2,322 |
| | 2,128 |
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Total noncurrent liabilities | 26,136 |
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| 28,429 |
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Commitments and Contingencies | | | |
Stockholders' Equity: | | | |
Common stock at $0.0001 par value; 1,500,000,000 shares authorized, 816,405,334 and 845,048,310 shares issued at June 30, 2015 and December 31, 2014, respectively | — |
| | — |
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Additional paid-in capital | 11,681 |
| | 12,981 |
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Retained earnings | 5,540 |
| | 3,456 |
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Accumulated other comprehensive loss | (7,288 | ) | | (7,311 | ) |
Treasury stock, at cost, 21,007,002 and 19,790,077 shares at June 30, 2015 and December 31, 2014, respectively | (370 | ) | | (313 | ) |
Total stockholders' equity | 9,563 |
| | 8,813 |
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Total liabilities and stockholders' equity | $ | 52,781 |
| | $ | 54,121 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. |
DELTA AIR LINES, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions, except per share data) | 2015 | | 2014 | | 2015 | | 2014 |
Operating Revenue: | | | | | | | |
Passenger: | | | | | | | |
Mainline | $ | 7,587 |
| | $ | 7,582 |
| | $ | 14,136 |
| | $ | 13,806 |
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Regional carriers | 1,552 |
| | 1,684 |
| | 2,926 |
| | 3,137 |
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Total passenger revenue | 9,139 |
| | 9,266 |
| | 17,062 |
| | 16,943 |
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Cargo | 207 |
| | 230 |
| | 424 |
| | 447 |
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Other | 1,361 |
| | 1,125 |
| | 2,609 |
| | 2,147 |
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Total operating revenue | 10,707 |
| | 10,621 |
| | 20,095 |
| | 19,537 |
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Operating Expense: | | | | | | | |
Salaries and related costs | 2,195 |
| | 2,046 |
| | 4,287 |
| | 4,015 |
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Aircraft fuel and related taxes | 1,457 |
| | 2,434 |
| | 3,292 |
| | 4,660 |
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Regional carrier expense | 1,097 |
| | 1,361 |
| | 2,150 |
| | 2,680 |
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Aircraft maintenance materials and outside repairs | 499 |
| | 466 |
| | 951 |
| | 914 |
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Depreciation and amortization | 448 |
| | 451 |
| | 918 |
| | 893 |
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Contracted services | 457 |
| | 440 |
| | 898 |
| | 867 |
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Passenger commissions and other selling expenses | 421 |
| | 440 |
| | 807 |
| | 813 |
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Landing fees and other rents | 388 |
| | 355 |
| | 761 |
| | 696 |
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Profit sharing | 411 |
| | 340 |
| | 547 |
| | 439 |
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Passenger service | 227 |
| | 215 |
| | 417 |
| | 388 |
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Aircraft rent | 60 |
| | 56 |
| | 120 |
| | 107 |
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Restructuring and other items | 25 |
| | 30 |
| | 35 |
| | 79 |
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Other | 548 |
| | 408 |
| | 1,040 |
| | 787 |
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Total operating expense | 8,233 |
| | 9,042 |
| | 16,223 |
| | 17,338 |
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Operating Income | 2,474 |
| | 1,579 |
| | 3,872 |
| | 2,199 |
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Other (Expense) Income: |
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Interest expense, net | (127 | ) | | (173 | ) | | (258 | ) | | (359 | ) |
Miscellaneous, net | 19 |
| | (108 | ) | | (62 | ) | | (207 | ) |
Total other expense, net | (108 | ) | | (281 | ) | | (320 | ) | | (566 | ) |
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Income Before Income Taxes | 2,366 |
| | 1,298 |
| | 3,552 |
| | 1,633 |
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Income Tax Provision | (881 | ) | | (497 | ) | | (1,321 | ) | | (619 | ) |
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Net Income | $ | 1,485 |
| | $ | 801 |
| | $ | 2,231 |
| | $ | 1,014 |
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Basic Earnings Per Share | $ | 1.85 |
| | $ | 0.95 |
| | $ | 2.75 |
| | $ | 1.20 |
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Diluted Earnings Per Share | $ | 1.83 |
| | $ | 0.94 |
| | $ | 2.72 |
| | $ | 1.19 |
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Cash Dividends Declared Per Share | $ | 0.09 |
| | $ | 0.06 |
| | $ | 0.18 |
| | $ | 0.12 |
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Comprehensive Income | $ | 1,491 |
| | $ | 803 |
| | $ | 2,254 |
| | $ | 1,007 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. | | | | |
DELTA AIR LINES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited) |
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| Six Months Ended June 30, |
(in millions) | 2015 | | 2014 |
Net Cash Provided by Operating Activities | $ | 4,381 |
| | $ | 3,007 |
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Cash Flows From Investing Activities: | | | |
Property and equipment additions: | | | |
Flight equipment, including advance payments | (1,177 | ) | | (857 | ) |
Ground property and equipment, including technology | (328 | ) | | (275 | ) |
Purchase of short-term investments | (613 | ) | | (240 | ) |
Redemption of short-term investments | 334 |
| | 493 |
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Other, net | 17 |
| | 37 |
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Net cash used in investing activities | (1,767 | ) |
| (842 | ) |
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Cash Flows From Financing Activities: | | | |
Payments on long-term debt and capital lease obligations | (634 | ) | | (1,477 | ) |
Repurchase of common stock | (1,350 | ) | | (350 | ) |
Cash dividends | (147 | ) | | (101 | ) |
Fuel card obligation | (320 | ) | | 1 |
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Proceeds from long-term obligations | 41 |
| | 273 |
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Other, net | 1 |
| | 7 |
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Net cash used in financing activities | (2,409 | ) | | (1,647 | ) |
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Net Increase in Cash and Cash Equivalents | 205 |
| | 518 |
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Cash and cash equivalents at beginning of period | 2,088 |
| | 2,844 |
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Cash and cash equivalents at end of period | $ | 2,293 |
| | $ | 3,362 |
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Non-Cash Transactions: | | | |
Flight equipment under capital leases | $ | 65 |
| | $ | 28 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. |
DELTA AIR LINES, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the year ended December 31, 2014.
Management believes the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including normal recurring items and restructuring and other items, considered necessary for a fair statement of results for the interim periods presented.
Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, operating results for the three and six months ended June 30, 2015 are not necessarily indicative of operating results for the entire year.
We reclassified certain prior period amounts, none of which were material, to conform to the current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.
Recent Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers." Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption.
On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. We are currently evaluating how the adoption of this standard will impact our Consolidated Financial Statements.
NOTE 2. FAIR VALUE MEASUREMENTS
Assets (Liabilities) Measured at Fair Value on a Recurring Basis
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(in millions) | June 30, 2015 | Level 1 | Level 2 |
Cash equivalents | $ | 1,705 |
| $ | 1,705 |
| $ | — |
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Short-term investments | | |
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U.S. government and agency securities | 138 |
| 77 |
| 61 |
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Asset- and mortgage-backed securities | 400 |
| — |
| 400 |
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Corporate obligations | 919 |
| — |
| 919 |
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Other fixed income securities | 37 |
| — |
| 37 |
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Restricted cash equivalents and investments | 47 |
| 47 |
| — |
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Long-term investments | 92 |
| 66 |
| 26 |
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Hedge derivatives, net | | | |
Fuel hedge contracts | (758 | ) | 8 |
| (766 | ) |
Interest rate contract | (8 | ) | — |
| (8 | ) |
Foreign currency exchange contracts | 89 |
| — |
| 89 |
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(in millions) | December 31, 2014 | Level 1 | Level 2 |
Cash equivalents | $ | 1,612 |
| $ | 1,612 |
| $ | — |
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Short-term investments | | |
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U.S. government and agency securities | 59 |
| — |
| 59 |
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Asset- and mortgage-backed securities | 392 |
| — |
| 392 |
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Corporate obligations | 749 |
| — |
| 749 |
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Other fixed income securities | 17 |
| — |
| 17 |
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Restricted cash equivalents and investments | 37 |
| 37 |
| — |
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Long-term investments | 118 |
| 90 |
| 28 |
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Hedge derivatives, net | | | |
Fuel hedge contracts | (1,848 | ) | (167 | ) | (1,681 | ) |
Interest rate contract | (7 | ) | — |
| (7 | ) |
Foreign currency exchange contracts | 73 |
| — |
| 73 |
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Cash Equivalents and Restricted Cash Equivalents and Investments. Cash equivalents generally consist of money market funds. Restricted cash equivalents and investments primarily support letters of credit that relate to certain projected self-insurance obligations and airport commitments and generally consist of money market funds and time deposits. The fair value of these investments is based on a market approach using prices and other relevant information generated by market transactions involving identical or comparable assets.
Short-Term Investments. The fair values of short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security and other observable information.
Long-Term Investments. Our long-term investments that are measured at fair value primarily consist of equity investments in Grupo Aeroméxico, S.A.B. de C.V., the parent company of Aeroméxico, and GOL Linhas Aéreas Inteligentes, S.A., the parent company of VRG Linhas Aéreas (operating as GOL). Shares of the parent companies of Aeroméxico and GOL are traded on public exchanges and we have valued our investments based on quoted market prices. The investments are classified in other noncurrent assets.
Hedge Derivatives. A portion of our derivative contracts are negotiated over-the-counter with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk). Such contracts are classified as Level 2 within the fair value hierarchy. The remainder of our hedge contracts are comprised of futures contracts, which are traded on a public exchange. These contracts are classified within
Level 1 of the fair value hierarchy.
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• | Fuel Contracts. Our fuel hedge portfolio consists of options, swaps and futures. The hedge contracts include crude oil, diesel fuel and jet fuel, as these commodities are highly correlated with the price of jet fuel that we consume. Option contracts are valued under an income approach using option pricing models based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Volatilities used in these valuations ranged from 16% to 45% depending on the maturity dates, underlying commodities and strike prices of the option contracts. Swap contracts are valued under an income approach using a discounted cash flow model based on data either readily observable or derived from public markets. Discount rates used in these valuations vary with the maturity dates of the respective contracts and are based on LIBOR. Futures contracts and options on futures contracts are traded on a public exchange and valued based on quoted market prices. |
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• | Interest Rate Contract. Our interest rate derivative is a swap contract, which is valued based on data readily observable in public markets. |
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• | Foreign Currency Exchange Contracts. Our foreign currency derivatives consist of Japanese yen and Canadian dollar forward contracts and are valued based on data readily observable in public markets. |
NOTE 3. INVESTMENTS
Short-Term Investments
The estimated fair values of short-term investments, which approximate cost at June 30, 2015, are shown below by contractual maturity. Actual maturities may differ from contractual maturities because issuers of the securities may have the right to retire our investment without prepayment penalties. Investments with maturities beyond one year when purchased may be classified as short-term investments if they are expected to be available to support our short-term liquidity needs.
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(in millions) | Available-For-Sale |
Maturities as of June 30, 2015 | |
Due in one year or less | $ | 346 |
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Due after one year through three years | 890 |
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Due after three years through five years | 160 |
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Due after five years | 98 |
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Total | $ | 1,494 |
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Long-Term Investments
We have developed strategic relationships with our airline partners through equity investments and other forms of cooperation and support. These strategic relationships are important to us as they improve the coordination with our airline partners and enable our customers to seamlessly reach more destinations.
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• | Aeroméxico. In order to expand our economic interest in Grupo Aeroméxico, during the June 2015 quarter, we entered into a derivative contract for 58.9 million shares of Grupo Aeroméxico. We will participate in the increases and decreases in value of the shares and record those changes in other income (expense) on the Condensed Consolidated Statements of Operations and Comprehensive Income. At the maturity date of the derivative contract, we may acquire all or a portion of the shares or settle in cash. If the derivative term is not extended, the derivative will mature no later than May 2016. |
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• | GOL. On July 10, 2015, GOL announced plans to issue up to $146 million of preferred shares and enter into a term loan with third parties for up to $300 million of principal. We plan to acquire up to $56 million of the shares and guarantee borrowings under the term loan, subject to the execution and delivery of definitive documentation and customary closing conditions, including receipt of required regulatory approvals. Delta's guarantee will be secured by GOL’s share ownership in Smiles (GOL's publicly-traded loyalty program). In conjunction with these transactions, both parties agreed to extend their existing commercial agreements. |
NOTE 4. DERIVATIVES
Changes in aircraft fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we enter into derivative contracts and adjust our derivative portfolio as market conditions change.
Aircraft Fuel Price Risk
Changes in aircraft fuel prices materially impact our results of operations. We actively manage our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of jet fuel. We utilize different contract and commodity types in this program and frequently test their economic effectiveness against our financial targets. We rebalance the hedge portfolio from time to time according to market conditions, which may result in locking in gains or losses on hedge contracts prior to their settlement dates. During the three months ended June 30, 2015 and 2014, we recorded fuel hedge gains of $98 million and $97 million, respectively. During the six months ended June 30, 2015 and 2014, we recorded fuel hedge losses of $313 million and fuel hedge gains of $175 million, respectively.
During the March 2015 quarter, we restructured our fuel hedge portfolio by early settling certain 2015 hedges and deferring the settlement of a portion of the remaining positions. We paid $302 million to early settle contracts that were in a loss position and originally scheduled to expire in the second half of 2015. Additionally, we effectively deferred settlement of a portion of our hedge portfolio until 2016 by entering into fuel derivative transactions that will provide approximately $300 million in cash receipts during the second half of 2015 and require approximately $300 million in cash payments in 2016 (excluding market movements from the date of the transactions). By effectively deferring settlement of a portion of the original derivative transactions, the restructured hedge portfolio provides additional time for the fuel market to stabilize while adding some hedge protection in 2016. Cash flows associated with these deferral transactions will be reported as cash flows from financing activities within our Condensed Consolidated Statement of Cash Flows in the settlement period.
Hedge Position as of June 30, 2015
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(in millions) | Volume | Final Maturity Date | Hedge Derivatives Asset | Other Noncurrent Assets | Hedge Derivatives Liability | Other Noncurrent Liabilities | Hedge Derivatives, net |
Designated as hedges | | | | | | | | |
Interest rate contract (fair value hedge) | 400 |
| U.S. dollars | August 2022 | $ | 5 |
| $ | — |
| $ | — |
| $ | (13 | ) | $ | (8 | ) |
Foreign currency exchange contracts | 61,573 |
| Japanese yen | April 2018 | 55 |
| 34 |
| — |
| — |
| 89 |
|
500 |
| Canadian dollars |
Not designated as hedges | | | | | | | | |
Fuel hedge contracts | 1,176 |
| gallons - crude oil, diesel and jet fuel | December 2016 | 906 |
| 115 |
| (1,440 | ) | (339 | ) | (758 | ) |
Total derivative contracts | | | $ | 966 |
| $ | 149 |
| $ | (1,440 | ) | $ | (352 | ) | $ | (677 | ) |
Hedge Position as of December 31, 2014
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(in millions) | Volume | Final Maturity Date | Hedge Derivatives Asset | Other Noncurrent Assets | Hedge Derivatives Liability | Other Noncurrent Liabilities | Hedge Derivatives, net |
Designated as hedges | | | | | | | | |
Interest rate contract (fair value hedge) | 416 |
| U.S. dollars | August 2022 | $ | 5 |
| $ | — |
| $ | — |
| $ | (12 | ) | $ | (7 | ) |
Foreign currency exchange contracts | 77,576 |
| Japanese yen | October 2017 | 25 |
| 49 |
| (1 | ) | — |
| 73 |
|
511 |
| Canadian dollars |
Not designated as hedges | | | | | | | | |
Fuel hedge contracts | 3,286 |
| gallons - crude oil, diesel and jet fuel | December 2016 | 1,048 |
| 3 |
| (2,771 | ) | (128 | ) | (1,848 | ) |
Total derivative contracts | | | $ | 1,078 |
| $ | 52 |
| $ | (2,772 | ) | $ | (140 | ) | $ | (1,782 | ) |
Offsetting Assets and Liabilities
We have master netting arrangements with our counterparties giving us the right of setoff. We have elected not to offset the fair value positions recorded on our Consolidated Balance Sheets. The following table shows the net fair value positions had we elected to offset.
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(in millions) | Hedge Derivatives Asset | Other Noncurrent Assets | Hedge Derivatives Liability | Other Noncurrent Liabilities | Hedge Derivatives, net |
June 30, 2015 | | | | | |
Net derivative contracts | $ | 129 |
| $ | 64 |
| $ | (603 | ) | $ | (267 | ) | $ | (677 | ) |
December 31, 2014 | | | | | |
Net derivative contracts | $ | 29 |
| $ | 49 |
| $ | (1,723 | ) | $ | (137 | ) | $ | (1,782 | ) |
Designated Hedge Gains (Losses)
Gains (losses) related to our designated hedge contracts are as follows:
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| | | | | | | | | | | | | |
| Effective Portion Reclassified from AOCI to Earnings | | Effective Portion Recognized in Other Comprehensive Income |
(in millions) | 2015 | 2014 | | 2015 | 2014 |
Three Months Ended June 30, | | | | | |
Interest rate contract | $ | — |
| $ | (19 | ) | | $ | — |
| $ | 21 |
|
Foreign currency exchange contracts | 41 |
| 28 |
| | (36 | ) | (60 | ) |
Total designated | $ | 41 |
| $ | 9 |
|
| $ | (36 | ) | $ | (39 | ) |
Six Months Ended June 30, | | | | | |
Interest rate contract | $ | — |
| $ | (19 | ) | | $ | — |
| $ | 23 |
|
Foreign currency exchange contracts | 92 |
| 71 |
| | (52 | ) | (111 | ) |
Total designated | $ | 92 |
| $ | 52 |
|
| $ | (52 | ) | $ | (88 | ) |
As of June 30, 2015, we have recorded $137 million of gains on cash flow hedge contracts in accumulated other comprehensive income (loss) ("AOCI"), which are scheduled to settle and be reclassified into earnings within the next 12 months.
Credit Risk
To manage credit risk associated with our aircraft fuel price, interest rate and foreign currency hedging programs, we evaluate counterparties based on several criteria including their credit ratings and limit our exposure to any one counterparty.
Our hedge contracts contain margin funding requirements. The margin funding requirements may cause us to post margin to counterparties or may cause counterparties to post margin to us as market prices in the underlying hedged items change. Due to the fair value position of our hedge contracts, we posted margin of $134 million and $925 million as of June 30, 2015 and December 31, 2014, respectively.
NOTE 5. LONG-TERM DEBT
Fair Value of Debt
Market risk associated with our fixed- and variable-rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. The fair value of debt, shown below, is based primarily on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral. Long-term debt is principally classified as Level 2 within the fair value hierarchy.
|
| | | | | | |
(in millions) | June 30, 2015 | December 31, 2014 |
Total debt at par value | $ | 8,963 |
| $ | 9,469 |
|
Unamortized discount, net | (76 | ) | (90 | ) |
Net carrying amount | $ | 8,887 |
| $ | 9,379 |
|
| | |
Fair value | $ | 9,200 |
| $ | 9,800 |
|
Covenants
We were in compliance with the covenants in our financing agreements at June 30, 2015.
NOTE 6. EMPLOYEE BENEFIT PLANS
The following table shows the components of net periodic cost:
|
| | | | | | | | | | | | |
| Pension Benefits | Other Postretirement and Postemployment Benefits |
(in millions) | 2015 | 2014 | 2015 | 2014 |
Three Months Ended June 30, | | | | |
Service cost | $ | — |
| $ | — |
| $ | 16 |
| $ | 13 |
|
Interest cost | 221 |
| 232 |
| 35 |
| 39 |
|
Expected return on plan assets | (220 | ) | (207 | ) | (20 | ) | (21 | ) |
Amortization of prior service credit | — |
| — |
| (7 | ) | (7 | ) |
Recognized net actuarial loss | 58 |
| 33 |
| 6 |
| 1 |
|
Net periodic cost | $ | 59 |
| $ | 58 |
| $ | 30 |
| $ | 25 |
|
| | | | |
Six Months Ended June 30, | | | | |
Service cost | $ | — |
| $ | — |
| $ | 32 |
| $ | 26 |
|
Interest cost | 442 |
| 464 |
| 70 |
| 78 |
|
Expected return on plan assets | (440 | ) | (414 | ) | (40 | ) | (42 | ) |
Amortization of prior service credit | — |
| — |
| (14 | ) | (14 | ) |
Recognized net actuarial loss | 116 |
| 67 |
| 12 |
| 2 |
|
Net periodic cost | $ | 118 |
| $ | 117 |
| $ | 60 |
| $ | 50 |
|
NOTE 7. COMMITMENTS AND CONTINGENCIES
Aircraft Purchase and Lease Commitments
At June 30, 2015, future aircraft purchase commitments totaled approximately $13.0 billion and included 59 B-737-900ER, 45 A321-200, 25 A330-900neo, 25 A350-900, 18 B-787-8, eight A330-300, three B-717-200 and one B-757-200 aircraft. We have obtained long-term financing commitments for a substantial portion of the purchase price of these aircraft, except for the 18 B-787-8, three B-717-200 and one B-757-200 aircraft. Our purchase commitment for the 18 B-787-8 aircraft provides for certain aircraft substitution rights.
|
| | | |
(in millions) | Total |
Six months ending December 31, 2015 | $ | 690 |
|
2016 | 1,900 |
|
2017 | 2,330 |
|
2018 | 2,190 |
|
2019 | 1,060 |
|
Thereafter | 4,820 |
|
Total | $ | 12,990 |
|
In addition, we have agreements with Southwest Airlines and The Boeing Company to lease an additional 17 B-717-200 aircraft, which will be delivered by the end of 2015.
Venezuelan Currency Devaluation
As of June 30, 2015, we had $85 million of unrestricted cash on our Consolidated Balance Sheet primarily related to our 2013 Venezuelan ticket sales for which repatriation has been requested, but not yet authorized. While the cash is available for use in Venezuela, our ability to repatriate these funds has been limited due to Venezuelan government controls. Until these funds can be repatriated, they are at risk of future devaluations.
Legal Contingencies
We are involved in various legal proceedings related to employment practices, environmental issues, antitrust matters and other matters concerning our business. We record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount of loss can be reasonably estimated. We cannot reasonably estimate the potential loss for certain legal proceedings because, for example, the litigation is in its early stages or the plaintiff does not specify the damages being sought. Although the outcome of the legal proceedings in which we are involved cannot be predicted with certainty, management believes that the resolution of these matters will not have a material adverse effect on our Condensed Consolidated Financial Statements.
Other Contingencies
General Indemnifications
We are the lessee under many commercial real estate leases. It is common in these transactions for us, as the lessee, to agree to indemnify the lessor and the lessor's related parties for tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased premises. This type of indemnity would typically make us responsible to indemnified parties for liabilities arising out of the conduct of, among others, contractors, licensees and invitees at, or in connection with, the use or occupancy of the leased premises. This indemnity often extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by either their sole or gross negligence or their willful misconduct.
Our aircraft and other equipment lease and financing agreements typically contain provisions requiring us, as the lessee or obligor, to indemnify the other parties to those agreements, including certain of those parties' related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or other equipment.
We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft and other equipment lease and financing agreements described above. While our insurance does not typically cover environmental liabilities, we have certain insurance policies in place as required by applicable environmental laws.
Certain of our aircraft and other financing transactions include provisions that require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to certain changes in laws or regulations. In certain of these financing transactions, we also bear the risk of certain changes in tax laws that would subject payments to non-U.S. lenders to withholding taxes.
We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time.
Employees Under Collective Bargaining Agreements
At June 30, 2015, we had approximately 83,000 full-time equivalent employees. Approximately 18% of these employees were represented by unions.
Other
We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs.
NOTE 8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables show the components of accumulated other comprehensive loss:
|
| | | | | | | | | | | | |
(in millions) | Pension and Other Benefits Liabilities(2) | Derivative Contracts | Investments | Total |
Balance at January 1, 2015 | $ | (7,517 | ) | $ | 222 |
| $ | (16 | ) | $ | (7,311 | ) |
Changes in value (net of tax effect of $15) | — |
| 25 |
| (19 | ) | 6 |
|
Reclassifications into earnings (net of tax effect of $10)(1) | 75 |
| (58 | ) | — |
| 17 |
|
Balance at June 30, 2015 | $ | (7,442 | ) | $ | 189 |
| $ | (35 | ) | $ | (7,288 | ) |
|
| | | | | | | | | | | | |
(in millions) | Pension and Other Benefits Liabilities(2) | Derivative Contracts | Investments | Total |
Balance at January 1, 2014 | $ | (5,323 | ) | $ | 219 |
| $ | (26 | ) | $ | (5,130 | ) |
Changes in value (net of tax effect of $12) | — |
| (23 | ) | 19 |
| (4 | ) |
Reclassifications into earnings (net of tax effect of $2)(1) | 30 |
| (33 | ) | — |
| (3 | ) |
Balance at June 30, 2014 | $ | (5,293 | ) | $ | 163 |
| $ | (7 | ) | $ | (5,137 | ) |
| |
(1) | Amounts reclassified from AOCI for pension and other benefits liabilities are recorded in salaries and related costs in the Condensed Consolidated Statements of Operations and Comprehensive Income. Amounts reclassified from AOCI for derivative contracts designated as foreign currency cash flow hedges and interest rate cash flow hedges are recorded in passenger revenue and interest expense, net, respectively, in the Condensed Consolidated Statements of Operations and Comprehensive Income. Amounts reclassified from AOCI for investments are recorded in interest expense, net in the Condensed Consolidated Statements of Operations and Comprehensive Income. |
| |
(2) | Includes $1.9 billion of deferred income tax expense primarily related to pension obligations that will not be recognized in net income until the pension obligations are fully extinguished. |
NOTE 9. SEGMENTS
Refinery Operations
We own and operate an oil refinery as part of our strategy to reduce the cost of the refining margin we pay for jet fuel. The refinery's production consists of jet fuel, as well as gasoline, diesel and other refined products ("non-jet fuel products"). We use several counterparties to exchange the non-jet fuel products produced by the refinery for jet fuel consumed in our airline operations. The gross fair value of the products exchanged under these agreements during the three and six months ended June 30, 2015 was $858 million and $1.6 billion, respectively, compared to $1.5 billion and $2.5 billion during the three and six months ended June 30, 2014, respectively.
Segment Reporting
Segment results are prepared based on our internal accounting policies described below, with reconciliations to consolidated amounts in accordance with GAAP. |
| | | | | | | | | | | | | | |
(in millions) | Airline | Refinery | | Intersegment Sales/Other | | Consolidated |
Three Months Ended June 30, 2015 | | | | | | |
Operating revenue: | $ | 10,592 |
| $ | 1,357 |
| | | | $ | 10,707 |
|
Sales to airline segment | | | | $ | (292 | ) | (1) | |
Exchanged products | | | | (858 | ) | (2) | |
Sales of refined products to third parties | | | | (92 | ) | (3) | |
Operating income(4) | 2,384 |
| 90 |
| | — |
| | 2,474 |
|
Interest expense, net | 127 |
| — |
| | — |
| | 127 |
|
Depreciation and amortization | 440 |
| 8 |
| | — |
| | 448 |
|
Total assets, end of period | 51,608 |
| 1,173 |
| | — |
| | 52,781 |
|
Capital expenditures | 906 |
| 13 |
| | — |
| | 919 |
|
| | | | | | |
Three Months Ended June 30, 2014 | | | | | | |
Operating revenue: | $ | 10,621 |
| $ | 2,018 |
| | | | $ | 10,621 |
|
Sales to airline segment | | | | $ | (387 | ) | (1) | |
Exchanged products | | | | (1,524 | ) | (2) | |
Sales of refined products to third parties | | | | (107 | ) | (3) | |
Operating income(4) | 1,566 |
| 13 |
| | — |
| | 1,579 |
|
Interest expense, net | 173 |
| — |
| | — |
| | 173 |
|
Depreciation and amortization | 445 |
| 6 |
| | — |
| | 451 |
|
Total assets, end of period | 50,948 |
| 1,243 |
| | — |
| | 52,191 |
|
Capital expenditures | 511 |
| 7 |
| | — |
| | 518 |
|
| |
(1) | Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price by reference to the market index for the primary delivery location, which is New York Harbor, for jet fuel from the refinery. |
| |
(2) | Represents value of products delivered under our strategic agreements, as discussed above, determined on a market price basis. |
| |
(3) | Represents sales of refined products to third parties. These sales were at or near cost; accordingly, the margin on these sales is de minimis. |
| |
(4) | Includes the impact of pricing arrangements between the airline segment and refinery segment with respect to the refinery's inventory price risk. |
|
| | | | | | | | | | | | | | |
(in millions) | Airline | Refinery | | Intersegment Sales/Other | | Consolidated |
Six Months Ended June 30, 2015 | | | | | | |
Operating revenue: | $ | 19,906 |
| $ | 2,497 |
| | | | $ | 20,095 |
|
Sales to airline segment | | | | $ | (525 | ) | (1) | |
Exchanged products | | | | (1,640 | ) | (2) | |
Sales of refined products to third parties | | | | (143 | ) | (3) | |
Operating income(4) | 3,696 |
| 176 |
| | — |
| | 3,872 |
|
Interest expense, net | 258 |
| — |
| | — |
| | 258 |
|
Depreciation and amortization | 903 |
| 15 |
| | — |
| | 918 |
|
Capital expenditures | 1,485 |
| 20 |
| | — |
| | 1,505 |
|
| | | | | | |
Six Months Ended June 30, 2014 | | | | | | |
Operating revenue: | $ | 19,537 |
| $ | 3,481 |
| | | | $ | 19,537 |
|
Sales to airline segment | | | | $ | (636 | ) | (1) | |
Exchanged products | | | | (2,527 | ) | (2) | |
Sales of refined products to third parties | | | | (318 | ) | (3) | |
Operating income (loss)(4) | 2,227 |
| (28 | ) | | — |
| | 2,199 |
|
Interest expense, net | 359 |
| — |
| | — |
| | 359 |
|
Depreciation and amortization | 882 |
| 11 |
| | — |
| | 893 |
|
Capital expenditures | 1,103 |
| 29 |
| | — |
| | 1,132 |
|
| |
(1) | Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price by reference to the market index for the primary delivery location, which is New York Harbor, for jet fuel from the refinery. |
| |
(2) | Represents value of products delivered under our strategic agreements, as discussed above, determined on a market price basis. |
| |
(3) | Represents sales of refined products to third parties. These sales were at or near cost; accordingly, the margin on these sales is de minimis. |
| |
(4) | Includes the impact of pricing arrangements between the airline segment and refinery segment with respect to the refinery's inventory price risk. |
NOTE 10. RESTRUCTURING AND OTHER ITEMS
During the three and six months ended June 30, 2015, we recorded charges of $25 million and $35 million, respectively, associated with our fleet restructuring initiative. We continue to restructure our domestic fleet by replacing a significant portion of our 50-seat regional fleet with more efficient and customer preferred CRJ-900 and B-717-200 aircraft and by replacing older, less cost effective B-757-200 with B-737-900ER aircraft. These restructuring charges include remaining lease payments and lease return costs for permanently grounded aircraft.
The following table shows the balances and activity for restructuring charges: |
| | | | | | |
(in millions) | Severance and Related Costs | Lease Restructuring |
Liability as of January 1, 2015 | $ | 42 |
| $ | 462 |
|
Additional costs and expenses | — |
| 36 |
|
Payments | (26 | ) | (43 | ) |
Liability as of June 30, 2015 | $ | 16 |
| $ | 455 |
|
As we continue to restructure our 50-seat regional fleet and assess our fleet plans, we may evaluate and adjust the expected size of the remaining active regional fleet. A decrease in the expected remaining fleet may cause us to retire additional aircraft, which would likely result in lease termination and other charges. The timing and amount of these charges will depend on a number of factors, including final negotiations with lessors, the timing of removing the aircraft from service and the ultimate disposition of aircraft.
NOTE 11. EARNINGS PER SHARE
We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding restricted shares. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including stock options and restricted stock awards. Antidilutive common stock equivalents excluded from the diluted earnings per share calculation are not material. The following table shows the computation of basic and diluted earnings per share:
|
| | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
(in millions, except per share data) | 2015 | 2014 | 2015 | 2014 |
Net income | $ | 1,485 |
| $ | 801 |
| $ | 2,231 |
| $ | 1,014 |
|
| | | | |
Basic weighted average shares outstanding | 803 |
| 841 |
| 811 |
| 843 |
|
Dilutive effect of share-based awards | 8 |
| 9 |
| 8 |
| 9 |
|
Diluted weighted average shares outstanding | 811 |
| 850 |
| 819 |
| 852 |
|
| | | | |
Basic earnings per share | $ | 1.85 |
| $ | 0.95 |
| $ | 2.75 |
| $ | 1.20 |
|
Diluted earnings per share | $ | 1.83 |
| $ | 0.94 |
| $ | 2.72 |
| $ | 1.19 |
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 2015 Quarter Financial Highlights
Our pre-tax income for the June 2015 quarter was $2.4 billion, representing a $1.1 billion increase compared to the corresponding prior year period predominantly as a result of lower fuel prices and consistent cost execution. Pre-tax income, adjusted for special items, increased $202 million, or 14%, to $1.6 billion. Special items were primarily comprised of $720 million from the impact of unfavorable mark-to-market ("MTM") adjustments recorded on hedges in periods other than the settlement period. The majority of these adjustments result from losses incurred in prior periods (principally in the December 2014 quarter), but also include current period hedge gains on unsettled hedge positions.
Revenue. Our passenger revenue decreased $127 million, or 1%, compared to the June 2014 quarter principally due to 3.9% lower passenger mile yield, resulting from the strength of the U.S. dollar and lower international fuel surcharges. Domestic unit revenues decreased due to weaker yields in certain markets.
Operating Expense. Total operating expense decreased $809 million from the June 2014 quarter driven by lower fuel prices, partially offset by higher salaries and related costs and profit sharing. Salaries and related costs were higher as a result of pay rate increases and an increase in pilot and flight attendant block hours due to higher capacity.
Our consolidated operating cost per available seat mile ("CASM") for the June 2015 quarter decreased 12.0% to 12.88 cents from 14.63 cents in the June 2014 quarter, on a 3.4% increase in capacity, primarily due to lower fuel prices. Non-fuel unit costs ("CASM-Ex," a non-GAAP financial measure) decreased 0.8% to 8.91 cents compared to the June 2014 quarter principally due to domestic upgauging initiatives associated with our 50-seat regional fleet retirements, productivity improvements and the strengthening U.S. dollar, partially offset by pay rate increases and operational investments.
The non-GAAP financial measures pre-tax income, adjusted for special items, and CASM-Ex used in this section are defined and reconciled in "Supplemental Information" below.
Strategic Investments
We have developed strategic relationships with our airline partners through equity investments and other forms of cooperation and support. These strategic relationships are important to us as they improve the coordination with our airline partners and enable our customers to seamlessly reach more destinations.
| |
• | Aeroméxico. In order to expand our economic interest in Grupo Aeroméxico, during the June 2015 quarter, we entered into a derivative contract for 58.9 million shares of Grupo Aeroméxico. We will participate in the increases and decreases in value of the shares and record those changes in other income (expense) on the Condensed Consolidated Statements of Operations and Comprehensive Income. At the maturity date of the derivative contract, we may acquire all or a portion of the shares or settle in cash. If the derivative term is not extended, the derivative will mature no later than May 2016. |
| |
• | GOL. On July 10, 2015, GOL announced plans to issue up to $146 million of preferred shares and enter into a term loan with third parties for up to $300 million of principal. We plan to acquire up to $56 million of the shares and guarantee borrowings under the term loan, subject to the execution and delivery of definitive documentation and customary closing conditions, including receipt of required regulatory approvals. Delta's guarantee will be secured by GOL’s share ownership in Smiles (GOL's publicly-traded loyalty program). In conjunction with these transactions, both parties agreed to extend their existing commercial agreements. |
Results of Operations - Three Months Ended June 30, 2015 and 2014
Operating Revenue
|
| | | | | | | | | | | |
| Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) |
(in millions) | 2015 | 2014 |
Passenger: | | | | |
Mainline | $ | 7,587 |
| $ | 7,582 |
| $ | 5 |
| — | % |
Regional carriers | 1,552 |
| 1,684 |
| (132 | ) | (8 | )% |
Total passenger revenue | 9,139 |
| 9,266 |
| (127 | ) | (1 | )% |
Cargo | 207 |
| 230 |
| (23 | ) | (10 | )% |
Other | 1,361 |
| 1,125 |
| 236 |
| 21 | % |
Total operating revenue | $ | 10,707 |
| $ | 10,621 |
| $ | 86 |
| 1 | % |
|
| | | | | | | | | | | | | | | |
Passenger Revenue | | Increase (Decrease) vs. Three Months Ended June 30, 2014 |
(in millions) | Three Months Ended June 30, 2015 | Passenger Revenue | RPMs(1) (Traffic) | ASMs(2) (Capacity) | Passenger Mile Yield | PRASM(3) | Load Factor |
Domestic | $ | 4,713 |
| 5 | % | 6.0 | % | 6.0 | % | (1.0 | )% | (1.1 | )% | — |
|
Atlantic | 1,551 |
| (7 | )% | (0.5 | )% | 5.1 | % | (6.5 | )% | (11.5 | )% | (4.6 | ) pts |
Pacific | 722 |
| (12 | )% | (1.4 | )% | (3.7 | )% | (10.6 | )% | (8.5 | )% | 2.0 | pts |
Latin America | 601 |
| — | % | 6.7 | % | 7.9 | % | (6.8 | )% | (7.8 | )% | (0.9 | ) pts |
Total mainline | 7,587 |
| — | % | 3.6 | % | 4.7 | % | (3.4 | )% | (4.4 | )% | (0.9 | ) pts |
Regional carriers | 1,552 |
| (8 | )% | (5.1 | )% | (6.4 | )% | (2.8 | )% | (1.6 | )% | 1.1 | pts |
Total consolidated | $ | 9,139 |
| (1 | )% | 2.7 | % | 3.4 | % | (3.9 | )% | (4.6 | )% | (0.7 | ) pts |
| |
(1) | Revenue passenger miles (“RPMs”) |
| |
(2) | Available seat miles (“ASMs”) |
| |
(3) | Passenger revenue per ASM (“PRASM”) |
Passenger revenue decreased $127 million, or 1%, compared to the June 2014 quarter. PRASM decreased 4.6% and passenger mile yield decreased 3.9% on 3.4% higher capacity. Load factor was 0.7 points lower than the prior year quarter at 85.6%.
Unit revenues of the mainline domestic region decreased 1.1%, resulting from weaker yields in certain markets, which were partially offset by good performance of our growth initiatives in Seattle and the New York-JFK long-haul routes, especially to Los Angeles and San Francisco.
Revenues related to our international regions decreased 7% year-over-year primarily due to the impact of the strengthening U.S. dollar and declines in international fuel surcharges. These challenges will be addressed through targeted capacity reductions in the fourth quarter of 2015.
In the Atlantic region, unit revenue declines in Africa, the Middle East and Russia were partially offset by strength in U.S. point-of-sale demand to core European markets. Unit revenue declines in the Pacific primarily result from the strength of the U.S. dollar. We continue to optimize the Pacific region in order to improve margins through a reduction in our winter capacity, including the retirement of a portion of our B-747-400 fleet and the cancellation of our Seattle to Tokyo-Haneda route. Latin America capacity grew 7.9% as part of Delta's multi-year investment in growing its Latin network. Going forward, capacity growth in Latin America will be more consistent with the system average.
Regional carriers passenger revenue decreased 8% on a 6.4% reduction in capacity. During the June 2015 quarter, we removed thirteen 50-seat regional aircraft as part of our strategy to restructure our domestic fleet.
Other Revenue. Other revenue increased $236 million, or 21%, primarily due to sales of non-jet fuel products to third parties by our oil refinery and loyalty program revenues.
|
| | | | | | | | | | | |
Operating Expense | Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) |
(in millions) | 2015 | 2014 |
Salaries and related costs | $ | 2,195 |
| $ | 2,046 |
| $ | 149 |
| 7 | % |
Aircraft fuel and related taxes | 1,457 |
| 2,434 |
| (977 | ) | (40 | )% |
Regional carrier expense | 1,097 |
| 1,361 |
| (264 | ) | (19 | )% |
Aircraft maintenance materials and outside repairs | 499 |
| 466 |
| 33 |
| 7 | % |
Depreciation and amortization | 448 |
| 451 |
| (3 | ) | (1 | )% |
Contracted services | 457 |
| 440 |
| 17 |
| 4 | % |
Passenger commissions and other selling expenses | 421 |
| 440 |
| (19 | ) | (4 | )% |
Landing fees and other rents | 388 |
| 355 |
| 33 |
| 9 | % |
Profit sharing | 411 |
| 340 |
| 71 |
| 21 | % |
Passenger service | 227 |
| 215 |
| 12 |
| 6 | % |
Aircraft rent | 60 |
| 56 |
| 4 |
| 7 | % |
Restructuring and other items | 25 |
| 30 |
| (5 | ) | NM(1) |
|
Other | 548 |
| 408 |
| 140 |
| 34 | % |
Total operating expense | $ | 8,233 |
| $ | 9,042 |
| $ | (809 | ) | (9 | )% |
| |
(1) | Due to the nature of amounts recorded within restructuring and other items, a year-over-year comparison is not meaningful. For a discussion of charges recorded in restructuring and other items, see Note 10 of the Notes to the Condensed Consolidated Financial Statements. |
Salaries and Related Costs. The increase in salaries and related costs is primarily due to pay rate increases and an increase in pilot and flight attendant block hours.
Aircraft Fuel and Related Taxes. Including our regional carriers, fuel expense decreased $1.2 billion compared to the prior year quarter due to a 39% decrease in the market price per gallon of fuel, higher fuel hedge gains and an increase in Monroe's profitability, partially offset by a 3% increase in consumption. The table below presents fuel expense, gallons consumed and average price per gallon:
|
| | | | | | | | | | | |
| Three Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) |
(in millions, except per gallon data) | 2015 | 2014 |
Aircraft fuel and related taxes(1) | $ | 1,457 |
| $ | 2,434 |
| $ | (977 | ) | |
Aircraft fuel and related taxes included within regional carrier expense | 295 |
| 500 |
| (205 | ) | |
Total fuel expense | $ | 1,752 |
| $ | 2,934 |
| $ | (1,182 | ) | (40 | )% |
| | | | |
Total fuel consumption (gallons) | 1,029 |
| 1,001 |
| 28 |
| 3 | % |
Average price per gallon | $ | 1.70 |
| $ | 2.93 |
| $ | (1.23 | ) | (42 | )% |
| |
(1) | Includes the impact of fuel hedging and refinery results described further in the table below. |
The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted:
|
| | | | | | | | | | | | | | | | | | |
| | Average Price Per Gallon |
| Three Months Ended June 30, | Change | Three Months Ended June 30, | Change |
(in millions, except per gallon data) | 2015 | 2014 | 2015 | 2014 |
Fuel purchase cost | $ | 1,968 |
| $ | 3,046 |
| $ | (1,078 | ) | $ | 1.91 |
| $ | 3.04 |
| $ | (1.13 | ) |
Airline segment fuel hedge gains(1) | (126 | ) | (99 | ) | (27 | ) | (0.12 | ) | (0.10 | ) | (0.02 | ) |
Refinery segment impact(1) | (90 | ) | (13 | ) | (77 | ) | (0.09 | ) | (0.01 | ) | (0.08 | ) |
Total fuel expense | $ | 1,752 |
| $ | 2,934 |
| $ | (1,182 | ) | $ | 1.70 |
| $ | 2.93 |
| $ | (1.23 | ) |
MTM adjustments and settlements | 720 |
| 1 |
| 719 |
| 0.70 |
| — |
| 0.70 |
|
Total fuel expense, adjusted | $ | 2,472 |
| $ | 2,935 |
| $ | (463 | ) | $ | 2.40 |
| $ | 2.93 |
| $ | (0.53 | ) |
| |
(1) | Includes the impact of pricing arrangements between the airline segment and refinery segment with respect to the refinery's inventory price risk. |
Fuel Purchase Cost. Fuel purchase cost is based on the market price for jet fuel at airport locations, including related taxes and transportation costs.
Airline Segment Fuel Hedge Impact. During the June 2015 quarter, our airline segment recorded a fuel hedge gain of $126 million primarily associated with MTM adjustments on unsettled positions.
Refinery Segment Impact. The refinery results include the impact on fuel expense of self-supply from the production of the refinery and from refined products exchanged with third parties. To the extent that we account for exchanges of refined products as nonmonetary transactions, we include the results of those transactions within fuel expense. For the June 2015 quarter, the refinery reported a $90 million profit. For additional information regarding the refinery segment impact, see "Refinery Segment" below.
MTM Adjustments and Settlements. 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. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period.
We adjust fuel expense for the items noted above to arrive at an economic fuel cost. Our average price per gallon, adjusted (a non-GAAP financial measure) was $2.40 during the June 2015 quarter.
Regional Carrier Expense. The reduction in regional carrier expense is primarily due to lower fuel cost from a decrease in the cost of fuel per gallon, a decrease in ground handling and facility rent charges and lower block hours. During the June 2015 quarter, we removed thirteen 50-seat regional aircraft as part of our strategy to restructure our domestic fleet.
Aircraft Maintenance Materials and Outside Repairs. Aircraft maintenance materials and outside repairs consists of costs associated with maintenance of aircraft used in our operations and costs associated with maintenance sales to third parties by our MRO services business. The increase in aircraft maintenance materials and outside repairs is due primarily to a higher volume of sales from our MRO business.
Landing Fees and Other Rents. Landing fees and other rents increased principally due to increased departures.
Profit Sharing. The increase in profit sharing is driven by an increase in the projected full year pre-tax income compared to the prior year. Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and special items, such as MTM adjustments and settlements and restructuring and other. Our profit sharing program pays 10% to employees for the first $2.5 billion of annual profits and 20% of annual profits above $2.5 billion.
Other. Other operating expense increased primarily due to costs associated with sales of non-jet fuel products to third parties by the oil refinery.
Results of Operations - Six Months Ended June 30, 2015 and 2014
Operating Revenue
|
| | | | | | | | | | | |
| Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) |
(in millions) | 2015 | 2014 |
Passenger: | | | | |
Mainline | $ | 14,136 |
| $ | 13,806 |
| $ | 330 |
| 2 | % |
Regional carriers | 2,926 |
| 3,137 |
| (211 | ) | (7 | )% |
Total passenger revenue | 17,062 |
| 16,943 |
| 119 |
| 1 | % |
Cargo | 424 |
| 447 |
| (23 | ) | (5 | )% |
Other | 2,609 |
| 2,147 |
| 462 |
| 22 | % |
Total operating revenue | $ | 20,095 |
| $ | 19,537 |
| $ | 558 |
| 3 | % |
|
| | | | | | | | | | | | | | | |
Passenger Revenue
| | Increase (Decrease) vs. Six Months Ended June 30, 2014 |
(in millions) | Six Months Ended June 30, 2015 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor |
Domestic | $ | 8,793 |
| 7 | % | 6.3 | % | 6.5 | % | 0.5 | % | 0.4 | % | (0.1 | ) pts |
Atlantic | 2,569 |
| (4 | )% | (0.4 | )% | 4.7 | % | (3.5 | )% | (8.2 | )% | (4.1 | ) pts |
Pacific | 1,462 |
| (11 | )% | (1.9 | )% | (2.6 | )% | (9.4 | )% | (8.8 | )% | 0.5 | pts |
Latin America | 1,312 |
| 4 | % | 8.3 | % | 10.6 | % | (3.8 | )% | (5.8 | )% | (1.7 | ) pts |
Total mainline | 14,136 |
| 2 | % | 4.0 | % | 5.3 | % | (1.5 | )% | (2.7 | )% | (1.1 | ) pts |
Regional carriers | 2,926 |
| (7 | )% | (3.8 | )% | (4.2 | )% | (3.0 | )% | (2.6 | )% | 0.3 | pts |
Total consolidated | $ | 17,062 |
| 1 | % | 3.1 | % | 4.2 | % | (2.3 | )% | (3.3 | )% | (0.9 | ) pts |
Passenger revenue increased $119 million, or 1%, over the corresponding prior year period. PRASM decreased 3.3% and passenger mile yield decreased 2.3% on 4.2% higher capacity. Load factor was 0.9 points lower than the prior year period at 83.8%.
Unit revenues of the mainline domestic region increased 0.4% led by good performance of our growth initiatives in Seattle and the New York-JFK long-haul routes, especially to Los Angeles and San Francisco. These improvements were partially offset by weaker yields in certain markets.
Revenues related to our international regions decreased 4% year-over-year primarily due to the impact of the strengthening U.S. dollar and reductions in international fuel surcharges. These challenges will be addressed through targeted capacity reductions in the second half of 2015.
In the Atlantic region, unit revenue declines in Africa, the Middle East and Russia were partially offset by strength in U.S. point-of-sale demand to core European markets. Unit revenue declines in the Pacific primarily result from the strength of the U.S. dollar. We continue to optimize the Pacific region in order to improve margins through a reduction in our winter capacity, including the retirement of a portion of our B-747-400 fleet and the cancellation of our Seattle to Tokyo-Haneda route. Latin America capacity grew 10.6% as part of Delta's multi-year investment in growing its Latin network. Going forward, capacity growth in Latin America will be more consistent with the system average.
Regional carriers passenger revenue decreased 7% on a 4.2% reduction in capacity. During the six months ended June 30, 2015, we removed thirty 50-seat regional aircraft as part of our strategy to restructure our domestic fleet.
Other Revenue. Other revenue increased $462 million, or 22%, primarily due to loyalty program revenues and sales of non-jet fuel products to third parties by our oil refinery.
|
| | | | | | | | | | | |
Operating Expense | Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) |
(in millions) | 2015 | 2014 |
Salaries and related costs | $ | 4,287 |
| $ | 4,015 |
| $ | 272 |
| 7 | % |
Aircraft fuel and related taxes | 3,292 |
| 4,660 |
| (1,368 | ) | (29 | )% |
Regional carrier expense | 2,150 |
| 2,680 |
| (530 | ) | (20 | )% |
Aircraft maintenance materials and outside repairs | 951 |
| 914 |
| 37 |
| 4 | % |
Depreciation and amortization | 918 |
| 893 |
| 25 |
| 3 | % |
Contracted services | 898 |
| 867 |
| 31 |
| 4 | % |
Passenger commissions and other selling expenses | 807 |
| 813 |
| (6 | ) | (1 | )% |
Landing fees and other rents | 761 |
| 696 |
| 65 |
| 9 | % |
Profit sharing | 547 |
| 439 |
| 108 |
| 25 | % |
Passenger service | 417 |
| 388 |
| 29 |
| 7 | % |
Aircraft rent | 120 |
| 107 |
| 13 |
| 12 | % |
Restructuring and other items | 35 |
| 79 |
| (44 | ) | NM(1) |
|
Other | 1,040 |
| 787 |
| 253 |
| 32 | % |
Total operating expense | $ | 16,223 |
| $ | 17,338 |
| $ | (1,115 | ) | (6 | )% |
| |
(1) | Due to the nature of amounts recorded within restructuring and other items, a year-over-year comparison is not meaningful. For a discussion of charges recorded in restructuring and other items, see Note 10 of the Notes to the Condensed Consolidated Financial Statements. |
Salaries and Related Costs. The increase in salaries and related costs is primarily due to pay rate increases and an increase in pilot and flight attendant block hours.
Aircraft Fuel and Related Taxes. Including our regional carriers, fuel expense decreased $1.8 billion compared to the prior year period due to a 42% decrease in the market price per gallon of fuel and an increase in Monroe's profitability, partially offset by fuel hedge losses and a 3% increase in consumption. The table below presents fuel expense, gallons consumed and average price per gallon, including the impact of hedging and the refinery:
|
| | | | | | | | | | | |
| Six Months Ended June 30, | Increase (Decrease) | % Increase (Decrease) |
(in millions, except per gallon data) | 2015 | 2014 |
Aircraft fuel and related taxes(1) | $ | 3,292 |
| $ | 4,660 |
| $ | (1,368 | ) | |
Aircraft fuel and related taxes included within regional carrier expense | 559 |
| 973 |
| (414 | ) | |
Total fuel expense | $ | 3,851 |
| $ | 5,633 |
| $ | (1,782 | ) | (32 | )% |
| | | | |
Total fuel consumption (gallons) | 1,947 |
| 1,882 |
| 65 |
| 3 | % |
Average price per gallon | $ | 1.98 |
| $ | 2.99 |
| $ | (1.01 | ) | (34 | )% |
| |
(1) | Includes the impact of fuel hedging and refinery results described further in the table below. |
The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted: |
| | | | | | | | | | | | | | | | | | |
| | Average Price Per Gallon |
| Six Months Ended June 30, | Change | Six Months Ended June 30, | Change |
(in millions, except per gallon data) | 2015 | 2014 | 2015 | 2014 |
Fuel purchase cost | $ | 3,686 |
| $ | 5,777 |
| $ | (2,091 | ) | $ | 1.89 |
| $ | 3.07 |
| $ | (1.18 | ) |
Airline segment fuel hedge losses (gains)(1) | 341 |
| (172 | ) | 513 |
| 0.18 |
| (0.09 | ) | 0.27 |
|
Refinery segment impact(1) | (176 | ) | 28 |
| (204 | ) | (0.09 | ) | 0.01 |
| (0.10 | ) |
Total fuel expense | $ | 3,851 |
| $ | 5,633 |
| $ | (1,782 | ) | $ | 1.98 |
| $ | 2.99 |
| $ | (1.01 | ) |
MTM adjustments and settlements | 1,309 |
| (33 | ) | 1,342 |
| 0.67 |
| (0.01 | ) | 0.68 |
|
Total fuel expense, adjusted | $ | 5,160 |
| $ | 5,600 |
| $ | (440 | ) | $ | 2.65 |
| $ | 2.98 |
| $ | (0.33 | ) |
| |
(1) | Includes the impact of pricing arrangements between the airline segment and refinery segment with respect to the refinery's inventory price risk. |
Fuel Purchase Cost. Fuel purchase cost is based on the market price for jet fuel at airport locations, including related taxes and transportation costs.
Airline Segment Fuel Hedge Impact. During the six months ended June 30, 2015, our airline segment recorded a fuel hedge loss of $341 million primarily associated with MTM adjustments on settled positions.
Refinery Segment Impact. The refinery results include the impact on fuel expense of self-supply from the production of the refinery and from refined products exchanged with third parties. To the extent that we account for exchanges of refined products as nonmonetary transactions, we include the results of those transactions within fuel expense. For the six months ended June 30, 2015, the refinery reported a $176 million profit. For additional information regarding the refinery segment impact, see "Refinery Segment" below.
MTM Adjustments and Settlements. 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. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. During the March 2015 quarter, we paid $302 million to early settle contracts that were originally scheduled to expire in the second half of 2015.
We adjust fuel expense for the items noted above to arrive at a more meaningful measure of fuel cost. Our average price per gallon, adjusted (a non-GAAP financial measure) was $2.65 for the six months ended June 30, 2015.
Regional Carrier Expense. The reduction in regional carrier expense is primarily due to lower fuel cost from a decrease in the cost of fuel per gallon, a decrease in ground handling and facility rent charges and lower block hours. During the six months ended June 30, 2015, we removed thirty 50-seat regional aircraft as part of our strategy to restructure our domestic fleet.
Aircraft Maintenance Materials and Outside Repairs. Aircraft maintenance materials and outside repairs consists of costs associated with maintenance of aircraft used in our operations and costs associated with maintenance sales to third parties by our MRO services business. The increase in aircraft maintenance materials and outside repairs is due primarily to a higher volume of sales from our MRO business, partially offset by the timing of maintenance events on our fleet.
Depreciation and Amortization. Depreciation and amortization expense increased year-over-year primarily due to investments in new B-737-900ER and CRJ-900 aircraft and aircraft modifications that upgraded aircraft interiors and enhanced our product offering.
Contracted Services. Contracted services expense increased year-over-year due to additional information technology services.
Landing Fees and Other Rents. Landing fees and other rents increased principally due to increased departures.
Profit Sharing. The increase in profit sharing is driven by an increase in the projected full year pre-tax income compared to the prior year. Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the program defines profit as pre-tax profit adjusted for profit sharing and special items, such as MTM adjustments and settlements and restructuring and other. Our profit sharing program pays 10% to employees for the first $2.5 billion of annual profits and 20% of annual profits above $2.5 billion.
Passenger Service. Passenger service expense includes the costs for onboard food and beverage, cleaning and supplies. This expense increased year-over-year primarily due to costs associated with the 4.0% increase in mainline traffic.
Other. Other operating expense increased primarily due to costs associated with sales of non-jet fuel products to third parties by our oil refinery.
|
| | | | | | | | | | | | | | | | | | | |
Non-Operating Results | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(in millions) | 2015 | 2014 | Favorable | | 2015 | 2014 | Favorable |
Interest expense, net | $ | (127 | ) | $ | (173 | ) | $ | 46 |
| | $ | (258 | ) | $ | (359 | ) | $ | 101 |
|
Miscellaneous, net | 19 |
| (108 | ) | 127 |
| | (62 | ) | (207 | ) | 145 |
|
Total other expense, net | $ | (108 | ) | $ | (281 | ) | $ | 173 |
| | $ | (320 | ) | $ | (566 | ) | $ | 246 |
|
The decline in interest expense, net results from reduced levels of debt and the refinancing of debt obligations at lower interest rates. Our principal amount of debt and capital leases has declined from $10.6 billion at June 30, 2014 to $9.3 billion at June 30, 2015.
Miscellaneous, net is favorable primarily due to debt extinguishment losses recorded in the three and six months ended June 30, 2014 and our proportionate share of earnings from our equity investment in Virgin Atlantic during the three and six months ended June 30, 2015. The 2014 extinguishment of debt primarily related to unamortized debt discounts resulting from fair value adjustments recorded in the 2008 purchase accounting of Northwest Airlines. The gain from Virgin Atlantic primarily results from favorable MTM adjustments on fuel hedges.
Income Taxes
We project that our annual effective tax rate for 2015 will be approximately 38%. 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. At June 30, 2015, we had approximately $11 billion of U.S. federal pre-tax net operating loss carryforwards, which do not begin to expire until 2024. Accordingly, we believe we will not pay federal income taxes during the next few years.
Refinery Segment
The refinery primarily produces gasoline, diesel and jet fuel. Under multi-year agreements, Monroe exchanges the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations. The jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 175,000 barrels (approximately seven million gallons) per day for use in airline operations during the June 2015 quarter. We believe that the increase in jet fuel supply due to the refinery's operation has reduced the overall market price of jet fuel, and thus lowered our cost of jet fuel.
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 energy credits, called RINs, from third parties in the secondary market. Because the refinery operated by Monroe does not blend renewable fuels, it must purchase its entire RINs requirement in the secondary market or obtain a waiver from the EPA. We recognized $22 million and $20 million of expense related to the RINs requirement in the June 2015 and 2014 quarters, respectively. We are in possession of the RINs needed to satisfy our 2013 obligation and a portion of our 2014 and 2015 obligations.
The refinery recorded profits of $90 million and $176 million in the June 2015 quarter and the six months ended June 30, 2015, respectively, compared to a profit of $13 million in the June 2014 quarter and a loss of $28 million in the six months ended June 30, 2014. The refinery's profitability improved year-over-year, although refinery revenues declined as refined fuel market prices decreased. The refinery’s increase in profits was attributable to higher product crack spreads and to using lower priced domestic crude oil. Additionally, as a result of enhanced operational reliability, logistical improvements and utilization of intermediates (partially refined fuels), the refinery's June 2015 quarter throughput capacity was higher. Throughput capacity gains were further increased compared to the prior year due to major scheduled downtime for maintenance during the first half of 2014. For more information regarding the refinery’s results, see Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Operating Statistics
The following table sets forth our operating statistics:
|
| | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
Consolidated(1) | 2015 | 2014 | 2015 | 2014 |
Revenue passenger miles (millions) | 54,755 |
| 53,341 |
| 100,976 |
| 97,942 |
|
Available seat miles (millions) | 63,937 |
| 61,817 |
| 120,534 |
| 115,721 |
|
Passenger mile yield |
| 16.69 | ¢ |
| 17.37 | ¢ |
| 16.90 | ¢ |
| 17.30 | ¢ |
Passenger revenue per available seat mile |
| 14.29 | ¢ |
| 14.99 | ¢ |
| 14.16 | ¢ |
| 14.64 | ¢ |
Operating cost per available seat mile (CASM) |
| 12.88 | ¢ |
| 14.63 | ¢ |
| 13.46 | ¢ |
| 14.98 | ¢ |
CASM-Ex(2) |
| 8.91 | ¢ |
| 8.98 | ¢ |
| 9.25 | ¢ |
| 9.35 | ¢ |
Passenger load factor | 85.6 | % | 86.3 | % | 83.8 | % | 84.6 | % |
Fuel gallons consumed (millions) | 1,029 |
| 1,001 |
| 1,947 |
| 1,882 |
|
Average price per gallon(3) | $ | 1.70 |
| $ | 2.93 |
| $ | 1.98 |
| $ | 2.99 |
|
Average price per gallon, adjusted(3)(4) | $ | 2.40 |
| $ | 2.93 |
| $ | 2.65 |
| $ | 2.98 |
|
Full-time equivalent employees, end of period | 83,247 |
| 80,723 |
| | |
| |
(1) | Includes the operations of our regional carriers. Full-time equivalent employees exclude employees of regional carriers that we do not own. |
| |
(2) | Non-GAAP financial measure defined in "June 2015 Quarter Financial Highlights" above. See reconciliation to CASM in "Supplemental Information" below. |
| |
(3) | Includes the impact of fuel hedge activity and refinery segment results. |
| |
(4) | Non-GAAP financial measure defined and reconciled in the "Operating Expense" section of "Results of Operations" for the three and six months ended June 30, 2015 and 2014. |
Fleet Information
Our operating aircraft fleet, commitments and options at June 30, 2015 are summarized in the following tables:
|
| | | | | | | | | | | | | | | | | |
| Current Fleet(1) | | Commitments | |
Aircraft Type | Owned | Capital Lease | Operating Lease | Total | Average Age | | Purchase(2) | Lease | Options(2) |
B-717-200 | — |
| 11 |
| 60 |
| 71 |
| 13.5 |
| | 3 |
| 17 |
| — |
|
B-737-700 | 10 |
| — |
| — |
| 10 |
| 6.4 |
| | — |
| — |
| — |
|
B-737-800 | 73 |
| — |
| — |
| 73 |
| 14.4 |
| | — |
| — |
| — |
|
B-737-900ER | 31 |
| — |
| 10 |
| 41 |
| 1.0 |
| | 59 |
| — |
| 30 |
|
|