Delta Airlines to save $2b as oil prices drop

AS fuel prices drop following decline in crude oil prices, Delta Air lines said it is going to achieve $2 billion savings from fuel in 2015.

The airline also said it achieved a 70 percent profit increase in its financial results for the December 2014 quarter.

“Our 2014 performance – an industry-leading operation, superior customer service, and a 70 percent increase in profits – shows that Delta is focused on delivering growing value for its employees, customers and investors,” said Richard Anderson, Delta’s chief executive officer.

Anderson further said “As we begin 2015, we have a significant opportunity from lower fuel prices, which will drive more than $2 billion in fuel savings over 2014.

Through our capacity discipline, pricing our product to demand, and the fuel savings, we expect to drive double-digit earnings growth, along with increased free cash flow and a higher return on invested capital in the upcoming year.”

Delta’s operating revenue improved 6 percent, or $571 million, in the December 2014 quarter compared to the December 2013 quarter. Traffic increased 4.0 percent on a 3.7 percent increase in capacity.

Passenger revenue increased 4.6 percent, or $361 million, compared to the prior year period. Passenger unit revenue (PRASM) increased 0.8 percent year over year with a 0.6 percent improvement in yield.

Cargo revenue increased 2.1 percent, or $5 million, driven by increases in both freight volumes and yields. Other revenue increased 21.3 percent, or $205 million, driven by SkyMiles revenues, third-party refinery sales, and joint venture settlements.

“Delta delivered solid revenue performance in the December quarter, growing our top line by 6 percent against a backdrop of nearly 15 percent lower fuel prices,” said Ed Bastian, Delta’s president.

“While we face headwinds from the stronger dollar and lower fuel prices going forward, we have confidence we can continue to generate top-line growth as we realize additional benefits from our Virgin Atlantic joint venture, restructure our Pacific network, gain additional corporate share, and ramp up our merchandising efforts with branded fares and enhanced customer segmentation.”

Excluding mark-to-market adjustments, fuel expense declined $342 million driven by lower market prices and higher refinery profits.  Delta’s average fuel price was $2.62 per gallon for the December quarter, which includes $180 million in settled hedge losses.  At December 31, Delta had $925 million in hedge margin posted with counterparties.  Operations at the refinery produced a $105 million profit for the December quarter, a $151 million improvement year-over-year.

“We expect a net year-over-year fuel price benefit of $500 million in the March quarter and will work throughout 2015 to maximize the benefit of fuel savings to our bottom line,” said Paul Jacobson, Delta’s chief financial officer.  “Our margin postings are manageable in light of our strong cash generation and balance sheet.”

Consolidated unit cost excluding fuel expense, profit sharing and special items (CASM-Ex4), was up 0.5 percent in the December 2014 quarter on a year-over-year basis, with the benefits of Delta’s domestic refleeting and other cost initiatives offsetting the company’s investments in its employees, products and operations.