Delta Takes Off On Falling Oil Prices, More Passengers

Samantha Sharf

Forbes Staff

Delta Air Lines DAL +7.26% showed Tuesday that the falling price of oil is boosting its bottom line as more passengers take to the sky.

The company reported $9.6 billion in fourth quarter revenue. At $8.2 billion passenger revenue accounted for the bulk of sales and increased 4.6% thanks in part to a 4% traffic increase on a 3.7% increase in capacity. Passenger revenue per available seat mile was up 1% from the same period last year to 14.19 cents, as revenue passenger miles were up 4% to 48 billion. These industry metrics measure capacity to revenue and number of paying-passengers by aircraft distance traveled respectively.

On a GAAP basis — generally accepted accounting principles — the company had a net loss of $712 million. Excluding special items the company reported adjusted net income of $649 million. At 78 cents per share this beat to Wall Street analysts’ consensus estimate by a penny. During the same period last year Delta reported $558 million in adjusted net income.

In addition to the passenger revenue gains the adjusted growth was the result of nearly 15% lower fuel prices which average $2.62 per gallon.

“As we begin 2015, we have a significant opportunity from lower fuel prices,” said Delta CEO Richard Anderson in a statement on the results, noting that decreasing fuel expenses could drive more that $2 billion in savings. Over the next year Delta anticipates double-digit earnings growth, increased free cash flow and better returns on investment money.

Chief Financial Officer Paul Jacobson added, ”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. Our margin postings are manageable in light of our strong cash generation and balance sheet.”

For the full year 2014 Delta’s operating margin was 13.1%. For the upcoming quarter Delta is projecting an operating margin between 11% and 13% with fuel prices between $2.45 and $2.50 per gallon.

Delta shares are up 43% year-over-year with nearly all gains coming in the fourth quarter in response to sharply declining oil prices. Shares began trading Tuesday near $48 up more than 5% from Friday’s closing price (equity markets were closed Monday in honor of Martin Luther King Day).

DAL data by YCharts

Competitors including United Continental Holdings, Southwest Airlines and JetBlue Airways were also in solid positive territory early Tuesday. United Continental and Southwest will report fourth quarter earnings Thursday. JetBlue will report next week.

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