Delta Air Lines release its 2014 financial statements, highlighted by $4.5 billion in pre-tax profit, $3.7 billion in free cash flow, $1.35 billion returned to shareholders through stock repurchases and dividends, and a 20.7% return on invested capital. This is Delta’s fifth consecutive year of profitability, and is indicative of the market power of the big 4 airlines in the US market, which operate as an oligopoly.
Richard Anderson, Delta’s CEO, stated that “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. As we being 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.”
Capacity discipline in 2014 resulted in a 4.6% growth in traffic on a 3.7% increase in capacity, resulting in a 7% growth in revenues. In 2014, Delta carried 170 million customers (about 5.6% of the global market) and 2.4 billion cargo ton miles. Of the more than 1.8 million flights, 84.2% were on time, with a 99.2% completion factor, including 95 days in 2014 without a single flight cancellation. Operating 1,270 aircraft to 335 destinations, Delta is the largest airline operation in the world.
Delta recorded a $1.4 billion special items charge in 2014, net of taxes, that included $1.2 billion for market to market adjustments on fuel hedges, $75 million for adjustments on fuel hedges owned by Virgin Atlantic, a $74 million charge for fleet, facilities and other items associated with Delta’s domestic fleet, and a $29 million gain related to an insurance settlement.
Delta’s guidance for the first quarter of 2015 is promising, projecting an 11-13% operating margin, fuel prices in the $2.45-$2.50 range, and capacity growth of approximately 3% year to year. Delta’s plans for 2015 include continuing to grow the Seattle hub with eight additional destinations, introducing an arrivals lounge at London Heathrow and new service from Los Angeles, and the implementation of the new cabin products (Delta One, Delta Comfort +, Main Cabin and Basic Economy) in 2015.
It will be interesting to see how Delta’s fleet plan comes into the mix in the coming years. Those A320/ A330 coming in should provide savings, and of course, there are the A330neo and A350. Maybe they’ll pick up some A321LR along the way too?