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Delta Air Lines (DAL) PRASM Fell 5% in Sept.; Updates on Outlook

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October 2, 2015 9:02 AM EDT

Delta Air Lines (NYSE: DAL) disclosed the following on Friday:

Overall Commentary

·Delta expects a September quarter operating margin of 20% – 21%, a 5 point improvement over the September 2014 quarter.
·Consolidated passenger unit revenue (PRASM) for the month of September declined 5.0% year over year, consistent with recent trends of pressure from foreign exchange, lower surcharges in international markets, and domestic yields.
·For the September quarter, unit revenues declined 4.5% - 5.5% as a result of the same factors that drove the September month's performance.
·Non-fuel unit costs for the quarter are expected to increase 1% versus prior year driven by foreign currency and the continued benefits from Delta’s domestic refleeting and cost reduction initiatives. Results include approximately 1 point of pressure from benefit accruals related to recently announced pay increases for Delta employees.
·Delta’s strong cash generation in the September 2015 quarter allowed the company to return $530 million to shareholders through dividends and share repurchases.

Guidance

September Quarter 2015

Operating margin 20% – 21%
Cargo and other revenue $1.5 billion
Average fuel price per gallon $1.80 - $1.85
Profit sharing expense $560 million
Non-operating expense $110-$130 million

September Quarter 2015

vs.

September Quarter 2014

Passenger unit revenue Down 4.5%-5.5%
CASM-Ex Up ~1%
System capacity Up ~3.0%

Fuel

· Delta’s expected fuel price of $1.80 - $1.85 includes taxes, transportation, settled hedges, hedge premiums and refinery contribution and is adjusted for MTM adjustments and settlements.

CASM-Ex

· Delta excludes fuel, profit sharing and certain other expenses from its unit cost guidance. Other expenses include the costs associated with third-party Maintenance Repair and Overhaul, Delta Global Services, MLT Vacations, Delta Private Jets, and refinery cost of sales to third parties. Delta expects to record $295 million of other expenses in the September quarter. The revenue associated with these expenses is included in Delta's guidance for cargo and other revenue.

Profit Sharing

· Delta’s broad based employee profit sharing program currently pays 10% of the company’s adjusted annual profit up to $2.5 billion and 20% above that amount. Adjusted annual profit is calculated as the company’s annual pre-tax income before profit sharing expense, special items and certain other items. Profit sharing expense is accrued at a blended rate based on the company’s estimated profitability for the full year.

Taxes

· Our September 2015 quarter results will reflect a 37% tax rate. There will be no material impact to cash as Delta’s net operating loss carryforwards of approximately $10 billion will largely offset cash taxes during the next few years.

Share count

· Delta expects approximately 795 million diluted and approximately 788 million basic weighted average shares outstanding.


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