Delta's Record Quarter Includes Big Boost in Premium Ticket Revenue

Delta just recorded its best-ever March quarter in terms of revenue. With adjusted operating revenue of $10.4 billion excluding refinery sales, the 7.5% year-over-year uptick led to $220 million being set aside for next Valentine's Day. That day, known to Delta employees as profit sharing day, saw a staggering $1.3 billion handed out earlier this year, while competitors dished out far less — $544 million at Southwest, $334 million at United and $175 million at American.

Perhaps unsurprisingly, given Delta's continued push to sell more of its forward cabins rather than give them away in the form of complimentary Medallion upgrades, the airline reported an 8% surge in premium product ticket revenue and double-digit percentage increases in loyalty and Maintenance, Repair and Overhaul revenue. Per Delta, 55% of this quarter's revenue was generated by "premium products and non-ticket sources." On Delta's earnings call, CEO Ed Bastian noted that this figure is "up from less than 40% in 2011."

It appears that the broader economy is still shining, with double-digit growth in domestic corporate revenue (mirroring United) and an approximate one-point benefit from the newly extended American Express agreement. Meanwhile, Delta Cargo revenue declined 5% on lower volumes.

The airline also cited a $1.3 billion investment into the business, largely attributed to aircraft purchases (hello, A220 and A330-900neo!) and refurbishments, which are ongoing across its 767-400 and 777 fleets.

March quarters have historically been tough on on-time performance metrics given the volatility that comes with US winters. This time around, Delta managed to achieve its highest network system completion factor for the first quarter since 2012. That included 69 days of zero mainline cancellations, 28 days of zero system cancellations and mainline on-time performance (A0) of 72.0% for the March quarter.

Other metrics included an adjusted net income increase of 20.8% ($639 million for Q2 2019 compared to $529 million in Q1 2018) as well as a 2.4% improvement in total revenue per available seat mile (how much Delta makes from each passenger on each mile flown, known as TRASM). Fuel expenses rose 4.6% from the prior year. Evidently, the negative impact from the US government shutdown was masked by strong performance elsewhere, as it didn't warrant even a passing mention in the release to investors.

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Delta's Q2 2019 forecast is rosy as well. It's expecting a 6% to 8% uptick in adjusted revenue, a 1.5% to 3.5% boost in TRASM and a system capacity increase between 4% and 4.5%.

Delta is the first of the major carriers to announce Q1 2019 earnings. United is expected to announce its earnings on April 17, 2019, while American Airlines, Southwest and JetBlue will report before the end of the month. Delta Air Lines stock is up nearly 3% in pre-market trading.

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