2013

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

 

Financial Highlights - 2013 Compared to 2012  

 

Our net income for 2013 was $10.5 billion, which reflects $8.0 billion of income tax benefits primarily due to the release of the tax valuation allowance. Income before income taxes was $2.5 billion, representing a $1.5 billion improvement over prior year. Our pre-tax operating margin rose by 4 percentage points to 7% on both higher revenues and lower costs.  

 

2013 was a successful year for Delta based on several measures. Our pre-tax profits were 147% higher than the prior year. Our operating performance led the industry, driving customer satisfaction and doubling our domestic net promoter scores, a metric measuring customer satisfaction. Our completion factor was 99.7% with over 70 days where none of our flights were canceled. We ranked number two in the industry for bag performance as measured by the U.S. Department of Transportation. During the year, we returned over $350 million to our shareholders through dividends and a share purchase program. We also rejoined the Standard & Poor's 500 index of large companies.  

 

Revenue. Our passenger revenue increased $1.2 billion, despite a lower market price of fuel. We experienced positive market reaction to our first class upsell and Economy Comfort products. Our customers value these products, which together contributed more than $600 million in revenues. Our geographic regions performed well compared to the prior year, with the domestic region leading year-over-year unit revenue improvement. Unit revenues of the domestic region rose by over 5% with notable improvements in the New York market. New York unit revenues increased as we continue to see improvements due to our investments in JFK and LaGuardia, as well as many in-flight product enhancements. Revenues related to our international regions were generally flat year-over-year, with slight unit revenue improvements in both Atlantic and Latin America regions. Our Pacific region experienced a slight decline in unit revenues primarily due to the Yen devaluation.  

 

Operating Expense. Total operating expense decreased $122 million from 2012. As a result, our consolidated operating cost per available seat mile ("CASM") for 2013 decreased 1% to 14.77 cent s from 14.97 cent s in 2012, on a 1% increase in capacity. CASM-Ex (a non-GAAP financial measure) was 9.14 cent s in 2013, or 2% higher than 2012.  

 

Changes in our total operating expenses reflect decreased fuel expense offset by higher salaries and related costs and profit sharing. Fuel expense for 2013 was $11.5 billion , including regional carriers; our average price per gallon was $3.00, which was $0.25 lower than 2012. Our average price per gallon, adjusted was $3.07 (a non-GAAP financial measure), which was $0.19 lower than 2012. Our fuel cost includes net airline segment fuel hedge gains for the year of $444 million, and a loss on refinery operations of $116 million, or $0.03 per gallon. The higher salaries expense represents wage increases and shows the continued investment we are making in our employees. Delta