DAL has best earnings upside revisions in industry

[FWAAA]

Adjusted pre-tax profit up to 2.5B is mulitplied 10%

Anything above 2.5B is multiplied by 20%

Thanks. That's what I thought it was.

Problem I'm having is that the actual formula has to be more generous than that. DL earned $5.6 billion in 2014, excl taxes and special items and the fuel hedging "losses," and excluding the accrual of $1.1 billion for 2014 profit-sharing. Apply the formula above to the $5.6 billion and you get a mere $870 million and not the reported $1.085 billion (announced as $1.1 billion in the press release). The profit sharing reported by DL is $215 million larger than the formula above would suggest.

Looks like the estimate of 15% of 2014 W-2 wages (excl, of course, the 2013 profit-sharing payments paid last February and the early distribution of 2014 profit-sharing paid in October) is on the money. Maybe DL threw in an extra $215 million so that the earlier mid-year predictions of $1 billion plus and 15% of wages would be reached?

 

[WorldTraveler]

no, DL didn't throw anything extra in. they have hit the estimates for profit sharing payouts pretty accurately with investor guidance each quarter.

DL hasn't released the formula but some people believe it will exceed 16%... whether 15 or 16%, it still means that claims of other carrier's ability to obtain DL scale rates plus 7% will come up well short of what DL people are actually receiving.

correction:

Richard Anderson from the earnings transcript:
These results include over $1 billion of profit sharing for our employees equal to more than 16% of their 2014 pay.

a few other notes from the earnings call

Delta was the sixth best performing stock in the S&P 500 with a 79% gain. In two years we have increased our market cap by $30 billion. Our $3.7 billion of free cash flow was better than 90% of the S&P industrial and Delta has the third highest free cash flow yield of the S&P industrials.

For 2014 we generated 107% of industry average revenues across the system and a 113% domestic RASM premium.

Our ROIC goal is 15% to 18%, we hit 20.7%. Our free cash flow goal is $3 billion, we hit $3.7 billion.

At current fuel prices, we expect to capture over $2 billion in fuel savings benefit in 2015 net of our hedges.

We’re especially pleased with our performance in New York and Seattle which have built good momentum as we’ve been upgaging the domestic fleet and investing in our networks, products, and facilities in those two cities. Seattle’s domestic unit revenue grew 6% on 33% higher capacity.

The refinery made $105 million profit for the December quarter which represents $151 million improvement versus last year. Lower crude costs combined with higher product crack spreads and increased throughput were key contributors to the refinery’s heightened profitability this quarter.

We’re especially pleased with our performance in New York and Seattle which have built good momentum as we’ve been upgaging the domestic fleet and investing in our networks, products, and facilities in those two cities. Seattle’s domestic unit revenue grew 6% on 33% higher capacity.

Our basic economy product is already in over 75 markets and is producing strong results as we continue to expand it into additional domestic and Latin markets.

All of the above are quotes from Seeking Alpha. www.seekingalpha.com

--

DL is also opening line maintenance in PVG.

 

[LD3]

Congrats to the front line employees that make DL a well run operation....

 

[FWAAA]

no, DL didn't throw anything extra in. they have hit the estimates for profit sharing payouts pretty accurately with investor guidance each quarter.

Either the formula is more generous than the one posted by Kev3188 or my math is faulty or Anderson topped it up by $230 million. Under the formula posted by Kev, the profit sharing would have equaled $870 million, not $1.1 billion.

 

[WorldTraveler]

DL didn't throw anything in and I think it's pretty certain that most DL employees will accept Richard math.

 

[topDawg]

DL didn't throw anything in and I think it's pretty certain that most DL employees will accept Richard math.

well assuming that who ever gave him that number didn't make some type of error (which does happen every now and the) 
 

--

DL is also opening line maintenance in PVG.

No its a "JV" line station with MU. 
if its anything like other JV the local contracting station should be thrilled. 
 

Congrats to the front line employees that make DL a well run operation....

thanks. Good luck with yalls numbers. Hope you guys can get a good deal going at AA. Better for us all if all employees can move out of the bk contracts. 

 

[robbedagain]

huge congrats to all the front line hard working folks at the big widget  

 

[topDawg]

I also forgot to add, It was asked about LAX-PVG twice and Glen said it was in the 5 year plan for the company but due to change in China demand for the visa changes they moved forward with it. 
 
 
so as hard as it is for some to believe, its not being added just because of AA 

 

[eolesen]

Yeah, not so certain about that. By what I've heard from people much closer to Glen than anyone here, you'd have to work really, really hard to find a major international route served by either AA or UA that isn't in network planning's 5 year plan.

 

[FrugalFlyerv2.0]

Congrats DL and DL employees.  The ps money is well deserved.

 

[WorldTraveler]

well assuming that who ever gave him that number didn't make some type of error (which does happen every now and the) 
 
No its a "JV" line station with MU. 
if its anything like other JV the local contracting station should be thrilled. 
 
thanks. Good luck with yalls numbers. Hope you guys can get a good deal going at AA. Better for us all if all employees can move out of the bk contracts.

 
Anderson specifically stated it is a DL operated station that will have 12 employees doing line maintenance without a hangar.
 

I also forgot to add, It was asked about LAX-PVG twice and Glen said it was in the 5 year plan for the company but due to change in China demand for the visa changes they moved forward with it. 
 
 
so as hard as it is for some to believe, its not being added just because of AA

that is correct... but DL could easily have added additional PVG service into any one of DL's hubs.

the fact that DL chose to add service into a highly competitive and ensure that even if AA does get LAX-HND, they will still have to compete against DL in both LAX-NRT and LAX-HND plus LAX-PVG means that DL has decided to place a high factor on strategic growth and not just adding more seats to the market.
 

Yeah, not so certain about that. By what I've heard from people much closer to Glen than anyone here, you'd have to work really, really hard to find a major international route served by either AA or UA that isn't in network planning's 5 year plan.

precisely... and that is what I have said for a number of years.

DL has every intention of being in the top revenue markets in the world and also giving no network advantage to AA or UA.

which means that DL very likely will be in MIA to Latin America, and DL or VS will be in DFW and IAH to LHR etc.


it also means that what I have said for years about DL's network relative to AA and UA's is absolutely true. while some have belittled DL's network as being built around 2nd tier cities while AA and UA's hubs are in first tier cities, DL has been more effective in pushing into AA and UA's major markets than AA or UA have been in pushing into DL's markets.

The list of top NYC markets including ORD, DFW, IAH, LAX, SFO etc into which DL is now on par or above AA or UA in terms of passenger share and/or average fare says DL has been very effective in building its network at the expense of other carriers while the reverse is not true.

it also explains why DL has a 13% domestic revenue advantage to the industry - when you can go to top corporate clients and tell them that you run the most reliable airline of any airline that can serve the top markets and you also serve more of the top markets than any other carrier, it isn't hard to win that business.

 

[WeAAsles]

Two and a half years later, “this deal is even more idiotic now than it was then,” says Ed Hirs, an energy economist and lecturer at the University of Houston. Delta has sunk $420 million of capital into the refinery, which has generated roughly $100 million of losses. Is Delta at least getting cheap jet fuel? It doesn’t appear to be. Before the acquisition Delta was sourcing fuel for 9 cents a gallon cheaper than its peers. Its edge today: still 9 cents. Meanwhile, much of its rationale for owning a refinery has disappeared: Oil prices have plummeted, while refiners’ margins on jet fuel have declined.
 
“Even if you can run the operation as well as anyone else, the opportunity cost of the fuel is still determined by the world market,” says Richard Langlois, professor of economics at the University of Connecticut. “It only makes sense if you can run the operation better than others–unlikely for an airline.”

http://www.forbes.com/sites/christopherhelman/2015/01/21/how-cheap-oil-has-delta-air-lines-jet-fooled/?partner=yahoomag

 

[FrugalFlyerv2.0]

Two and a half years later, “this deal is even more idiotic now than it was then,” says Ed Hirs, an energy economist and lecturer at the University of Houston. Delta has sunk $420 million of capital into the refinery, which has generated roughly $100 million of losses. Is Delta at least getting cheap jet fuel? It doesn’t appear to be. Before the acquisition Delta was sourcing fuel for 9 cents a gallon cheaper than its peers. Its edge today: still 9 cents. Meanwhile, much of its rationale for owning a refinery has disappeared: Oil prices have plummeted, while refiners’ margins on jet fuel have declined.
 
“Even if you can run the operation as well as anyone else, the opportunity cost of the fuel is still determined by the world market,” says Richard Langlois, professor of economics at the University of Connecticut. “It only makes sense if you can run the operation better than others–unlikely for an airline.”

http://www.forbes.com/sites/christopherhelman/2015/01/21/how-cheap-oil-has-delta-air-lines-jet-fooled/?partner=yahoomag

 

 

[WorldTraveler]

Two and a half years later, “this deal is even more idiotic now than it was then,” says Ed Hirs, an energy economist and lecturer at the University of Houston. Delta has sunk $420 million of capital into the refinery, which has generated roughly $100 million of losses. Is Delta at least getting cheap jet fuel? It doesn’t appear to be. Before the acquisition Delta was sourcing fuel for 9 cents a gallon cheaper than its peers. Its edge today: still 9 cents. Meanwhile, much of its rationale for owning a refinery has disappeared: Oil prices have plummeted, while refiners’ margins on jet fuel have declined.
 
“Even if you can run the operation as well as anyone else, the opportunity cost of the fuel is still determined by the world market,” says Richard Langlois, professor of economics at the University of Connecticut. “It only makes sense if you can run the operation better than others–unlikely for an airline.”

http://www.forbes.com/sites/christopherhelman/2015/01/21/how-cheap-oil-has-delta-air-lines-jet-fooled/?partner=yahoomag

the truth is that you and others are and have been dead wrong about the refinery.

DL specifically noted that the PROFITS which the refinery generated in the most recent quarter are directly because of the INCREASED crack spread which has resulted even with the increase in crude oil prices.

but your comment also raises the point that the cost of fuel IS an operational issue; DL's hedge losses and investment in the refinery are not

DL employees HAVE participated in DL's below average fuel costs because it has increased DL's operational profits.

DL employees HAVE NOT had their profit sharing reduced because of DL's investment in the refinery or because of their hedge losses.

thank you once again for pointing out the superiority of DL's employee focused model of compensation that makes sure that DL employees receive their profit sharing EVEN IF the company strategic plans take time to develop or require investment.

AA employees in contrast will enjoy NONE of AA's enormous profits in 2015 as fuel prices drop and AA participates fully in those price drops.

AA executives and those nasty shareholders will benefit handsomely, though.

 

[WeAAsles]

Wow all this guy has left to sell now is the PS. He writes it in to every comment now. He even made the comment that I wrote the article. WT look again. It wasn't my comment.