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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
| or | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-5424
DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 58-0218548 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| Post Office Box 20706 | |||||
| Atlanta, Georgia | 30320-6001 | ||||
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (404) 715-2600
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $0.0001 per share | DAL | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||
| Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 was approximately $27.7 billion.
On January 31, 2022, there were outstanding 639,929,760 shares of the registrant's common stock.
This document is also available on our website at http://ir.delta.com/.
Documents Incorporated By Reference
Part III of this Form 10-K incorporates by reference certain information from the registrant's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission.
Unless otherwise indicated or the context otherwise requires, the terms "Delta," "we," "us," and "our" refer to Delta Air Lines, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-K (or otherwise made by us or on our behalf) that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to Delta are described in "Risk Factors Relating to Delta" and "Risk Factors Relating to the Airline Industry" in "Item 1A. Risk Factors" of this Form 10-K, other than risks that could apply to any issuer or offering. All forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.
Delta Air Lines, Inc. 2021 Form 10-K 1
Item 1. Business
Part I
ITEM 1. BUSINESS
General
As a global airline based in the U.S., we connect customers across our expansive global network. In 2019, prior to the onset of the COVID-19 pandemic, we served approximately 200 million customers and were the world’s largest airline by total revenues and the most profitable with five consecutive years of $5 billion or more in pre-tax income from 2015 through 2019. In 2020, we made significant adjustments to our network and operations as a result of the unprecedented and widespread impact of COVID-19 and the related travel restrictions and social distancing measures that significantly reduced demand for air travel.
We began restoring our network in 2021, as travel restrictions eased and vaccine programs became widespread both domestically and in international markets. As the year progressed, we saw a full return of domestic consumer travel to 2019 levels while business and international demand continued to lag. Despite this lag, business and international travel began to increase in the latter part of 2021, spurred in part by the U.S. government’s lifting of restrictions in November 2021 that prevented travelers from entering the United States from a number of specifically-identified countries.
In 2021, we continued to demonstrate agility, operational excellence and discipline. We believe that we are well positioned to manage the continued challenges brought by the pandemic, even when considering new variants spreading globally, continued uncertainty linked to the full return of business travel and evolving international travel restrictions. More information about the effect of the COVID-19 pandemic on our business and our recovery can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our internet address is www.delta.com. Information contained on our website is not part of, and is not incorporated by reference in, this Form 10-K.
Competitive Advantages and Brand Strength
We have five competitive advantages that support our trusted consumer brand, including our people and culture, our global network, our operational reliability, our customer loyalty and our financial foundation. Through the pandemic, we believe that we have strengthened our advantages and our brand. In 2021, we continued to have the world’s most valuable airline brand.
People and Culture
Our people are our strongest competitive advantage. Our employees provide world-class travel experiences for our customers while also giving back to the communities where they live, work and serve. Throughout the pandemic, we were able to avoid involuntary furloughs of U.S. employees by providing voluntary separation and early retirement programs, voluntary unpaid leaves and other initiatives. We have prioritized the health and safety of our employees by implementing an extensive employee COVID-19 testing program, partnering with Georgia to host the state’s largest COVID-19 vaccination site while steadily increasing the vaccination rate among our employees, providing pay protection programs for employees diagnosed with, exposed to or at high risk from COVID-19 and offering free flu shots for all U.S. employees. In February 2021, we hired a Chief Health Officer to reimagine our approach to health and well-being to accommodate the physical and mental health needs of our people. Delta was recognized by Glassdoor as one of its Best Places to Work for the sixth year in a row, ranking number 18 on the 2022 list of 100 large companies. The list is solely based on the input of employees who provide anonymous feedback on their daily jobs, benefits, interview experience and work environment. Being recognized on this list is a testament to Delta people and our culture.
Global Network
We and our alliance partners collectively serve over 130 countries and territories and over 800 destinations around the world. In 2019, prior to the onset of the COVID-19 pandemic, we offered more than 5,000 daily departures and as many as 15,000 affiliated departures including the premier SkyTeam alliance, of which Delta is a founding member. At the end of 2021, we offered more than 4,000 daily departures and approximately 5,500 affiliated departures as we began restoring our network.
Delta Air Lines, Inc. 2021 Form 10-K 2
Item 1. Business
Our domestic network is centered around core hubs in Atlanta, Minneapolis-St. Paul, Detroit and Salt Lake City. Core hubs have strong local passenger share, a high penetration of customers loyal to Delta, competitive cost position and strong margins. Core hub positions complement strong coastal hub positions in Boston, Los Angeles, New York-LaGuardia, New York-JFK and Seattle. Coastal hubs provide a strong presence in large revenue markets and enable growth in premium products and international service. We are elevating the customer experience in key markets by deploying our newest aircraft and products and by accelerating generational airport investments. We opened a new facility at Salt Lake City in 2021 and expect to open new facilities at New York-LaGuardia, Los Angeles and Seattle in 2022. In addition to our domestic mainline operations, we have agreements with domestic regional carriers that operate as Delta Connection® to feed traffic to our domestic hubs.
Internationally, we have significant hubs and market presence in Amsterdam, London-Heathrow, Mexico City, Paris-Charles de Gaulle and Seoul-Incheon. As we continue our recovery from the impact of the COVID-19 pandemic, we expect to continue to evaluate and adjust our operations to address evolving conditions. Although our international operations have been substantially curtailed since March 2020 as a result of the COVID-19 pandemic, we have continued to serve Transatlantic, Transpacific and Latin America markets directly on Delta and through joint ventures with global airline partners. In 2021, we restored approximately 50% of capacity in international markets, but do not expect our international network to be fully restored to 2019 levels until 2023.
Through innovative alliances with Aeroméxico, Air France-KLM, China Eastern, Korean Air and Virgin Atlantic, and an alliance pending regulatory approval with LATAM Airlines Group S.A. (“LATAM ”), we seek to bring more choice to customers worldwide. Our strategic relationships with these international airlines are an important part of our business as they improve our access to markets around the world and enable us to provide customers a more seamless global travel experience across our alliance network. The most significant of these arrangements are commercial joint ventures that include joint sales and marketing coordination, co-location of airport facilities and other commercial cooperation arrangements. In some cases, we have reinforced strategic alliances through equity investments where we have opportunity to create deep relationships and maximize commercial cooperation. For additional information about the effect of the COVID-19 pandemic on our investments in these airlines, see Note 4 of the Notes to the Consolidated Financial Statements.
Our global network is supported by a fleet of approximately 1,200 aircraft as of December 31, 2021 that are varied in size and capabilities, giving us flexibility to adjust aircraft to the network. Prior to the pandemic, we began refreshing our fleet by acquiring new and more fuel efficient aircraft with increased premium seating to replace older aircraft, and had begun to reduce our fleet complexity with fewer fleet types. We accelerated this fleet simplification strategy by retiring 227 aircraft in 2020, with plans to retire additional aircraft by 2025, though we remain flexible and may decide to fly certain aircraft beyond their planned retirement date, to the extent supported by demand. Our new aircraft are on average 25% more fuel efficient per seat mile than retiring aircraft.
Operational Reliability
We remain committed to industry-leading reliability and are consistently among the industry’s best performers. In 2021, we had a system-wide completion factor of 99.4%, with 88.0% of our domestic flights arriving on time as reported to the U.S. Department of Transportation, both of which, based on preliminary data, are expected to exceed the performance of our U.S.-based peers. This reliability was a key component in Delta being named the Top U.S. Airline of 2021 by the Wall Street Journal in its annual airline scorecard rankings, which tracks seven important operations and customer metrics among nine U.S. airlines. This achievement recognizes the consistent efforts of our people to safely deliver reliable, on-time service while providing exceptional service.
Following the onset of the COVID-19 pandemic, we intensified our focus on ensuring the health and safety of our customers, including the creation of our industry-leading cleanliness standards through the Global Cleanliness organization and the implementation of the Delta CareStandard℠ to ensure a consistently safe and sanitized experience across our facilities and aircraft.
Delta Air Lines, Inc. 2021 Form 10-K 3
Item 1. Business
Customer Loyalty
Over the last decade, we significantly improved the quality and reliability of our operations, and our customer satisfaction scores increased meaningfully as a result. With operational excellence, best-in-class service and a commitment to ensuring the health and safety of our customers, we have continued to earn our customers’ trust and preference by delivering the “Delta Difference.” In 2021, we were recognized as No. 1 in customer satisfaction among airlines in North America by J.D. Power, underscoring the professionalism, care and humanity that our people delivered during one of the most stressful periods for travel in modern history. We were also ranked No. 1 on Fortune Magazine's Most Admired Airline List for the tenth time in the past 11 years and named one of Fast Company’s most innovative travel companies in 2021. In 2021, corporate travel professionals also rated us No. 1 in the annual Business Travel News Airline Survey for the 11th year in a row, citing our responsiveness to customers as well as our flexibility-minded approach throughout the pandemic and beyond. We believe our continued investment in customer service and experience, operations, product, airports and technology has shaped customer perception of our brand leading to increases in our domestic net promoter scores and increased customer loyalty compared to pre-pandemic levels. In 2021, customers demonstrated increased loyalty through higher levels of engagement with our SkyMiles program, our co-branded American Express card and use of our FlyDelta app, with remuneration from our co-branded American Express card nearly achieving 2019 levels for the full year and exceeding 2019 levels during the December 2021 quarter.
Our SkyMiles program is designed to attract lifetime members and grow customer loyalty by offering incentives to increase travel with us. Our award-winning program offers a wide variety of benefits including award travel and access to complimentary elite benefits and services when traveling with us and our partners. As our brand has strengthened, the SkyMiles program has seen an acceleration in membership growth. We believe there is opportunity to continue this trend as we seek to elevate our customer engagement through opportunities to earn and redeem mileage credits (“miles”) as well as co-brand card offerings coupled with a strong customer experience. The SkyMiles program has a large, growing and premium membership base. This membership base has historically resulted in higher premium revenues and more resilient cash flows for us. SkyMiles has been widely recognized as a top loyalty program by external reviewers such as U.S. News and World Report and The Points Guy.
The SkyMiles program provides its members with the ability to earn miles when traveling on Delta, Delta Connection and our partner airlines. Miles may also be earned by using certain services offered by program partners, such as credit card companies, hotels, car rental agencies and ridesharing companies. To facilitate transactions with participating companies, we sell miles to non-airline businesses, customers and other airlines. Our most significant and valuable contract to sell miles relates to our co-brand credit card relationship with American Express. Miles may be used toward award redemptions such as flights and upgrades on Delta, our regional carriers and other participating airlines as well as donations with specific charities and more. In 2021, 10% of revenue miles flown on Delta were from award travel, as program members redeemed miles in the loyalty program for approximately 23 million award tickets.
Financial Foundation
In response to the effects of the COVID-19 pandemic, we raised significant amounts of liquidity in 2020 through the issuance of debt securities or through bilateral and syndicated secured and/or unsecured credit facilities and through the entry into sale-leaseback transactions. Our capital raising efforts were aided by the strength of our balance sheet prior to the pandemic. Restoring the strength of our balance sheet and reducing debt is a key financial priority. During 2021, we executed on our financial priority of stabilizing the business on the path to restoration and recovery. Since October 2020, we have made progress in restoring our balance sheet by reducing our debt by approximately $12 billion and voluntarily contributing $1.5 billion to our pension plans. We continue to be disciplined in managing non-fuel costs. We are efficiently rebuilding the airline, capturing fleet renewal benefits and driving operating leverage that we expect to produce a competitive cost structure. We expect that our unit revenue premium to the industry and competitive cost structure will support industry-leading margins and strong operating cash flow.
Delta Air Lines, Inc. 2021 Form 10-K 4
Item 1. Business
Expanded Products and Diversified Revenue Streams
In addition to our competitive advantages, Delta continues to differentiate itself from the industry through expanded products, diversified revenue streams and investments in technology.
Over the last decade we have fundamentally transformed our business by investing in our people, our product and our reliability to alter the commodity-like nature of air travel. We have a retail-oriented, merchandised approach to distribution with well-defined and differentiated products for our customers. Through improved product segmentation, we offer distinct travel experiences with clear value propositions that enable customer choice and include exceptional service onboard our aircraft. In 2021, approximately one-third of our passenger revenue was from premium products, which include Delta One®, Delta Premium Select, First Class and Delta Comfort+®. Main Cabin products, including Basic Economy, represented approximately half of our passenger revenue in 2021. We derive the remainder of our passenger revenue from loyalty travel awards and travel-related services.
Our tickets are sold through various distribution channels, with 64% of tickets sold through direct channels in 2021. These include digital channels, such as delta.com and the Fly Delta app, and our reservations specialists where we deliver more direct, personalized interactions with our customers at reduced distribution costs. Indirect distribution channels include online travel agencies and traditional "brick and mortar" agencies. We make fare and product information widely available across those channels in an effort to ensure customers receive the best information and service options.
We continue to implement merchandising initiatives across our distribution channels to allow customers to better understand our product offerings, make it easier to buy the products they desire and increase customer satisfaction. This merchandising effort is most effective in Delta's digital channels where customers can compare all product options in a single, easy to understand display.
In recent years, we have diversified revenue streams beyond the basic sale of an airline ticket in an effort to reduce the impact of cyclicality and other reductions in air travel demand on our results. Our partnership with American Express provides us a co-brand revenue stream tied to broader consumer spending. Our continued focus on premium products and customer segmentation enhanced our revenue growth prior to the pandemic and reduced reliance on the most price sensitive customer segment, a differentiator that we believe has benefited us during the pandemic. We also maintain complementary portfolio businesses, such as our cargo business, which has grown significantly during the pandemic, and our Maintenance, Repair and Overhaul (“MRO”) operation, where we believe we remain well positioned for growth through contractual agreements with jet engine manufacturers.
Cargo
Through our global network, our cargo operations are able to connect the world’s major freight gateways. We have historically generated cargo revenues in domestic and international markets through the use of cargo space on regularly scheduled passenger aircraft. In 2020, following the onset of the COVID-19 pandemic, reduced industry cargo capacity drove a significant increase in our cargo yield, and we also generated cargo revenue through the operation of cargo-only charter flights (i.e., using aircraft in our fleet not being utilized for passenger travel to fly cargo internationally). This trend continued in 2021, and we would expect capacity constraints and elevated market yields to continue through 2022 while the industry rebuilds international networks to pre-pandemic levels. We are a member of SkyTeam Cargo, an international airline cargo alliance with ten other airlines that offer a network spanning six continents, through which we provide global solutions to our customers by connecting our network with those partners.
Other Complementary Businesses
We have various other businesses arising from our airline operations, including the following:
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In addition to providing maintenance and engineering support for our fleet of approximately 1,200 mainline and regional aircraft, our MRO operation, known as Delta TechOps, serves aviation and airline customers from around the world.
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Our vacation wholesale subsidiary, Delta Vacations, provides vacation packages to third-party consumers.
In 2021, the total revenue from our MRO operation and Delta Vacations was approximately $800 million.
Delta Air Lines, Inc. 2021 Form 10-K 5
Item 1. Business
Innovative Technology Investments to Improve Service and Efficiency
Our objective is to make technology a strategic differentiator. We continue to invest in technological improvements that support our operations and provide tools for our employees. These investments include improvements to infrastructure and technology architecture to unify and improve access to data sources and continuing innovations to customer facing applications. We believe this digital transformation enhances interactions with our customers and allows our people to deliver more personalized service, further enhancing the customer experience and strengthening our brand.
Through the development of innovative new technologies, we can better serve customers and give our employees the best tools. For our customers, we are making investments in the digital platforms, in the airport and onboard our aircraft. We are evolving the Fly Delta app into a digital travel concierge for our customers to offer convenient services on the day of travel and deliver thoughtful notifications to make their travel journeys more seamless. In the airport, we are investing to create a smoother, less stressful and increasingly contactless travel experience. Onboard the aircraft, we continue to invest in in-flight entertainment with free messaging and improved Wi-Fi connectivity. As of December 31, 2021, approximately 95% of our mainline aircraft were equipped with seat-back screens. For our employees, we are investing in applications that allow our people to have more meaningful interactions with our customers, as well as tools to make our employees safer and better able to do their jobs.
Commercial Arrangements with Other Airlines
We have marketing alliances with other airlines to enhance our access to domestic and international markets.
Joint Venture Agreements. We have implemented three separate joint venture arrangements with foreign carriers, each of which has been granted antitrust immunity from the U.S. Department of Transportation ("DOT"). We have sought to reinforce a number of the agreements through equity investments in those carriers. As described in Note 4 of the Notes to the Consolidated Financial Statements, although we continue to hold the equity investments referenced below, we reduced the carrying value of our investments in Virgin Atlantic, Grupo Aeroméxico and LATAM to zero during 2020 and the carrying values remain at zero as of December 31, 2021. During 2021, we announced additional investments in each of these carriers, which, with respect to LATAM and Grupo Aeroméxico, remain subject to completion of their respective reorganizations and related terms, conditions and approvals.
Each of our joint venture arrangements provides for joint commercial cooperation with the relevant partner within the geographic scope of the arrangement, including the sharing of revenues and/or profits and losses generated by the parties on the joint venture routes, as well as joint marketing and sales, coordinated pricing and revenue management, network and schedule planning and other coordinated activities with respect to the parties' operations on joint venture routes. Our implemented commercial joint ventures consist of the following:
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A combined joint venture with Air France, KLM and Virgin Atlantic with respect to transatlantic traffic flows. In addition to the joint venture, we own a non-controlling 49% equity stake in Virgin Atlantic Limited, the parent company of Virgin Atlantic Airways and a 6% ownership stake in the parent company of Air France and KLM.
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A joint venture with Aeroméxico with respect to trans-border traffic flows between the U.S. and Mexico, which the court has approved for Aeroméxico to assume as part of its bankruptcy proceedings. In addition to the joint venture, we currently own a non-controlling 51% equity stake in Grupo Aeroméxico, S.A.B. de C.V., the parent company of Aeroméxico. Upon, and subject to, completion of Grupo Aeroméxico’s restructuring process, we expect to acquire an approximately 20% equity stake in Grupo Aeroméxico. We and Aeroméxico have also established a joint venture relating to an airframe MRO operation located in Querétaro, Mexico.
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A joint venture with Korean Air with respect to traffic flows between the United States and certain countries in Asia. In addition to the joint venture, we own an approximately 13% equity stake in Hanjin-KAL, the largest shareholder of Korean Air.
Delta Air Lines, Inc. 2021 Form 10-K 6
Item 1. Business
In 2019, we entered into a framework agreement with LATAM to form a strategic alliance. Pursuant to that agreement, we acquired an approximately 20% equity stake in LATAM in January 2020 and made certain agreed-upon transition payments to LATAM. As part of our planned strategic alliance with LATAM, we also assumed 10 of LATAM’s A350 purchase commitments with Airbus S.A.S. for deliveries through 2025. In May 2020, we signed a trans-American joint venture agreement with LATAM that, subject to regulatory approvals, will combine our highly complementary route networks between North and South America, with the goal of providing customers a seamless travel experience and industry-leading connectivity. As a result of the COVID-19 pandemic, LATAM initiated a voluntary proceeding to reorganize under U.S. bankruptcy laws in which it has assumed the joint venture agreement. Upon, and subject to, completion of LATAM's restructuring process, we expect to acquire an approximately 10% equity stake in LATAM.
Enhanced Commercial Agreements with China Eastern. We own a 2% equity interest in China Eastern, with whom we have a strategic joint marketing and commercial cooperation arrangement covering traffic flows between China and the U.S., which includes reciprocal codesharing, loyalty program participation, airport lounge access and joint sales cooperation.
SkyTeam. In addition to our marketing alliance agreements with individual foreign airlines, we are a member of the SkyTeam global airline alliance. The other members of SkyTeam are Aeroflot, Aerolíneas Argentinas, Aeroméxico, Air Europa, Air France, China Airlines, China Eastern, Czech Airlines, Garuda Indonesia, ITA Airways, Kenya Airways, KLM, Korean Air, Middle East Airlines, Saudia, TAROM, Vietnam Airlines and Xiamen Airlines. Through alliance arrangements with other SkyTeam carriers, we are able to link our network with the route networks of the other member airlines, providing opportunities to increase connecting traffic while offering enhanced customer service through reciprocal codesharing and loyalty program participation, airport lounge access and cargo operations.
Regional Carriers
We have air service agreements with domestic regional air carriers that feed traffic to our route system by serving passengers primarily in small and medium-sized cities in the domestic market. These arrangements enable us to better match capacity with demand in these markets.
Through our regional carrier program, Delta Connection®, we have contractual arrangements with regional carriers to operate aircraft using our "DL" designator code. We currently have contractual arrangements with:
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Endeavor Air, Inc., a wholly owned subsidiary of ours.
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Republic Airline, Inc. ("Republic").
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SkyWest Airlines, Inc. ("SkyWest Airlines").
Our contractual agreements with regional carriers are primarily capacity purchase arrangements, under which we control the scheduling, pricing, reservations, ticketing and seat inventories for the regional carriers' flights operating under our "DL" designator code. We are entitled to all ticket, cargo, mail, in-flight and ancillary revenues associated with the flights under these capacity purchase arrangements. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. These capacity purchase agreements are long-term agreements, usually with initial terms of at least ten years, which grant us the option to extend the initial term. Certain of these agreements provide us the right to terminate the entire agreement, or in some cases remove some of the aircraft from the scope of the agreement, for convenience at certain future dates.
SkyWest Airlines operates some flights for us under a revenue proration agreement. This proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries.
Delta Air Lines, Inc. 2021 Form 10-K 7
Item 1. Business
Environmental Sustainability
During 2021, we built on our previously announced plan to invest $1.0 billion through the end of 2030 toward airline carbon neutrality (the “$1.0 billion airline carbon neutrality goal”) by announcing our intention to set new climate goals that are aligned with the applicable framework of the Science Based Targets initiative (“SBTi”):
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Medium-term goal: Reducing emissions intensity by 2035 as compared to 2019, based on jet fuel emissions of greenhouse gases ("GHGs") in accordance with SBTi guidance for the aviation industry, and in line with the Paris Agreement's goal of limiting global warming to well below two degrees Celsius above pre-industrial levels.
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Long-term goal: Achieving net zero GHG emissions across the airline operation and its value chain (Scopes 1, 2 and 3) no later than 2050, as outlined by the SBTi Net Zero Standard Criteria.
We have submitted both goals to SBTi for validation, but we are unable to predict the outcome of that process and when it will be completed.
The global aviation industry is viewed as a hard-to-abate sector, meaning it is innately difficult to decarbonize. We expect our path toward achievement of these ambitious climate goals to include the following levers, with the fleet and fuel levers expected to play the most significant roles:
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Fleet: Currently, fleet renewal provides the largest impact on reducing emissions and emissions intensity. In 2020, we retired more than 200 of our less efficient aircraft ahead of schedule, improving emissions intensity and fuel efficiency on an available seat mile ("ASM") basis in 2020 and 2021, as compared to 2019. We expect our fleet renewal plans to continue to improve fuel efficiency in future periods.
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Fuel: Sustainable aviation fuel ("SAF") is central to reducing the lifecycle emissions from aviation fuel; however, it is not currently available at the scale or cost necessary to meet the industry’s needs. We have established a goal of replacing 10% of our jet fuel consumption with SAF by the end of 2030, which we expect to require at least 400 million gallons of SAF annually. At the end of 2021, Delta had agreements in place with multiple suppliers for an aggregate of 81 million gallons of SAF annually beginning in 2025, subject to third-party investment and timely facility development.
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Operational Initiatives: Delta is launching a cross-functional senior leadership team, through a group known as the Carbon Council, to execute and track operational initiatives to reduce jet fuel consumption and improve our emissions intensity. This work supplements industry-wide efforts to modernize the air traffic control system, which would allow for more fuel efficient and therefore less carbon intensive flying.
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Technological Innovation: We plan to evaluate emerging technologies, such as synthetic hydrocarbon fuels, direct air capture and carbon capture and sequestration to support our efforts to achieve our climate goals.
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Carbon Offsets: In the near term and subject to market dynamics, Delta plans to continue the purchase and retirement of verified carbon offsets in support of our $1.0 billion airline carbon neutrality goal.
These ambitious goals will require significant capital investment by Delta and third parties, government policies and incentives, research and development from manufacturers and other stakeholders and transformation of some of the world’s largest industries. Delta is committed to engaging our stakeholders and building coalitions to help drive down cost and increase production and consumption of alternative fuels and new technologies, and we recently hired the airline industry's only C-Suite level Chief Sustainability Officer to lead the continuing development of our climate strategy and transition plan. We have joined aviation industry-specific and broader coalitions in an effort to accelerate our climate goals and to influence climate and sustainability policy development. For example, within the aviation industry, Delta serves on the steering committee for Clean Skies for Tomorrow, which is focused on bringing SAF to scale faster by putting in place key processes and sending strong demand signals to the market.
Community Engagement
As we connect people with communities, experiences and each other, we are committed to doing our part to build a better world. Giving back to the communities where we live, work and serve is part of our culture at Delta, and we focus our efforts in the community on four pillars of support: Environment, Equity, Education and Entire Well-being.
Delta Air Lines, Inc. 2021 Form 10-K 8
Item 1. Business
In 2021, Delta people continued to demonstrate their commitment to serving their community, even during a pandemic. Delta people donated 11,347 pints of blood, making Delta the No. 1 American Red Cross corporate blood drive sponsor for the fourth straight year. Our people helped build the 276th home built by Delta volunteers with Habitat for Humanity and built two playgrounds with The Trust for Public Land. Delta TechOps employees donated and assembled a record 1,250 bikes and collected 20 boxes of toys in partnership with Toys for Tots in addition to Delta’s $550,000 contribution to the organization to help make the holidays brighter for families in need.
As part of our commitment to equity, Delta launched a partnership with UNCF in 2021 to provide funding for their Emergency Student Aid program with a contribution of $500,000 dedicated to Degree Completion Aid and Emergency Retention Grants to assist students in need of emergency funding to be able to graduate. Delta also sponsors UNCF chapters in Atlanta, Boston, Detroit, Los Angeles, Minneapolis and New York.
Employee Matters
Human Capital and Commitment to Diversity, Equity and Inclusion
We believe that Delta people are our strongest competitive advantage, and the high-quality service that they provide sets us apart from other airlines. As of December 31, 2021, we had approximately 83,000 full-time employee equivalents, of which approximately 81,000 were based in the U.S. In 2021, as our business began to recover from the impact of the COVID-19 pandemic, we hired approximately 11,000 new full-time employees across our business, including pilots, flight attendants, and gate and reservation agents.
Our principal human capital management objectives are to attract, retain and develop people who understand and are committed to delivering the “Delta Difference” that is core to our brand. To support these objectives, we have put in place programs that seek to:
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Prepare our employees for key roles and future leadership positions through a variety of training and development programs.
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Reward our people through highly competitive total compensation and benefit programs designed to share our success, promote teamwork and foster our people’s physical, emotional, social and financial well-being.
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Enhance our culture through efforts aimed at making our workplace more engaging, equitable and inclusive.
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Drive employees’ professional and community engagement.
The health and safety of our employees is foundational to achieving these objectives. We have long led the airline industry in employee safety and seek to achieve world-class personal safety performance. We have prioritized the health and safety of our employees by offering an extensive employee COVID-19 testing program, partnering with Georgia to host the state’s largest COVID-19 vaccination site while steadily increasing the vaccination rate among our employees, providing pay protection programs for employees diagnosed with, exposed to or at high risk from COVID-19 and offering free flu shots for all U.S. employees.
Our commitment to diversity, equity and inclusion is critical to effective human capital management at Delta. As a global airline, we are in the business of bringing people together, and we believe our business should reflect the diversity of our customer base. To achieve this goal, we seek diverse talent internally and externally in an effort to achieve broader representation throughout our organization. We also promote inclusion through education, training and development opportunities as well as by leveraging insights from our ten employee resource groups, which we refer to as business resource groups, totaling membership of more than 25,000 as of December 31, 2021. During 2021, we offered enhanced inclusion training to our employees, with more than 62,000 employees participating. We also invested in our leadership’s equity education and understanding with nearly 30% of officers participating in a two-day racial equity workshop in 2021 and the remaining officers slated to participate by the end of 2022. In addition, we are reviewing and revising systems, practices and policies in support of our commitment to diversity, equity and inclusion and with a focus on achieving equitable outcomes. Two key areas on which we are focused are (1) reinforcement of our diverse talent pipeline by, among other things, requiring hiring candidate slates and interview panels to reflect diversity and creating new pathways to certain roles by removing college degree requirements, and (2) closing diversity gaps in senior leadership positions by increasing the representation of women, Black and other ethnic minority groups in those roles, including doubling the number of Black officers and director-level employees by 2025 as compared to 2020.
Delta Air Lines, Inc. 2021 Form 10-K 9
Item 1. Business
We believe that listening, engaging and connecting with employees furthers our human capital management objectives. We have historically done so primarily through our open-door policy, digital communication across all levels of the company, in-person events with senior management and company-wide and division-specific surveys to evaluate employee satisfaction. Since the onset of the pandemic, senior management has participated in regular company-wide town hall discussions with our employees and our senior executive leadership team has regularly shared memos with all employees regarding our ongoing commitment to our people and our culture. We have also continued to conduct periodic employee surveys to seek feedback on engagement levels in general, our well-being programs, diversity, equity and inclusion efforts and our culture of safety.
Collective Bargaining
As of December 31, 2021, 20% of our approximately 83,000 full-time equivalent employees were represented by unions.
| Domestic airline employees represented by collective bargaining agreements by group | ||||||||||||||
| Employee Group | Approximate Number of Employees Represented | Union | Date on which Collective Bargaining Agreement Becomes Amendable | |||||||||||
| Delta Pilots | 13,180 | ALPA | December 31, 2019 | |||||||||||
| Delta Flight Superintendents (Dispatchers) | 380 | PAFCA | November 1, 2024 | |||||||||||
| Endeavor Air Pilots | 1,900 | ALPA | January 1, 2029 | |||||||||||
| Endeavor Air Flight Attendants | 1,480 | AFA | March 31, 2025 |
We are in mediated discussions with the representative of the Delta pilots regarding terms of their amendable collective bargaining agreement under the auspices of the National Mediation Board ("NMB").
In addition to the domestic airline employee groups discussed above, approximately 180 refinery employees of our wholly owned subsidiary, Monroe Energy, LLC (“Monroe”) are represented by the United Steel Workers under an agreement that expires on February 28, 2022. This agreement is governed by the National Labor Relations Act ("NLRA"), which generally allows either party to engage in self-help upon the expiration of the agreement. Certain of our employees outside the U.S. are represented by unions, work councils or other local representative groups.
Labor unions periodically engage in organizing efforts to represent various groups of our employees, including at our operating subsidiaries, that are not represented for collective bargaining purposes.
Fuel
Our results of operations are significantly impacted by changes in the price and availability of aircraft fuel. We purchase most of our aircraft fuel under contracts that establish the price based on various market indices and therefore do not provide material protection against price increases or assure the availability of our fuel supplies. We also purchase aircraft fuel on the spot market, from off-shore sources and under contracts that permit the refiners to set the price. We are currently able to obtain adequate supplies of aircraft fuel, including fuel produced by Monroe or procured through the exchange of gasoline, diesel and other refined petroleum products ("non-jet fuel products") the refinery produces, and crude oil for Monroe's operations.
The following table shows our aircraft fuel consumption and costs, which were materially reduced in 2020 and 2021 in large part due to our reduced operations in response to the COVID-19 pandemic.
| Fuel consumption and expense by year | ||||||||||||||
| Year | Gallons Consumed**(1)** (in millions) | Cost**(1)(2)** (in millions) | Average Price Per Gallon**(1)(2)** | Percentage of Total Operating Expense**(1)(2)** | ||||||||||
| 2021 | 2,778 | $ | 5,633 | $ | 2.02 | 20 | % | |||||||
| 2020 | 1,935 | $ | 3,176 | $ | 1.64 | 11 | % | |||||||
| 2019 | 4,214 | $ | 8,519 | $ | 2.02 | 21 | % |
(1)Includes the operations of our regional carriers operating under capacity purchase agreements.
(2)Includes the impact of fuel hedge activity, refinery segment results and carbon offset costs.
Delta Air Lines, Inc. 2021 Form 10-K 10
Item 1. Business
Monroe Energy
Our Monroe subsidiaries operate the Trainer refinery and related logistics assets located near Philadelphia, Pennsylvania. The facilities include pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK. These companies are distinct from us, operating under their own management teams and with their own boards. We own Monroe as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel, as well as to maintain sufficiency of supply to our New York operations.
Refinery Operations. The facility is capable of refining approximately 200,000 barrels of crude oil per day. Monroe sources domestic and foreign crude oil supply from a variety of providers. During 2021, the refinery progressively increased operations, ending the year near pre-pandemic levels. Additionally, due to the decrease in demand for jet fuel, the refinery has shifted production to produce more non-jet fuel products.
Strategic Agreements. Monroe has agreements in place to exchange the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations.
Environmental Sustainability. Delta is evaluating operational pathways for integrating Monroe into a net zero future. Monroe’s sustainability ambitions include being one of the most energy efficient refineries in the country with the lowest energy intensity and GHG emissions on an absolute and per barrel basis. For example, Monroe is implementing a plan to replace steam driven turbines that currently power pumps at the facility with more efficient and reliable electric motors, which will reduce the amount of steam required from the facility’s natural gas-fired boilers. Monroe is also recovering and utilizing methane, a potent GHG, instead of flaring it to the atmosphere. Finally, in support of Delta’s 10% SAF goal, Monroe is evaluating the possibility of producing SAF and other renewable fuels at the Trainer refinery, although additional analyses must be conducted to determine economic and operational viability of various SAF production pathways.
Fuel Hedging Program
Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s inventory. We may utilize different contract and commodity types in this program and frequently test their economic effectiveness against our financial targets. We closely monitor the hedge portfolio and rebalance the portfolio based on market conditions, which may result in locking in gains or losses on hedge contracts prior to their settlement dates.
Competition
The airline industry is highly competitive, marked by significant competition with respect to routes, fares, schedules (both timing and frequency), operational reliability, services, products, customer service and loyalty programs. The industry has evolved through mergers and new entry, both domestically and internationally, and evolution in international alliances. Consolidation in the airline industry, the presence of subsidized government sponsored international carriers, changes in international alliances and the creation of immunized joint ventures have altered, and will continue to alter, the competitive landscape in the industry, resulting in the formation of airlines and alliances with significant financial resources, extensive global networks and competitive cost structures.
Domestic
Our domestic operations are subject to significant competition from traditional network carriers, including American Airlines and United Airlines, national point-to-point carriers, including Alaska Airlines, JetBlue Airways and Southwest Airlines, and other discount or ultra-low-cost carriers, including Spirit Airlines, Frontier Airlines and Allegiant Air, some of which may have lower costs than we do and provide service at low fares to destinations served by Delta. In particular, we face significant competition at our domestic hubs and key airports either directly at those airports or at the hubs of other airlines that are located in close proximity. We also face competition in smaller to medium-sized markets from regional jet operations of other carriers.
International
Our international operations are subject to competition from both foreign and domestic carriers, including from point-to-point carriers on certain international routes. Through alliance and other marketing and codesharing agreements with foreign carriers, U.S. carriers have increased their ability to sell international transportation, such as services to and beyond traditional European and Asian gateway cities. Similarly, foreign carriers have obtained increased access to interior U.S. passenger traffic beyond traditional U.S. gateway cities through these relationships.
Delta Air Lines, Inc. 2021 Form 10-K 11
Item 1. Business
In particular, several joint ventures among U.S. and foreign carriers, including several of our joint ventures as well as those of our competitors, have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory. In addition, alliances formed by domestic and foreign carriers, including SkyTeam, the Star Alliance (among United Airlines, Lufthansa German Airlines, Air Canada and others) and the oneworld alliance (among American Airlines, British Airways, Qantas and others) have enhanced competition in international markets.
Regulatory Matters
The DOT and the Federal Aviation Administration (the "FAA") exercise regulatory authority over air transportation in the U.S. The DOT has authority to issue certificates of public convenience and necessity required for airlines to provide air transportation. An air carrier that the DOT finds fit, willing, and able to perform the proposed service is given authority to operate domestic and international air transportation (including the carriage of passengers and cargo), as applicable. Since the passage of the Airline Industry Deregulation Act in 1978, airlines have generally been free to launch or terminate service to U.S airports without restriction, except with respect to certain slot-controlled and schedule-facilitated airports, as well as certain constraints related to service to small communities governed by the "Essential Air Services" program. The Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") created certain continuation of service obligations in connection with the receipt of payroll support program funds by passenger airlines. Specifically, the DOT has the authority until March 1, 2022 to require airlines that received such funds to maintain scheduled air service deemed necessary to any point served by the airline before March 1, 2020. The DOT has issued several orders mandating such service, the most recent of which was finalized on April 29, 2021, mandating service levels through September 30, 2021, subject to certain definitions and exceptions as described in the order.
The DOT has jurisdiction over certain economic and consumer protection matters, such as unfair or deceptive practices and methods of competition, advertising, denied boarding compensation, baggage liability and disabled passenger transportation. The DOT also has authority to review certain joint venture agreements between domestic and international carriers. The DOT engages in regulation of economic matters such as transactions involving allocation of "slots" or similar regulatory mechanisms which limit the rights of carriers to conduct operations at airports where such mechanisms are in place. The FAA has primary responsibility for matters relating to the safety of air carrier flight operations, including airline operating certificates, control of navigable air space, flight personnel, aircraft certification and maintenance and other matters affecting air safety.
Authority to operate international routes and international codesharing arrangements is regulated by the DOT and by the governments of the foreign countries involved. International certificate authorities are also subject to the approval of the U.S. President for conformance with national defense and foreign policy objectives.
The Transportation Security Administration and the U.S. Customs and Border Protection, each a division of the Department of Homeland Security, are responsible for certain civil aviation security matters, including passenger and baggage screening at U.S. airports and international passenger prescreening prior to entry into or departure from the U.S.
Airlines are also subject to various other federal, state, local and foreign laws and regulations. For example, the U.S. Department of Justice has jurisdiction over some airline competition matters. The U.S. Postal Service has authority over certain aspects of the transportation of mail. Labor relations in the airline industry, as discussed below, are generally governed by the Railway Labor Act with oversight by the NMB. Environmental matters are regulated by various federal, state, local and foreign governmental entities. Privacy of passenger and employee data is regulated by domestic and foreign laws and regulations.
Fares and Rates
Airlines set ticket prices in all domestic and most international city-pairs with minimal governmental regulation, and the industry is characterized by significant price competition. Certain international fares and rates are subject to the jurisdiction of the DOT and the governments of the foreign countries involved. Many of our tickets are sold by travel agents, and fares are subject to commissions, overrides and discounts paid to travel agents, brokers and wholesalers.
Delta Air Lines, Inc. 2021 Form 10-K 12
Item 1. Business
Route Authority
Our flight operations are authorized by certificates of public convenience and necessity and also by exemptions and limited-entry frequency awards issued by the DOT. The requisite approvals of other governments for international operations are controlled by bilateral agreements (and a multilateral agreement in the case of the U.S. and the European Union) with, or permits or approvals issued by, foreign countries. Because international air transportation is governed by bilateral or other agreements between the U.S. and the foreign country or countries involved, changes in U.S. or foreign government aviation policies could result in the alteration or termination of such agreements, diminish the value of our international route authorities or otherwise affect our international operations. Bilateral agreements between the U.S. and various foreign countries that we serve are subject to renegotiation from time to time. The U.S. government has negotiated "Open Skies" agreements with many countries, which allow unrestricted access between the U.S. and these foreign markets.
Certain of our international route authorities are subject to periodic renewal requirements. We request extension of these authorities when and as appropriate. While the DOT usually renews temporary authorities on routes where the authorized carrier is providing a reasonable level of service, there is no assurance this practice will continue in general or with respect to a specific renewal. Dormant route authorities may not be renewed in some cases, especially where another U.S. carrier indicates a willingness to provide service.
Airport Access
Operations at three major domestic airports and certain foreign airports that we serve are regulated by governmental entities through allocations of "slots" or similar regulatory mechanisms. Each slot represents the authorization to land at or take off from the particular airport during a specified time period.
In the U.S., the FAA currently regulates the allocation of slots, slot exemptions, operating authorizations or similar capacity allocation mechanisms at Reagan National in Washington, D.C. and LaGuardia and JFK in the New York City area. Our operations at these airports generally require the allocation of slots or analogous regulatory authorizations. Similarly, our operations at London's Heathrow airport, Tokyo's Haneda airport and other international airports are regulated by local slot coordinators pursuant to the International Air Transport Association's Worldwide Scheduling Guidelines and applicable local law. We currently have sufficient slots or analogous authorizations to operate our existing flights, and we have generally been able to obtain the rights to expand our operations and to change our schedules. There is no assurance, however, that we will be able to do so in the future because, among other reasons, such allocations are subject to changes in governmental policies.
Airline Labor Regulation
In the U.S., airlines and labor unions are governed by the Railway Labor Act. Under the Railway Labor Act, a labor union seeking to represent an unrepresented craft or class of employees is required to file with the NMB an application alleging a representation dispute, along with authorization cards signed by at least 50% of the employees in that craft or class. The NMB then investigates the dispute and, if it finds the labor union has obtained a sufficient number of authorization cards, conducts an election to determine whether to certify the labor union as the collective bargaining representative of that craft or class. A labor union will be certified as the representative of the employees in a craft or class if more than 50% of votes cast are for representation. A certified labor union would then commence negotiations toward a collective bargaining agreement with the employer.
Under the Railway Labor Act, a collective bargaining agreement between an airline and a labor union does not expire, but instead becomes amendable as of a stated date. Either party may request that the NMB appoint a federal mediator to participate in the negotiations for a new or amended agreement. If no agreement is reached in mediation, the NMB may determine, at any time, that an impasse exists and offer binding arbitration. If either party rejects binding arbitration, a 30-day "cooling off" period begins. At the end of this 30-day period, the parties may engage in “self-help,” unless the U.S. President appoints a Presidential Emergency Board ("PEB") to investigate and report on the dispute. The appointment of a PEB maintains the "status quo" for an additional 60 days. If the parties do not reach agreement during this period, the parties may then engage in self-help. Self-help includes, among other things, a strike by the union or the imposition of proposed changes to the collective bargaining agreement by the airline. The U.S. Congress and the President have the authority to prevent self-help by enacting legislation that, among other things, imposes a settlement on the parties.
Delta Air Lines, Inc. 2021 Form 10-K 13