filings.toolsItem 2. MD&A - Results of Operations
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Item 2. MD&A - Results of Operations
Aircraft Fuel and Related Taxes. Fuel expense decreased $687 million compared to the September 2019 quarter primarily due to a 32% decrease in consumption, partially offset by a 1% increase in the market price of jet fuel. Consumption decreased due to a combination of reduced capacity and improved fuel efficiency on an available seat mile basis.
Fuel expense increased $1.1 billion compared to the September 2020 quarter primarily due to a 102% increase in consumption on a comparable increase in capacity, and a 75% increase in the market price of jet fuel.
Additionally, during the September 2021 quarter, we purchased and retired $29 million of carbon offset credits, which relate to a portion of 2021 carbon emissions generated by our airline segment. In the table below, these costs are shown in environmental sustainability impact.
| Fuel expense and average price per gallon | ||||||||||||||||||||||||||
| Average Price Per Gallon | ||||||||||||||||||||||||||
| Three Months Ended September 30, | 2021 vs. 2019 Increase (Decrease) | Three Months Ended September 30, | 2021 vs. 2019 Increase (Decrease) | |||||||||||||||||||||||
| (in millions, except per gallon data) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Fuel purchase cost(1) | $ | 1,601 | $ | 449 | $ | 2,313 | $ | (712) | $ | 2.03 | $ | 1.16 | $ | 2.00 | $ | 0.03 | ||||||||||
| Environmental sustainability impact | 29 | — | — | 29 | 0.04 | — | — | 0.04 | ||||||||||||||||||
| Fuel hedge impact | 19 | 9 | (25) | 44 | 0.02 | 0.02 | (0.02) | 0.04 | ||||||||||||||||||
| Refinery segment impact | (97) | 28 | (49) | (48) | (0.12) | 0.07 | (0.04) | (0.08) | ||||||||||||||||||
| Total fuel expense | $ | 1,552 | $ | 486 | $ | 2,239 | $ | (687) | $ | 1.97 | $ | 1.25 | $ | 1.94 | $ | 0.03 |
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Ancillary Businesses and Refinery. Ancillary businesses and refinery includes expenses associated with refinery sales to third parties, aircraft maintenance services we provide to third parties and our vacation wholesale operations. Increased expenses were primarily related to refinery sales to third parties, which are at or near cost. The refinery cost of sales increased $455 million and $866 million compared to the September 2020 and September 2019 quarters, respectively. The increase in third-party refinery sales compared to the September 2019 quarter resulted from the refinery's shift to producing and selling more non-jet fuel products due to the decline in demand for jet fuel compared to pre-pandemic levels. The increase compared to the September 2020 quarter was driven by higher pricing during the September 2021 quarter, with lower production and demand for both jet and non-jet fuel products in the September 2020 quarter. Compared to the September 2019 quarter, expenses related to aircraft maintenance services we provide to third parties decreased due to the reduction in flights operated worldwide; however, compared to the September 2020 quarter these expenses increased due to higher levels of flying. In addition, $43 million of costs related to services performed by Delta Private Jets in the September 2019 quarter were recorded in ancillary businesses and refinery prior to the combination of that business with Wheels Up in January 2020.
Depreciation and Amortization. Depreciation and amortization decreased compared to the September 2020 and September 2019 quarters primarily due to the aircraft that were retired or impaired during 2020.
Regional Carrier Expense. Regional carrier expense decreased compared to the September 2019 quarter due to lower utilization of these carriers as a result of the overall reduced capacity and increased compared to the September 2020 quarter due to an increase in utilization as a result of the increased demand discussed above.
We previously allocated certain costs (such as landing fees and other rents, salaries and related costs and contracted services) to regional carrier expense in our income statement based on relevant statistics (such as passenger counts). Beginning in the March 2021 quarter we ceased performing this allocation and have reclassified the costs presented in prior periods to align with this presentation. This reclassification better reflects the nature of, and how management views, these regional carrier related expenses. This allocation was approximately $900 million in 2020, including approximately $200 million in the September 2020 quarter, and $1.4 billion in 2019, including approximately $360 million in the September 2019 quarter. The remaining amounts in regional carrier expense represent the accrual of payments to our regional carriers under capacity purchase agreements and the expenses of our wholly owned regional subsidiary, Endeavor Air, Inc.
Aircraft Maintenance Materials and Outside Repairs. Maintenance expense increased compared to both the September 2019 and September 2020 quarters as we returned aircraft to service and to support our operational reliability. The increase compared to the September 2020 quarter was particularly pronounced due to the significantly reduced capacity during the September 2020 quarter and the large number of aircraft we had parked during that time.
Delta Air Lines, Inc. September 2021 Form 10-Q 26
Item 2. MD&A - Results of Operations
Aircraft Rent. Most aircraft operating lease expenses are recorded in aircraft rent and are contractually fixed. Therefore, the change in aircraft rent was more muted than our other operating expense line items, when compared to the September 2019 and September 2020 quarters.
Restructuring Charges. During 2020, we recorded restructuring charges for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the September 2021 quarter, we recognized $33 million of net adjustments to increase certain of those restructuring charges, representing changes in our estimates.
Government Grant Recognition. During the nine months ended September 30, 2021, we received a total of $6.4 billion under payroll support program extension agreements with the U.S. Department of the Treasury, which we were required to use exclusively for the payment of employee wages, salaries and benefits. The support payments included grants totaling $4.5 billion that were recognized as contra-expense in 2021 over the period that the funds were used. Following the recognition of $2.7 billion during the six months ended June 30, 2021, we fully recognized the remaining $1.8 billion of the PSP3 grant during the three months ended September 30, 2021. The amount recognized in the September 2021 quarter exceeded the amount recognized from PSP1 during the September 2020 quarter due to the increase in eligible salaries and related costs, as discussed above. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the payroll support program extensions.
Delta Air Lines, Inc. September 2021 Form 10-Q 27
Item 2. MD&A - Results of Operations
Results of Operations - Nine Months Ended September 30, 2021, 2020 and 2019
Operating Revenue
| Nine Months Ended September 30, | 2021 vs. 2020 % Increase (Decrease) | 2021 vs. 2019 % Increase (Decrease) | ||||||||||||||||||
| (in millions)(1) | 2021 | 2020 | 2019 | |||||||||||||||||
| Ticket - Main cabin | $ | 7,939 | $ | 5,229 | $ | 16,680 | 52 | % | (52) | % | ||||||||||
| Ticket - Business cabin and premium products | 5,128 | 3,483 | 11,306 | 47 | % | (55) | % | |||||||||||||
| Loyalty travel awards | 1,213 | 731 | 2,174 | 66 | % | (44) | % | |||||||||||||
| Travel-related services | 998 | 742 | 1,872 | 35 | % | (47) | % | |||||||||||||
| Total passenger revenue | $ | 15,278 | $ | 10,185 | $ | 32,032 | 50 | % | (52) | % | ||||||||||
| Cargo | 728 | 403 | 567 | 81 | % | 28 | % | |||||||||||||
| Other | 4,423 | 2,534 | 2,969 | 75 | % | 49 | % | |||||||||||||
| Total operating revenue | $ | 20,429 | $ | 13,122 | $ | 35,568 | 56 | % | (43) | % | ||||||||||
| TRASM (cents) | 14.31 | ¢ | 13.42 | ¢ | 16.94 | ¢ | 7 | % | (16) | % | ||||||||||
| Third-party refinery sales(2) | (1.53) | (0.73) | (0.05) | 110 | % | NM | ||||||||||||||
| Delta Private Jets Adjustment | — | — | (0.07) | — | % | (100) | % | |||||||||||||
| TRASM, adjusted | 12.78 | ¢ | 12.70 | ¢ | 16.83 | ¢ | 1 | % | (24) | % |
(1)Total amounts in the table above may not calculate exactly due to rounding.
(2)For additional information on adjustments to TRASM, see "Supplemental Information" below.
Unless otherwise discussed below, the changes in operating revenue line items, as well as the underlying reasons for these changes, compared to the nine months ended September 30, 2020 and September 30, 2019, respectively, are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2021, 2020 and 2019.
Operating Revenue
Compared to the nine months ended September 30, 2019, our operating revenue decreased $15.1 billion, or 43%, due to reduced demand resulting from the COVID-19 pandemic. The decrease in operating revenue, on a 32% decrease in capacity, resulted in a 16% decrease in TRASM and a 24% decrease in TRASM, adjusted compared to the nine months ended September 30, 2019.
Compared to the nine months ended September 30, 2020, our operating revenue increased $7.3 billion, or 56%, due to increased demand in 2021 compared to 2020. The increase in operating revenue, on a 46% increase in capacity, generated a 7% increase in TRASM and a 1% increase in TRASM, adjusted compared to the nine months ended September 30, 2020.
See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period.
Passenger Revenue by Geographic Region
| Increase (Decrease) vs. Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||
| (in millions) | Nine Months Ended September 30, 2021 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor | |||||||||||||||||||
| Domestic | $ | 12,517 | 60 | % | 80 | % | 47 | % | (11) | % | 9 | % | 13 | pts | ||||||||||||
| Atlantic | 1,160 | 14 | % | 16 | % | 29 | % | (2) | % | (11) | % | (6) | pts | |||||||||||||
| Latin America | 1,313 | 49 | % | 70 | % | 100 | % | (12) | % | (25) | % | (11) | pts | |||||||||||||
| Pacific | 288 | (40) | % | (66) | % | (4) | % | 79 | % | (37) | % | (39) | pts | |||||||||||||
| Total | $ | 15,278 | 50 | % | 62 | % | 46 | % | (7) | % | 3 | % | 6 | pts |
Delta Air Lines, Inc. September 2021 Form 10-Q 28
Item 2. MD&A - Results of Operations
| Increase (Decrease) vs. Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||
| (in millions) | Nine Months Ended September 30, 2021 | Passenger Revenue | RPMs (Traffic) | ASMs (Capacity) | Passenger Mile Yield | PRASM | Load Factor | |||||||||||||||||||
| Domestic | $ | 12,517 | (45) | % | (35) | % | (20) | % | (16) | % | (31) | % | (16) | pts | ||||||||||||
| Atlantic | 1,160 | (77) | % | (77) | % | (63) | % | (1) | % | (37) | % | (31) | pts | |||||||||||||
| Latin America | 1,313 | (43) | % | (35) | % | (8) | % | (11) | % | (37) | % | (25) | pts | |||||||||||||
| Pacific | 288 | (85) | % | (92) | % | (68) | % | 92 | % | (53) | % | (65) | pts | |||||||||||||
| Total | $ | 15,278 | (52) | % | (48) | % | (32) | % | (8) | % | (30) | % | (20) | pts |
Domestic
Domestic passenger unit revenue for the nine months ended September 30, 2021 decreased 31% with capacity down 20% compared to the nine months ended September 30, 2019 as a result of reduced demand due to the COVID-19 pandemic and our policy to block middle seats on flights through April 30, 2021. The revenue increase in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 is attributable to the low levels of capacity and demand during the prior year period due to the COVID-19 pandemic and the ongoing recovery in the nine months ended September 30, 2021.
International
International passenger revenue for the nine months ended September 30, 2021 decreased 70% with capacity down 52% compared to the nine months ended September 30, 2019. Compared to the nine months ended September 30, 2020, international passenger revenue increased 16% with an increase in capacity of 43%. The underlying reasons for these changes are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2021, 2020 and 2019.
Other Revenue
| Nine Months Ended September 30, | 2021 vs. 2020 % Increase (Decrease) | 2021 vs. 2019 % Increase (Decrease) | ||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||
| Refinery | $ | 2,189 | $ | 709 | $ | 94 | 209 | % | NM | |||||||||||
| Loyalty program | 1,260 | 1,086 | 1,443 | 16 | % | (13) | % | |||||||||||||
| Ancillary businesses | 586 | 476 | 896 | 23 | % | (35) | % | |||||||||||||
| Miscellaneous | 388 | 263 | 536 | 48 | % | (28) | % | |||||||||||||
| Total other revenue | $ | 4,423 | $ | 2,534 | $ | 2,969 | 75 | % | 49 | % |
Refinery. This represents refinery sales to third parties. These sales, which are at or near cost, increased by $1.5 billion and $2.1 billion compared to the nine months ended September 30, 2020 and September 30, 2019, respectively. See "Refinery Segment" below for additional details on the refinery's operations, including third-party refinery sales recorded in other revenue, during each period.
Ancillary Businesses. Ancillary businesses revenue includes aircraft maintenance services we provide to third parties and our vacation wholesale operations. Results for the nine months ended September 30, 2019 included approximately $150 million of revenue from Delta Private Jets, which was combined with Wheels Up in January 2020 and is no longer reflected in ancillary businesses.
Delta Air Lines, Inc. September 2021 Form 10-Q 29
Item 2. MD&A - Results of Operations
Operating Expense
| Nine Months Ended September 30, | 2021 vs. 2020 % Increase (Decrease) | 2021 vs. 2019 % Increase (Decrease) | ||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||
| Salaries and related costs | $ | 7,096 | $ | 7,000 | $ | 8,555 | 1 | % | (17) | % | ||||||||||
| Aircraft fuel and related taxes | 4,056 | 2,453 | 6,508 | 65 | % | (38) | % | |||||||||||||
| Ancillary businesses and refinery | 2,724 | 1,181 | 945 | 131 | % | 188 | % | |||||||||||||
| Contracted services | 1,723 | 1,536 | 2,200 | 12 | % | (22) | % | |||||||||||||
| Depreciation and amortization | 1,494 | 1,813 | 1,960 | (18) | % | (24) | % | |||||||||||||
| Landing fees and other rents | 1,477 | 1,430 | 1,638 | 3 | % | (10) | % | |||||||||||||
| Regional carrier expense | 1,258 | 1,204 | 1,622 | 4 | % | (22) | % | |||||||||||||
| Aircraft maintenance materials and outside repairs | 1,014 | 618 | 1,334 | 64 | % | (24) | % | |||||||||||||
| Passenger commissions and other selling expenses | 640 | 548 | 1,668 | 17 | % | (62) | % | |||||||||||||
| Passenger service | 520 | 456 | 988 | 14 | % | (47) | % | |||||||||||||
| Aircraft rent | 313 | 295 | 318 | 6 | % | (2) | % | |||||||||||||
| Restructuring charges | (3) | 7,798 | — | (100) | % | NM | ||||||||||||||
| Government grant recognition | (4,512) | (2,595) | — | 74 | % | NM | ||||||||||||||
| Profit sharing | — | — | 1,256 | — | % | (100) | % | |||||||||||||
| Other | 1,006 | 996 | 1,357 | 1 | % | (26) | % | |||||||||||||
| Total operating expense | $ | 18,806 | $ | 24,733 | $ | 30,349 | (24) | % | (38) | % |
Unless otherwise discussed below, the changes in operating expense line items, as well as the underlying reasons for these changes, compared to the nine months ended September 30, 2020 and September 30, 2019, respectively, are consistent with the discussion above under Results of Operations - Three Months Ended September 30, 2021, 2020 and 2019.
Aircraft Fuel and Related Taxes. Fuel expense decreased $2.5 billion compared to the nine months ended September 30, 2019 primarily due to a 37% decrease in consumption and an 8% decrease in the market price of jet fuel. Consumption decreased due to a combination of reduced capacity and improved fuel efficiency on an available seat mile basis.
Fuel expense increased $1.6 billion compared to the nine months ended September 30, 2020 due to a 41% increase in consumption and a 15% increase in the market price per gallon of jet fuel. Consumption increased with capacity during the nine months ended September 30, 2021 as described above; however, the impact was partially mitigated by improved fuel efficiency on an available seat mile basis.
Additionally, during the nine months ended September 30, 2021, we purchased and retired $69 million of carbon offset credits, which relate to 13 million metric tons of carbon emissions generated by our airline segment from March 1 to December 31, 2020 as well as a portion of our 2021 carbon emissions. In the table below, these costs are shown in environmental sustainability impact.
| Fuel expense and average price per gallon | ||||||||||||||||||||||||||
| Average Price Per Gallon | ||||||||||||||||||||||||||
| Nine Months Ended September 30, | 2021 vs. 2019 Increase (Decrease) | Nine Months Ended September 30, | 2021 vs. 2019 Increase (Decrease) | |||||||||||||||||||||||
| (in millions, except per gallon data) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Fuel purchase cost(1) | $ | 3,781 | $ | 2,324 | $ | 6,568 | $ | (2,787) | $ | 1.87 | $ | 1.62 | $ | 2.04 | $ | (0.17) | ||||||||||
| Environmental sustainability impact | 69 | — | — | 69 | 0.03 | — | — | 0.03 | ||||||||||||||||||
| Fuel hedge impact | 20 | 16 | (8) | 28 | 0.01 | 0.01 | — | 0.01 | ||||||||||||||||||
| Refinery segment impact | 186 | 113 | (52) | 238 | 0.09 | 0.08 | (0.01) | 0.10 | ||||||||||||||||||
| Total fuel expense | $ | 4,056 | $ | 2,453 | $ | 6,508 | $ | (2,452) | $ | 2.00 | $ | 1.71 | $ | 2.03 | $ | (0.03) |
(1)Market price for jet fuel at airport locations, including related taxes and transportation costs.
Delta Air Lines, Inc. September 2021 Form 10-Q 30
Item 2. MD&A - Results of Operations
Ancillary Businesses and Refinery. The changes in ancillary business and refinery expenses were primarily related to refinery sales to third parties, which increased by $1.5 billion and $2.1 billion compared to the nine months ended September 30, 2020 and September 30, 2019, respectively. In addition, approximately $130 million of costs related to services performed by Delta Private Jets in the nine months ended September 30, 2019 were recorded in ancillary businesses and refinery prior to the combination of that business with Wheels Up in January 2020.
Restructuring Charges. During 2020, we recorded restructuring charges for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the nine months ended September 30, 2021, we recognized $3 million of net adjustments to decrease certain of those restructuring charges, representing changes in our estimates.
Non-Operating Results
| Three Months Ended September 30, | 2021 vs. 2020 | 2021 vs. 2019 | ||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | Favorable (Unfavorable) | Favorable (Unfavorable) | |||||||||||||||||||||
| Interest expense, net | $ | (314) | $ | (291) | $ | (70) | $ | (23) | $ | (244) | ||||||||||||||||
| Impairments and equity method (losses)/gains | (49) | (114) | 27 | 65 | (76) | |||||||||||||||||||||
| Gain/(loss) on investments, net | (223) | (95) | (35) | (128) | (188) | |||||||||||||||||||||
| Loss on extinguishment of debt | (183) | — | — | (183) | (183) | |||||||||||||||||||||
| Miscellaneous, net | 96 | 27 | (46) | 69 | 142 | |||||||||||||||||||||
| Total non-operating expense, net | $ | (673) | $ | (473) | $ | (124) | $ | (200) | $ | (549) |
| Nine Months Ended September 30, | 2021 vs. 2020 | 2021 vs. 2019 | |||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | Favorable (Unfavorable) | Favorable (Unfavorable) | ||||||||||||
| Interest expense, net | $ | (1,014) | $ | (564) | $ | (228) | $ | (450) | $ | (786) | |||||||
| Impairments and equity method losses | (102) | (2,432) | (44) | 2,330 | (58) | ||||||||||||
| Gain/(loss) on investments, net | 251 | (199) | (17) | 450 | 268 | ||||||||||||
| Loss on extinguishment of debt | (266) | — | — | (266) | (266) | ||||||||||||
| Miscellaneous, net | 301 | 327 | (130) | (26) | 431 | ||||||||||||
| Total non-operating expense, net | $ | (830) | $ | (2,868) | $ | (419) | $ | 2,038 | $ | (411) |
Interest expense, net. Interest expense increased compared to the prior year periods as a result of financing arrangements entered into during 2020. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on recent financings. As a result of the increase in our outstanding debt since the onset of the COVID-19 pandemic, interest expense, net was $314 million in the September 2021 quarter and $1.0 billion in the nine months ended September 30, 2021. We have begun reducing the total amount of interest expense by pre-paying our debt in addition to periodic amortization payments and scheduled maturities. This began with early repayments made during the December 2020 quarter and continued with the early repayment of our $1.5 billion secured term loan in the March 2021 quarter, approximately $450 million of various EETCs in the June 2021 quarter, and approximately $850 million of certain notes through a cash tender offer and $262 million of other secured certificates, unsecured notes and a portion of the SkyMiles Term Loan through repurchases on the open market in the September 2021 quarter. Interest expense, net on our outstanding debt as of September 30, 2021 is expected to be approximately $310 million during the December 2021 quarter. We continue to seek selective opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities, during the remainder of 2021 and beyond.
Impairments and equity method losses. Impairments and equity method losses in 2020 reflected our share of LATAM's and Grupo Aeroméxico's equity method results prior to their respective bankruptcy filings, our share of Virgin Atlantic's equity method results and the impairments reducing the basis of these investments to zero during the June 2020 quarter. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for additional information on our equity investments.
Gain/(loss) on investments, net. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for additional information on our equity investments measured at fair value on a recurring basis.
Delta Air Lines, Inc. September 2021 Form 10-Q 31
Item 2. MD&A - Non-Operating Results
Loss on extinguishment of debt. Loss on extinguishment of debt reflects the losses incurred in the early repayment of the notes, outstanding term loan and EETCs mentioned above. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for additional information on the early repayment of debt.
Miscellaneous, net. Miscellaneous, net primarily includes pension and related benefit/(expense), foreign exchange gains/(losses) and charitable contributions. The nine months ended September 30, 2020 included the $240 million gain recognized as a result of the combination of Delta Private Jets with Wheels Up in January 2020.
Income Taxes
During 2021 interim periods, we are calculating our income tax expense by applying to any pre-tax income/(loss) an effective tax rate determined as if the year to date period is the annual period. Using this method, for the three and nine months ended September 30, 2021, our effective tax rate was 21% and 13%, respectively. We believe that, at this time, this method for determining the effective tax rate is more reliable than projecting an annual effective tax rate due to the uncertainty of estimating annual pre-tax income/(loss) due to the impact of the COVID-19 pandemic.
Refinery Segment
The refinery operated by our subsidiaries Monroe Energy, LLC and MIPC, LLC (collectively, "Monroe") primarily produces gasoline, diesel and jet fuel. Monroe exchanges the non-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations. Historically, the jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day, or approximately 75%, of our pre-COVID-19 pandemic consumption, for use in our airline operations. We believe that the jet fuel supply resulting from the refinery's operation contributes to reducing the market price of jet fuel and thus lowers our cost of jet fuel compared to what it otherwise would be.
The refinery’s production has also been altered by the dramatic change in economic conditions caused by the COVID-19 pandemic. During the nine months ended September 30, 2021, the refinery progressively increased operations, ending the period at close to pre-pandemic production levels, which we expect to continue during the December 2021 quarter, subject to market conditions.
| Refinery segment financial information | |||||||||||||||||
| Three Months Ended September 30, | 2021 vs. 2020 | 2021 vs. 2019 | |||||||||||||||
| (in millions, except per gallon data) | 2021 | 2020 | 2019 | % Increase (Decrease) | % Increase (Decrease) | ||||||||||||
| Exchange products | $ | 629 | $ | 249 | $ | 1,143 | 153 | % | (45) | % | |||||||
| Sales of refined products | 12 | 3 | 52 | 300 | % | (77) | % | ||||||||||
| Sales to airline segment | 183 | — | 304 | NM | (40) | % | |||||||||||
| Third party refinery sales | 872 | 417 | 6 | 109 | % | NM | |||||||||||
| Operating revenue | $ | 1,696 | $ | 669 | $ | 1,505 | 154 | % | 13 | % | |||||||
| Operating income (loss) | $ | 97 | $ | (28) | $ | 49 | NM | 98 | % | ||||||||
| Refinery segment impact on average price per fuel gallon | $ | (0.12) | $ | 0.07 | $ | (0.04) | NM | 200 | % |
Delta Air Lines, Inc. September 2021 Form 10-Q 32
Item 2. MD&A - Refinery Segment
| Nine Months Ended September 30, | 2021 vs. 2020 | 2021 vs. 2019 | |||||||||||||||
| (in millions, except per gallon data) | 2021 | 2020 | 2019 | % Increase (Decrease) | % Increase (Decrease) | ||||||||||||
| Exchange products | $ | 1,667 | $ | 1,144 | $ | 2,953 | 46 | % | (44) | % | |||||||
| Sales of refined products | 29 | 299 | 360 | (90) | % | (92) | % | ||||||||||
| Sales to airline segment | 292 | 214 | 882 | 36 | % | (67) | % | ||||||||||
| Third party refinery sales | 2,189 | 709 | 94 | 209 | % | NM | |||||||||||
| Operating revenue | $ | 4,177 | $ | 2,366 | $ | 4,289 | 77 | % | (3) | % | |||||||
| Operating (loss) income | $ | (186) | $ | (113) | $ | 52 | 65 | % | NM | ||||||||
| Refinery segment impact on average price per fuel gallon | $ | 0.09 | $ | 0.08 | $ | (0.01) | 13 | % | NM |
Refinery revenues increased compared to the three months ended September 30, 2019 due to increased sales to third parties and increased compared to the three and nine months ended September 30, 2020 due to higher pricing and increased production and demand experienced since the prior year period. The refinery revenues slightly decreased compared to the nine months ended September 30, 2019 due to lower refinery run rates and lower pricing for refined products in the first half of 2021. Operating income was higher in the three months ended September 30, 2021 as compared to prior periods due to increased production and pricing, and lower Renewable Identification Numbers ("RINs") compliance costs discussed below. The operating loss was higher in the nine months ended September 30, 2021 as compared to the prior periods, mainly driven by an increase in RINs compliance costs discussed below, which was partially offset by cost savings resulting from decreased production levels compared to the nine months ended September 2019.
A refinery is subject to annual U.S. Environmental Protection Agency requirements to blend renewable fuels into the gasoline and on-road diesel fuel it produces. Alternatively, a refinery may purchase RINs from third parties in the secondary market. The Monroe refinery purchases the majority of its RINs in the secondary market. Observable RINs prices increased through the first half of 2021, and declined during the September 2021 quarter. Monroe incurred $44 million and $453 million in RINs compliance costs during the three and nine months ended September 30, 2021 as compared to $25 million and $78 million in the three and nine months ended September 30, 2020, respectively.
For more information regarding the refinery's results, see Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. September 2021 Form 10-Q 33
Item 2. MD&A - Operating Statistics
Operating Statistics
| Three Months Ended September 30, | 2021 vs. 2020 % Increase (Decrease) | 2021 vs. 2019 % Increase (Decrease) | |||||||||||||||||||||||||||||||||
| Consolidated**(1)** | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| Revenue passenger miles (in millions) ("RPM") | 43,057 | 11,545 | 66,862 | 273 | % | (36) | % | ||||||||||||||||||||||||||||
| Available seat miles (in millions) ("ASM") | 54,083 | 28,290 | 75,742 | 91 | % | (29) | % | ||||||||||||||||||||||||||||
| Passenger mile yield | 16.70 | ¢ | 16.78 | ¢ | 17.07 | ¢ | — | % | (2) | % | |||||||||||||||||||||||||
| Passenger revenue per available seat mile ("PRASM") | 13.30 | ¢ | 6.85 | ¢ | 15.06 | ¢ | 94 | % | (12) | % | |||||||||||||||||||||||||
| Total revenue per available seat mile ("TRASM") | 16.93 | ¢ | 10.82 | ¢ | 16.58 | ¢ | 56 | % | 2 | % | |||||||||||||||||||||||||
| TRASM, adjusted(2) | 15.31 | ¢ | 9.35 | ¢ | 16.51 | ¢ | 64 | % | (7) | % | |||||||||||||||||||||||||
| Cost per available seat mile ("CASM") | 12.85 | ¢ | 33.40 | ¢ | 13.85 | ¢ | (62) | % | (7) | % | |||||||||||||||||||||||||
| CASM-Ex(2) | 11.67 | ¢ | 15.96 | ¢ | 10.15 | ¢ | (27) | % | 15 | % | |||||||||||||||||||||||||
| Passenger load factor | 80 | % | 41 | % | 88 | % | 39 | pts | (8) | pts | |||||||||||||||||||||||||
| Fuel gallons consumed (in millions) | 789 | 391 | 1,154 | 102 | % | (32) | % | ||||||||||||||||||||||||||||
| Average price per fuel gallon(3) | $ | 1.97 | $ | 1.25 | $ | 1.94 | 58 | % | 2 | % | |||||||||||||||||||||||||
| Average price per fuel gallon, adjusted(2)(3) | $ | 1.94 | $ | 1.25 | $ | 1.96 | 55 | % | (1) | % |
| Nine Months Ended September 30, | 2021 vs. 2020 % Increase (Decrease) | 2021 vs. 2019 % Increase (Decrease) | |||||||||||||||||||||
| Consolidated**(1)** | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Revenue passenger miles (in millions) | 94,290 | 58,229 | 181,652 | 62 | % | (48) | % | ||||||||||||||||
| Available seat miles (in millions) | 142,730 | 97,771 | 209,911 | 46 | % | (32) | % | ||||||||||||||||
| Passenger mile yield | 16.20 | ¢ | 17.49 | ¢ | 17.63 | ¢ | (7) | % | (8) | % | |||||||||||||
| PRASM | 10.70 | ¢ | 10.42 | ¢ | 15.26 | ¢ | 3 | % | (30) | % | |||||||||||||
| TRASM | 14.31 | ¢ | 13.42 | ¢ | 16.94 | ¢ | 7 | % | (16) | % | |||||||||||||
| TRASM, adjusted(2) | 12.78 | ¢ | 12.70 | ¢ | 16.83 | ¢ | 1 | % | (24) | % | |||||||||||||
| CASM | 13.18 | ¢ | 25.30 | ¢ | 14.46 | ¢ | (48) | % | (9) | % | |||||||||||||
| CASM-Ex(2) | 11.96 | ¢ | 16.74 | ¢ | 10.66 | ¢ | (29) | % | 12 | % | |||||||||||||
| Passenger load factor | 66 | % | 60 | % | 87 | % | 6 | pts | (21) | pts | |||||||||||||
| Fuel gallons consumed (in millions) | 2,023 | 1,437 | 3,215 | 41 | % | (37) | % | ||||||||||||||||
| Average price per fuel gallon(3) | $ | 2.00 | $ | 1.71 | $ | 2.03 | 17 | % | (1) | % | |||||||||||||
| Average price per fuel gallon, adjusted(2)(3) | $ | 1.99 | $ | 1.70 | $ | 2.02 | 17 | % | (1) | % |
(1)Includes the operations of our regional carriers under capacity purchase agreements.
(2)Non-GAAP financial measures defined and reconciled to TRASM, CASM and average fuel price per gallon, respectively, in "Supplemental Information" below.
(3)Includes the impact of fuel hedge activity, refinery segment results and environmental sustainability activity.
Delta Air Lines, Inc. September 2021 Form 10-Q 34
Item 2. MD&A - Fleet Information
Fleet Information
Our operating aircraft fleet, purchase commitments and options at September 30, 2021 are summarized in the following table. As described above, we have been experiencing a recovery in demand from the COVID-19 pandemic, which has led to an increase in our capacity and utilization of our aircraft. Accordingly, as of September 30, 2021, less than 5% of our mainline and regional aircraft were temporarily parked compared to 30% as of September 30, 2020.
| Mainline aircraft information by fleet type | ||||||||||||||||||||||||||
| Current Fleet**(1)** | Commitments**(2)** | |||||||||||||||||||||||||
| Fleet Type | Owned | Finance Lease | Operating Lease | Total | Average Age (Years) | Purchase | Options | |||||||||||||||||||
| B-717-200 | 9 | 37 | 8 | 54 | 20.3 | |||||||||||||||||||||
| B-737-800 | 73 | 4 | — | 77 | 20.1 | |||||||||||||||||||||
| B-737-900ER | 83 | — | 49 | 132 | 5.1 | 27 | ||||||||||||||||||||
| B-757-200 | 99 | 1 | — | 100 | 24.2 | |||||||||||||||||||||
| B-757-300 | 16 | — | — | 16 | 18.6 | |||||||||||||||||||||
| B-767-300ER | 40 | — | — | 40 | 25.1 | |||||||||||||||||||||
| B-767-400ER | 21 | — | — | 21 | 20.8 | |||||||||||||||||||||
| A220-100 | 37 | 4 | — | 41 | 2.0 | 4 | ||||||||||||||||||||
| A220-300 | 9 | — | — | 9 | 0.8 | 41 | 50 | |||||||||||||||||||
| A319-100 | 55 | 2 | — | 57 | 19.6 | |||||||||||||||||||||
| A320-200 | 52 | 4 | — | 56 | 25.7 | |||||||||||||||||||||
| A321-200 | 65 | 22 | 36 | 123 | 2.9 | 4 | ||||||||||||||||||||
| A321-200neo | — | — | — | — | — | 155 | 70 | |||||||||||||||||||
| A330-200 | 11 | — | — | 11 | 16.5 | |||||||||||||||||||||
| A330-300 | 28 | — | 3 | 31 | 12.7 | |||||||||||||||||||||
| A330-900neo | 3 | 3 | 5 | 11 | 1.3 | 26 | ||||||||||||||||||||
| A350-900 | 13 | — | 5 | 18 | 3.1 | 26 | ||||||||||||||||||||
| Total | 614 | 77 | 106 | 797 | 13.9 | 283 | 120 |
(1)Excludes certain aircraft we own or lease or that are operated by regional carriers on our behalf shown in the table below.
(2)Purchase commitments include six A350-900 lease commitments in 2021 incremental to our order book with Airbus.
The table below summarizes the aircraft operated by regional carriers on our behalf at September 30, 2021.
| Regional aircraft information by fleet type and carrier | ||||||||||||||||||||
| Fleet Type | ||||||||||||||||||||
| Carrier | CRJ-200 | CRJ-700 | CRJ-900 | Embraer 170 | Embraer 175 | Total | ||||||||||||||
| Endeavor Air, Inc.(1) | 47 | 13 | 113 | — | — | 173 | ||||||||||||||
| SkyWest Airlines, Inc. | — | 5 | 40 | — | 71 | 116 | ||||||||||||||
| Republic Airways, Inc. | — | — | — | 8 | 46 | 54 | ||||||||||||||
| Total | 47 | 18 | 153 | 8 | 117 | 343 |
(1)Endeavor Air, Inc. is a wholly owned subsidiary of Delta.
Delta Air Lines, Inc. September 2021 Form 10-Q 35
Item 2. MD&A - Financial Condition and Liquidity
Financial Condition and Liquidity
As of September 30, 2021, we had $15.8 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn under our revolving credit facilities. We expect to meet our liquidity needs for the next twelve months with cash and cash equivalents, short-term investments, restricted cash equivalents and cash flows from operations. We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements. We are continuing to evaluate the appropriate level of liquidity to maintain following the COVID-19 pandemic though, at least in the near term, we expect this level to be higher than the liquidity maintained prior to the pandemic.
Sources and Uses of Liquidity
Operating Activities
Operating activities in the nine months ended September 30, 2021 provided $2.7 billion compared to using $2.5 billion and providing $7.5 billion in the nine months ended September 30, 2020 and 2019, respectively. As described above, we are experiencing a domestic demand recovery and expect this to continue through the end of 2021. If the demand environment continues to evolve in this manner, we expect to generate positive cash flows from operations, including funds received from the government support programs described in "Financing Activities" below, during 2021.
Our operating cash flow is impacted by the following factors:
Seasonality of Advance Ticket Sales. We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in air traffic liability. The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer peak travel season and decreases during the summer and fall months. However, the reduction in demand for air travel due to the COVID-19 pandemic resulted in a lower level of advance bookings and the associated cash received than we have historically experienced, which has impacted the typical seasonal trend of air traffic liability since March 2020.
Domestic demand has improved since the latter half of the March 2021 quarter as consumers have regained confidence to travel and increased ticket purchases for travel further in advance. We experienced a small moderation in demand growth in August and September 2021 due to a rise in COVID-19 cases attributable to a variant of the COVID-19 virus; however, in the month of September 2021, domestic leisure bookings approached September 2019 levels. Our air traffic liability remains above historical September quarter levels with travel credits representing approximately 40% of the balance as of September 30, 2021.
Fuel. Fuel expense represented approximately 22% of our total operating expense for the nine months ended September 30, 2021. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. During the nine months ended September 30, 2021, our average fuel price per gallon was slightly below the same period of 2019, but fuel prices have recently increased and our average fuel price per gallon is projected to be higher in the December 2021 quarter than the nine months ended September 30, 2021. As demand continues to increase and capacity returns, we expect fuel consumption in the December 2021 quarter to increase compared to the December 2020 quarter, although we still expect it to be lower than the December 2019 quarter.
Employee Benefit Obligations. We sponsor defined benefit pension plans for eligible employees and retirees. These plans are closed to new entrants and are frozen for future benefit accruals. Our funding obligations for these plans are governed by the Employee Retirement Income Security Act, as modified by the Pension Protection Act of 2006. We have no minimum funding requirements for our defined benefit pension plans in 2021. However, we voluntarily contributed $1.5 billion to these plans during the June 2021 quarter. At this level of funding, investment returns are expected to satisfy future benefit payments, which we believe would eliminate further material voluntary or required cash contributions to the plans, under the terms of the Pension Protection Act of 2006. Further, based on this level of funding, we have modified, and continue to evaluate, the asset allocation mix to reduce the investment risk of the portfolio and protect the plans' funded status. Estimates of future funding requirements are based on various assumptions and could vary materially from actual funding requirements. Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants.
Voluntary Separation Programs. In 2020, we recorded a $3.4 billion charge associated with voluntary early retirement and separation programs and other employee benefit charges. In the nine months ended September 30, 2021, $435 million of this charge was disbursed in cash payments to participants in addition to $720 million disbursed in 2020. We anticipate that a total of approximately $600 million in cash payments will be made to participants in 2021 and approximately $500 million in 2022 with the remaining payments in 2023 and beyond.
Delta Air Lines, Inc. September 2021 Form 10-Q 36
Item 2. MD&A - Financial Condition and Liquidity
Government Support Programs. See "Financing Activities" below for discussion of the impact to our liquidity from the payroll support program extensions. The $4.5 billion of grants received during the nine months ended September 30, 2021 are included in our operating cash flow.
Investing Activities
Short-Term Investments. During the nine months ended September 30, 2021, we redeemed a net of $1.4 billion in short-term investments. See Note 3 of the Notes to the Condensed Consolidated Financial Statements for further information on these investments.
Capital Expenditures. Our capital expenditures were $2.0 billion and $3.9 billion for the nine months ended September 30, 2021 and 2019, respectively. Our capital expenditures during the nine months ended September 30, 2021 were primarily related to purchases of aircraft, fleet modifications, our airport redevelopment projects and technology enhancements.
We have committed to future aircraft purchases and have obtained, but are under no obligation to use, long-term financing commitments for a substantial portion of the purchase price of the aircraft. Excluding the New York-LaGuardia airport project discussed below, our expected 2021 capital expenditures of approximately $3.2 billion, which may vary depending on financing decisions, will be primarily for aircraft, including deliveries and advance deposit payments, as well as fleet modifications and technology enhancements.
New York-LaGuardia Redevelopment. As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority of New York and New Jersey (“Port Authority”) to replace Terminals C and D with a new state-of-the-art terminal facility. Construction is underway and will be phased to limit passenger inconvenience. Due to an acceleration effort that commenced in 2020, completion is now expected by 2025.
We currently expect our project costs to be approximately $3.5 billion and we bear the risks of project construction, including any potential cost over-runs. Using funding primarily provided by existing financing arrangements, we expect to spend approximately $900 million on this project during 2021, of which $709 million was incurred in the nine months ended September 30, 2021.
Financing Activities
Debt and Finance Leases. In the nine months ended September 30, 2021, we had cash outflows of approximately $4.7 billion related to repayments of our debt and finance leases, including approximately $3.3 billion for the early repayment of the term loan secured by certain of our slots, gates and routes, various EETCs, certain notes through a cash tender offer and other various unsecured notes, secured certificates and SkyMiles term loan. We continue to seek selective opportunities to pre-pay our debt, in addition to periodic amortization and scheduled maturities, during the remainder of 2021 and beyond.
The principal amount of our debt and finance leases was $28.0 billion at September 30, 2021.
Government Support Programs. In January 2021, we entered into a payroll support program extension agreement with the U.S. Department of the Treasury. During the six months ended June 30, 2021, we received a total of $3.3 billion in payroll support payments under this extension agreement. These support payments consisted of $2.3 billion in a grant and $957 million in an unsecured 10-year low interest loan. In return, we entered into a promissory note for the loan and issued warrants to the U.S. Department of the Treasury to acquire approximately 2.4 million shares of Delta common stock.
In April 2021, we entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury. During the June 2021 quarter, we received a total of $3.1 billion in payroll support payments under this agreement. These support payments consisted of $2.2 billion in a grant and $891 million in an unsecured 10-year low interest loan. In return, we entered into a promissory note for the loan and issued warrants to the U.S. Department of the Treasury to acquire approximately 1.9 million shares of Delta common stock.
For more information on these programs, see Note 5 of the Notes to the Condensed Consolidated Financial Statements.
Delta Air Lines, Inc. September 2021 Form 10-Q 37
Item 2. MD&A - Financial Condition and Liquidity
Undrawn Lines of Credit
As of September 30, 2021, we had approximately $2.6 billion undrawn and available under our revolving credit facilities. In addition, we had outstanding letters of credit as of September 30, 2021, including approximately $300 million that reduced the availability under our revolving credit facilities and approximately $300 million that did not affect the availability of our revolving credit facilities.
Covenants
We were in compliance with the covenants in our debt agreements at September 30, 2021.
Critical Accounting Estimates
For information regarding our Critical Accounting Estimates, see the "Critical Accounting Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.
Delta Air Lines, Inc. September 2021 Form 10-Q 38
Item 2. MD&A - Supplemental Information
Supplemental Information
We sometimes use information that is derived from the Condensed Consolidated Financial Statements but that is not presented in accordance with GAAP ("non-GAAP financial measures"). Under the Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. The reconciliations presented below of the non-GAAP measures used in this Form 10-Q may not calculate exactly due to rounding.
Pre-tax income/(loss), adjusted
The following table shows a reconciliation of pre-tax income/(loss) (a GAAP measure) to pre-tax income/(loss), adjusted (a non-GAAP financial measure). Pre-tax income/(loss), adjusted excludes the following items directly related to the impact of COVID-19 and our response for comparability with the prior period:
*•*Restructuring charges. During 2020, we recorded restructuring charges for items such as fleet impairments and voluntary early retirement and separation programs following strategic business decisions in response to the COVID-19 pandemic. In the September 2021 quarter, we recognized $33 million of adjustments to certain of those restructuring charges, representing changes in our estimates.
*•*Government grant recognition. We recognized $1.8 billion of the grant proceeds from the payroll support program extensions as contra-expense during the September 2021 quarter. We recognized the grant proceeds as contra-expense based on the periods that the funds were intended to compensate and have fully used all proceeds from the payroll support program extensions as of the end of the September 2021 quarter.
*•*Impairments and equity method losses. These adjustments relate to recording our share of the losses recorded by our equity method investees.
*•*Pension settlement charges. These charges were recognized in connection with the voluntary early retirement and separation programs that were offered to our employees in the September 2020 quarter.
- Loss on extinguishment of debt. This adjustment relates to early termination of a portion of our debt.
We also regularly adjust pre-tax income/(loss) for the following items to determine pre-tax income/(loss), adjusted for the reasons described below.
*•*MTM adjustments and settlements on hedges. Mark-to-market ("MTM") adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the applicable period.
*•*Equity investment MTM adjustments. We adjust for our proportionate share of our equity method investee, Virgin Atlantic’s, hedge portfolio MTM adjustments (recorded in non-operating expense) to allow investors to understand and analyze our core operational performance in the periods shown.
*•*MTM adjustments on investments. Unrealized gains/losses result from our equity investments that are accounted for at fair value in non-operating expense. These gains/losses are driven by changes in stock prices, other valuation techniques for investments in companies without publicly-traded shares and foreign currency fluctuations. Adjusting for these gains/losses allows investors to better understand and analyze our core operational performance in the periods shown.
*•*Delta Private Jets adjustment. Because we combined Delta Private Jets with Wheels Up in January 2020, we have excluded the impact of Delta Private Jets from 2019 results for comparability.
Delta Air Lines, Inc. September 2021 Form 10-Q 39
Item 2. MD&A - Supplemental Information
| Pre-tax income/(loss), adjusted reconciliation | |||||||||||
| Three Months Ended September 30, | |||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||
| Pre-tax income/(loss) | $ | 1,532 | $ | (6,859) | $ | 1,947 | |||||
| Adjusted for: | |||||||||||
| Restructuring charges | 33 | 5,345 | — | ||||||||
| Government grant recognition | (1,822) | (1,315) | — | ||||||||
| Impairments and equity method losses | 49 | 114 | — | ||||||||
| Pension settlement charges | — | 30 | — | ||||||||
| Loss on extinguishment of debt | 183 | — | — | ||||||||
| MTM adjustments and settlements on hedges | 19 | (3) | (25) | ||||||||
| Equity investment MTM adjustments | — | — | 10 | ||||||||
| MTM adjustments on investments | 223 | 99 | 35 | ||||||||
| Delta Private Jets adjustment | — | — | 1 | ||||||||
| Pre-tax income/(loss), adjusted | $ | 216 | $ | (2,589) | $ | 1,968 | |||||
Operating Expense, adjusted
The following table shows a reconciliation of operating expense (a GAAP measure) to operating expense, adjusted (a non-GAAP financial measure). Operating expense, adjusted excludes restructuring charges and government grant recognition, which, as discussed above under the heading pre-tax income/(loss), adjusted, are directly related to the impact of the COVID-19 pandemic and our response. We also adjust operating expense for MTM adjustments and settlements on hedges and the impact of Delta Private Jets for the same reasons described above under the heading pre-tax income/(loss), adjusted. We also adjust operating expense for the following item for the reason described below:
*•*Third-party refinery sales. Refinery sales to third parties, and related expenses, are not related to our airline segment. Operating expense, adjusted therefore provides a more meaningful comparison of operating expenses from our airline operations to the rest of the airline industry.
| Operating expense, adjusted reconciliation | |||||||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Operating expense | $ | 6,949 | $ | 9,448 | $ | 10,489 | |||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||
| Restructuring charges | (33) | (5,345) | — | ||||||||||||||||||||
| Government grant recognition | 1,822 | 1,315 | — | ||||||||||||||||||||
| MTM adjustments and settlements on hedges | (19) | 3 | 25 | ||||||||||||||||||||
| Third-party refinery sales | (872) | (417) | (6) | ||||||||||||||||||||
| Delta Private Jets adjustment | — | — | (49) | ||||||||||||||||||||
| Operating expense, adjusted | $ | 7,846 | $ | 5,004 | $ | 10,460 | |||||||||||||||||
Delta Air Lines, Inc. September 2021 Form 10-Q 40
Item 2. MD&A - Supplemental Information
Fuel expense, adjusted and Average fuel price per gallon, adjusted
The following table shows a reconciliation of fuel expense (a GAAP measure) to fuel expense, adjusted (a non-GAAP financial measure). We adjust for MTM adjustments and settlements on hedges and the impact of Delta Private Jets for the same reasons described under the heading pre-tax income/(loss), adjusted.
| Fuel expense, adjusted reconciliation | |||||||||||||||||||||||||||||
| Average Price Per Gallon | |||||||||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||||||||
| (in millions, except per gallon data) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Total fuel expense | $ | 1,552 | $ | 486 | $ | 2,239 | $ | 1.97 | $ | 1.25 | $ | 1.94 | |||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||||||||
| MTM adjustments and settlements on hedges | (19) | 3 | 25 | (0.02) | 0.01 | 0.02 | |||||||||||||||||||||||
| Delta Private Jets adjustment | — | — | (7) | — | — | (0.01) | |||||||||||||||||||||||
| Total fuel expense, adjusted | $ | 1,533 | $ | 489 | $ | 2,257 | $ | 1.94 | $ | 1.25 | $ | 1.96 |
| Average Price Per Gallon | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in millions, except per gallon data) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||
| Total fuel expense | $ | 4,056 | $ | 2,453 | $ | 6,508 | $ | 2.00 | $ | 1.71 | $ | 2.03 | |||||||||||||||||
| Adjusted for: | |||||||||||||||||||||||||||||
| MTM adjustments and settlements on hedges | (20) | (4) | 8 | (0.01) | (0.01) | — | |||||||||||||||||||||||
| Delta Private Jets adjustment | — | — | (22) | — | — | (0.01) | |||||||||||||||||||||||
| Total fuel expense, adjusted | $ | 4,037 | $ | 2,449 | $ | 6,494 | $ | 1.99 | $ | 1.70 | $ | 2.02 |
TRASM, adjusted
The following table shows a reconciliation of TRASM (a GAAP measure) to TRASM, adjusted (a non-GAAP financial measure). We adjust TRASM for refinery sales to third parties for the same reason described above under the heading operating expense, adjusted. We adjust for the impact of Delta Private Jets for the same reason described above under the heading pre-tax income/(loss), adjusted.
| TRASM, adjusted reconciliation | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||
| TRASM (cents) | 16.93 | ¢ | 10.82 | ¢ | 16.58 | ¢ | 14.31 | ¢ | 13.42 | ¢ | 16.94 | ¢ | ||||||||||||||||||||
| Adjusted for: | ||||||||||||||||||||||||||||||||
| Third-party refinery sales | (1.61) | (1.47) | (0.01) | (1.53) | (0.73) | (0.05) | ||||||||||||||||||||||||||
| Delta Private Jets adjustment | — | — | (0.06) | — | — | (0.07) | ||||||||||||||||||||||||||
| TRASM, adjusted | 15.31 | ¢ | 9.35 | ¢ | 16.51 | ¢ | 12.78 | ¢ | 12.70 | ¢ | 16.83 | ¢ |
Delta Air Lines, Inc. September 2021 Form 10-Q 41
Item 2. MD&A - Supplemental Information
CASM-Ex
The following table shows a reconciliation of operating cost per available seat mile ("CASM") (a GAAP measure) to CASM-Ex (a non-GAAP financial measure). CASM-Ex excludes restructuring charges and government grant recognition, which, as discussed above under the heading pre-tax income/(loss), adjusted, are directly related to the impact of the COVID-19 pandemic and our response. We adjust for refinery sales to third parties for the same reason described above under the heading operating expense, adjusted. We adjust for the impact of Delta Private Jets for the same reason described above under the heading pre-tax income/(loss), adjusted. We also adjust CASM for the following items to determine CASM-Ex for the reasons described below:
-
Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.
-
Profit sharing. We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.
| CASM-Ex reconciliation | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||
| CASM (cents) | 12.85 | ¢ | 33.40 | ¢ | 13.85 | ¢ | 13.18 | ¢ | 25.30 | ¢ | 14.46 | ¢ | ||||||||||||||||||||
| Adjusted for: | ||||||||||||||||||||||||||||||||
| Restructuring charges | (0.06) | (18.89) | — | — | (7.98) | — | ||||||||||||||||||||||||||
| Government grant recognition | 3.37 | 4.65 | — | 3.16 | 2.65 | — | ||||||||||||||||||||||||||
| Aircraft fuel and related taxes | (2.87) | (1.72) | (2.96) | (2.84) | (2.51) | (3.10) | ||||||||||||||||||||||||||
| Third-party refinery sales | (1.61) | (1.47) | (0.01) | (1.53) | (0.73) | (0.05) | ||||||||||||||||||||||||||
| Profit sharing | — | — | (0.68) | — | — | (0.60) | ||||||||||||||||||||||||||
| Delta Private Jets adjustment | — | — | (0.05) | — | — | (0.06) | ||||||||||||||||||||||||||
| CASM-Ex | 11.67 | ¢ | 15.96 | ¢ | 10.15 | ¢ | 11.96 | ¢ | 16.74 | ¢ | 10.66 | ¢ | ||||||||||||||||||||
Delta Air Lines, Inc. September 2021 Form 10-Q 42
Item 2. MD&A - Supplemental Information
Free Cash Flow
The following table shows a reconciliation of net cash provided by/(used in) operating activities (a GAAP measure) to free cash flow (a non-GAAP financial measure). We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include:
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Net (redemptions)/purchases of short-term investments. Net (redemptions)/purchases of short-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations.
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Strategic investments and related. Cash flows related to our investments in and related transactions with other airlines are included in our GAAP investing activities. We adjust for this activity because it provides a more meaningful comparison to our airline industry peers.
*•*Net cash flows related to certain airport construction projects and other. Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures. We have adjusted for these items, which were primarily funded by cash restricted for airport construction, to provide investors a better understanding of the company's free cash flow and capital expenditures that are core to our operational performance in the periods shown.
| Free cash flow reconciliation | |||||||||||
| Three Months Ended September 30, | |||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||
| Net cash provided by/(used in) operating activities | $ | 151 | $ | (2,575) | $ | 2,245 | |||||
| Net cash used in investing activities | (384) | (1,144) | (1,125) | ||||||||
| Adjusted for: | |||||||||||
| Net (redemptions)/purchases of short-term investments | (452) | 745 | — | ||||||||
| Strategic investments and related | — | 235 | 81 | ||||||||
| Net cash flows related to certain airport construction projects and other | 222 | 208 | 221 | ||||||||
| Free cash flow | $ | (463) | $ | (2,531) | $ | 1,422 | |||||
Delta Air Lines, Inc. September 2021 Form 10-Q 43
Item 3. Market Risk
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