September 2, 2012 Leave a comment
Delta Air Lines 2009-2011 Financial Results
Balance sheets + Income statement
Delta Air Lines, is a United States airline headquartered in Atlanta, Georgia. It operates a thorough and extensive network and together with its subsidiaries completes over 5,000 flights every day with approximately 80,000 employees. As of July 9, 2012, it operated a fleet of approximately 770 aircraft, approximately 600 owned and 200 leased. The company was founded in 1924 and currently flies to 503 destinations in 94 countries, it also is the world’s second-largest airline in terms of passengers carried.
Like many other airlines, Delta Air Lines has had a volatile financial past. Having had to face a plethora of significant challenges such as rising fuel prices, decline in passenger traffic after September 11, 2001 and ruthless competition with low-cost carriers, Delta has now taken specific actions to curb these threats and while reducing costs, still maintain the high level of service it is known to offer. Extreme competition in the industry has forced Delta to look for other solutions and as a result stray away from its natural ability to charge higher prices. In September of 2005, Delta was forced into bankruptcy, albeit it quickly rebounded by decreasing costs and forming a new merger with Northwest in 2008 to create the most powerful force in the airline industry.
In the last three years Delta has grown by a compounded annual growth rate (CAGR) of around 10%, this is mainly due to its increasing stronghold in the international market and trans-Atlantic flights which have had double digit growth since 2008. Over the last three years Delta has seen its share price drop from around the $14 mark to $8, mainly due to the sensitivity of the airline market towards the current financial crisis. Its current Price-Earnings ratio is at 7.17 which indicate that either the stock is undervalued or the company’s earnings are thought to be in decline. However the huge amount of Delta’s assets will always keep its stock price from diving and it could be seen as the time to buy with the share price so low.
2011 was an even better year for Delta, posting a net income of $853,510,000. Once again assets remained very stable over the prior years with 17% short term assets and 83% long term. The main shift was once again in the liabilities, while short term liabilities increased again, Delta has once again proven it has been successful in cutting its debt, now down to $26 billion (60%) compared to $30 billion (70%) in 2010 and $35 billion (81%) in 2009. We can see that Delta has been able to cut its debt by $5 billion each year and thus in the year 2016, Delta should be able to post much stronger profits. An interesting statistic is that in 2011, Delta occurred a drop in sales compared to the prior year ($35 billion 2010 to $32 billion 2011), however due to a reduction in fixed costs and variable costs its operating income was still greater by around $300 million. This proves that Delta has taken strict measures to reduce its costs and debt, and that it is planning for the future. Looking at the future, Delta’s main weaknesses will be its overdependence on the North American market, its remaining high debt obligations and potential sluggish performance of Delta in Atlantic & Latin American regions.
2010 was a successful turnaround in profits compared to 2009, posting a new income of $593,620,000 compared to a loss of $1,224,000,000 the year prior. However if we look carefully at the balance sheet we can see that long term debt declined to $30 billion (70%) from $35 billion (81%) in 2009, so Delta successfully lowered, to a certain extent, its long term debt. However, what did increase from the year before were short-term liabilities which grew to 26% of total liabilities compared to only 12% in 2009. Assets remained constant and the management was able to reduce its costs effectively. However in perspective, 2009 was a more difficult financial situation compared to 2010 in terms of high fuel prices and less customers.
As we can see above 2009 was a rough year for Delta Air Lines, reporting losses of more than $1 billion dollars. The major reason to this was the early 2009 merger with Northwestern Airlines which proved to be harder than thought. As a result of this merger total assets increased from $32 to $43 billion. By looking at the balance sheet we see that Delta has a lot of long term debt, amounting to almost $35 billion, which can have a detrimental effect in the long term on Delta’s profitability. Another interesting indicator is that 70% of Delta’s total assets are property, plants & equipment most probably because delta is an airline and owns more than 600 planes. In my opinion, Delta should try and lower its fixed costs to try and become profitable in 2010.