Delta's profit, fuel hedging explained

January 20, 2015



By Trebor Banstetter, Corporate Communications


While Delta reported a $1 billion profit in the fourth quarter, some news reports said the airline lost $712 million in the quarter.


Here’s the full story.

Delta’s profit, excluding taxes and special items, was $1 billion for the fourth quarter, up $543 million from a year ago. The earnings allowed the airline to contribute $262 million to the profit-sharing pool to be paid out next month.


The largest special item excluded for the fourth-quarter profit was a $2 billion adjustment to the value of Delta’s fuel hedges for future periods. Under accounting rules, that adjustment has to be added to the airline’s income statement for this quarter even though the hedges are spread out through 2015. This number reflects the fact that, with oil prices down significantly, the value of Delta’s fuel hedges has also declined.


Similarly, the reason Delta excluded taxes from that profit report is because the airline currently uses tax credits, which were earned during past years when it lost money, rather than cash to settle its tax bill.

Investors and Wall Street analysts are generally interested in how the company performed during the quarter and don’t regard these non-cash taxes and special items as reflecting the airline’s performance.

They primarily pay attention to the pre-tax profit excluding special items to gauge how well Delta is doing.


However, some news organizations, like the Associated Press, have editorial policies that require them to report the net income, including taxes and special items, in headlines and the first few paragraphs of a story. So in those cases, some headlines will focus on the loss.