Auburn University Innovation Strategy Question

Place Student Name Here
Ecosystem Analysis
1. Name each industry
(click on the bubble and type)
2. Add Characteristics
(add 3 per industry)
3. Add Relationships
(Note: do not add relationships only
between the center bubble and all
others)
Audi
Consumers
Innovation Benefit/Risk Model
Applications
(name and move to
the chart)
High
Project Benefits
Low
High
Project
Risk
Low
= New Projects
= Ongoing Projects
INFO 6790 Final Examination
Due Monday, February 28, 2022
Instructions
Please acknowledge by printing your name under this statement:
I have taken this exam independently. I have not asked for help from any other person, students or otherwise. I have not given
help to any other person, students or otherwise. I have not used any communications to get or receive help to answer the questions
on this exam.
Name: _____________________________________________________________
Answer each of the questions below as comprehensively as possible.
It is imperative that you do not get any help in completing this exam, from previous students, other students, Internet resources
(unless instructed), or any others. This exam is to be completed individually. Tests that have similar answers to other students
will fall under the Academic Dishonesty policy stated in the syllabus and those students will both receive a zero on the
exam.
Label each question (for example: 1a, 1b, etc.) in Word. Use Times Roman 10-pt font, single-spaced, all margins .5 – to answer
all questions. Answer each question (1, 2, 3, etc.) on a new page by inserting a Page Break at the end of each question. Cite
only those parts of the question where citations are asked and be sure to add the citations into the bibliography at the end of the
paper. Use the PowerPoint template to complete the questions requiring a PowerPoint model: questions 1 and 5.
This exam must be turned in no later than Monday February 28, 11:59 pm. All exams will be submitted as email attachments to
both Dr. Amoroso and Ingrid. There are no late exams or extensions for any reason; late exams will receive a grade of zero.
This is a 2 ½ hour exam, plan ahead for delays. Do not turn in this exam at the last minute; there will not be any help during the
evening hours on Monday from 8:00 pm – 11:59 pm prior to the deadline for this exam. Please turn in the Word document with
your answers as an email attachment to both Dr. Amoroso and Ingrid (not in Blackboard).
Name the Word file: Lastname-Final.docx. Failure to name the file correctly will mean that we cannot find the file with your
name on it and that will necessitate receiving a grade of zero.
Exam Questions (105 pts total)
1.
Using Audi as the case study, develop the GIP for Audi. (5 pts)
2.
Using Audi as the case study and Automobile Travel as the ecosystem with Audi consumers in the middle, conduct the
Ecosystem Model Analysis: (a) List and define the 5 players/industries. (b) List at least 3 characteristics for each
player/industry. (c) Using PowerPoint, draw the Ecosystem model with industry relationships and justify why there is a
relationship. Copy the model into your Word document using “Paste Special – PDF or Picture.” (Cite part c relationships
as appropriate.) (25 pts.)
3.
Using Audi as the case study, use the Blue Ocean Strategy Model to: (a) Determine and discuss the three tiers of customers.
(b) Determine and discuss what should be raised, reduced, created, and eliminated to change the structure of the industry
(2 factors for each). (25 pts)
4.
Using Delta Airlines as the case study, use the Innovation Strategic Grid to: (a) Determine all of the current information
systems Delta has in operation on the Y-axis and whether they are high strategic or low strategic value. (b) Determine and
discuss at least 3 information systems applications that Delta Airlines has in their Application Development Portfolio on
the X-axis and whether they are high strategic or low strategic value (Cite part b as appropriate). (25 pts)
5.
Using Delta Airlines as the case study: (a) Draw the Innovation Benefit/Risk Model using PowerPoint to develop the model
and draw the 3 information systems applications in 4b above, drawing the circles, size, and location based on the project
benefits and project risk. (b) Draw the systems in 4a above that will need to be upgraded – drawing the circles, size, and
location based on the project benefits and project risk. Copy the model into your Word document using “Paste Special –
PDF or Picture.” Discuss each of the systems in (a) and (b) above. (25 pts)
6.
References: Be sure to add your references to your exam.
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, 2020
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
(State or other jurisdiction of incorporation or organization)
58-0218548
(I.R.S. Employer Identification No.)
Post Office Box 20706
Atlanta, Georgia
(Address of principal executive offices)
30320-6001
(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 ☐
Smaller reporting company ☐
Non-accelerated filer ☐
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, 2020 was approximately $17.9 billion.
On January 31, 2021, there were outstanding 638,146,665 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.
Table of Contents
Forward-Looking Statements
Page
1
PART I
ITEM 1. BUSINESS
2
ITEM 1A. RISK FACTORS
Risk Factors Relating to Delta
Risk Factors Relating to the Airline Industry
14
14
22
ITEM 1B. UNRESOLVED STAFF COMMENTS
24
ITEM 2. PROPERTIES
Flight Equipment
Ground Facilities
25
25
27
ITEM 3. LEGAL PROCEEDINGS
27
ITEM 4. MINE SAFETY DISCLOSURES
27
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
28
ITEM 6. (RESERVED)
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Highlights
Results of Operations
Non-Operating Results
Income Taxes
Refinery Segment
Financial Condition and Liquidity
Critical Accounting Estimates
Supplemental Information
Glossary of Defined Terms
30
30
34
39
39
40
41
46
51
55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
114
ITEM 9A. CONTROLS AND PROCEDURES
114
ITEM 9B. OTHER INFORMATION
116
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
116
ITEM 11. EXECUTIVE COMPENSATION
116
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
116
Page
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
116
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
116
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
117
ITEM 16. FORM 10-K SUMMARY
120
SIGNATURES
121
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. 2020 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, 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.
After initially impacting our service to China beginning in January 2020, the spread of COVID-19 and the resulting global pandemic have significantly affected
our entire network. Beginning in March 2020, large public events were cancelled, governmental authorities began imposing restrictions on non-essential activities,
businesses suspended travel and popular leisure destinations temporarily closed to visitors. In the United States, which is our primary market, the federal
government has discouraged travel and encouraged social distancing efforts and limits on gathering size. Numerous travel advisories and restrictions have been
implemented, some of which remain in place, between the United States and specific countries. Many foreign governments have also placed restrictions or
quarantines on citizens of other countries, including citizens of the U.S., flying into their countries. For instance, the U.S. and numerous other countries are now
requiring airline passengers to provide negative COVID-19 test results prior to travel into their countries. State and local governments have also issued travel
restrictions, quarantines and advisories and health-related curfews or “shelter in place” orders which dissuade or restrict air travel. As a result, demand for travel
declined at a rapid pace in the March 2020 quarter and has remained depressed, which has had an unprecedented and materially adverse impact on our revenues,
results of operations and financial position. In 2020, we served approximately 70 million customers, many of them prior to the pandemic’s onset. More information
about the effect of the COVID-19 pandemic on our business can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
We remain committed to industry-leading safety and reliability and are consistently among the industry’s best performers. Our people are our strongest
competitive advantage. Our employees provide world-class travel experiences for our customers and give back to the communities where they live, work and
serve. Following the onset of the COVID-19 pandemic, we have intensified our focus on ensuring the safety and health of our customers, including through the
creation of our Global Cleanliness organization and implementation of the Delta Care Standard to ensure a consistently safe and sanitized experience across our
facilities and aircraft. We believe these actions have been an important driver behind the significant increases in our domestic net promoter scores during 2020.
Other key competitive advantages include our operational reliability, our global network and customer loyalty.
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
significant reductions in air travel demand on our results. Our partnership with American Express continued to provide a co-brand revenue stream tied to broader
consumer spending during 2020. Our recent 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 and our Maintenance, Repair and Overhaul (“MRO”) operation, where we believe we remain well
positioned for organic growth through contractual agreements with jet engine manufacturers.
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.
The Delta Brand
In 2020, we continued to have the world’s most valuable airline brand. Over the last decade, we significantly improved the quality and reliability of our
operations, and our customer satisfaction scores increased significantly 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.” We believe our
continued investment in customer service and experience, operations, product, airports and technology has shaped customer perception of our brand and driven
increased customer loyalty.
Delta Air Lines, Inc. 2020 Form 10-K
2
Item 1. Business
Our Global Network and Fleet
In 2019, 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. We generated over 70% of our 2019 passenger revenue from our domestic network, centered around high-margin core hubs in Atlanta,
Minneapolis-St. Paul, Detroit and Salt Lake City. These core hub positions complement traditionally strong coastal hub positions in Boston, Los Angeles, New
York-LaGuardia, New York-JFK and Seattle. We have agreements with domestic regional carriers that operate as Delta Connection® to feed traffic to our domestic
hubs. As a result of decreased demand for air travel caused by the COVID-19 pandemic, we significantly reduced our system-wide flight operations, including
operations at all of the hubs listed above, beginning in March 2020. We expect to continue to evaluate and adjust our operations to address evolving conditions.
Although our international operations have been substantially curtailed as a result of the COVID-19 pandemic, we continue to serve Transatlantic, Transpacific
and Latin America markets directly on Delta and through joint ventures with global airline partners. Internationally, we have significant hubs and market presence
in Amsterdam, London-Heathrow, Mexico City, Paris-Charles de Gaulle and Seoul-Incheon.
Through innovative alliances with Aeroméxico, Air France-KLM, China Eastern, Korean Air and Virgin Atlantic, and an alliance pending regulatory approval
with LATAM Airlines, 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. In 2019, we and our alliance partners collectively served over 140 countries and more than 900 destinations around the world. 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 “Commercial Arrangements with Other Airlines” below and Note 5 of the Notes to the Consolidated Financial Statements.
At December 31, 2020, our network included a fleet of more than 1,100 aircraft 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, acquiring new, 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 an additional 128 aircraft by 2025.
Expanded Products and Services
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 both 2020 and 2019, 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
2020 and 2019. During 2020, we increased the flexibility with respect to these products by extending expiration on certain tickets and travel credits, eliminating
change fees for domestic tickets and international tickets originating from North America, with the exception of Basic Economy tickets, and waiving change fees
for all tickets (including Basic Economy) purchased before March 30, 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 59% of tickets sold through direct channels in 2020. 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.
Delta Air Lines, Inc. 2020 Form 10-K
3
Item 1. Business
Innovative Technology 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 is enhancing 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 Fly Delta app, 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 approximately 95% of our mainline aircraft were equipped with seat-back screens as of December 31, 2020. 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.
Customer Loyalty Program
The 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 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. In addition, individuals may purchase miles. They
can use these miles for 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 2020 and 2019, nearly 10% of revenue miles flown on Delta were from award travel, as program members redeemed miles in the
loyalty program for approximately 14 million and 20 million award tickets, respectively.
Our most significant and valuable contract to sell miles relates to our co-brand credit card relationship with American Express. In 2019, we amended our
primary co-brand agreement and other related agreements with American Express. The new agreements increase the total benefit we receive and extend the
duration of the relationship to 2029.
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 5 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.
Delta Air Lines, Inc. 2020 Form 10-K
4
Item 1. Business
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:
•
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 non-controlling 9% ownership stake in
the parent company of Air France and KLM.
•
A joint venture with Aeroméxico with respect to trans-border traffic flows between the U.S. and Mexico, which we believe Aeroméxico intends to request
the court’s approval to assume as part of its bankruptcy proceedings. In addition to the joint venture, we own a non-controlling 51% equity stake in Grupo
Aeroméxico, S.A.B. de C.V., the parent company of Aeroméxico. We and Aeroméxico have also established a joint venture relating to an airframe MRO
operation located in Queretaro, Mexico.
•
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.
During 2020, our joint venture with Virgin Australia and its affiliated carriers was repudiated as part of the voluntary administration proceeding relating to the
recapitalization of Virgin Australia’s business. We remain optimistic about restarting our joint venture relationship with Virgin Australia once demand recovers
and it resumes long-haul international flights.
In 2019, we entered into a framework agreement with LATAM Airlines Group S.A. (“LATAM”) to form a strategic alliance. Pursuant to that agreement, we
acquired a non-controlling 20% equity stake in LATAM in January 2020 for $1.9 billion and agreed to make transition payments to LATAM totaling $350 million.
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. 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. We initially agreed to acquire four A350 aircraft from LATAM but terminated this agreement during 2020.
We previously entered into a joint venture agreement with WestJet with respect to trans-border traffic flows between the U.S. and Canada for which we sought
antitrust immunity from DOT, among other regulatory approvals. In 2020, we withdrew the application for antitrust immunity and, as a result, we and WestJet are
not currently implementing the proposed joint venture. We continue to explore avenues to deepen our relationship with WestJet and generate value for our
customers.
Enhanced Commercial Agreements with China Eastern. We own a 3% 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, Alitalia, China Airlines, China Eastern, Czech Airlines, Garuda
Indonesia, 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 mediumsized cities in the domestic market. These arrangements enable us to better match capacity with demand in these markets.
Delta Air Lines, Inc. 2020 Form 10-K
5
Item 1. Business
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:
•
•
•
Endeavor Air, Inc., a wholly owned subsidiary of ours.
Republic Airline, Inc. (“Republic”).
SkyWest Airlines, Inc. (“SkyWest Airlines”).
Our contractual agreements with regional carriers primarily are 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.
Global Impact
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, and we have maintained this commitment through the COVID-19 pandemic, with Delta people
shifting to virtual platforms and finding innovative, new ways to give back. For example, during 2020, Delta supported healthcare workers by manufacturing
70,000 face shields to extend the life of N95 mask respirators, donated 800,000 pounds of snacks and drinks to hospitals in 20 countries, and provided more than
350 free flights for medical professionals traveling to assist states that were heavily impacted by the pandemic.
As a purpose-driven and values-led company, we are committed to reducing our environmental impact. The chief focus of reducing our impact on the
environment is jet fuel, which is the primary contributor to our carbon footprint. In February 2020, we announced plans to invest $1 billion in the next 10 years in
our effort to achieve carbon neutrality, a commitment we have reiterated even with the unprecedented challenges presented for the airline industry by the COVID19 pandemic. We continue to focus on increasing fuel efficiency as we replace older aircraft with more fuel-efficient jets and improve the efficiency of our existing
aircraft through operational efforts.
Other Businesses
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 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 then being utilized for passenger travel). We are a member of SkyTeam Cargo, an international airline cargo
alliance with 10 other airlines that offer a network spanning six continents, and aim to provide solutions across the globe by connecting our network with those of
our partners.
Related Businesses
We have various other businesses arising from our airline operations, including the following:
•
•
In addition to providing maintenance and engineering support for our fleet of approximately 1,100 mainline and regional aircraft, our MRO operation,
known as Delta TechOps, serves aviation and airline customers from around the world.
Our vacation wholesale subsidiary, Delta Vacations, provides vacation packages to third-party consumers.
Delta Air Lines, Inc. 2020 Form 10-K
6
Item 1. Business
In January 2020, we combined Delta Private Jets, a former Delta subsidiary that provides aircraft charters, aircraft management and programs allowing
members to purchase flight time by the hour, with Wheels Up. As of December 31, 2020, we owned a 24% equity stake in Wheels Up.
In 2019, the total revenue from these other businesses was approximately $1.2 billion. This revenue was reduced to approximately $650 million in 2020 as a
result of the COVID-19 pandemic and our deconsolidation of Delta Private Jets following the transaction with Wheels Up.
Employee Matters
Human Capital
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, 2020, we employed approximately 74,000 people, of which approximately 72,000 were based in the U.S. In 2020, the dedication and determination
of Delta people in response to the unprecedented challenges we faced due to the COVID-19 pandemic enabled us to avoid involuntary furloughs of U.S.
employees, with approximately 50,000 employees volunteering to take unpaid leaves of absence, approximately 18,000 employees participating in early retirement
and voluntary separation programs and from April 1 through December 31, 2020, most employees working reduced hours.
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, our human resources programs seek to:
•
•
•
•
Prepare our employees for key roles and future leadership positions through a variety of training and development programs.
Reward our people through highly competitive total compensation and benefit programs designed to share our success, promote teamwork and support
our people’s total wellbeing.
Enhance our culture through efforts aimed at making our workplace more engaging, equitable and inclusive.
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.
In response to the COVID-19 pandemic, we created pay protection programs for employees with symptoms, diagnosed, exposed or at high risk for severe
illness from COVID-19 and established a notification process for potential COVID-19 exposure. We also assembled a COVID-19 task force to develop a series of
safety measures in an effort to protect our employees and customers, including offering on-site rapid COVID-19 testing in most locations and making at-home
testing available for all U.S.-based employees, and offering a return-to-work safety training program.
Our commitment to diversity, equity and inclusion is also 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 diverse representation throughout our organization. We also promote inclusion through education, training and
development opportunities as well as by leveraging insights from our business resource groups, of which approximately one-third of our employees were members
as of December 31, 2020. In addition, we intend to drive accountability for equitable outcomes by reviewing and revising systems, practices and policies and
measuring inclusive behaviors, practices and representation. 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 giving equal consideration for accessible experience or certifications in
an effort to remove unnecessary barriers, like college degrees, to certain roles and (2) closing diversity gaps in senior leadership positions by increasing the
representation of minority and female officers, including doubling the number of black officers by 2025.
Delta Air Lines, Inc. 2020 Form 10-K
7
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 divisionspecific surveys to evaluate employee satisfaction. Since March 2020, senior management has participated in weekly company-wide virtual town hall discussions
with our employees and our Chief Executive Officer has written weekly memos to all employees regarding our response to the COVID-19 pandemic and our plan
to take action on racial justice and diversity. We have also continued to conduct periodic employee surveys to seek feedback on wellbeing, communication and our
COVID-19 response.
Collective Bargaining
As of December 31, 2020, 23% of our approximately 74,000 full-time equivalent employees were represented by unions. The following table shows our
domestic airline employee groups that are represented by unions.
Domestic airline employees represented by collective bargaining agreements by group
Approximate Number of Active
Employees Represented
Employee Group
Delta Pilots
Delta Flight Superintendents (Dispatchers)
Endeavor Air Pilots
Endeavor Air Flight Attendants
Date on which Collective Bargaining
Agreement Becomes Amendable
Union
12,940
350
1,900
1,480
ALPA
PAFCA
ALPA
AFA
December 31, 2019
November 1, 2024
January 1, 2024
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 190 refinery employees of 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 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 in large part due to our reduced operations in
response to the COVID-19 pandemic.
Fuel consumption and expense by year
Gallons Consumed(1)
(in millions)
Year
2020
2019
2018
(1)
(2)
1,935 $
4,214 $
4,113 $
Includes the operations of our regional carriers operating under capacity purchase agreements.
Includes the impact of fuel hedge activity and refinery segment results.
Delta Air Lines, Inc. 2020 Form 10-K
8
Cost(1)(2)
(in millions)
Average Price Per
Gallon(1)(2)
3,176 $
8,519 $
9,020 $
1.64
2.02
2.20
Percentage of Total
Operating Expense(1)(2)
10.7 %
21.1 %
23.0 %
Item 1. Business
Monroe Energy
Our wholly owned subsidiaries, Monroe Energy, LLC and MIPC, LLC (collectively, “Monroe”), operate the Trainer refinery and related 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 of managers. 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. In addition to jet fuel, the refinery’s production
consists of gasoline, diesel and other refined petroleum products (“non-jet fuel products”). Monroe sources domestic and foreign crude oil supply from a variety of
providers. During 2020, the refinery operated at 60% – 90% of normal production levels, largely due to the significant decrease in the demand for jet fuel.
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.
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. The
COVID-19 pandemic could enhance the competitive dynamics within the industry, although we are unable to predict the duration and extent of this potentially
increased pressure.
Domestic
Our domestic operations are subject to 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. Point-to-point,
discount and ultra low-cost carriers place significant competitive pressure on network carriers in the domestic market. 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 to our hubs and key airports.
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. In particular, 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.
Delta Air Lines, Inc. 2020 Form 10-K
9
Item 1. Business
In addition, several joint ventures among U.S. and foreign carriers, including several of our joint ventures, have received grants of antitrust immunity allowing
the participating carriers to coordinate schedules, pricing, sales and inventory. Other joint ventures that have received antitrust immunity include a transatlantic
alliance among United Airlines, Air Canada and Lufthansa German Airlines, a transpacific joint venture between United Airlines and All Nippon Airways, a
transatlantic joint venture among American Airlines, British Airways and Iberia, a transpacific joint venture between American Airlines and Japan Air Lines and a
transpacific joint venture between American Airlines and Qantas.
Competition from government-owned and subsidized carriers in the Gulf region, including Emirates, Etihad Airways and Qatar Airways, is also significant.
Subsidies allowed these carriers to grow quickly prior to the COVID-19 pandemic, reinvest in their product and expand their global presence at the expense of U.S.
airlines.
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 domestic air transportation. An air carrier that the DOT finds fit to operate is given
authority to operate domestic and international air transportation (including the carriage of passengers and cargo). 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 slotcontrolled 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 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 two orders mandating such service, the most
recent of which was finalized on January 15, 2021, mandating service levels through March 31, 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
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. 2020 Form 10-K
10
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 served by us 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 the 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 served by us 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 Tokyo’s Haneda airport, London’s Heathrow 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
Labor unions representing airline employees in the U.S. 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 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. 2020 Form 10-K
11
Item 1. Business
Environmental Regulation and Related Matters
Our operations are subject to a number of international, federal, state and local laws and regulations governing protection of the environment, including
regulation of greenhouse gases and other air emissions, noise reduction, water discharges, aircraft drinking water, storage and use of petroleum and other regulated
substances, and the management and disposal of hazardous waste, substances and materials.
Emissions. Carbon emissions by the aviation industry and their impact on climate change have become a particular focus in the international community and
within the U.S. For several years, the European Union has required its member states to implement regulations to include aviation in its Emissions Trading Scheme
(“ETS”). Under these regulations, any airline with flights originating or landing in the European Union is subject to the ETS and, beginning in 2012, was required
to purchase emissions allowances if the airline exceeds the number of free allowances allocated to it under the ETS. The ETS was amended to apply only to flights
within the European Economic Area from 2013 through 2016. In 2017, the EU extended the exemption for foreign flights through 2023 based on the International
Civil Aviation Organization’s (“ICAO”) adoption of a global market-based program.
In 2016, ICAO formally adopted a global, market-based emissions offset program known as the Carbon Offsetting and Reduction Scheme for International
Aviation (“CORSIA”). This program establishes a medium-term goal for the aviation industry of achieving carbon-neutral growth in international aviation
beginning in 2021, based on a 2019 baseline. A pilot phase of the offset program will begin in 2021, followed by a first phase of the program beginning in 2024
and a second phase beginning in 2027. Countries can voluntarily participate in the pilot and first phase, and the United States has agreed to participate in these
voluntary phases. Participation in the second phase is mandatory for certain countries, including the United States. The U.S. government has not yet enacted
legislation to mandate that U.S. operators participate in CORSIA. However, Delta submitted our CORSIA Emissions Monitoring Plan to the FAA in 2019 and in
2020, submitted our verified emissions report for 2019 international emissions. In 2017, ICAO also adopted new aircraft certification standards to reduce carbon
dioxide (CO2) emissions from aircraft. The new aircraft certification standards apply to new fleet types in 2020 and to new in-production aircraft starting in 2023
but no later than 2028. These standards will not apply to existing in-service aircraft. However, exemption from the certification requirement could affect how these
aircraft are treated under other programs governing CO2 emissions.
In 2016, the U.S. Environmental Protection Agency (“EPA”) issued a final finding under the Clean Air Act that greenhouse gases threaten the public health and
welfare, and further determined that certain classes of aircraft engines cause or contribute to greenhouse gases. The endangerment finding did not establish
standards, but triggered an obligation for the EPA to regulate greenhouse gas emissions from certain aircraft engines. In January 2021, the EPA finalized
greenhouse gas emission standards for new aircraft engines designed to implement the ICAO standards on the same timeframe contemplated by ICAO. Like the
ICAO standards, the final EPA standards would not apply to engines on in-service aircraft. The final standards have been challenged by several states and
environmental groups, and the Biden administration has announced plans to review these final standards along with others issued by the prior administration. The
outcome of the legal challenge and administrative review cannot be predicted at this time.
The airline industry may face additional regulation of aircraft emissions in the U.S. and abroad and become subject to further taxes, charges or additional
requirements to obtain permits or purchase allowances or emission credits for greenhouse gas emissions in various jurisdictions. Additional regulation could result
in taxation, regulatory or permitting requirements from multiple jurisdictions for the same operations and significant costs for us and the airline industry. In
addition to direct costs, such regulation could result in increased fuel costs passed through from fuel suppliers affected by any such regulations. Certain airports
have also adopted, and others could in the future adopt, greenhouse gas emission or climate-related goals and requirements that could impact our operations or
require us to make changes or investments in our infrastructure. We are monitoring and evaluating the potential impact of such developments.
In February 2020, we announced plans to invest $1 billion in the next ten years in our effort to achieve carbon neutrality. As part of this plan, we seek to
minimize the impact of carbon emissions from our operations and build on the reductions realized since 2005. We have improved the fuel efficiency of our aircraft
through the retirement of older aircraft and their replacement with newer, more fuel efficient aircraft. In addition, we have implemented fuel saving procedures in
our flight and ground support operations that further reduce carbon emissions. We are also supporting efforts to develop sustainable alternative fuels and efforts to
modernize the air traffic control system in the U.S. to further reduce our emissions and minimize our impact on the environment. Beyond carbon reduction efforts,
we expect carbon removal through investment in innovative projects and technologies and stakeholder engagement through coalitions intended to advance carbon
reduction to be important aspects of our journey to carbon neutrality.
Delta Air Lines, Inc. 2020 Form 10-K
12
Item 1. Business
Noise. The Airport Noise and Capacity Act of 1990 recognizes the rights of operators of airports with noise problems to implement local noise abatement
programs so long as such programs do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. This statute
generally provides that local noise restrictions on Stage 3 aircraft first effective after October 1, 1990, require FAA approval. While we have had sufficient
scheduling flexibility to accommodate local noise restrictions in the past, our operations could be adversely impacted if locally imposed regulations become more
restrictive or widespread. In addition, foreign governments may allow airports to enact similar restrictions, which could adversely impact our international
operations or require significant expenditure in order for our aircraft to comply with the restrictions.
Refinery Matters. Monroe’s operation of the Trainer refinery is subject to numerous environmental laws and extensive regulations, including those relating to
the discharge of materials into the environment, waste management, pollution prevention measures and greenhouse gas and other air emissions.
Under the Energy Policy Act of 2005, as expanded by the Energy Independence and Security Act of 2007, the Renewable Fuel Standard (“RFS”) was created,
setting up specific targets of renewable fuel to be used in the U.S. economy by mandating the blending of renewable fuels into gasoline and on-road diesel
(“Transportation Fuels”). Renewable Identification Numbers (“RINs”) are assigned to renewable fuels produced or imported into the U.S. that are blended into
Transportation Fuels to demonstrate compliance with this obligation. A refinery may meet its obligation under RFS by blending the necessary volumes of
renewable fuels with Transportation Fuels or by purchasing RINs in the open market or through a combination of blending and purchasing RINs. Because Monroe
is able to blend only a small amount of renewable fuels, it must purchase the majority of its RINs requirement in the secondary market or obtain a waiver from the
EPA. Market prices for RINs have been volatile, marked by periods of sharp increases and decreases primarily in response to predictions about what the EPA
and/or the U.S. Congress will do with respect to compliance obligations.
Other Environmental Matters. We are subject to certain environmental laws and contractual obligations governing the management and release of regulated
substances, which may require the investigation and remediation of affected sites. Soil and/or ground water impacts have been identified at certain of our current or
former leaseholds at several domestic airports. To address these impacts, we have a program in place to investigate and, if appropriate, remediate these sites.
Although the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of these matters will not have a material adverse
effect on our Consolidated Financial Statements.
Civil Reserve Air Fleet Program
We participate in the Civil Reserve Air Fleet program (the “CRAF Program”), which permits the U.S. military to use the aircraft and crew resources of
participating U.S. airlines during airlift emergencies, national emergencies or times of war. We have agreed to make available under the CRAF Program a portion
of our international aircraft during the contract period ending September 30, 2022. The CRAF Program has only been activated twice since it was created in 1951.
Additional Information
We make available free of charge on our website at ir.delta.com our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports
on Form 8-K and amendments to those reports as soon as reasonably practicable after these reports are filed with or furnished to the Securities and Exchange
Commission (“SEC”). Information on our website is not incorporated into this Form 10-K or our other securities filings and is not a part of those filings.
Delta Air Lines, Inc. 2020 Form 10-K
13
Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following material risk factors applicable to Delta. As described
below, these risks could materially affect our business, financial condition or results of operations in the future.
Risk Factors Relating to Delta
The rapid spread of the COVID-19 virus, the persistence of the resulting pandemic and measures implemented to combat it have had, and will continue to
have, a material adverse effect on our business. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be. It is likely
that there will be future negative effects that we cannot presently predict, including near term effects.
The rapid spread of COVID-19 and the persistence of the resulting pandemic, as well as the measures governments and private parties have implemented in
order to stem the spread of this pandemic, have had, and are continuing to have a material adverse effect on the demand for worldwide air travel, and consequently
upon our business. Among other effects of the COVID-19 pandemic affecting air travel and our business:
•
•
•
•
•
•
•
•
In the United States, which is our primary market, the federal government has discouraged travel and encouraged social distancing efforts and limits on
gathering size.
Numerous travel advisories and restrictions have been implemented, some of which remain in place, between the United States and specific countries, and
many foreign governments have placed restrictions or quarantines on citizens of other countries, including citizens of the U.S., flying into their countries.
For instance, the U.S. and numerous other countries are now requiring airline passengers to provide negative COVID-19 test results prior to travel into
their countries.
State and local governments have issued travel restrictions, quarantines and advisories and health-related curfews or “shelter in place” orders which
dissuade or restrict air travel.
Employers in both the public and private sectors have issued instructions to employees to work from home and/or are otherwise dissuading or restricting
air travel.
Business conventions and conferences, concerts and similar entertainment have been and continue to be cancelled. Many popular tourist destinations have
been, and remain, closed, or operations are curtailed. Significant sporting events have been, and occasionally continue to be, cancelled or held with
limited or no spectators. All of these adjustments reduce the demand for both business air travel (which has historically driven our most profitable ticket
sales) and leisure air travel.
Travelers are discouraged from air travel to destinations where COVID-19 is particularly virulent.
Widespread consumer confidence in air travel may not return until large-scale vaccination has occurred, and contagion or virus-related deaths linked or
alleged to be linked to travel on aircraft, whether accurate or not, may hinder restoration of this confidence and, if related to our aircraft, injure our
reputation.
Travelers may be dissuaded from flying due to possible enhanced COVID-19-related screening measures, which have been implemented to varying
degrees and in different ways across multiple markets we serve, or due to the concern that additional travel restrictions implemented between their
departure and return may affect their ability to return to their homes.
These effects related to the COVID-19 pandemic are negatively impacting air travel in general, which in turn are materially adversely affecting our revenues,
results of operations and financial condition. Although certain of the restrictions above have eased in some places, the ongoing pandemic, including large
outbreaks, resurgences of COVID-19 in various regions and appearances of new variants of the virus, has resulted, and may continue to result, in their reinstitution.
The effectiveness of the available vaccines against certain of these new variants is also unknown. Moreover, additional currently unknown restrictions or other
events dissuading air travel may occur in the future as a result of the pandemic (including possibly in the near term), lengthening the negative effects of the
COVID-19 pandemic on our business. For example, the federal government is contemplating whether to require COVID-19 testing in advance of domestic travel.
Our operations have been, and could in the future be, negatively affected further if our employees are quarantined or sickened as a result of exposure to
COVID-19, or if they are subject to additional governmental COVID-19 curfews or “shelter in place” health orders or similar restrictions. Measures restricting the
ability of our airport or in-flight employees to come to work may cause a further deterioration in our service or operations, all of which could negatively affect our
business.
Delta Air Lines, Inc. 2020 Form 10-K
14
Item 1A. Risk Factors
In response to the crisis, we have taken steps to mitigate the effects on our business, which themselves may have negative consequences with respect to our
business and operations. For example, we have significantly reduced our flight capacity and have blocked middle seats on flights through at least April 30, 2021.
However, the cost savings achievable with temporary capacity reductions will not completely eliminate the costs related to unused capacity. In addition, to protect
the safety of our employees and customers, we have implemented significant additional cleaning measures on all of our aircraft and at the airports in which we
operate.
Furthermore, we have waived air travel booking change fees to a broad extent and extended the ability to rebook that travel through December 2022 in order to
encourage travelers to book air travel (or not cancel already booked travel) despite the inherent uncertainty caused by the COVID-19 pandemic. Despite these
efforts, we have experienced significant ticket cancellations. Cancellations, the waiver, and in many cases elimination, of change fees and other refunds have
negatively affected our revenues and liquidity.
Ultimately, cost-saving measures that we implemented in 2020, or may consider in the future, have not made up, and will not in the future make-up, for the loss
in cash as a result of decreased ticket sales and cancellations and could also negatively affect our service to customers. The pandemic is also having a material
adverse effect on third parties whose services we utilize, including other carriers with which we have commercial relationships (international carriers and regional
carriers in the Delta Connection program) and providers of ground services at some airports, which may also negatively affect our service to customers.
We are unable to predict how long conditions related to the pandemic will persist, when effective vaccines will be broadly available, when vaccination will be
widespread globally, when travel advisories and restrictions will be lifted, what additional measures may be introduced by governments or private parties or what
effect any such additional measures may have on air travel and our business. The overall situation remains fluid, and it is impossible to predict the timing of future
material developments and whether they will occur in the near, medium or long term. Depending on the duration of the pandemic, such negative developments
may occur over the entirety of the pandemic.
At this time, we are also not able to predict the extent to which the COVID-19 pandemic may result in permanent changes to our customers’ behavior, with such
changes including but not limited to a permanent reduction in business travel as a result of increased usage of “virtual” meetings and “teleconferencing” products
and more broadly, a general reluctance to travel by consumers, each of which could have a material impact on our business.
Collectively, the foregoing circumstances have had, and are continuing to have, a material adverse effect on our business, results of operations and financial
condition. Future disease outbreaks or similar public health threats could have similar effects.
The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Form 10-K and in other filings we make from time to time with the
SEC.
We have a significant amount of fixed obligations and incurred significant amounts of new debt in a short period in response to the COVID-19 pandemic.
Insufficient liquidity may have a material adverse effect on our financial condition and business.
We have a significant amount of existing fixed obligations, including aircraft lease and debt financings, leases of airport property and other facilities, and other
material cash obligations. In response to the effects that the COVID-19 pandemic is having on our business, we have incurred and may continue to seek significant
amounts of additional liquidity 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. In addition, we have substantial commitments for capital expenditures.
We had approximately $16.7 billion in cash, cash equivalents, short-term investments and aggregate principal amount committed and available to be drawn
under our revolving credit facilities (“liquidity”) as of December 31, 2020; however, our future liquidity could be negatively affected by the risk factors discussed
in this Form 10-K, and in other filings we may make from time to time with the SEC. If our liquidity is materially diminished, we might not be able to timely pay
our leases and debts or comply with certain financial covenants in our financing and credit card processing agreements or with other material provisions of our
contractual obligations.
Delta Air Lines, Inc. 2020 Form 10-K
15
Item 1A. Risk Factors
Agreements governing our debt, including our credit facilities and our SkyMiles financing agreements, include financial and other covenants. Certain of these
covenants impose restrictions on our business, and failure to comply with any of the covenants in these agreements could result in events of default.
Our debt agreements contain various affirmative, negative and financial covenants, including our credit facilities and our SkyMiles financing agreements, each
of which contains a minimum liquidity covenant. Certain of our debt agreements also contain collateral coverage ratios, and our SkyMiles financing agreements
contain a debt service coverage ratio. A decline in these coverage ratios, including due to factors that are beyond our control, could require us to post additional
collateral or trigger an early amortization event. Our SkyMiles financing agreements also restrict our ability to, among other things, change the policies and
procedures of the SkyMiles program in a manner that would reasonably be expected to materially impair repayment of our SkyMiles debt.
Complying with certain of the covenants in our debt agreements and other restrictive covenants that may be contained in any future debt agreements could limit
our ability to operate our business and to take advantage of business opportunities that are in our long-term interest. The terms of any future indebtedness we may
incur could include more restrictive covenants.
While the covenants in our debt agreements are subject to important exceptions and qualifications, if we fail to comply with them and are unable to obtain a
waiver or amendment, refinance the indebtedness subject to these covenants or take other mitigating actions, an event of default would result. These arrangements
also contain other events of default customary for such financings. If an event of default were to occur, the lenders or noteholders could, among other things,
declare outstanding amounts due and payable and where applicable and subject to the terms of relevant collateral agreements, repossess collateral, including
aircraft or other valuable assets. In addition, an event of default or acceleration of indebtedness under one agreement could result in an event of default under other
of our financing agreements. The acceleration of significant indebtedness could require us to seek to renegotiate, repay or refinance the obligations under our
financing arrangements, and there is no assurance that such renegotiation or refinancing efforts would be successful.
We are at risk of losses and adverse publicity stemming from a serious accident involving our aircraft or aircraft of our airline partners.
An aircraft crash or other serious accident involving our aircraft or those of our airline partners could expose Delta to significant liability. Although we believe
that our insurance coverage is appropriate, we may be forced to bear substantial losses from an accident in the event that the coverage was not sufficient.
In addition, any accident involving an aircraft that we operate or an aircraft that is operated by an airline that is one of our regional carriers or codeshare,
alliance or joint venture partners could create a negative public perception about safety and reliability for aviation authorities and the public, which could harm our
reputation, resulting in air travelers being reluctant to fly on our aircraft and therefore harm our business.
Breaches or lapses in the security of the technology systems we use and rely on and the data stored within them could compromise sensitive information and
expose us to liability, possibly having a material adverse effect on our business.
As a regular part of our ordinary business operations, we collect and store sensitive data, including information necessary for our operations, personal
information of our passengers and employees and information of our business partners. The secure operation of the networks and systems on which this type of
information is stored, processed and maintained is critical to our business operations and strategy.
Our information systems and those of our service providers are subject to an increasing threat of continually evolving cybersecurity risks, and the increase in
work-from-home arrangements since the onset of the COVID-19 pandemic has the potential to enhance these risks. We expect unauthorized parties to continue to
attempt to gain access to our systems or information, or those of our business partners and service providers, including through fraud or other means of deception,
or introduction of malicious code, such as viruses, worms, Trojan horses and ransomware. If successful, these actions could cause harm to our computer systems or
compromise data stored on our computer networks or those of our business partners and service providers. Hardware or software we or our business partners or
service providers develop, acquire or use in connection with our systems may contain defects that could unexpectedly compromise information security. For
example, we were notified in 2018 that a third-party vendor of chat services for Delta and other companies determined we had been involved in a cyber incident for
a short period in 2017. We have incurred remedial, legal and other costs in connection with this incident but the costs are not material to our financial position or
results of operations.
Delta Air Lines, Inc. 2020 Form 10-K
16
Item 1A. Risk Factors
The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to
detect for long periods of time. As a result of these types of risks and regular attacks on our systems, we regularly review and update procedures and processes to
prevent and protect against unauthorized access to our systems and information and inadvertent misuse of data. In addition to continuously assessing risk and
reviewing our procedures, processes and technologies, we continue to educate our people about these risks and to monitor, review and update the process and
control requirements we expect third parties and vendors to leverage and implement for the protection of information regarding our customers, employees or
business partners that is in their care. However, the constantly changing nature of the threats means that we may not be able to prevent all information security
breaches or misuse of data.
The compromise of our or our business partners’ or service providers’ technology systems resulting in the loss, disclosure, misappropriation of, or access to,
our information or that of our customers, employees or business partners or failure to comply with ever-evolving regulatory obligations or contractual obligations
with respect to such information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal
information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business. The costs to remediate breaches
and similar system compromises that do occur could be material. In addition, as cybercriminals become more sophisticated, the cost of proactive defensive
measures continues to increase.
Disruptions of our information technology infrastructure could interfere with our operations, possibly having a material adverse effect on our business.
Disruptions in our information technology network could result from a technology error or failure impacting our internal systems, whether hosted internally at
our data centers or externally at third-party locations, or large scale external interruption in technology infrastructure support on which we depend, such as power,
telecommunications or the internet. The operation of our technology systems and the use of related data may also be vulnerable to a variety of other sources of
interruption, including natural disasters, terrorist attacks, computer viruses, hackers and other security issues. A significant individual, sustained or repeated failure
of our information technology infrastructure, including third-party networks we utilize and on which we depend, could impact our operations and our customer
service, result in increased costs and damage our reputation. While we have in place initiatives to prevent disruptions and disaster recovery plans (including the
creation of a back-up data center) and continue to invest in improvements to these initiatives and plans, we have previously experienced infrastructure disruptions
and these measures may not be adequate to prevent a future business disruption and any material adverse financial and reputational consequences to our business.
Failure of the technology we use to perform effectively could have a material adverse effect on our business.
We are dependent on technology initiatives to provide customer service and operational effectiveness in order to compete in the current business environment.
For example, substantially all of our tickets are issued to our customers as electronic tickets, and a growing number of our customers check in using our website,
airport kiosks and our mobile device applications. We have made and continue to make significant investments in customer facing technology such as delta.com,
mobile device applications, in-flight wireless internet, check-in kiosks, customer service applications, application of biometric technology, airport information
displays and related initiatives, including security for these initiatives. We are also investing in significant upgrades to technology infrastructure and other
supporting systems and transitioning to cloud-based technologies. The performance, reliability and security of the technology we use are critical to our ability to
serve customers. If this technology does not perform effectively, including as a result of the implementation or integration of new or upgraded technologies or
systems, our business and operations would be negatively affected, which could be material.
Our commercial relationships with airlines in other parts of the world and the investments that we have in certain of those carriers may not produce the
results or returns we expect.
An important part of our strategy to expand our global network has been to develop and expand strategic relationships with a number of airlines through joint
ventures and other forms of cooperation and support, including equity investments. We expect to continue exploring ways to deepen our alliance relationships with
other carriers as part of our global business strategy. These relationships and investments involve significant challenges and risks, including that they may not
generate the expected financial results or that we may not realize a satisfactory return on our investment. We are dependent on these other carriers for significant
aspects of our network in the regions in which they operate.
Delta Air Lines, Inc. 2020 Form 10-K
17
Item 1A. Risk Factors
The COVID-19 pandemic has significantly impacted the operations of our airline partners and could adversely affect the expansion of strategic relationships in
the future. These carriers have incurred significant financial losses as a result of the pandemic, and some have been or may be forced to seek protection under
applicable bankruptcy laws. For example, since the onset of the pandemic, LATAM Airlines and Grupo Aeroméxico filed voluntary proceedings to reorganize
under Chapter 11 of the United States bankruptcy code, Virgin Australia entered voluntary administration in Australia in order to recapitalize its business and
repudiated our joint venture agreement, and Virgin Atlantic undertook a voluntary recapitalization process in the U.K. and instituted ancillary proceedings in
support of that process in the U.S. As discussed further in Note 5 of the Notes to the Consolidated Financial Statements, the effects of the COVID-19 pandemic,
along with these actions, caused us to reduce our carrying value in the equity investments we have in certain of these carriers to zero. If any airline partners that
seek to restructure are unable to do so successfully or if our commercial arrangements with these partners are not maintained, any investments or other assets
associated with those partners could become impaired, and our business and results of operations could be materially adversely affected.
A significant disruption in, or other problems with respect to, the operations or performance of third parties on which we rely, including third-party carriers,
could have a material adverse effect on our business and results of operations.
We rely on the operations and performance of third parties in a number of areas that are important to our business, including third-party regional carriers,
international alliance partners and ground operation providers at some airports. While we have agreements with certain of these third parties that define expected
service performance, we do not have direct control over their operations. To the extent that the operations of a third party on which we rely is significantly
disrupted, or if these third parties experience significant performance issues (including failing to satisfy any applicable performance standards) or fail to meet any
applicable compliance requirements, our revenue may be reduced, our expenses may be increased and our reputation may be harmed, any or all of which could
result in a material adverse effect on our business and results of operations.
We may never realize the full value of our intangible assets or our long-lived assets, causing us to record impairments that may materially adversely affect our
results of operations.
In accordance with applicable accounting standards, we are required to test our goodwill and other indefinite-lived intangible assets for impairment on an
annual basis, or more frequently where there is an indication of impairment. In addition, we are required to test certain of our other assets for impairment where
there is any indication that an asset may be impaired. During the fiscal year ended December 31, 2020, we recorded significant impairment and related charges
related to acceleration of our fleet simplification strategy and the write-down of investments in certain airline partners, stemming from the impact of the COVID19 pandemic.
We may be required to recognize losses in the future due to, among other factors, extreme fuel price volatility, tight credit markets, government regulatory
changes, decline in the fair values of certain tangible or intangible assets, such as aircraft, route authorities, and airport slots, unfavorable trends in historical or
forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties. A further impairment charge could have a
material adverse effect on our results of operations.
Employee strikes and other labor-related disruptions may have a material adverse effect on our operations.
Our business is labor intensive, utilizing large numbers of pilots, flight attendants, aircraft maintenance technicians, ground support personnel and other
personnel. As of December 31, 2020, 23% of our workforce, primarily pilots, was unionized. Relations between air carriers and labor unions in the United States
are governed by the Railway Labor Act, which provides that a collective bargaining agreement between an airline and a labor union does not expire, but instead
becomes amendable as of a stated date. The Railway Labor Act generally prohibits strikes or other types of self-help actions both before and after a collective
bargaining agreement becomes amendable, unless and until the collective bargaining processes required by the Railway Labor Act have been exhausted. The
collective bargaining agreement with our pilots became amendable on December 31, 2019 and we are in discussions with the representative of the pilots regarding
terms of the agreement under the auspices of the NMB. Separately, the NLRA governs Monroe’s relations with the union representing their employees, which
generally allows self help after a collective bargaining agreement expires.
Delta Air Lines, Inc. 2020 Form 10-K
18
Item 1A. Risk Factors
If we or our subsidiaries are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective
bargaining agreements or if additional segments of our workforce become unionized, we may be subject to work interruptions or stoppages, subject to the
requirements of the Railway Labor Act or the NLRA, as the case may be. Strikes or labor disputes with our unionized employees may have a material adverse
effect on our ability to conduct business. Likewise, if third-party regional carriers with which we have contract carrier agreements are unable to reach agreement
with their unionized work groups in current or future negotiations regarding the terms of their collective bargaining agreements, those carriers may be subject to
work interruptions or stoppages, subject to the requirements of the Railway Labor Act, which could have a material adverse effect on our operations.
Our results can fluctuate due to the effects of weather, natural disasters and seasonality.
Our results of operations are impacted by severe weather, natural disasters and seasonality. Severe weather conditions and natural disasters (or other
environmental events) can significantly disrupt service and create air traffic control problems. These events decrease revenue and can also increase costs. In
addition, increases in the frequency, severity or duration of thunderstorms, hurricanes, typhoons or other severe weather events, including from changes in the
global climate, could result in increases in delays and cancellations, turbulence-related injuries and fuel consumption to avoid such weather, any of which could
result in loss of revenue and higher costs. In addition, demand for air travel is typically higher in the June and September quarters, particularly in our international
markets, because there is more vacation travel during these periods than during the remainder of the year. The seasonal shifting of demand causes our financial
results to vary on a seasonal basis. Because of fluctuations in our results from weather, natural disasters and seasonality, results of operations for a historical period
are not necessarily indicative of results of operations for a future period and results of operations for an interim period are not necessarily indicative of results of
operations for an entire year.
Our business and results of operations are dependent on the price of aircraft fuel. High fuel costs or cost increases, including in the cost of crude oil, could
have a material adverse effect on our results of operations.
Our results of operations are significantly impacted by changes in the price of aircraft fuel. Over the last decade, fuel prices have been highly volatile and at
times have increased substantially. From 2017 to 2020, our average annual fuel price per gallon, including the impact of fuel hedges, has varied from $1.64 to
$2.20 with year to year variations ranging from a decrease of 19% to an increase of 31%.
We acquire a significant amount of jet fuel from Monroe and through strategic agreements that Monroe has with third parties. The cost of the fuel we purchase
under these arrangements remains subject to volatility in the cost of crude oil and jet fuel. In addition, we have historically purchased a significant amount of
aircraft fuel in addition to what we obtain from Monroe. Our aircraft fuel purchase contracts alone do not provide material protection against price increases as
these contracts typically establish the price based on industry standard market price indices.
The competitive nature of the airline industry may affect our ability to pass along rapidly increasing fuel costs to our customers. In addition, because passengers
often purchase tickets well in advance of their travel, a significant rapid increase in fuel price may result in the fare charged not covering that increase. At times in
the past, we often were not able to increase our fares to offset fully the effect of increases in fuel costs, and we may not be able to do so in the future.
Significant extended disruptions in the supply of aircraft fuel, including from Monroe, could have a material adverse effect on our operations and results of
operations.
Weather-related events, natural disasters, political disruptions or wars involving oil-producing countries, changes in governmental policy concerning aircraft
fuel production, transportation or taxes, changes in refining capacity, environmental concerns and other unpredi…
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