Delta Airlines 2015 Annual Report Download - page 16

TableofContents
ITEM1A.RISKFACTORS
RiskFactorsRelatingtoDelta
Terrorist attacks, geopolitical conflict or security events may adversely affect our business, financial condition and operating results.
Potentialterroristattacks,geopoliticalconflictorsecurityevents,orfearofsuchevents,mayreducedemandforairtravelandcauseincreasesincostsand
declinesinrevenue.TheattacksofSeptember11,2001andtheaftermathmateriallyimpactedthebusiness,financialconditionandoperatingresultsofour
company,asitdidfortherestoftheairlineindustry.Despitesignificantlyheightenedsecuritymeasuresatairportsandairlines,theairlineindustryremainsahigh
profiletargetforterroristgroups.Terroristactivity,suchastheattacksinParisinNovember2015,generallycanalsoimpactourindustrybydiscouragingair
travel.Weconstantlymonitorthreatsfromterroristgroupsandindividuals,includingfromviolentextremistsintheU.S.,bothwithrespecttodirectthreatsagainst
ouroperationsandinwaysnotdirectlyrelatedtotheairlineindustry.Inaddition,theimpactonouroperationsofavoidingareasoftheworld,includingairspace,in
whichtherearegeopoliticalconflictsandthetargetingofcommercialaircraftbypartiestothoseconflictscanbesignificant.Securityevents,whetherfromexternal
orinternalsources,alsoposeasignificantrisktoouroperations.
Terroristattacks,geopoliticalconflictorsecurityevents,orfearofsuchevents,evenifnotmadedirectlyonorinvolvingtheairlineindustry,couldhave
significantnegativeimpactonusbydiscouragingpassengersfromflyingandrequiringchangesinouroperations.Forexample,heightenedterroristactivityor
geopoliticalconflictmaydiscourageairtravelandreduceticketpurchases.Inadditiontolosingrevenuefromdecreasedticketsalesandincreasedrefunds,
potentialcostsincludeincreasedsecuritycosts,impactsfromavoidingflightpathsoverareasinwhichconflictisoccurring,reputationalharmandothercosts.If
anyorallofthesetypesofeventsoccur,theycouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.
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 operating results.
Ouroperatingresultsaresignificantlyimpactedbychangesinthepriceofaircraftfuel.Overthelastdecade,fuelpriceshaveincreasedsubstantiallyattimes
andhavebeenhighlyvolatileduringthelastseveralyears.In2015,ouraveragefuelpricepergallon,includingtheimpactoffuelhedges,was$1.90,a45.2%
decreasefromouraveragefuelpricein2014.In2014,ouraveragefuelpricepergallonwas$3.47,a15.7%increasefromouraveragefuelpricein2013.In
2013,ouraveragefuelpricepergallonwas$3.00,whichwassignificantlyhigherthanfuelpricesjustafewyearsearlier.Fuelcostsrepresented23.0%,35.4%
and33.3%ofouroperatingexpensein2015,2014and2013,respectively.
Ourabilitytopassalongrapidlyincreasingfuelcoststoourcustomersmaybeaffectedbythecompetitivenatureoftheairlineindustry.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.Thisisparticularlythecase
whenfuelpricesincreaserapidly.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.
Weacquireasignificantamountofjetfuelfromourwholly-ownedsubsidiary,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continuetopurchase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.
Our fuel hedging activities are intended to manage the financial impact of the volatility in the price of jet fuel. The effects of rebalancing our hedge portfolio
and mark-to-market adjustments may have a negative effect on our financial results.
Weactivelymanageourfuelpriceriskthroughahedgingprogramintendedtoreducethefinancialimpactfromchangesinthepriceofjetfuel.We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.
Inaddition,werecordmark-to-marketadjustments(“MTMadjustments”)onourfuelhedges.MTMadjustmentsarebasedonmarketpricesattheendofthe
reportingperiodforcontractssettlinginfutureperiods.LossesfromrebalancingorMTMadjustments(orboth)mayhaveanegativeimpactonourfinancial
results.
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