DELTA AIR LINES annual report to the stockholders The year ended June 30, 1950 can best be characterized as a record- breaking one-Net profit after faxes was at a new high, The net profit after taxes of $815,751, equiva- lent to $1.63 per share, was the largest in the Company's history. The comparative summary of operations for the current year and the two preceding years ( shown in the table below) reveals a healthy upward trend profit-wise. This net profit constitutes a return of 7.8% upon the total investment employed in air transportation, and the 109% ratio of revenue to expenses provides a fair profit margin. Al- though total operating ex- penses increased $1,493,- 184, the increased volume of operations purchased with these additional ex- penditures, and various economies effected during the year, resulted in a de- crease in cost per available ton mile from 28. 7 to 26.5, the lowest cost ever achieved by your Com- p any. At this low cost level your Company maintains its position as one of the most efficient in the industry. As in previous years, the largest single expense in- crease occurred in salary and wage payments, which increased $474,295, reflecting for a full year the general increases effective March 1, 1949. The depreciation accrued during the year is based upon original asset cost and does not represent the depreciation expense which would have been incurred at current higher costs. During the last month of the fiscal year DC-6 passenger fares were reduced approxi- mately 10% by removal of the extra service charge previously in effect, pursuant to action of the Civil Aeronautics Board. It is expected that this reduction in the DC-6 fares will be offset by an increased volume of business on this equipment. ... current position remains favorable., At June 30, 1950 current assets exceeded cur- rent liabilities by $2,355,322 only $203,301 less than at the year's beginning, notwithstand- ing the fact that during the year investment in property and equipment increased $1,196,342 (principal item- $834,000 for a sixth DC-6), and loan repayments totaled $1,000,000. There was an outstanding balance of $2,925,000 under the borrowings previously made pursu- Years Ended June 30 1950 1949 1948 Operating Revenues $17,185,295 $15,227,845 $12,818,969 Operating Expenses 15,775,141 14,281,956 12,618,944 Operating Profit $ 1,410,154 $ 945,889 $ 200,025 Net Non-Operating Income or (Loss) (5,403) 62,551 107,048 Net Profit before Income Taxes $ 1,404,751 $ 1,008,440 $ 307,073 Income Taxes 589,000 369,000 102,343 Net Profit after Taxes $ 815,751 $ 639,440 $ 204,730 ant to the Loan Agreement of November 16, 1946; all quarterly installments have been made on or before the due date, and depreci- ation accruals will more than equal the pay- ments of $1,000,000 to be made during the forthcoming year. The profits earned and favorable trend re- sulted in the declaration of a dividend of 25 per share which was paid on April 15th. Please ref er to the Operating Statement, Bal- ance Sheet, and Statement of Surplus included elsewhere in this report for more complete de- tails of the Company's operations during the year. ... and increases occurred in all cate- gories of traffic. A comparison of the current and preceding year is reflected by the following tabulation: Years Ended June 30 1950 1949 Revenue passenger miles 238,335,000 201,711,000 Mail ton miles 1,017,026 931,658 Express ton miles 823,423 764,305 Freight ton miles 2,386,101 1,676,304 Excess baggage ton miles 316,216 238,608 OPERA TING REVENUES Passengers Mail Freight and Express All Other $13,948,159~ 2,373,213 716,978 146,945 $17,185,295 OPERATING EXPENSES Salaries, Wages & Welfare Gasoline & Oil Maintenance & Repair Materials Depreciation Rentals & Landing Fees Advertising Passenger Expenses Taxes (Excluding Income Taxes) Insurance Communications Charges Office Supplies Employee Travel Expenses Outside Services Miscellaneous $7,626,618 2,386,053 1,125,725 1,206,755 396,487 498,612 425,181 476,142 430,966 288,291 95,414 297,076 230,868 290,953 $15,775,041 % Increase 18.2% 9.2% 7.7% 42.3% 32.5% 2 The substantial increase in passenger traffic that resulted in the $1,774,207 increase in passenger revenue is the result of several factors: ... DC-6 equipment being in service the entire year 1 This is the first full year of DC-6 operation, and their wide-spread public acceptance, and preference over competitive types, is reflected by the fact that the DC-6's produced 46% of total revenue passenger miles although they flew only 31.5% of total miles. This equipment continues to provide the fastest and finest service available between the major cities on our system. ... inauguration of Aircoach service, Aircoach service between Chicago and Miami was inaugurated on a non-stop basis in De- cember, 1949 with 56-passenger DC-4 aircraft and has now been expanded to include three intermediate cities. The conversion of our DC-4 fleet, to obtain this optional 56-passenger capacity for aircoach operation and 48-passen- ger capacity in regular service, was performed MILLIONS 30 27 24 21 18 lS 12 9 6 3 0 - in our shops, and these higher seating capaci- ties were obtained without any sacrifice of the traditional passenger space and comfort of the Delta fleet. From the beginning of aircoach service to the end of the fiscal year, the over- all passenger load factor for this service was 83%. These flights, which o_ perate at night hours when equipment normally would be idle, make possible low fares competitive with sur- face transportation, and unquestionably intro- duce air transportation to a large new group of the traveling public for the first time, there- by tapping a vast additional reservoir of po- tential air traffic. Although some business may be diverted from regular flights, your manage- ment is convinced that, if properly restricted, aircoach service has earned a permanent role in the nation's air transportation system. ... all-expense Packaged Vacations, To stimulate off-season travel, increased sales efforts and wider promotion were given for the third year to all-expense ttPackaged Vaca- tions" to Miami, the Great Smoky Mountain area, and other points reached via Delta. By combining_ special hotel and ground transpor- tation summer rates with Delta aircoach fares, phenomenally low cost all-expense vacations were offered ( example - one week in a Miami Beach hotel, plus incidental expenses and air transportation to and from Chicago-$164.39, with tax), which were received with enthu- siasm by vacationers. ... and an aggressive advertising program, intensified sales campaigns, and other promotional fares. Delta's advertising program during the year was bold and extensive, utilizing original ap- proaches in both themes and presentation, in addition to tested techniques such as endorse- ments of customers. While newspapers got the bulk of Delta's advertising, almost all estab- lished media were used, including radio, tele- vision, 24-sheet billboards and lighted sign- boards. Delta has used extra colors in its news- paper ads, with a high degree of traceable sue- 40 41 42 43 44 4S 46 47 48 49 RETURN PER REVENUE PASSENGER MILE (in cents) cess, in meeting increased competition not only from other airlines but all advertisers in gen- eral who are crowding existing publications. Traffic delivered to Delta by other carriers constitutes a material portion of our revenue, and special attention is being devoted to this interline traffic so that it will be routed over Delta to the greatest possible extent. Employee bonuses were paid. under sales contests in effect during the first part of the year, and a sales idea contest is currently being conducted to ac- centuate the theme that ttevery employee is a salesman." In addition to aircoach service and the all- expense packaged vacations described above, the so-called ttFamily Plan" was instituted in September, 1949 whereby members of the same family can travel at reduced rates during the first three week days when traffic is traditionally lighter; a 10% discount has been established for official military travel; and special sea- sonal and group excursion fares have been offered, some of which were pioneered by Delta. TON MILES vs. PLANE MILES OPERATING EXPENSES & PROFIT PER PLANE MILE OPERATING EXPENSES & PROFIT PER TON MILE $1.40 / 1.20 __ .. TON MILES / 1.00 (Millions) ~' .80 ' / __, l's. '\,,.~ / .60 .......... ./ .... ' .40 _L,.-1111""' __ .... PLANE Ml.ES _ .20 JM11UonsJ, .o ~~-~~~~-~~~~---, $1.00 .90 .80 .70 .60 .so .40 .30 .20 .10 ~ \ . ... "'Ill ~..._ '"-........ A .,v E) DENSES REVENUE ..-,,,-_ ~ .......___1/ ~- ...... PROFIT --,.....- ., -t-- V " 40 41 42 43 44 4S 46 47 48 49 SO 40 41 42 43 44 4S 46 47 48 49 SO 40 41 42 43 44 4S 46 47 48 49 SO 3 SI 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 One of the most important events of the entire year was the inauguration of Delta-American equipment interchange operations, This service conducted by Delta and American Airlines with Dallas as the interchange point provides one-plane service between Miami, Florida, and California via various important intermediate cities ( see map at right) and was begun on September 25, 1949, following temporary Board approval on September 1, 1949. Through June 30, 1950, 19,070 passen- gers had taken. advantage of this superior through service in traveling this southern transcontinental route. The present schedule pattern was established on April 24, 1949, and was operated as a connecting service from that date to the inception o.i interchange service on September 25, 1949. The extent to which the interchange service has stimulated traffic on the route involved is shown by the comparison of average monthly operations before and after interchange. (See chart at right) No serious maintenance or operations prob- lems were encountered in activating this serv- ice, and it has been a routine operation from the outset. ... and the Delta-TWA interchange continues to be a most successful operation from every standpoint. This year also marks the completion of the second full year of the Delta-TWA equipment interchange agreement, which provides one- plane through service between the Detroit- Cincinnati portion of TWA's routes and the REVENUE MILES and PASSENGERS 40 41 42 43 44 45 46 47 48 49 50 4 May-August, 1949 October, 1949- June, 1950 AVERAGE MONTHLY Revenue Passenger Passenger Load Miles Factor 4,437,300 45.0% 5,537,730 57.51 % Cincinnati-Miami portion of Delta's routes, and which continues to receive the same wide- spread public acceptance that marked its be- ginning. These two equipment interchanges are the only ones presently in operation in the United States, and the experience gained thereunder should prove the value of such operations in providing improved service to the public with- out the creation of uneconomic competition and route duplication. LOAD FACTOR lnlerchange vs. System LOAD ~---1949----~ ----1950---------.. FACTORS M A O N D J M A M 65 --~~-~~--.---,,-----,--,-----,----,-----i:------,---, f-SYSTE.M LEGEND ) - INTERCHANGE FLIGHTS 60 40 Present schedule pattern est. 4-24-49 Inauguration of Delta-American Interchange 9-25-49 ~\..._,.o,, TWA- DELTA 1"\'0 Interchange ~9,\)\ c.<>\.~ \'\O~ .. ~ ,c.i r,\\i\\\\ The Senate Interstate and Foreign Commerce Committee issued its in- terim report in May, 1950, represent- ing a very realistic approach to the subsidy question. The interim report in connection with the Committee's investigation of the airline in- dustry, of which you were advised last year, properly classified any element of subsidy in governmental assistance rendered to the air- line industry through mail pay as a subsidy to the communities served and users of the serv- ice, and not to the airlines. Excerpts from this report are: "Although a careful reading of the testi- mony before the committee reveals some very wide differences within the industry itself, agreement was general that air lines carrying only a long-haul business and servicing only a few high-density points would operate profit- ably without subsidy; or, to put it another way, that the certificate requirement compelling the air lines to serve a large number of small sta- tions, or to carry predominantly short-haul traffic absorbed most of the profits earned in the long-haul high-density business and was the basic reason why subsidy was required. "The 'need' is clearly not a subsidy to the air line, which is merely rendering a public service for a fair return, but goes to the pas- sengers, shippers, and air-mail patrons of the communities the air line serves. If management economy and efficiency are attained the sub- sidy rests squarely upon the community whose revenues are insufficient to pay the cost of air line service." There is now pending before Congress leg- islation which if enacted would require the Civil Aeronautics Board to conduct a compre- hensive study to determine the amount of sub- sidy, if any, that is included in total mail pay- ments to the airlines. In this connection, your attention is invited to the chart on Page 2 which shows that mail pay constituted only 13.8% of our total revenue, as compared to 15.99% for the preceding year and 49.09% in 1940. Your company produced $2,783,319 in direct tax revenues for the U. S. Government during this fiscal year ( excluding employee in- come taxes), a considerably greater sum than the $2,373,213 received as compensation for carrying U. S. mail. For the same year, national postal revenue from air mail is estimated at $76,000,000 and total payments to the domestic air carriers for transporting the mails at $69,000,000. REVENUE PASSENGER MILES (Millions) 28 ~ REVENUE PASSENGER MILES 1949 vs. 1950 ... ''" I ~ J ~- YEAR ENDED JUNE 30, 1950 LEGEN? _ YEAR ENDED JUNE 30, 1949 I " I ' 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 AIRCOACH SERVICE INAUGURATED , .... _ 12-15-49 "'- / r,.. "- , I "- ~ I ~ V I/ ' -L /r - ... --- ~ .......... ~ " V --r--....: "'1111111""'"" ,(\, ~~ '\. /J DC-6's PLACED IN SERVICE ' Ii 12148 12 JULY AUG. SEPT. OCT. NOV. DEC. JAN. FEB. MAR. APR. MAY JUNE 5 As the year ended the Korean situa- tion resulted in a call upon the airline industry for airlift. The airlines were requested by the military services immediately after the outbreak of the Korean incident to divert any four-engined air- craft which could be spared to the transporta- tion of personnel and materiel from the United States to the Korean theatre. Your company has accordingly leased one of its DC-4 aircraft to a certificated trans-Pacific airline for opera- tion by it under contract to the U. S. Govern- ment, and 10 Delta pilots were made available also to fly the Pacific. There was no immediate curtailment of schedules as a result of this air- craft being removed from scheduled service, and it is felt that the rental revenues will in a meas- ure compensate for the loss in commercial revenues because of our inability to operate charters and extra sections of scheduled flights to the extent otherwise possible. The government has indicated no additional ships will be required unless there is an all-out war, in which case an allocation table already agreed upon assures the military additional ships but permits the airlines to retain the neces- sary flight equipment to handle essential civilian and military travel. In such an event, experi- ence in W odd War II indicates that increased utilization and higher load factors will more than compensate for the reduction in equip- ment, and undoubtedly the company also would have military contracts, such as overhaul and modification of aircraft and related equipment. 6 Unceasing efforts continue to be di- rected at securing additional route certifications. The major case now in process is the so-called .. Southern Service to the West" route case, in which several carriers are seeking a new south- ern transcontinental route. Permanent approval of the Delta-American equipment interchange agreement is one of the issues in this case, and Delta is strongly supporting such approval with the disapproval of any new route awards. However, your company is prosecuting its ap- plication for a route from Dallas/Fort Worth to Los Angeles and from New Orleans to Los Angeles via Houston and San Antonio; in the event that the Board decides that a new trans- continental route should be created, your com- pany is the logical grantee of the prerequisite route mileage. Delta is also seeking in this proceeding the addition of St. Petersburg/ Tampa to its system, thereby permitting direct service across the Gulf of Mexico between Miami and St. Petersburg/Tampa on the one hand and New Orleans and points west thereof on the other hand. Hearings before the Board have been completed, but certain other pro- cedural steps remain before decision. Legend - DELTA 'S PRESENT ROUTES PRESENT INTERCHANGES DELTA'S PROPOSED ROUTES PROPOSED EQUIPMENT INTERCHANGE Awaiting Board decision is Delta's applica- tion for approval of a Birmingham-Memphis route and an equipment interchange agreement between Delta and Chicago and Southern Air Lines, Inc. with Memphis as the interchange point. Approval of these applications would establish one-plane service between Kansas City and Miami via Memphis and various other in- termediate cities. Other applications on file with the Civil Aeronautics Board and awaiting hearings are: 1. Extensions of Routes 24 and 54 from Columbia to New York via Fayetteville and Wilson, North Carolina; Washing- ton, and Philadelphia. 2. Extension of Route 24 from Shreveport to Oklahoma City. . 3. Extensions from Cincinnati to Washing- ton via Pittsburgh and Cincinnati to Nor- folk via various intermediate points. The beginning of the new fi finds Delta with a well-rou't. of Douglas-built aircraft1 sixth DC-6 air~ri1t ~as placed in service in ~~LJecember, 1949, so that our fleet as of June 30, 1950 consisted of six DC-6's, six DC-4's, 17 DC-3's, and three C-47's. Four DC-3's and one C-47 previously operated under lease from the War Assets Administration were purchased during the year,. and an additional DC-6 air- craft has been ordered for delivery in January, 1951. This DC-6 on order has been designed for later installation of turbo-prop or jet en- gines when desired, and Delta's other six DC-6 aircraft also are capable of being adapted for these new power plants to obtain increased speeds. 8 e year one of your Company's 21- -3's was modified to a 28-passen- with a .completely new interior, gage racks, letdown door, and ing improvements. This aircraft scheduled service on an experi- ' nd the results of its operations are being closely studied to determine whether or not any further aircraft will be similarly modified. . . . having just completed another year of accident-free1 high-perform- ance operations Dependable and on-time operations continues to be one of the focal points of your company's activities, and the success of such efforts is in- dicated by the flight completion factor (per- centage of scheduled miles completed) for the year of 97. 71 % - during eight months of the year this completion factor was above 99%. Your company is among the first to take ad- vantage of technological improvements in the many devices designed to assist in navigation and all-weather flying, and will continue to strive for the best possible performance con- sistent with the slogan that "There can be no compromise with safety." ... with a group of employees whose loyalty and ability are our best guar- antee of future successes1 Total wage and salary payments during the year were at an all-time high of $7,473,000, and there were 2,093 employees at the end of the year. The turnover rate of 1.33% per month was not abnorfi1:al (335 separations dur- ing the year), and the increasing earnings per employee and employee productivity are a re- flection of the generally higher experience level prevailing. However, requirements of the Military Services have already accelerated the turnover rate. There were 1,883 employees covered by your company's pens~on plan at the year's end; the Employee Group Insurance program continues to provide substantial employee benefits; and the Delta Employees' Credit Union has become an important financial institution for em- ployees, with assets ( employee savings) of $161,000 and outstanding loans to employees of $153,000 . . . . and the future outlook is bright. Having concluded the greatest year in its his- tory, your company is nevertheless gearing up to participate fully in the even broader market of air travel which looms on the nation's hori- zon. The company also expects to pursue ener- getically the possibility of expansion through new routes, but looks for a greater volume of business in the year ahead even without any additional route mileage. The personnel, equip- ment and the general facilities of the company are well capable of meeting the challenge. President and General Manager NUMBER OF EMPLOYEES AND LENGTH OF SERVICE As of June 30 Years in Service 1947 1948 1949 1950 20 YEARS 2 4 5 5 AND OVER 15-20 4 5 5 19 10-15 5-10 1-5 LESS THAN 1 YEAR 2081 2093 2119 2093 Years Ended June 30 1948 Seat Miles 166,860 170,457 208,891 per Employee Revenue Ton Miles 9,540 10,762 13,024 per Employee Available Ton Miles 22,246 23,486 28,443 per Employee Assets CURRENT ASSETS: Cash ............................ . U. S. Government securities, at cost .... .. ........ . ........ ... . Receivables - U. S. Post Office Department, for carrying mail ................ . Traffic (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... . Other ......................................... . ......... . Maintenance and operating supplies, at cost ...... ....... ........ Other current and accrued assets ............................... INVESTMENTS: Net assets of dusting division ................. . ............... . Other investments. . . . . . . . . . . . . . . . . . . . . . .... . .. ............. . OPERATING PROPERTY AND EQUIPMENT (nlc/uding $2,325,000 fully depreciated J Flight equipmen.k ............. . ..... ... ... . . - ... . Ground property and equipment ....... .... .. . ...... . Construction work in progress . . . . . . . . . ... ... ..... . Cost $9,293,649 2,699,277 83,553 $12,076,479 DEFERRED CHARGES: Training and other costs applicable to new DC-6 aircraft being amortized over first two years of service lives. . . . - ...... . Advances for leased facilities, being amortized ... . . .. . ... ... . . Other prepayments, etc.. . . . . . . . . . . . . . . . . . . . . .. . . ........... . $ 1,647,133 $ 1,050,000 170)590' 680,396 370,805 1,120,852 i_ 95,299 92,293 79,051 Reserve for Depreciation $4,428,360 881,315 $5,309,675 $ 39,951 134,363 124,314 DELTA AIR ATLANTA, BALANCE SHEET $ 5,135,075 } $ 171,344 $ 6,766,804 } $ 298,628 $12,371,851 LINES, Inc. GEORGIA JUNE 30, 1950 CURRENT LIABILITIES: Current maturities of long-term debt .... . .... . ................. . Accounts payable and accrued liabilities ......................... . Accrued Federal and state income taxes ......................... . Air travel plan deposits ......... ... .......................... . LONG-TERM DEBT: Notes payable to banks, 2%, due serially to 1953 (less current maturities of $1,000,000 included in current liabilities) ..... . .... . DEFERRED CREDITS AND RESERVES: Unearned transportation revenue ......... .... .... . ............ . Other ..................................................... . CAPITAL STOCK AND SURPLUS: Common stock, $3.00 par value - Authorized 1,000,000 shares Issued and outstanding 500,000 shares .................... . Capital surplus (principally net premium on sale of common stock) - No change during year . ...... ... ......... . . . Earned surplus ( of which $500,000 under the terms of the bank loan agreement is not available for the payment of dividends) ..... Notes to Balance Sheet $ 1,000,000 1,016,440 631,137 132,175 $ 170,691 95,163 $ 1,500,000 3,717,329 2,183,916 $ 2,779,752 $ 1,925,000 } $ 265,854 $ 7,401,245 $12,371,851 CONTINGENT LIABILITIES The Collector of Internal Revenue has issued assess- ments aggregating $66,017.77 against the Company claiming this amount as interest on income taxes which would have been payable for the fiscal year 1945 if the liability for excess profits taxes had not been liquidated by the carry-back of unused excess profits credit and net operating loss for the fiscal years 1946 and 1947, respectively. The Company is protesting these assess- ments and in August 1949, in order to have the assess- ments held in suspense by the Collector, deposited $100,000 principal amount of U.S. Government bonds in escrow pending the settlement of the disputed as- sessments. PURCHASE COMMITMENTS The Company has made a purchase commitment to Douglas Aircraft Company of approximately $858,000 for one DC-6 airplane, scheduled for delivery in January 1951. Statement of Income for the year ended June 30, 1950 OPERATING REVENUES: Passenger .................................................. . Mail ...................................................... . Express .................................................... . Freight .................................................... . Excess baggage . . . . . . . . . . . . . . . . . . . . . . . . ..................... . Other revenue, net. . . . . . . . . . . . . . . . . . . . . . . . . . ................ . OPERATING EXPENSES: Flying operations ................................. $4,703,129 } Direct maintenance - flight equipment. . . . . . . . . . . . . . . 1,861,074 Depreciation - flight equipment . . . . . . . . . . . . . . . . . . . . 999,446 Ground operations .......................................... . Ground and indirect maintenance ............................. . Passenger service . . . . . . . . . . . . . . . . . . . . . . . . . . ................. . Traffic and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . ................. . Advertising and publicity .................................... . General and administrative ................................... . Depreciation - ground equipment ............................. . Net income from operations, before income taxes ................ . OTHER INCOME (EXPENSE): Profit on sale of property and equipment ....................... . Net profit of dusting division ................................. . Interest expense ............................................ . Other income - net ......................................... . Net income, before income taxes . . . . . . . . . . . . . . . ............... . PROVISION FOR FEDERAL <$534,0001 AND STATE INCOME TAXES (Note) Net income ................................................ . Note: The provision for Federal income faxes has been computed on the basis of the tax rates in effect at June 30, 1950. Statement of Earned Surplus for the year ended June 30, 1950 Balance June 30, 1949 ...................................... . Net income for year ended June 30, 1950 ....................... . Dividends ( cash) on common stock (25 per share) .............. . Balance June 30, 1950 (restricted as indicated on balance sheet) .... . 12 $13,761,453 2,373,213 238,441 478,537 i 186,706 146,945 $ 7,563,649 2,421,308 1,051,776 1,056,959 1,766,616 599,662 1,107,862 207,309 $ 3,948 60,468 (84,432) 14,613 $1,493,165 815,751 } $17,185,295 $15,775,141 $ ( 5,403} $ 1,404,751 589,000 $ 815,751 $2,308,916 125,000 $2,183,916 I ' '"' ', . - . ', . . : . . .. ' . ' ' . . ' ' - . ' . . . ' . '',, .. ' ' . . . '. . . . ' - . . C. E. Faulk, Chairman M. S. Biedenharn* Richard W. Courts R. W. Freeman Edward H. Gerry L.B. Judd C. H. McHenry Winship Nunnally Travis Oliver Laigh C. Parker Richard J. Reynolds D. Y Smith C. E. Woolman DELTA AIR LINES INC. General Offices: Municipal Airport ATLANTA, Georgia