Question

Delta Air Lines, Inc. (DAL) provides cargo and passenger services throughout the world. The following operating data (in millions) were adapted from recent financial statements of Delta. Year 1 Year 2 Revenue $37,773 $40,362 Operating Expenses: Fuel $(9,397) $(11,668) (13,225) Aircraft related (13,070) Selling and general (9,829) (10,905) Other expenses (1,922) (2,513) Total operating expenses $(34,373). $(38,156). Operating income $3,400 $2,206 1. Prepare common-sized income statements for Years 1 and 2. Round to one decimal place. 2. Using your answer to (1), analyze and comment on the performance of Delta in Year 2.

Answer 1

Correct Answer:

Requirement 1:

Delta Air Lines Inc.
Common size income statement
	Year 1		Year 2
Revenue	37773	100.0%	40362	100.0%
Operating Expenses:
Fuel	-9397	-24.9%	-11668	-28.9%
Aircraft related	-13225	-35.0%	-13070	-32.4%
Selling and general	-9829	-26.0%	-10905	-27.0%
Other expenses	-1922	-5.1%	-2513	-6.2%
Total operating expenses	-34373	-91.0%	-38156	-94.5%
Operating Income	3400	9.0%	2206	5.5%

Requirement 2:

The fuel expenses increased from 24.9% of revenue in year 1 to 28.9% of revenue in year 2

The Aircraft related expenses decreases from 35% of revenue in year 1 to 32.4% of revenue in year 2.

The selling and general expenses increased from 36% of revenue in year 1 to 27% of revenue in year 2

The total operating expenses increased to 94.5% of revenue in year 2.

The operating income reduced to 5.5% of revenue in the year 2.

End of answer.

Please give a thumbs-up, it will be highly appreciated.

Thanks.