MIAMI — Delta Air Lines posted a first quarter 2014 net profit of $213 million, or $0.25 per diluted share, up from a $7 million profit from the same time the year prior. On a pre-tax basis, Delta recorded a $335 million net profit, and the carrier said its numbers would have been even better—about $55 million higher pre-tax—had the Atlanta-based carrier not cancelled over 17,000 flights in January and February thanks to exceptionally bad winter weather.

Overall, operating revenues were up 4.8 percent year over year (YOY) to $8.92 billion, with passenger revenue up 4.9% and other operating revenues up 8.5% to more than offset an 8.8% decline in cargo revenue. Consolidated (which represents mainline and regional operations combined) passenger revenue per available seat miles rose 3.2% YOY to 14.24 cents on a 1.7% increase in capacity measured by available seat miles (ASM), and a 1.5 percentage point jump in load factor to 82.7%. Yields rose only 1.2% YOY to 17.21, but the strong PRASM performance was helped by a 3.5% increase in demand as measured by revenue passenger miles (RPMs). Corporate contract revenues grew 6% YOY in the quarter.

Turning to region-specific performance, domestic and Latin American operations led the revenue charge. Domestic mainline revenue grew 9.4% YOY to $3.73 billion, though regional revenue did dip 0.5% YOY to $1.45 billion. Domestic PRASM was up an excellent 7.4% on 1.8% YOY ASM growth, while even regional operations saw PRASM growth of 3.8% on a 4.1% decline in ASMs.  Latin American operations recorded a revenue jump of 18.1% during the winter quarter that represents the strongest financial quarter for Southern Hemisphere operations. Latin PRASM did fall 0.1% on massive 18.3% capacity growth.

Meanwhile, the carrier’s transoceanic segments both recorded losses. Atlantic revenues declined 1.0% YOY, with PRASM growing 0.5% YOY on a 1.5% decrease in capacity. The carrier also noted a $31 million loss from its 49% stake in Virgin Atlantic, with which it operates a joint-venture. The airline’s Pacific operations saw revenue decline 5.3% YOY, pulling in $827 million, reflecting a 5.0% decline in PRASM on a 0.3% decline in capacity.

Domestic mainline revenues are likely to continue their improvement YOY as the US economy improves. Regional operations could come under some revenue pressure as the opposing pressures of continued retirement of 50 seat jets and increased large regional jet operations out of Los Angeles and (especially) Seattle. That being said, the first set of capacity increases in Los Angeles and Seattle during Q1 were handled well, and the two hubs actually led Delta in terms of unit revenue growth, with Seattle actually posting double digit PRASM growth. Latin American revenues should get a boost from demand for the World Cup in June and July as well.

Over the Atlantic, there are no easy answers. Europe’s economy continues to stagnate, but at the very least, Delta is being extremely active in managing its capacity to the region. Asia is the big question. Certainly currency effects (the weakening of currencies across Asia and the devaluation of the yen [11% or $54 million]) played a role in the unit revenue declines, but as we move forward into 2013, unit revenue pressure on Delta’s Pacific operation will only be exacerbated by the launch of Delta’s Seattle trans-Pacific operation. Expect to continue to see 5% YOY declines in PRASM in the coming months thanks to this effect. On the flip side, Chinese operations continue to provide a boost, with year over year PRASM increase in Q1 despite a 15% increase in capacity.

Operating expenses were up 0.2 YOY, for the carrier. Decreases in spending on fuel (down 2.8% YOY), and maintenance (down 8.8% YOY), were offset by increases in salaries (up 3.0% YOY) and depreciation (up 9.2% YOY). In total expenses rose only $18 million YOY to $8.29 billion. The carrier’s strong results also spurred $99 million in profit sharing to its 78,870 employees. Consolidated costs per ASM (CASM) decreased to 15.39 cents, down 1.4% from 2013’s 15.61 cents. CASM excluding fuel rose just 0.3% YOY.

Delta’s Trainer refinery continued to generate losses, producing a $41 million loss for the first quarter. The airline noted that this was a result of the lower fuel prices overall, as well as reduced production capacity as modifications were made to the plant that took parts of it offline. However, when evaluating Trainer, it is important to note that Trainer’s existence saves Delta more than $300 million annually on fuel by reducing the crack spread. Stomaching $100-150 million annual losses on Trainer is not necessarily a bad tradeoff.

Analysts continue to hammer Delta on the fact that the entire industry benefits from the crack spread reduction while Delta is the only one to bear the costs. But that is taking too simplistic a view. First and foremost, operating performance on Trainer should continue to improve as US oil production expands thanks to the growth of shale. More importantly, Trainer serves a dual purpose as a longer run hedge against a sudden, 2008-style rise in oil prices, which is exceedingly important given Delta’s aging fleet.

Turning to the balance sheet, Delta ended the quarter with $3.66 billion in cash, cash equivalents, and short term investments, down 3.8% YOY from the end of Q1 2013. Free cash flow for the quarter was $390 million, sure to lead the industry. Delta’s operating cash flow was nearly $951 million against net capital expenditures of $570 million. The core thrust of Delta’s fleet and debt repayment strategy over the past few years has been to drive up free cash flow by limiting capital expenditures. And that strategy appears to be working. Delta also ended the quarter with $9.1 billion in adjusted net debt, down from $17.0 billion at the end of 2009.

Delta’s operating profit for the quarter was $620 million, yielding an operating margin of 7.0%!  To put that figure into perspective, most US airlines, especially Delta’s network peers, are likely to generate operating margins in the range of 7.0% for the full year – and Q1 is the weakest quarter of the year, especially when Easter falls in Q2.

Looking forward in 2014, Delta expects operating margins of 14-16%  in the second quarter, which are almost unheard of for non ultra-low cost carriers in the US. Over full year 2014, Delta aims for a 10-12% operating margin, $5 billion in operating cash flow and $3 billion in free cash flow. The case flow metrics will be boosted by the delivery of 19 Boeing 737-900ERs, which will be cash flow positive on day 1 according to CEO Richard Anderson. He also noted on the earnings call that the carrier will take delivery of 42 717-200s, which have 12-20 years of useful life left, and cost less than $10 million per copy.

On the earnings call, CEO Richard Anderson stated, “We’re determined to be a consistently high-performing S&P 500 company that deserves the trust of long term investors…. Our performance is the Delta standard for the industry” Based on Delta’s Q1 financial results, it appears that the company is rapidly approaching that status.