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Delta to Avoid Most Furloughs Even as It Reports Staggering $2.6 Billion Quarterly Loss

Madhu Unnikrishnan

October 13th, 2020

Delta Air Lines expects to be a much smaller carrier, at least for the next couple of years when it expects demand to start to return to pre-pandemic levels. The airline has avoided the furloughs that its competitors have endured to shrink by 20% from its pre-pandemic size, CEO Ed Bastian said on the company’s third-quarter earnings call on Tuesday.

Almost 17,000 Delta employees have taken voluntary separation packages, and about 10,000 are on unpaid leaves of absence, and several thousand more have reduced their work hours, all of which allowed Delta to avoid furloughs. United and American, by contrast, are in the process of furloughing more than 30,000 employees. Southwest also has not furloughed employees, relying, like Delta, on voluntary separations to match its workforce with demand. Delta is in talks with its pilots union for modifications to their contract to avoid about 1,700 pilot furloughs. Without the concessions, Delta expects to begin furloughing those pilots on Nov. 1. Bastian noted that Delta’s labor costs have fallen by 40% over the last six months.

Still, Bastian said the company supports extending federal payroll support for airline employees. “The virus is not at the level of containment we thought it would be when the first grant was issued,” he said, referring to the $25 billion provided by the CARES Act earlier this year. “We are still hopeful something might happen.”

Delta is beginning to see timid signs of recovery in air travel demand. About 90% of its corporate customers have resumed business travel, although in much smaller numbers than before the pandemic struck. Videoconferencing and other remote-work tools could have a “small” impact on business travel, Bastian admitted, but “no one knows.” Unlike earlier in the pandemic when leisure customers booked tickets close to the day of travel and frequently changed their tickets, Bastian said Delta is seeing more bookings farther out from the day of travel, suggesting that consumer confidence is beginning to return. “Every month we see more and more customers booking further out,” he said. “We need to continue to see the development of that confidence.”

Overall U.S. demand remains about 35-40% of pre-pandemic levels, but Delta is seeing variation within the U.S. Demand to its coastal hubs, like New York, Boston, and Seattle, remains depressed. Demand is higher at its mid-continent hubs, Detroit, Atlanta, Minneapolis, and Salt Lake City. Passenger traffic to Florida, other beach destinations, and in the Mountain states is higher than at the coasts, Delta said. Fourth-quarter capacity is expected to be 30-35% of the same period in 2019.

Rapid-result coronavirus testing could further improve consumer confidence, but Bastian said it is unlikely the U.S. will implement a nationwide program, but testing could become a requirement for international travel. “The goal is to eliminate quarantines,” he said. Rapid-result testing could be made part of the boarding process, but he said the “wild card” is how the virus is contained.

Delta is cutting costs further by simplifying its fleet structure. It has already retired its MD-90 fleet. Boeing 777s will exit the fleet at the end of this year. The airline will retire its remaining CRJ-200s by 2023, and its B717s and B767-300ERs will be retired by 2025. These retirements will help reduce both pilot-training costs and maintenance expenses. Overall, Delta expects to retire about 400 aircraft between now and 2025. Delta also has restructured its orderbook with Airbus to defer some orders, reducing its aircraft expenses by $2 billion this year and $5 billion through 2022.

One thing that has accelerated during the pandemic is investment in airport infrastructure, as Delta takes advantage of lower passenger traffic to build out some of its facilities. The airline recently unveiled a new terminal in Salt Lake City. Airport improvement projects at New York LaGuardia, Los Angeles International, and Seattle are moving along at a faster pace, President Glen Hauenstein said.

Delta reported a $2.6 billion adjusted loss — $5.4 billion, unadjusted — on $2.6 billion in revenue. The company took $701 million in federal funding through the CARES Act during the third quarter. Delta’s cash burn in the quarter was $18 million per day, down from $27 million per day in the second quarter. The company expects to reduce its daily cash burn to $10 million in the fourth quarter.

“While our September quarter results demonstrate the magnitude of the pandemic on our business, we have been  encouraged as more customers travel and we are seeing a path of progressive improvement in our revenues, financial results and daily cash burn,” Bastian said.

Madhu Unnikrishnan

October 13th, 2020

Photo credit:  Flickr / blackqualis

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