Delta Air Lines is the latest to cull schedules as a result of the pilot shortage facing the regional industry in the U.S. The Atlanta-based carrier has cut regional flights by as much as a quarter from previous plans through the first half of 2022 due to the staffing challenges at Delta Connection operators, Delta President Glen Hauenstein said Thursday.
The airline’s affiliates have been forced to pull out of several markets and temporarily park an undisclosed number of aircraft due to the staffing issues, Hauenstein said during Delta’s fourth-quarter earnings call. Its mainline operation does not face a lack of pilots — and is hiring between 100 to 200 new pilots a month — beyond the disruptions caused by the elevated number of employees out sick as a results of the Omicron variant surge, something that executives expect to subside within days.
“We’re really pretty confident now that by the second half of this year, that the [pilot] pipelines will be more full, and we’ll be able to restore a lot of the small- and medium-sized communities that we’ve had to pull down during the shortage in the first half,” said Hauenstein with a note of optimism — one that has yet to be shared by many of Delta’s competitors.
American Airlines and United Airlines face similar staffing issues at their regional affiliates. The latter has exited more than eight smaller markets, as well as cut 14 routes from its Washington Dulles hub to make up for the shortage in pilots. In November, United CEO Scott Kirby said the carrier had parked more than 100 small jets as a result. However, neither American CEO Doug Parker nor Kirby have publicly said when they think the pilot shortage will subside.
Many of the small airports where United has cut flights have said that the airline informed them of intentions to resume service within a year, or in 2023. That timeline suggests at least six more months of regional pilot staffing woes than Hauenstein said Delta forecasts.
Asked how Delta is mitigating the problem, Hauenstein said it is a matter of hiring people and getting them “through the training … with the right number of hours.” And Delta CEO Ed Bastian added that the airline is working closely with its affiliates, particularly wholly-owned Endeavor Air, to “mitigate” the disruption from the crew shortage.
The regional pilot shortage is the result of many of the actions taken by Delta and other airlines during the pandemic. Nearly every airline offered voluntary departure or early retirement packages to crews that, despite the industry avoiding any involuntary furloughs thanks to federal aid, depleted their senior ranks and forced them to step up hiring as the recovery surged. For major carriers, that has meant turning to their long-standing primary pool of new pilots: Regional airlines.
According to a recent analysis by The Air Current, the number of pilot retirements at U.S. mainline carriers in 2020 equaled the entire pilot ranks at Air Wisconsin, GoJet Airlines, and Mesa Airlines combined.
Airlines are taking various measures to address the shortage, which is only forecast to worsen as the decade progresses. These include partnering with flight schools and creating new pathway programs to increase the supply of new pilots. However, with current rules that require commercial airline pilots to have a minimum of 1,500 hours, most agree that these programs will take some time to actually increase the supply of pilots.
The Omicron variant came in hot and heavy for Delta in December. An elevated numbers of sick crews, resulted in hundreds — thousands across the industry — of cancelled flights, and disrupted holiday trips for thousands of travelers.
But the worst may be in the rearview mirror. Bastian expects Covid-19 case numbers in the U.S. to begin subsiding in the “next few days,” followed by a similarly steep decline to ones seen in other countries, including South Africa and the UK. This outlook has Delta forecasting losses in January and February with profits returning by March. Omicron is showing no adverse effect on bookings past the Presidents Day holiday weekend — February 19-21 — in the U.S., he added.
“The [Omicron] variant is likely to mark the shift in Covid-19 from being a pandemic to a manageable and ordinary seasonal virus, which should accelerate the path to a normalized environment,” he said. In other words: Covid-19 has become an endemic disease.
An endemic Covid-19 may sound less than ideal but, at least for airlines, it is something of a positive shift. As Bastian noted, living with the virus allows Delta to operate in a more normal manner — or as it did prior to the pandemic’s start in March 2020. Flight cancellations that spike along with the latest Covid wave would be a thing of the past, travelers could drink alcohol onboard planes again, and business travelers would return to the skies from their hermetic Zoom bubbles.
But even as Bastian spoke of returning to a “normalized” world, he did not dismiss the continued risk Covid-19 poses. After likening the virus to the seasonal flu, he noted that the flu is still a “pretty significant cause of death” in the U.S. And when asked about mask mandates on planes, Bastian declined to say when or whether U.S. rules requiring travelers wear masks on planes should be relaxed.
Many public health officials agree with Bastian’s view of an endemic Covid-19. The top U.S. infectious disease expert Dr. Anthony Fauci said Wednesday that, at this point, “virtually everybody is going to wind up getting exposed and likely get infected” with the virus. Vaccines and boosters dramatically reduce the risk of severe illness, added Fauci.
Delta maintains its outlook of a 2022 profit after what is now forecast to be an Omicron-driven first-quarter loss. Executives expect lucrative business travelers will continue to return once the variant subsides, and international markets to continue reopening with both tourists and corporate road warriors eager to travel again. The latter is expected to accelerate this summer, particularly between the U.S. and Europe, which has been essentially closed or greatly limited for the past two summer seasons.
And Now, The Numbers
Delta lost $2.6 billion on an adjusted basis in 2021, or a small $280 million profit when including the benefit of $4.5 billion in government Covid-19 aid and other special items. Revenues were down 36 percent to $29.9 billion and expenses by 31 percent to $28 billion during the year compared to 2019. Unit costs (CASM) excluding fuel and special items increased at an elevated rate of 11 percent to 12.12 cents.
In the fourth quarter, Delta lost $408 million including the impact of $564 million in one-time expenses. Revenues recovered to 83 percent of 2019 levels, passenger traffic to 72 percent, and capacity to 79 percent. And CASM-ex jumped 8 percent to 12.56 cents.
“Delta was on track for a better quarter, but flight cancelations hurt results at the end of the month,” wrote Cowen analyst Helane Becker on Thursday.
Looking ahead, Delta expects revenues to recover to 72-76 percent of 2019 levels — or to nearly $8 billion — in the first quarter. Passenger capacity will be 83-85 percent of three years ago. The March quarter bears the brunt of Omicron-related financial expenses, with executives anticipated $60-70 million in direct additional expenses.