Bumpy takeoff: Delta cuts flights it planned to add in August

The airline warns it will be over two years before the industry recovers from the ‘staggering’ effects of the pandemic.

Delta Air Lines passenger planes parked at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, United States, where large US airlines have warned of furloughs in October when government stimulus funds run out [File: Elijah Nouvelage/Reuters]
Delta Air Lines passenger planes parked at Birmingham-Shuttlesworth International Airport in Birmingham, Alabama, United States, where large US airlines have warned of furloughs in October when government stimulus funds run out [File: Elijah Nouvelage/Reuters]

Delta Air Lines has scaled back the flights it planned to add in August amid a surge in COVID-19 cases and warned it will be more than two years before the industry sees a sustainable recovery from the “staggering” effects of the pandemic.

“We’re at a stall right now,” Chief Executive Ed Bastian told Reuters news agency, saying demand that built up over June for travel to places like Las Vegas, Florida or New York had suffered due to fresh cases and quarantines, while picking up to some mountain and international destinations.

It cut the flights it planned to add in August to 500 from 1,000.

Shares were down 3.1 percent in early trade.

Atlanta-based Delta posted a $2.8bn adjusted net loss, or $4.43 per share, for the second quarter as passenger revenue plummeted 94 percent during a season that some analysts call the worst in aviation history.

There's a lot of risk because it's hard forecasting what's going to happen with the virus.

Ed Bastian, Delta's Chief Executive

Delta stuck to its target to halt a daily cash burn, which hit $100m at the start of the pandemic, this year though Bastian warned it hinges on demand.

“There’s a lot of risk because it’s hard forecasting what’s going to happen with the virus,” he said.

The airline slowed its daily cash burn to about $27m in June and sees a similar rate in July, with improvements as economies open and people feel more comfortable travelling.

Delta had $15.7bn in liquidity at the end of June. It has not decided whether to take a $4.6bn secured loan under the CARES Act – available until September 30 – as it eyes other options involving similar collateral, Bastian said.

It already received $5.4bn to cover payroll through September under the US government stimulus package.

Large US airlines have warned of furloughs in October when those funds run out, but Bastian said he hoped to avoid furloughs after more than 17,000 employees opted for buyouts and thousands more for extended unpaid leaves.

More than 45,000 employees have taken varying short-term leaves.

A customer puts on a protective face mask while talking with a Delta Air Lines employee at Los Angeles International Airport in Los Angeles, California, United States [File: Patrick T Fallon/Reuters]

Cowen analyst Helane Becker called better-than-expected cost control the highlight of the quarter but said the revenue outlook “remains challenged due to erratic bookings and the extended pandemic”.

Limited seating

Delta may continue blocking middle seats beyond September thanks to demand for comfort but warned it cannot make money filling only 60 percent of its planes.

“You can’t raise prices high enough, particularly when your competition isn’t blocking middle seats and has a lot more supply out there,” Bastian said.

Southwest Airlines too is limiting seating capacity through September, but rivals American Airlines and United Airlines have added thousands of flights with all seats for sale on hopes of picking up summer leisure demand.

Delta, the first of the US airlines to report quarterly results, is more geared towards business travel, which will be slower to recover, but Bastian said its SkyMiles loyalty data showed business customers travelling for personal reasons and willing to pay a premium.

Delta, which had been expanding aggressively through international partnerships, wrote down $1.1bn against its recent LATAM Airlines investment and $770m against Grupo Aeromexico after their Chapter 11 filings, and booked a $200m charge against its stake in Virgin Atlantic, which is also restructuring.

Source : Reuters

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