Delta Air Lines executives do not expect “sustainable recovery” for two years or more, nor do they predict business travel ever will revert to 2019 traffic levels, they told analysts Tuesday, while announcing a second-quarter pre-tax loss of about $7 billion.

Delta executives have said for months they expect to emerge from Covid-19 running a smaller airline, but like many competitors, they tried to strike a more positive tone in earlier comments. Some of that was missing on Tuesday, as they told analysts this summer’s domestic travel recovery not only had begun to slow, but may never have been as robust as some had hoped.

The problem is money. More people are traveling now than two months ago, as Transportation Security Administration screening numbers show, but Delta remains in considerable financial distress. In June, the airline averaged $27 million in cash burn per day, a considerable decrease from $100 million in late March, but still not sustainable. And with “demand growth stalled,” according to CEO Ed Bastian, Delta should burn roughly the same this month.

“While it’s encouraging to see customers start to return, the revenue environment remains challenging,” Bastian told analysts on the carrier’s second-quarter earnings call. “We have thought from the start that the recovery will be choppy, and the past few weeks have shown that to be true.”

Short-Term Prognosis Not Good

In June, when it ran a skeleton schedule, Delta announced it would add roughly 1,000 flights in August, to capitalize on increasing demand. But it is now planning to add about half that many, Bastian said Tuesday in a television interview.

On the earnings call, Bastian said there’s still more overall demand for air travel than in the spring, but said Delta and its competitors may have moved too fast to add new flights for the end of summer, creating a supply-and-demand imbalance. Like Delta, United Airlines also has pulled back on plans for August growth.

“As we look forward, it has slowed, but it hasn’t stalled,” Bastian said. “It’s very flattish, just up slightly, but it’s not a slump.”

By historical standards, Delta is now a tiny airline. For the overall summer quarter — June through September — Delta’s capacity is expected to be between 20 and 25 percent of what it was last year. This accounts for Delta’s policy of blocking middle seats to promote social distancing. It is up 10 percent compared to capacity during the April through June period.

Revenue will be similar. Normally, the summer quarter is Delta’s most profitable, because of strong leisure demand. But this year is different, with the airline expecting revenue will be 20 to 25 percent of last year’s number.

Demand and revenue may stay depressed for the rest of the year, but Bastian said he is optimistic about “real improvement” after the summer and fall periods.

“I don’t want anyone to get a sense that we’ve got a gloomy forecast on revenue or demand growth, not at all,” he told analysts. “This is expected. We said at the start of this pandemic that this is going to be choppy. It’s going to be unpredictable. It’s going to be driven by factors outside of our control, which are really advances on the medical front in containing the virus.”

Changes in Business Travel

Typically, a new business travel season would begin in September, with Delta shifting its focus from transporting vacationers to flying road-warriors. Delta is expecting some business travelers to return after Labor Day, but Bastian said the airline is not counting on meaningful recovery among corporate travelers for a year to 18 months.

Some have predicted much of business travel will be replaced by video conferences, but Bastian said he does not expect the big decrease in corporate traffic will be permanent.

Still, he said, the types of trips travelers take may be different. In the past five years, many of Delta’s customers were quick to get on an airplane, and some might travel for just a two-hour meeting, often paying big money for a preimum seat. Some of those trips may never return, Bastian said.

“The number of trips that the average road warrior takes, I’m sure is going to come down in certain cases,” Bastian said. “The international trips that we’ve all been on where we’ve flown over to Europe for a two-hour meeting and flown back. That does nothing but beat you up, and you’d certainly be much better accommodated over a video call. But it’s going to be trips that are focused on relationship building or interacting —  whether it’s with your customers, conventions, new contacts, reviewing performance on a global scale — those are going to stay.”

Still, on absolute numbers, Bastian said, “I don’t think we’ll ever get back entirely to where we were in 2019 on the volume of business traffic.”

Business travelers have accounted for about half the airline’s overall revenue in the recent past.

A Smaller Airline

While United Airlines announced last week plans to furlough as many as 36,000 employees, Bastian said Delta may be able to avoid or minimize its furloughs.

The airline has asked workers to take voluntary leaves and early retirement, and has had some success, Bastian said. He told analysts more than 17,000 employees, or about 20 percent of the company, already have agreed to leave. Many departing workers are among Delta’s most senior employees, Bastian said, so the airline will save more money on each salary than United, which will furlough in reverse seniority order, as required by collective bargaining agreements.

Delta also is reducing its fleet by more than 100 aircraft. In the first quarter, the airline said it would speed retirements of its MD-88s, but more recently, it took more decisive action. By year-end, it now plans to retire all of its MD-90s, Boeing 737-700s and Boeing 777s, as well as some Boeing 767-300ERs and some Airbus A320s.

Tied to the aircraft retirements, Delta in the second quarter took a $2.5 billion restructuring charge.

Delta also is working with Airbus to reduce the number of aircraft deliveries over the next two years, Bastian said. “Clearly, we’re in a situation where we don’t need any aircraft, we have a lot of aircraft on the ground,” he said.

Losses From Investments

During the second quarter, Delta also took a big impairment charge because of its investments in struggling foreign airlines.

It recorded a $1.1 billion write-down of its investment in Latam Airlines, and a $770 million write-down from its Aeromexico investment. Both carriers have filed for bankruptcy protection.

In addition, Delta took a $200 million charge related to its investment in Virgin Atlantic. The UK airline recently avoided bankruptcy by raising roughly $1.5 billion in new funding.  

Photo Credit: A maintenance worker disinfect the aircraft surfaces on a Boeing 757. The airline is cleaning airplanes more thoroughly. Delta Air Lines