Skift Take

As with earlier attempts to forecast the recovery, Delta's optimistic outlook may prove overly bullish as the industry continues to struggle.

Delta Air Lines is mapping out a three-phase recovery plan for the return of corporate travelers, prompting executives to forecast the optimistic possibility of profits by summer.

A new survey of the Atlanta-based carrier’s largest corporate customers found that 40 percent plan to resume 2019 levels of business travel this year and another 11 percent in 2022, Delta CEO Ed Bastian said during the company’s fourth quarter earnings call on Thursday.

Conversely, another 42 percent of large corporations were unsure when they would return to 2019 travel levels and 7 percent said they would never fully return.

“All indications are corporate travel is ready to start coming back and will come back pretty aggressively beginning the second half of this year,” said Bastian.

The return of corporate road warriors is critical for the airlines’ recovery. While a smaller percentage of overall flyers than those going on holiday or to visit relatives, business travelers spend more on things like expensive last-minute tickets and posh business class seats. This makes a corporate recovery key to the industry’s aims to stop burning cash and, at some point, begin generating profits again.

Not everyone is as optimistic about business travel. A December survey by Atmosphere Research only found one percent of corporate travel managers and buyers anticipating a full recovery in travel spending this year. Another 37 percent expect to be back by 2023, though that percentage has risen steadily during the last months of 2020.

“They’re not as concerned about the flight, they’re more concerned about the employees’ journey to and at the airport, and where they’re going,” Atmosphere co-founder and travel industry analyst Henry Harteveldt told Skift. Very terrestrial concerns that are outside the control of Delta and other airlines.

The large airline trade groups, the International Air Transport Association (IATA) globally and Airlines for America (A4A) in the U.S., do not expect a full travel recovery until at least 2024.

Wherever corporate sentiments lie does not change the fact that airlines face a tough winter. Travel demand remains at record lows, having fallen during the first weeks of January from a pandemic peak over the Christmas and New Year’s holidays. Data from A4A shows U.S. traffic numbers down 63 percent year-over-year during the week ending January 12.

Carriers have pulled back on flights since the beginning of the year. Delta plans to fly as much as six percent fewer seats in January and February than it did in November and December, airline president Glen Hauenstein said Thursday. And while Delta maintains broad flight connectivity over its “core” hubs — Atlanta, Detroit, Minneapolis/St. Paul and Salt Lake City — operations at its coastal hubs in Boston and New York remain a fraction of what they were prior to the pandemic.

Asked about the newly approved American Airlines and JetBlue Airways alliance, Hauenstein said Delta is “very confident” in its products and services. He added that the airline looks forward to competing with the new partners in Boston and New York where they are now allowed to coordinate schedules.

Three Phase Recovery

Delta expects 2021 to play out over three distinct “phases,” as Hauenstein put it. The first as a continuation the “choppy” travel demand that dominated 2020 through the winter. An “inflection point” when customer confidence begins returning will mark the second phase sometime in the spring. And a dramatic pick up in travel — the pent-up demand airlines repeatedly say they see in the market — accompanying the broad availability of Covid-19 vaccines sometime during the summer.

“I think in the next 90 days we’re going to see the greenshoots we need to see,” Hauenstein told Delta staff during an employee town hall on Thursday viewed by Skift.

This trifold outlook differs slightly from that held by many Wall Street analysts and other airlines. They talk of 2021 as a year of two halves: the first half marked by dampened demand through the winter and spring, and the latter a dramatic recovery accompanying the broad availability of vaccines sometime mid-year.

“We expect a disappointing [first half of 2021] before seeing a leap forward in demand” late in the third quarter or in the fourth quarter, wrote Cowen analyst Helane Becker in a report Monday. She added that, while optimistic for the vaccination roll out and reopening of some international travel, she has “little hope” of a sizable recovery in business travel this year.

While the consensus is that 2021 will be defined by two distinct periods, some analysts align more with Delta on the tipping point occurring sometime in the spring.

Whenever that inflection does occur, flyers should not expect Delta to quickly return to its pre-pandemic schedules. The airline plans to steadily add seats back to its operation by both unblocking middle seats, which it has kept empty since at least April, and returning larger jets to its schedule. In other words, travelers are likely to see more planes like the Airbus A321 — a large narrow-body jet with seats for 191 passengers — flying at Delta before its pre-crisis flight frequencies return on busy routes.

For the many travelers who have enjoyed an empty middle seat, Delta has made no decision on when it will end the practice, Hauenstein said during the earnings call. Blocks are in place through March 30 and will only be lifted as customer confidence and travel demand returns.

Fourth Quarter in Numbers

Delta reported a $755 million net loss on nearly $4 billion in operating revenues in the final quarter of 2020. Critically, it halved its daily loss — known as cash burn — to an average of just $12 million a day. However, owing to the choppy outlook, Delta expects comparable cash burn numbers in the first quarter. Liquidity stood at $16.7 billion at the end of December.

The carrier expects revenues to be down 60 to 65 percent in the first quarter of 2021. It plans to fly roughly 65 percent of the capacity it flew a year ago.

For the full year, Delta posted a $12.4 billion net loss in 2020, a dramatic reversal from its $4.8 billion profit the year before. Revenues fell 64 percent to $17.1 billion and expenses 27 percent to $29.6 billion. The airline shrank by more than half, with capacity down 51 percent, and passenger traffic plummeted 69 percent.

“It’s a year for the record books for all the wrong reasons,” Bastian told staff of 2020 during the town hall Thursday.


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Tags: coronavirus, coronavirus recovery, delta air lines

Photo credit: Delta plans to fly more larger jets, like this Airbus A321, on flights this spring as it slowly recovers from the crisis. Anna Zvereva / Wikimedia

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