Skift Take

A summer leisure-travel surge could sweep Delta to profits in the next quarter. The company doesn't expect a meaningful recovery in international or business travel until later in the year, however.

With bookings rising and demand for leisure travel surging, the recovery is within sight for Delta Air Lines, which now says it will return to profitability by the third quarter of this year. But that’s the future. The present for Delta, like for all its competitors, is stained with red ink.

The Atlanta-based carrier made news earlier this week when it said from May 1 it would no longer block middle seats, a coronavirus-mitigation tactic that Delta will be the last to abandon. This, despite the U.S. Centers for Disease Control and Prevention reporting this week that an empty middle seat reduces virus transmission. Still, Delta CEO Ed Bastian believes that by May 1 enough of the population will be vaccinated to make selling the middle seat safe again.

The move to unblock the middle seat will almost immediately increase Delta’s capacity and help its bottom line. The policy cost Delta between $100-150 million in March alone, President Glen Hauenstein told analysts during Delta’s first-quarter earnings call on Thursday. When it goes back to selling middle-seat tickets, Delta will increase the number of seats available to sell by almost one-third. Because of the policy, Delta had been operating more flights during the pandemic than its competitors, so opening up the middle seat will allow it to serve the expected surge in summer capacity without having to put more aircraft in the sky, Bastian said.

A summer Surge

As to the summer, Delta is licking its chops. Summer 2021 will not be summer 2019, but it could be close. Bastian expects demand to surge as a population that’s largely been cooped up for 13 months resumes taking summer vacations and visiting family and friends. “Our customers are reclaiming their lives, air travel will be central as people reconnect with loved ones and business colleagues replacing their screens with real human touch points as they venture out of their homes and communities to experience the world again,’ he said.

Bookings are up and the window is lengthening, Bastian said. In other words, customers are increasingly confident about the future to plan holidays further out than they had during the height of the pandemic. Travel restrictions are easing as states drop quarantine requirements and lift shelter-at-home rules. Furthermore, consumers have saved a record amount during the pandemic, and Delta executives believe they will be eager to spend those savings on leisure travel. Bastian also noted that Delta’s hubs on the coasts and in the Mountain West position it well to take advantage of the expected boom in travel to outdoors-leisure travel destinations.

The company is well positioned to increase — or decrease, if necessary — the number of flights it operates to match demand, Bastian said. Government payroll support has let Delta maintain staffing. The company is recalling more than 1,000 pilots in anticipation of the summer surge. But executives noted that recent cancellations during the Easter holiday weekend were not due to insufficient staffing but to scheduling issues,

Business and International Travel Remain Depressed

Notably muted in Delta’s planning is business travel, a sector that generated much of its — and its competitors’ — profits before the pandemic. Business travel is about 20 percent of pre-pandemic levels, which is better than it was at the end of 2020, when corporate travel was about 15 percent of 2019. Hauenstein said one-third of Delta’s corporate customers expect to resume some travel by the next quarter, but the recovery won’t begin in earnest until after September’s Labor Day holiday. Much of this recovery will depend on the pace of vaccinations and whether companies continue reopening offices. Small- and medium-sized businesses have sent employees out on the road more than large companies, and this trend is expected to continue. Travel to trade shows and conferences is expected to recover last, he said.

International travel also is a fraction of what it was in 2019. Bookings are between 15-25 percent of pre-pandemic levels now and will only change as countries ease travel restrictions. Bastian believes U.S.-Europe traffic will recover first. A U.S.-UK travel corridor could “possibly” begin by the early summer, he said. The next region to recover will be travel to Latin America, provided countries in that region can control the virus and step up vaccinations. It will probably be a “year or more” until travel to the Asia-Pacific region returns to 2019 levels, he said.

When that travel does return, though, it will be to a vastly different market. The U.S. has been generous with aid to the airline industry. Other countries have not. Several of Delta’s international competitors, like Norwegian Air, have declared bankruptcy. This could redound to the U.S. airlines’ benefit when travel resumes, he said.

Delta’s daily cash burn — a metric airlines have used during the pandemic to measure losses — for the quarter was $11 million per day, down from $12 million per day at the end of last year. Notably, however, the company’s cash burn turned into cash generation, earning $4 million per day. “Our cash flow and earnings [are] close to inflection,” said Chief Financial Officer Garrett Chase.

Wading into controversy

Delta generated a fair amount of controversy this month when Bastian, after facing blowback for a tepid initial response, came out publicly against a new voting law in Georgia that critics say restricts access to the polls. Senate Minority Leader Mitch McConnell (R-Ky.) and other Republicans reacted furiously to Bastian’s criticism, saying companies should stay out of politics. Georgia state lawmakers have threatened to revoke a jet fuel-tax exemption that could cost Delta up to $35 million this year. But Bastian said consumer sentiment has not been affected, despite Republican calls to boycott the airline. Bookings have remained steady.

Another controversial topic Delta waded into in recent years is government subsidies for Qatar Airways, Emirates Airline, and Etihad Airways. Bastian led the charge in the U.S. to argue that state aid to those airlines distorted the market. But Delta this year has benefited from the more than $70 billion the U.S. government has funneled to the airline industry. The U.S. aid was to stabilize the airline industry during an emergency, he said, while state aid to the Middle Eastern carriers was aimed to help them grow. “I don’t think [U.S. aid] changes the character of what our issues were in the past,” Bastian said.

And now, the numbers

Delta reported a $1.5 billion first-quarter loss on revenues of $4.2 billion, down 65 percent from March 2019. (Airlines are comparing this year’s results with 2019, as they began to experience the pandemic’s effects in March of last year.) The company’s first quarter loss was offset by $1.2 billion in payroll support from the federal government. This benefit will continue, as Bastian confirmed the company will take payroll support funds provided in the most recent round of coronavirus economic aid. Capacity fell by 55 percent from 2019. Bookings are approaching 85 percent of 2019 levels, and with the resumption in selling middle seats, Delta expects revenues to be 45-50 percent of 2019 in the third quarter.

Reach new heights in aviation
November 12 in Dallas
See Who's Onboard

Have a confidential tip for Skift? Get in touch

Tags: business travel, delta air lines, leisure travel

Photo credit: Delta Air Lines ays it will return to profitability by the third quarter of this year. But that’s the future. The present for Delta, like for all its competitors, is stained with red ink. Miguel Angel Sanz / Unsplash

Up Next

Loading next stories