Delta took an Omicron-sized hit in December that has continued into the new year. But the airline remains bullish on the recovery, which CEO Ed Bastian says can move forward apace now that Covid-19 is likely moving toward being an endemic, like the flu.
The Omicron variant came in hot and heavy for Delta Air Lines in December. After a relatively smooth Thanksgiving holiday travel period, the carrier saw elevated numbers of crews call out sick as Covid-19 cases spiked, and demand slacken over just a three week period. The fallout were hundreds of cancelled flights, and disrupted Christmas and New Year’s trips for thousands of travelers.
But the worst may be in the rearview mirror, at least according to Delta CEO Ed Bastian. He 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, he said during the Atlanta-based carrier’s fourth quarter results call on Thursday. 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.
“While the new variant is not done, it appears the worst might be behind us,” said Bastian.
But while Omicron may be on the outs, it has left its mark. “The 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,” said Bastian.
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.
And as if to confirm Fauci’s point, United Airlines CEO Scott Kirby told staff on Tuesday that no one in their ranks had died from Covid-19 since the airline implemented a vaccine mandate in September.
Delta maintains its outlook of a 2022 profit after 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 roadwarriors 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.
Staffing Woes Persist
Regional partner staffing is a challenge for Delta this year. The airline has reduced Delta Connection flying by 20-25 percent from planned levels in the first half of 2022 amid a broader pilot shortage affecting regional carriers, said President Glen Hauenstein Thursday. This has forced it to temporarily park some of its regional fleet — Hauenstein did not indicate how many aircraft — and end service to at least three smaller markets while pulling back in others.
“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,” he said with a note of optimism — one that has yet to be shared by many of Delta’s competitors.
American Airlines and United face similar staffing issues at their regional affiliates. Chicago-based United has exited more than smaller eight markets, as well as cut 14 routes from its Washington Dulles hub to make up for the shortage in pilots. In November, Kirby said United 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 that have lost United 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.” Bastian added that Delta itself faces no challenges hiring staff, and that regional “pressure points” are limited to high-cost markets like the northeastern U.S.
And 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. The airline flew 43 percent less passenger traffic on 29% less capacity year-over-two-years in 2021.
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.
“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.
Photo credit: Delta expects the impact of Omicron to wane quickly but that it marks the point where Covid-19 becomes endemic. Delta Air Lines