Monday, September 25, 2023

Delta chief expects return to profitability by summer

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Delta Air Lines chief executive Ed Bastian said the US carrier will return to profitability this summer as it begins to recover from the pandemic.

The Atlanta-based group chief executive also said he would break even in the second quarter, even though the recovery in international business travel will take at least another year.

Demand will be volatile early this year as passengers wait until the last minute to purchase their tickets, Bastian said.

This will be followed by an inflection point when the market begins to recover, paving the way for sustained increases in ticket sales.

“By the summer, we hope to return to profitability,” Bastian told the Financial Times.

Airlines have struggled to accurately forecast cash flow in a rapidly changing operating environment, and many major carriers have avoided specific profit forecasts.

Neither United nor American Airlines gave a date when they expected to break even on their most recent revenues in October.

In Europe, British Airways owner IAG had hoped to break even in the fourth quarter of last year, but withdrew its guidance as a new wave of infections spread across its key markets.

Cowen analyst Helane Becker said in a note that Delta’s plan to break even after March was “aggressive” given the current state of reservations.

With an 85% drop in business travel, “it is becoming increasingly clear that business travel will not contribute significantly to income in 2021, as vaccination timelines continue to change.”

The seats of Delta projects that it can sell on flights will be down 55% in the first quarter compared to the same period in 2019.

The airline’s policy is to block out the middle seats on the plane, reducing the total number it can sell by about a third. Revenue will fall 65% to $ 3.7 billion in the first quarter.

Although domestic business travel could pick up in the second half of the year, Bastian said the recovery in international business travel “is probably a year away.” I don’t think that will happen in any meaningful way until the spring or summer of next year ”.

Delta declared a net loss of $ 12.4 billion in 2020, the largest in its history, as Covid-19 devastated the airline industry around the world. Compared with 2019, operating revenue fell 64% to $ 17.1 billion.

For the fourth quarter of 2020, the airline reported a net loss of $ 755 million on $ 4 billion in operating revenue, compared to $ 1.1 billion in net profit on $ 11.4 billion in revenue during the same period in 2019.

The company reduced its average fourth-quarter cash consumption to $ 12 million per day, from $ 24 million in the third quarter and $ 100 million the day the pandemic took hold in March in Europe and the United States. Operating expenses fell by more than half to $ 4.8 billion.

Mr Bastian said in June that Delta would reduce its cash consumption to zero by the end of 2020. In October, it readjusted that target to $ 10 million per day in December and to zero in the spring.

The airline projects average daily cash consumption of $ 10-15 million in the first quarter of 2021.

Delta executives believe this year’s summer travel season will improve through 2020, Bastian said, and if the airline cuts cash usage, “we’d miss the rebound.”


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