Delta CEO says industry nears ‘bottom’ of coronavirus crisis, recovery a ways off

Apr 9, 2020

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Delta Air Lines CEO Ed Bastian thinks the industry is near the worst of the novel coronavirus pandemic that has reduced the demand for air travel to near zero.

“I think we’re pretty close to the bottom,” Bastian told employees during an April 8 webinar viewed by TPG. “You can’t get much lower than where it’s at today.”

Atlanta-based Delta is pulling in less than 10% of its normal daily revenues — on average $129 million a day in 2019 — with planes about a quarter full, according to Bastian and airline data.

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The bottom would be welcome news for an industry hit hard by the coronavirus. Airlines were among the first to see customer demand collapse as the first cases of COVID-19 in the U.S. were confirmed at the end of February. The industry, which is deemed essential by the government, has fought to cut capacity fast enough as travelers have all but disappeared.

Today, it is not unusual to see nearly empty flights. Most of the people still flying do so because they need to, for example critical healthcare workers and government officials, and not because they want to.

The number of people passing through Transportation Security Administration checkpoints fell from nearly 2.3 million on March 1, the first Sunday in March, to 122,029 on April 5, the first Sunday in April, according to the agency. The screening data includes certain airline staff.

The number of screenings fell below 100,000 for the first time in the TSA’s history on April 7. That’s equivalent to the number of of people who flew on a daily basis more than 60 years ago in 1954.

Related: How long will US airlines’ cash last? Between 4 months and a year

U.S. traffic numbers appear to be stabilizing at down roughly 96% compared to the same seven-day period in 2019, according to an Airlines for America (A4A) update on April 9. However, net bookings were down 101% on a weekly basis at the end of the March. In other words, more reservations are being cancelled than being made.

“With bookings almost nil and cancelations high – and with half the world (including 95% of the U.S. population) subject to stay-at-home orders – we continue to see these already-depressed passenger volumes worsen,” A4A chief economist John Heimlich told TPG. The organization represents 10 U.S. airlines, including Delta.

Carriers have responded to this unprecedented drop in both traffic and revenue by slashing capacity. Delta has cut its schedule by more than 80% but continues to serve all of the U.S. destinations on its map, albeit on a greatly reduced basis. Other airlines have made similarly drastic reductions, some even consolidating routes or temporarily dropping cities entirely from their maps.

The U.S. government is providing more than $50 billion in aid to airlines through the coronavirus stimulus package, officially known as the CARES Act. Delta and at least eight other airlines have applied for the $25 billion in compensation grants available under the package.

Related: Delta CEO reassures staff as it shrinks operations, cuts hours

KANSAS CITY, MISSOURI - APRIL 03: Planes belonging to Delta Air Lines sit idle at Kansas City International Airport on April 03, 2020 in Kansas City, Missouri. U.S. carriers reported an enormous drop in bookings amid the spread of the coronavirus and are waiting for a government bailout to fight the impact. Delta lost almost $2 billion in March and parked half of its fleet in order to save money. (Photo by Jamie Squire/Getty Images)
Delta jets stored at Kansas City International Airport in April 2020. (Photo by Jamie Squire/Getty Images)

 

The one thing no one claims to know is how long COVID-19, and the recession caused by the near shut down of the U.S. economy, will put a damper on travel demand. Wall Street analysts and the International Air Transport Association (IATA) expect some recovery in the second half of 2020, though they anticipate passenger numbers at least a fifth lower than 2019 next year.

“I think this industry is going to be smaller for some period of time here as we build back, and I don’t know what that pace of recovery will be,” Bastian told employees. “It will really be dictated based on when customers feel safe to travel again in large numbers.”

Delta is already preparing to emerge smaller. The carrier has parked more than 600 jets and is evaluating what models will not return to service. To date, it has only confirmed that its 77 McDonnell Douglas MD-88s and MD-90s will be retired.

In the next several months, Bastian and Delta’s leadership team will look at the airline like a “white sheet of paper” in order to visualize what it will look post-crisis.

“We’re still going to be Delta, but how we do it is going to be different,” he said.

Related: How will airlines rebuild their route maps after the coronavirus?

Featured image by Jamie Squire/Getty Images.

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