Delta bullish on the return of business travel, despite 'alarm bells' of skeptics

Not so fast on those predictions about the death of business travel following the coronavirus pandemic.

Delta Air Lines aggressively forecast that corporate travelers would return in the second half of 2021 and credited its strategy of keeping the middle seat empty for luring an ever-increasing share of them.

“I think business travel has a very strong opportunity to return over the next two years and we will be well-positioned to get it,” CEO Ed Bastian said Tuesday on Delta's earnings call as the carrier led off airline industry fourth-quarter reporting.

Bastian continued his assault on tech-inspired predictions of a permanent business travel decline due to the rise of Internet video conferencing. Notably, billionaire Bill Gates has pontificated that more than half of business travel "will go away" following the pandemic.

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Delta does not share that view. When an analyst questioned the carrier's strategy of adding more premium seats as it rebuilds its fleet, Bastian responded, “I wouldn’t draw the conclusion that corporate travel is impaired at all."

“I don’t think we should be worried or ringing alarm bells as to the future of corporate travel,” he said, noting that cost-cutting Delta has 200 fewer airplanes than it did at the start of the coronavirus crisis.

Bastian said Delta expects that “sustained recovery will begin in the second half of 2021.” The carrier will be at breakeven or better by the second quarter, he said, after suffering a $755 million net loss in the fourth quarter. For the full-year, Delta's loss was a staggering $12.4 billion. Daily cash burn was $12 million in the fourth quarter and will total $10 million to $12 million in the current quarter.

“Demand will start to accelerate as vaccinations become more widespread,” Bastian said.

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Delta President Glen Hauenstein said that keeping the middle seat empty is boosting Delta’s reputation among business flyers.

“The brand was never stronger (and) our revenue premiums have never been higher,” Hauenstein said. “Customers value the Delta difference (including) the least amount of sellable capacity,” as well as the carrier’s safety standards during the coronavirus crisis and its workforce.

Hauenstein laid out a scenario for a three-phase recovery.

In the first phase, which continues fourth-quarter trends, demand choppiness will continue, with ticket sales down 50% from 2019. In the second, likely to come this spring, customers will start to regain confidence and will buy tickets for travel farther into the future.

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In the third and final phase, which Hauenstein put in the second half of the year, vaccines will become more widespread and Delta will see “sustained improvement of demand and yield," he said, adding that leisure travelers will return before corporate travelers.

During the call, Hauenstein recalled a Delta slogan, “Delta Is ready when you are,” to indicate that Delta “will be ready to serve our corporate customers.”

Bastian cited a survey of Delta’s large corporate customers, which showed that 40% anticipate being fully back to 2019 business travel levels by 2022. Another 11% anticipate a full return by 2023. In contrast, 42% said they aren’t sure when they will be back and 7% said they will never be back.

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Despite “all the dialogue and speculation about the death of business travel,” at least 51% say they will return by 2023, Bastian said. If just half of those who are reluctant return, “that gets you 75% of the way back no later than 2023,” he said, noting “that’s a very pessimistic view.”

Bastian was non-committal when a reporter asked when Delta will again begin to sell middle seats. So far, the carrier has said it plans to block them through March 30.

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“We've not made a decision beyond the end of March relative to when to unblock the middle seats," Bastian said on the call. "We have some time to continue to look at that. I think it's going to be very much driven by customer demand, customer input, the confidence customers have in those seats."

Empty middle seats are “one of the important reasons why Delta has been able to earn an even higher revenue premium than we’ve always had,” he added. “We want to be very careful as we make that decision.”