Delta Air Lines sees a more 'premium' future in coronavirus recovery
Delta Air Lines is looking past the novel coronavirus pandemic at what it will look like post-crisis and it sees a future more reliant on give flyers a "premium experience."
While safety will be top of mind post-COVID-19, leaders in the carrier's executive suite are mapping plans to give passengers a "more premium experience," said Delta CEO Ed Bastian during a first quarter earnings call on Wednesday. He cited the airline's strong brand and operational reliability that will continue to be strengths after the crisis.
"We're going to spend the time in these next few months as we build the company we want for the future, not necessarily rebuild what we had," Bastian said. "That's going to be an opportunity for us to focus on a more premium experience."
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This good news for travelers, at least those able and willing to fly again. Delta was already the leading U.S. airline in passenger experience before COVID-19. It prided itself in things like upgrading its service in economy on long-haul international flights last fall, and installing personal entertainment screens on all new aircraft.
Initiatives like those already underway will likely continue, in addition to a newfound priority on personal safety — especially when it comes to contagions like the coronavirus. Delta will adopt any measures necessary to put travelers at ease with flying, said Bastian. He emphasized a willingness to do anything, including adopting a so-called "immunity passport" that verifies a passenger does not have COVID-19.
"A recovery will be dictated by our customers feeling safe, both physically and financially," he said.
Related: At least 40% of travelers nervous about flying again after coronavirus
Stemming losses
Delta's positive, dare we say premium, outlook will not come easily. The airline lost money for the first time in at least five years with a $607 million pre-tax loss during the three months ending in March. That loss is almost certain to widen in the second quarter as the full brunt of crisis is felt over the full three-month period.
Today, U.S. airlines are carrying less than 5% of the number of travelers that they flew a year ago. Transportation Security Administration (TSA) screening data has hovered between 4% and 5% of the number last year for over a week. Prior to that, screenings were up year-over-year as recently as the beginning of March.
The near-total disappearance of air travelers has rapidly turned a strong financial period for airlines into a dire one. Delta was hemorrhaging $100 million in cash a day in March — a number that it will halve to $50 million by May — and United Airlines anticipates a roughly $2.1 billion pre-tax loss in the first quarter.
Related: Delta CEO says industry nears 'bottom' of coronavirus crisis, recovery a ways off
"The airlines headed into 2020 in arguably the best financial shape they've been in," Cowen analyst Helane Becker wrote earlier in April. "The coronavirus was something economies around the world, let alone the airlines, were not ready to handle."
Now, cutting costs is the name of the game. Nearly 37,000 of the roughly 90,000 Delta employees have taken voluntary unpaid leave, even with some $5.4 billion in payroll assistance from the U.S. government's coronavirus aid package, the CARES Act, on the way. Staff furloughs and layoffs are still expected once rules governing the aid sunset on Sept. 30.
Delta plans to fly just 15% of the capacity it operated a year ago in the June quarter. It will park some 650 jets — more than half its fleet — as part of this reduction.
Related: Delta still flying all of its Airbus A220s even as the coronavirus grounds more than half its fleet
Streamlined future
"While the resizing our business over the short term is painful, it will also be an opportunity to accelerate strategies to streamline our company, simplify our fleet and reduce our fixed cost base not possible in the past," said Bastian.
These efforts will see Delta retire its McDonnell Douglas MD-88s and MD-90s early this year. It is also looking at retiring some of its Boeing 757s and 767s, and small Bombardier CRJ200 regional jets in its feeder fleet.
New planes like the Airbus A220 and A350 will likely feature prominently Delta's post-coronavirus fleet. For example in March, the airline finalized a deal to take 10 A350 orders from partner LATAM Airlines for a future fleet of 39 of the jets.
Bastian and other executives did not comment on what the cuts could mean for Delta's route map. The airline's May schedules keep connectivity at its four core hubs but cut some of its coastal bases and focus cities to the bare bones, according to Cirium schedules. For example, its Boston (BOS) hub goes to just eight routes, all to other hubs except Pittsburgh (PIT).
One bright side to the downturn: Delta plans to accelerate its airport development projects, like the rebuild of Terminals C and D at New York LaGuardia (LGA), said Bastian.
Related: How will airlines rebuild their route maps after the coronavirus?
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