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Delta Air Lines retires more jets amid shaky outlook, nearly $6B quarterly loss

July 14, 2020
6 min read
Delta Airlines 737-700 Atlanta
Delta Air Lines retires more jets amid shaky outlook, nearly $6B quarterly loss
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Delta Air Lines is moving forward with efforts to cut costs, retiring more jets fresh off a nearly $6 billion loss during the second quarter.

The Atlanta-based carrier will retire its 10 Boeing 737-700s, as well as some of its 62 Airbus A320s and 56 Boeing 767-300ERs in a long-term cost savings effort, Delta said on Tuesday. This is on top of the Boeing 777s and McDonnell Douglas MD-88s and MD-90s that it has already retired.

"In this environment, we need to resize our business and build resilience to create a new, stronger Delta," Delta chief financial officer Paul Jacobson told staff in a memo Tuesday viewed by TPG. "That means streamlining our company, simplifying our fleet and reducing our fixed cost base in ways not feasible in the past."

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More from Delta's Q2 earnings: Delta says air travel recovery has stalled, hopes more flyers return by end of summer

The fleet moves come after a grim three months for Delta. The airline saw operating revenues plummet by more than $11 billion, or 88%, year-over-year to $1.5 billion during the quarter ending in June. However, expenses only fell 40% to $6.3 billion.

Delta reported a $5.7 billion net loss during the period. While not unexpected — and likely just the first of steep airline industry losses — it is a dramatic reversal from its $1.4 billion net profit during the three months ending in June 2019.

Jacobson was not optimistic about the outlook for the current quarter that ends in September. The airline was losing $27 million a day in June that, while a significant improvement over past months, is still a sizable sum. At the same time, rising coronavirus case numbers and new travel restrictions have hit July and August hard, with Jacobson saying new bookings have declined in recent weeks.

"Increased bookings are key to achieving our goal of breaking even on a cash basis by the end of the year, and we’re working to manage that volatility through tight management of our capacity and costs," he said.

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Related: Delta likely to pull flights as number of US coronavirus cases rises

Delta's staff also face the impending likelihood of furloughs or layoffs come October. CEO Ed Bastian told the Financial Times on Tuesday that, with more than 15,000 staff taking voluntary exit packages by July 13, the number of involuntary departures "will be much smaller than the numbers at United or American."

The carrier has already sent notices of possible involuntary furloughs to more than 2,500 pilots. Similar notices could still be sent to other members of its workforce with federal rules only requiring at least 60 days notice, or by the beginning of August.

United Airlines has warned 36,000 staff of possible furloughs, and American Airlines has told staff that they could have as many as 8,000 flight attendants more than they need by the end of the year.

Related: United Airlines may furlough up to 36,000 staff as coronavirus forces drastic cuts

Delta accepted $5.4 billion in payroll assistance from the federal government's coronavirus aid package, or CARES Act, in April. The funds came with rules that barred the airline from letting staff go, as well as from suspending flights to most U.S. cities, until after Sept. 30.

In addition, the airline is evaluating taking another $4.6 billion in general loans from the CARES Act.

Delta's management team will present their second quarter earnings and discuss the carrier's outlook later on Tuesday.

Related: State-by-state guide to coronavirus reopening

Featured image by Alberto Riva