Delta says air travel recovery has stalled, hopes more flyers return by end of summer

Delta Air Lines has joined those confirming the collective fears around the resurgence of COVID-19 in the U.S.: the recovery in air travel has stalled as businesses once again close their doors and Americans stay close to home.

The Atlanta-based carrier expects revenues, and by extension the number of flyers, to hold steady in July compared to June, Delta CEO Ed Bastian said during a second-quarter earnings call on Tuesday. The plateau follows two months of improvements, and what we now know was an overly-optimistic hope by many that the country had put the pandemic behind it.

"We have thought from the start that the recovery will be choppy, and the last few weeks have confirmed that's true," said Bastian.

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As a result of the stalling recovery, Delta's schedule will be down sharply. This year, the airline plans to fly only about a quarter of what it flew during the July-to-September quarter in 2019. The third-quarter schedule will be up from on average 10% compared to the second quarter, but still far below last year.

Delta is not alone seeing flyer numbers plateau. Data from trade organization Airlines for America (A4A) shows net bookings — new reservations minus cancellations — falling slightly for U.S. domestic flights at the end of June and then holding steady at around 20% of 2019 levels during the first week of July.

In addition, Southwest Airlines CEO Gary Kelly told staff on July 13 that the carrier was "concerned" about the negative impact on the recovery from the rising number of COVID cases and new travel restrictions around the country. And a week ago, United Airlines scaled back its plans to resume more flights in August citing the rising case counts and travel restrictions.

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

Delta, for its part, is cautiously optimistic that more travelers will again return by the end of the summer. Bastian anticipates something of a "step up" in demand after the current plateau before the Labor Day holiday. What happens after the holiday will depend in part on the return of business travel, which he said has yet to return in any meaningful way.

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The airline continues to block middle seats and go to lengths to give travelers confidence that flying is safe. Asked when Delta planned to resume selling middle seats, Bastian described the practice as a "really important safety feature" needed to instill passenger trust.

Delta is scheduled to end passenger caps in September, though Bastian's comments suggested they could be extended.

Related: Air travel recovery may come slower than expected

But Delta is far from out of the coronavirus woods. Delta lost $27 million a day in June, of which $17 million was on domestic flights alone. Its goal remains to get this to break-even by the end of the year, but that will only come with further cost cuts.

In a report on Tuesday, Raymond James analyst Savanthi Syth called the financial outlook "encouraging" given the tough economic backdrop.

Much of Delta's planned savings will come from workforce reductions. Around 17,000 staff took voluntary early departure packages, a number that Bastian said will "minimize" the number of involuntary furloughs and layoffs this fall. The airline is barred from shrinking its workforce before Oct. 1 under conditions of the coronavirus aid package, or CARES Act.

Related: New York adds threat of $2,000 fine to quarantine rules for travelers arriving from hot spots

The carrier has already sent mandatory notifications to more than 2,500 pilots of possible furloughs. Executives did not outline how many notices Delta may have to send to employees in other groups, such as flight attendants and ground staff, but the company must do so 60 days before any furloughs or layoffs under federal law.

United has sent notices of possible furloughs to some 36,000 staff, nearly half its U.S. workforce. American Airlines has yet to send notices but has said it expects to be overstaffed by year-end, for example by up to 8,000 flight attendants.

Southwest is a big question mark in terms of furloughs. The airline has never forcibly furloughed staff in its nearly 50-year history but, as Kelly noted in his July 13 message, it cannot rule them out given the current travel environment.

Related: Southwest Airlines CEO 'fights' to avoid furloughs, layoffs after coronavirus

"We need a significant recovery by the end of this year — and that's roughly triple the number of passengers from where we are today," said Kelly.

Cowen analyst Helane Becker estimates that more than 120,000 airline industry employees could lose their job as a result of COVID-19. Furloughs and layoffs of this magnitude would effectively return the industry to 2015 staffing levels.

In addition to the staff cuts, Delta has added its 10 Boeing 737-700s — something TPG flagged as a possibility in June — as well as 10 of its 62 Airbus A320s and seven of its 56 Boeing 767-300ERs the list of jets its retiring as a result of the pandemic. The airline has already removed its last McDonnell Douglas MD-88s and MD-90s, and will retire its 18 Boeing 777s this fall.

Related: When Delta shrinks after coronavirus, what planes will it retire?