Delta confirms travel recovery is underway as airline posts $1.2 billion loss for Q1
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Delta on Thursday reported what it expects could be its last major quarterly loss of the COVID-19 pandemic era, saying it expects to see travel demand continue to pick up and allow the airline to reach break-even by next quarter.
The airline reported a $1.18 billion net loss coming on $4.15 billion of revenue for the first quarter of 2021, with revenue down 60% from the same quarter in 2019, the last pre-pandemic fiscal year.
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Delta — and other U.S. airlines — have generally noted that while the first quarter started off slow, as the pandemic continued to severely depress most travel, close-in and longer forward bookings improved dramatically in March as the pace of vaccination in the U.S. accelerated. As Americans continue to become more optimistic over the state of the pandemic domestically, airlines expect that trend to continue.
“The first quarter had two distinct periods, with the first half feeling very much like an extension of 2020 as demand was slower than expected,” CEO Ed Bastian said on a call with investors. “But as case counts declined and vaccinations accelerated, demand picked up meaningfully later in the quarter, allowing us to achieve $4 million of daily positive generation in the month of March, the first positive cash generation.”
“Since the onset of COVID-19, this marks a critical milestone in the path to restoring our financials,” he added. “It is truly a great accomplishment, especially considering that our middle seat block limited the inventory that we’re selling and business and international travel remain muted.”
Delta, the only US airline still blocking middle seats to allow for on-board social distancing, previously announced that it would begin filling the seats starting May 1. The airline also filled middle seats over Easter Weekend to accommodate stranded passengers after nearly 100 flights were cancelled due to a pilot shortage.
While the surge in pent up travel demand is certainly good news for the airline — Bastian said he expects the loss to be cut in half for the second quarter and for the airline to return to profitability by the third quarter — most of the bookings continue to be for leisure travel within domestic and regional markets, which produce lower yields than business and long-haul international travel. Many businesses are still restricting work travel, while border closures and increasing cases in some countries continue to inhibit long-haul travel from resuming.
“Pent up demand is also evident with domestic leisure bookings 85% recovered to 2019 levels, and Latin leisure markets more than fully restored,” said Glen Hauenstein, Delta’s president. “The corporate travel recovery has been slow but steady.”
Delta’s corporate travel volumes were only 20% of 2019 levels in March, up from 15% at the end of 2020.
“To progress to the next leg of the recovery, we need corporate travel to return in earnest,” he said. “One-third of our corporate accounts expect to increase travel volume in the June quarter, and a majority of our corporate customers expect to return to office in the second half of the year.
The airline said that according to surveys, 36% of its corporate customers expect to be back to pre-pandemic travel levels by 2022, and another 16% expect to reach it by 2023. About 8% said they did not expect to return to the same level, while 40% were unclear.
“We’re looking at 75-80% of our corporate revenues coming back over the next couple of years,” said Delta CFO Paul Jacobson.
Long-haul bookings, meanwhile, are at 15-25% of 2019 levels, driven partly by speculative bookings for fall. Hauenstein said the airline does not expect meaningful long-haul demand to return until more countries begin to open their borders, possibly later this year.
The airline said it was working to promote the idea of a travel corridor between the U.S. and U.K., which have achieved similar rates of vaccination.
“We’re working with our partners at Virgin [Atlantic] from the U.K. standpoint, as well as across not just the airline industry, but within the broader travel and hospitality sector, to figure out how we can get it open for summer,” Bastian said. “And we’re making progress in that regard.”
The airline anticipates being able to capitalize on significant pent-up demand if that corridor opens, Bastian said.
“Clearly what we’ve seen is that when customers can travel internationally, they’re willing to and excited about it,” he said. “We’d be able to satisfy as many seats as people needed to fill the demand.”
“Americans want to travel, and they want to travel abroad,” he added.
Bastian added that he did not expect continental Europe to open until later this year, with travel to Asia remaining largely depressed until at least next year.
Despite the ongoing challenges, Delta remains optimistic.
“When I look at the first quarter, what’s been clear to us is that our business has made a turn,” Bastian said on CNBC earlier Thursday morning.
Featured image courtesy of Delta Air Lines
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