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Delta Reports Massive $7 Billion Loss in Second Quarter
Delta Air Lines this morning became the first U.S. airline to report second-quarter earnings. After a full three months full of depressed traffic and drastic cost-cutting measures coming on the heels of huge industry fallout stemming from the COVID-19 pandemic, the airline reported a loss of $7 billion on revenue of only $1.5 billion.
That represents a 91% drop in revenue year-over-year as the airline cut capacity by a total of 85%. And while operating costs dropped 53% — or $5.5 billion — compared to the same period last year, it was nowhere near enough to match the fall in revenue.
Delta CEO Ed Bastian set the stage for Delta’s abysmal financial figures and its eventual return.
“In the face of this challenge, our people have acted quickly and decisively to protect our customers and our company, reducing our average daily cash burn by more than 70 percent since late March to $27 million in the month of June,” Bastian said. “Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery. In this difficult environment, the strengths that are core to Delta’s business – our people, our brand, our network and our operational reliability – guide every decision we make, differentiating Delta with our customers and positioning us to succeed when demand returns.”
A key unknown for the airline and the industry as a whole was how effectively airlines would be able to cut costs to match revenue drops. While many airlines parked over half of their aircraft, airlines including Delta spend millions of dollars on personal protective equipment, new procedures and other changes to cope with operating in the midst of a worldwide pandemic.
Delta’s release today has helped to illustrate that while airlines were able to respond better in the longer term than in the shorter term of the first quarter, it is nearly impossible, if not completely impossible, to keep pace with the plummeting passenger numbers seen earlier this year.
While the airline announced a loss of over $600 million in the first quarter, those figures didn’t fully represent the extent to which passenger traffic had fallen and to which airlines had worked to lower costs in order to better their bottom lines. The airline — and the industry as a whole — only began to see substantial fallout from the virus in March as countries throughout Europe and eventually, the U.S. itself began to close borders as the coronavirus took hold in a wider geographic range.
So when airlines reported earnings for the first quarter, the period representing January-March, in mid- to late-April, the big question on many analysts’ and executives’ mind was, “What does this mean for the second quarter?”
For much of April, total passenger figures published daily by the Transportation Security Administration (TSA), the government agency providing airport security in the U.S., showed fewer than 5% of passengers from corresponding days in 2019 were passing through security checkpoints. That figure surpassed 10% for the first time on May 21 and climbed past 20% just a few weeks later. But as air travel has continued to pick up in recent weeks, so too have case totals across the U.S., particularly in the South and West, which has again muddied the waters for countless businesses, including airlines.
Delta is also an airline that has continued to block middle seats on its aircraft for much of these second quarter. The airline committed to only booking flights up to 60% capacity in the main cabin and 50% in first class. The company will continue to do so through the end of the third quarter on Sept. 30. While some airlines, principally American Airlines and United Airlines in the U.S., have come under fire for flying completely full aircraft, Delta is limiting itself to those figures. That means, however, that the airline doesn’t have the same opportunity as other airlines to capitalize on abnormally high demand by filling aircraft.
Further still, questions abound as to how businesses are going to respond in the months and years ahead. While some companies have reported a drop in productivity in recent months, others have extended remote working even further given the cost-cutting opportunities available. Given the degree to which business travel fills aircraft — and particularly premium cabins — with full fare-paying customers — not to mention countless elite travelers — the future of the industry could well be tied to any moves big businesses make in the years ahead.
In the same period last year, the airline reported $12.5 billion in revenue, which at the time represented a nearly 9% increase over the second quarter of 2018. That figure was paired with a profit of over $1.4 billion, an industry-leading figure for Delta, an airline that has consistently led U.S. airlines on the financial front.
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