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Delta Airlines Hopes To See Recovery In 2 Years, Incurs $5.4 Billion Loss

Delta Air Lines on Tuesday posted another multibillion-dollar net loss after the coronavirus pandemic spoiled what is usually a peak summer travel period. Although travelers are getting more comfortable flying and demand is starting to inch higher, the carrier warned it could take years for sales to recover.

Kicking off third-quarter reporting for the beleaguered airline sector, Delta said its net loss was $5.4 billion in the third quarter, compared with a profit of $1.5 billion in the year-earlier period. Including its second-quarter results, Delta has lost more than $11 billion during the pandemic so far.

The Revenue

Revenue dropped 76% from $12.56 billion a year earlier to $3.06 billion in the three months ended Sept. 30, slightly under analysts’ forecasts for $3.1 billion. Delta’s president warned revenues may not normalize for “two years or more.”

Large airlines like Delta have been particularly challenged in the pandemic because they previously relied heavily on business travel and sprawling international networks, two areas that have been hard hit by the Covid-19 outbreak.

CEO Ed Bastian told CNBC’s “Squawk on the Street” that the airline has seen “real encouraging signs of improvement,” including interest in Thanksgiving and Christmas travel.

Expectations Vs Reality

Here’s how Delta performed compared with what Wall Street expected, based on average estimates compiled by Refinitiv:

Adjusted EPS: a loss of $3.30 versus an expected loss of $3

Revenue: $3.06 billion versus $3.11 billion, expected

More airlines are competing for price-sensitive leisure travelers within the United States but demand has struggled, despite an uptick from multi-decade lows hit in April. The Transportation Security Administration screened nearly 64 million people at U.S. airports in the third quarter, up 150% from the three months ended June 30 — but still down from the 221 million people TSA screened in the same period last year.

Delta and its competitors have scrambled to introduce enhanced cleaning procedures and other policies to calm travelers nervous about flying during the pandemic. Delta, for example, leaves middle seats open on flights.

Drop-In Daily Cash Burn Over 40%

Delta was able to cut its daily cash burn by more than 44% from roughly $43 million during the second quarter to an average of $24 million a day. Delta got down to $18 million a day in September, an improvement but still far off its goal of breaking even by the end of the year. Bastian said Delta would likely get its cash burn down to $10 million to $12 million a day in the fourth quarter. The carrier could break even and even turn cash-flow positive in spring 2021, he added.

“While our September quarter results demonstrate the magnitude of the pandemic on our business, we have been encouraged as more customers travel and we are seeing a path of progressive improvement in our revenues, financial results and daily cash burn,” Bastian said in an earnings release.

Delta has spent recent months retiring dozens of aircraft and reducing its footprint to cut costs. About 18,000 Delta employees, about a fifth of its pre-pandemic workforce, accepted buyouts and early retirement packages, prompting a $3.1 billion restructuring charge.

Airlines received portions of $25 billion in federal payroll support Congress passed this spring but talks between the Trump administration and Congress for additional airline aid have repeatedly derailed.

On an adjusted basis, Delta lost $3.30 per share, more than the $3 per share loss analysts polled by Refinitiv were expecting.

Delta has already retired dozens of planes to cut costs. In the last quarter, it added to the list, deciding to retire its Boeing 767-300 ERs and 717-200s by 2025 and CRJ-200s by 2023.

Synopsis

Delta has lost more than $11 billion in the last two quarters.

The carrier cut its cash burn to $18 million a day in September from $27 million at the end of the second quarter.

Delta’s third-quarter revenue came up short of analysts’ expectations at $3.06 billion, down more than 75% from a year ago.

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Shaheer Ansari

Shaheer is passionate about living a life seeking un-ending knowledge, philomath, as you may think of him. He's a student of Finance and a keen observer of Business and Indian-Political scenario who takes pleasure to pen down his views and opinions on the same. As his guiding mantra to life, ‘Come what may , life goes on’ helps.

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