Responding to the "staggering impact" of the coronavirus pandemic on the travel industry, Delta's chief executive officer on Tuesday announced that the airline will shave its workforce by 20% though buyouts and early retirements, cutting more than 17,000 employees from payrolls.
By offering early exits to some of its workers, the airline hopes to reduce the need for involuntary furloughs or layoffs, officials there say. Delta reported a $5.7 billion loss from April to June in what CEO Ed Bastian called "the worst quarter, candidly, in this company's history."
Other airlines — including United, American and Southwest — are also cutting their workforces by offering buyouts or early retirements, but warn of the possibility of furloughs or layoffs. Travel on airlines is currently down more than 70% compared with 2019. In the travel industry as a whole, the unemployment rate is 51%, according to Tori Emerson Barnes, executive vice president at the U.S. Travel Association.
Such decimation was unfathomable a year ago, when Delta, as one of the world’s largest airlines, had second-quarter operating revenue of $12.5 billion. That declined 88% to $1.5 billion in the most recent quarter.
“We continue to believe that it will be more than two years before we see a sustainable recovery,” Bastian said.
If the workforce reduction reached through buyouts and early retirement is not enough, Bastian told CNBC, more could be coming. But, he said, "I'm optimistic if we do have a furlough, it's going to be relatively minimal numbers."
Delta cut its flights by 85% in the quarter ended June 30, but its passenger counts declined even more — by 93%.
Now, "with the virus spreading in the South, it's put a pause on demand growth," Bastian said.
In an effort to convince travelers that it's safe to fly, Delta had planned to block middle seats through Sept. 30 but has said it will keep doing so beyond that. Airlines are also requiring that passengers wear masks and complete health declaration forms before flying.
Last week, three people who had been on a Delta Connection flight from Atlanta to Albany, New York were confirmed to have COVID-19. In those instances, other passengers sitting nearby would be contacted, Bastian said. It's unclear where the three New Yorkers contracted the virus.
Looking ahead, Bastian said, it may take 12 to 18 months before business travelers come back to the airlines in great numbers. Right now, corporate travel is minimal, but he hopes to see more of a recovery later this year. In the future, video calls may replace some trips to Europe for short meetings.
Barnes, of the U.S. Travel Association, said, “The return of travel will be gradual, phased and regional.”
Delta added close to 1,000 flights to its schedule in July. It had planned to do the same in August, but now will scale back that number to 500. Bastian described the recovery as "choppy." The increase in COVID-19 cases in the Sun Belt and quarantine restrictions in the North, he told employees, "give us renewed caution about further schedule additions at this time."
Tuesday, Delta also announced plans to retire its Boeing 737-700 fleet, a smaller plane type that Bastian said is not as economical. More than 100 planes are being retired from the airline's fleet to save money.
The company managed to cut back its second-quarter operating expenses to $6.3 billion from $10.4 billion by parking planes, asking workers to take unpaid leave, decreasing employees' hours and pay, and reducing other expenses.
Most of the departures through buyouts and early retirements at Delta will take effect Aug. 1. The airline is offering those employees cash severance depending on years of service, up to six months of pay. It is also offering health care coverage for one year for those who take an “early out” buyout package and two years for who take early retirement, as well as flight benefits for both.
The number of employees leaving the company could grow — the period for pilots to sign up for early retirements is still open.
Like other airlines, Delta has benefited from government rescue funding, getting $5.4 billion of grants and unsecured loans through the CARES Act. Carriers agreed to no involuntary furloughs of employees until after Sept. 30 as a condition of accepting billions of dollars in federal relief funding,
Delta has also raised billions in other loan financing for a cash position of $15.7 billion at the end of June. Even without improvements in the business, Bastian said, the amount of cash the company has built up should last for 19 months.
“I think our cash position has certainly stabilized,” he said.
Raymond James airline analyst Savanthi Syth in a note to investors called Delta’s results “better than expected against the backdrop of increasingly negative sentiment following the stalling of demand recovery as COVID-19 cases increase.”
Delta’s business drops
On a year-over-year basis, Delta in the second quarter saw:
Passenger counts decline 93%
Passenger revenues decline 94%
Total operating revenues, including cargo and SkyMiles, decline 88%
Source: Delta
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