Delta Air Lines is slashing flight capacity steeply in response to a 25%-30% decline in bookings in the last two weeks due to the spread of coronavirus.
The Atlanta-based company, which has 90,000 employees worldwide including more than 36,000 in Georgia, also announced Tuesday it will begin a hiring freeze and offer voluntary leave to employees.
The company plans to cut international flight capacity by 20%-25% and domestic by 10%-15%. The international reductions include 65% cuts to Pacific flight capacity, 15%-20% cuts to trans-Atlantic and 5% cuts to Latin American seats.
“We’re prepared to do more as the situation evolves,” CEO Ed Bastian said. Delta is prepared for it to get worse, he added.
Delta president Glen Hauenstein said, "Domestic is where we have the most uncertainty, as booking trends have worsened materially over the last week."
With canceled and decreased bookings, Hauenstein expects domestic flights will be 65%-70% full for the month, down roughly 20 percentage points year-over-year.
United, American and JetBlue have also announced broad flight cuts.
Hartsfield-Jackson International, the world’s busiest airport, has also seen a double-digit decline in passenger counts, according to airport deputy general manager Balram Bheodari.
Delta aims to reduce expenses by $1.8 billion this year, including plans to ground aircraft and cut labor costs.
The hiring freeze will allow the airline to adjust through employee retirements and voluntary leave, according to Delta chief financial officer Paul Jacobson
“The current downturn most certainly has the potential to reshape global aviation,” said JP Morgan analyst Jamie Baker. But, he said, North American airlines are entering the crisis with strong financial standing.
While the coronavirus has already caused the shutdown of British regional carrier Flybe earlier this month and is expected to drive the failures of other weak carriers in an industry shake-out, Delta is relatively well positioned. It has $5 billion in liquidity. It will also save from an expected $2 billion drop in fuel costs.
And if the company's profit drops, it can cut payroll because of its employee profit-sharing program, which calls for a reduced payout when profits decline.
Delta does have equity investments in airline partners overseas.
But Bastian said he doesn’t expect the virus to cause a long-term reduction in Delta’s international ambitions. He added that “there’s no question we’re going to see government intervention globally.”
Delta also Tuesday withdrew its guidance for 2020 revenue and earnings “until we have more clarity on the duration and severity of the current situation,” Bastian said.
Discounts may do little to stimulate travel, according to Hauenstein.
“In the behavior of customers, if you’re scared of flying, you’re probably scared at any price,” he said.
Bastian compared it to the effect on air travel from the Sept. 11, 2001, terrorist attacks.
“This is not an economic event. This is a fear event,” he said.
Brett Snyder, president of air travel assistance firm Cranky Concierge, said: “It’s really going to be an individual decision for every person — is it right for me to travel or not?” For airlines, “the question is how long it will last. That’s the multi-million dollar question.”
Bastian sounded an optimistic view.
“There’s nothing now to suggest there’s not going to be recovery by the back end of this year,” he said. “We do believe, on the other side of this, there’s no fundamental reason why people don’t want to travel or are afraid to travel, once the virus is contained.”
Delta’s coronavirus-driven cuts
The Atlanta-based airline will cut domestic and international flights. Here’s a breakdown:
Domestic: down 10%-15%
Pacific: down 65%
Trans-Atlantic: down 15%-20%
Latin: down 5%
Other Delta cost cuts
Company-wide hiring freeze
Voluntary leave options for employees
Grounding aircraft
Deferring $500 million in capital expenditures
Delaying $500 million of voluntary pension funding
Suspending share repurchases
Source: Delta
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