New York — Delta Air Lines vowed on Wednesday to cut its daily cash burn in half as the carrier rushes to scale back operations amid a collapse in travel demand. The shares rose.
The company will go through only $50m a day when the second quarter draws to a close, CFO Paul Jacobson said in a statement as Delta reported its first adjusted quarterly loss since 2012. The cash usage figure was $100m at the end of March as the coronavirus pandemic spread and demand for air travel evaporated.
US airlines are slashing expenses and relying on government aid to get through the worst crisis in the industry’s history. Delta, the first major US carrier to report first-quarter earnings, has parked 650 aircraft, cut flying capacity 85% this quarter, frozen hiring and lowered executive pay. More than a third of Delta’s workforce has agreed to take short-term leave without pay.
The spread of Covid-19 has had “a devastating impact on our business”, CEO Ed Bastian said in a letter to employees. “Travel restrictions and stay-at-home orders have thankfully been effective at slowing the spread of the virus, but they severely impacted demand for travel.”
The shares rose 2.6% to $23.71 before midday in New York. Delta fell 61% in 2020 to Tuesday, roughly in line with the decline in a Standard & Poor’s index of the five largest US carriers.
‘Solid liquidity’
“The decline in expenses will help mitigate some of the revenue headwind,” Helane Becker, an analyst at Cowen & Company, said in a note to clients. Delta also benefits from a “solid liquidity position relative to other airlines”, she said.
Delta swung to an adjusted loss of 51c a share in the first quarter, compared with earnings of 96c a share a year earlier. This year’s figure was the first loss on an adjusted basis since 2012. On a net basis, it was the first in more than five years.
Sales in the first quarter of this year tumbled 18% to $8.59bn. Delta suspended 2020 financial guidance earlier this year.
Bastian reiterated the airline’s expectation that second-quarter revenue will tumble by 90%, or $11bn, from a year earlier. The CEO warned that Delta doesn’t expect a profit-sharing payout in 2020, the first miss in eight years. The company paid out $1.6bn in employee profit-sharing in February, and the figure has surpassed $1bn six years in a row.
‘Smaller airline’
“We do know that Delta will be a smaller airline for some time, and we should be prepared for choppy, sluggish recovery even after the virus is contained,” Bastian said. “I estimate the recovery period could take two to three years.”
The Atlanta-based airline raised $5.4bn in capital since early March, including a $3bn secured term loan and $1.2bn in aircraft sale leaseback agreements. Delta will receive another $5.4bn in payroll support from the US treasury department, including a $1.6bn unsecured loan for which the government will receive warrants for 6.5-million shares of company stock.
Bloomberg
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