Delta Air Lines is reducing flights by 15%, freezing hiring and asking employees to voluntarily take time off to stymie financial damage of the worldwide coronavirus outbreak.
The airline, which is the dominant carrier at Minneapolis-St. Paul International Airport, announced the cost-cutting measures Tuesday amid falling demand as people try to reduce their chances of catching the new virus.
Other major airlines have done the same in recent days. The air-transport sector is one of the hardest hit by the outbreak, with stocks having lost nearly one-fourth of their value since Feb. 20. On Tuesday, shares in Delta and other airlines rose about 3% amid a broader rally. Such dramatic action hasn’t been seen in aviation since the 2008-2009 recession, when many airlines collapsed, consolidated and went bankrupt.
“This is a fear event, probably more akin to what we saw at 9/11 than necessarily what we saw in 2009,” Ed Bastian, chief executive of Delta, said Tuesday.
He told investors participating in the J.P. Morgan Industrials Conference, held virtually because of travel concerns, that the year started off strongly for Delta. Bastian added, “Two weeks ago, our revenue trajectory changed dramatically as the virus spread meaningfully outside of Asia.”
Delta’s bookings declined between 25% and 30% in that time, and the company is “prepared for it to get worse,” Bastian said.
As a result, the Atlanta-based carrier is reducing international-flight capacity, which produces about one-fourth of its overall revenue, by 20% to 25%. Delta’s routes over the Pacific to Asia, where the virus originated, will be cut 65%.
Its capacity in the U.S. will be cut 10% to 15%, primarily through a reduction in the frequency of flights rather than elimination of routes.
Many businesses have curtailed travel, eroding a profit center for airlines. Airlines have implemented flexible booking options, including waived change fees, to encourage leisure travel. And they have also cut fares, said Bob Mann, a consultant and former airline industry executive.
“It’s a lot of stimulated leisure traffic, which doesn’t pay as much as the business traveler,” Mann said.
Delta expects its airplanes to be only 65% to 70% full this month, well below the 86% level the airline experienced for all of 2019.
Delta is instituting a companywide hiring freeze and offering voluntary leave options, though it didn’t provide details on what that might look like for workers. It is grounding aircraft and may retire some of its older planes faster than previously planned. Together, Delta expects those measures will save $1.8 billion.
The airline also expects to save an additional $2 billion from lower fuel costs this year, resulting from sharp declines in oil prices.
Delta said it found an additional $3 billion in savings this year by deferring $500 million in capital expenditures, delaying $500 million of voluntary pension funding and suspending share repurchases. The company had $5 billion in capital expenditures and spent $2 billion on share repurchases in 2019. Its total revenue last year was $47 billion.
Delta also withdrew its full-year financial guidance Tuesday until further notice.
“Over the last 10 years, we’ve transformed Delta by strengthening the balance sheet, diversifying our revenue streams and enhancing operational and financial flexibility,” Bastian said. “The environment is fluid and trends are changing quickly, but we are well positioned to manage this challenge.”
Delta owns 11% of Korean Air, which warned Monday it is facing an existential threat if the coronavirus outbreak doesn’t calm down soon. Bastian indirectly addressed that situation on Tuesday, saying, “We think we’ve got some of the very best airlines in the world that we are investors in and we’ll continue to support them through this.”
United Airlines — which has the greatest exposure to the Asia market among the major U.S. carriers — was the first to initiate systemwide capacity cuts last week, trimming its international schedule by 20% and its domestic service by 10% in April. United’s two top executives said Tuesday they will forfeit salaries until at least June 30 to save the airline money.
American Airlines on Tuesday announced a 10% reduction on international flights through the peak summer travel season and a 7.5% reduction on domestic flights through April.
Southwest Airlines said last week it could take up to a $300 million hit in March as a result of the coronavirus outbreak. Chief Executive Gary Kelly agreed to a 10% pay cut in the meantime.
Twin Cities-based Sun Country Airlines, which is owned by a private-equity investment firm, isn’t required to disclose as much financial information as its larger, publicly traded peers. The airline told employees late last week it was making surgical cuts to its flights, including suspending several routes to and from Portland.
A Sun Country spokeswoman said Tuesday that no additional cuts are currently planned. She added, “This is a constantly evolving situation.”
Sun Country is continuing to actively hire pilots but is curtailing hiring of positions not critical to the operation.