Consumers aren’t ready to jet around the world, but they’re getting more comfortable with domestic travel.
That’s the verdict from Delta Airline’s earnings this week, which showed “a small but welcome uptick in passenger volume” in Q2, said CEO Ed Bastian on the earnings call. The activity is “being driven almost entirely by domestic leisure travelers or those flying for essential reasons,” he added.
Any increase in flying is welcome news for the airline, which saw demand bottom out in mid-April, when Delta experienced less than 5% of normal traffic. Still, the picture isn’t pretty: Q2 revenues dropped 91% to $1.2 billion, and the company recorded one of its largest pre-tax losses ever of $3.9 billion.
A big reason for the hit is the loss of business travel, which accounts for half of Delta’s revenue and has “not yet returned in any meaningful way,” Bastian said. Overall demand is also showing signs of weakening again as COVID-19 cases rise in the south and west.
Delta expects Q3 revenues to be just 20% to 25% of what the company earned last summer. While Bastian believes business travel will eventually come back “at scale” once there’s a vaccine, the number of trips the average business traveler takes will likely decrease.
“I don't think we'll ever get back entirely to where we were in 2019 on the volume of business traffic,” he said.
While business is hobbled, the airline is focusing on enforcing its Delta Care Standard, which requires employees and passengers to wear masks, enhances its aircraft cleaning protocols, and blocks middle seats and caps airline capacity at 60% to avoid overcrowding. Delta has also partnered with The Mayo Clinic and Quest Diagnostics to assess its safety protocols and to test its workforce for COVID-19 infections and antibodies.
Bastian said Delta’s commitment to blocking middle seats is in line with its premium brand.
“We're committed to blocking middle seats through September and expect to continue our policy beyond that date as well,” he said. “Customers are going to value premium, value the quality of the experience, the health of the experience.”
Delta removed 50% of its costs in Q2 and will do the same in Q3 thanks in part to more than 40,000 employees taking voluntary unpaid leaves.
“We continue to believe it could be two years or more before we see a sustainable recovery,” Bastian said. “So to succeed in this environment we are building resilience across the company in creating a new stronger Delta, albeit one that will need to be smaller for the next several years.”