Delta Foresees Return to Profitability by March

After a bumpy year-end and start to 2022 with mounting flight cancellations and increasing Covid-19 cases, Delta Air Lines anticipates a return to “solid profitability” in March, with “significant demand” from pent-up consumer and business travel, executives said during a Thursday earnings call. 

Over the past week, Delta’s operations have stabilized, with cancellations related to the omicron variant of Covid-19 affecting only about 1 percent of flights, with only two on Wednesday, said Delta CEO Ed Bastian. 

“While the new variant is not done, it appears the worst may be behind us,” Bastian said. “Given the high transmissibility and lower severity of omicron, this variant is likely to mark the shift in Covid-19 from being a pandemic to a manageable and ordinary seasonal virus, which should accelerate our path to a normalized environment. While the first 60 days of the year will be impacted, we are confident that the pace of travel recovery will resume its December trajectory as we move into President’s Day weekend, and a strong spring and summer travel season are ahead of us.”

For those first few months, however, the omicron case surge will affect business travel and international recovery the most as meetings are canceled, office reopenings are postponed and countries put restrictions back in place, Bastian added. He said he anticipates pretax losses for the carrier in January and February. 

The company’s business travel segment reported domestic passenger volume approaching 60 percent of 2019 levels during the fourth quarter of 2021, according to Delta. That figure included both the managed corporate and small and medium enterprise sectors. 

The company surveyed its corporate clients prior to its investor day last month and again before Thursday’s call. The percentage of respondent corporate customers who projected traveling as much or more in the first quarter of 2022 as in the fourth quarter of 2021 was down slightly in the most recent survey, but still was at 80 percent, said Delta president Glen Hauenstein. He noted some delay of office reopenings, but added “when we get to spring and summer, we will see robust demand for business travel as people back into their regular routine and feel safe to travel.”

Bastian, further noting a correlation between companies reopening and an increase in business travel, said that the best way to characterize the segment was to “wait and see.” Companies were “trying to understand what is going on with omicron, when to reopen offices, and they were making those decisions.” He added that case counts cresting and peaking in parts of the U.S. where the omicron variant first appeared was “giving them encouragement” to realize they can get back and have people in offices sooner than they were thinking when omicron first appeared. “When offices open starting in spring, we think it will pick up where it left off in December and grow from there,” he said.

Metrics and Outlook

Delta reported fourth-quarter adjusted pre-tax income of $170 million, about $30 million shy of the $200 million projected just prior to the schedule disruptions experienced at the end of 2021. Adjusted operating revenue was $8.4 billion, which was a 2 percent improvement over Q3 2021 revenue. The company also reported a full-year 2021 adjusted pre-tax loss of $3.4 billion on adjusted operating revenue of $26.7 billion. Capacity was restored to 79 percent of 2019 levels as of the fourth quarter. 

Fourth-quarter passenger revenue of $7.2 billion was 29 percent lower than the fourth quarter of 2019,

Guidance for 2022’s first quarter includes capacity at a range of 83 percent to 85 percent of first-quarter 2019 levels, and total revenue in a range of 72 percent to 76 percent, which compares with 74 percent during Q4 2021. Full-year 2022 capacity is expected to be 90 percent recovered versus 2019, weighted to the back half of the year.

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