Delta CFO David Jacobson warns that returning to pre-pandemic levels of demand will be no easy feat.
Shares of U.S. airlines rose last week as companies reported slower ticket cancelations and growing demand for flights, with Delta Air Lines going as far as to say its cash flow was on track to break even by the end of 2020. Delta has said it will resume flying several major routes in June, including transatlantic and Caribbean destinations. It will add around 100 more daily flights in June versus May, including service out of its Atlanta hub and New York’s JFK airport.
It’s positive news, clearly. But Delta CFO David Jacobson was quick to warn that returning to pre-pandemic levels of demand will be no easy feat.
“I don’t think that when we turn the page into 2021, absent a vaccine or something, there’s going to be much of an appetite to get on an 85% to 90% load factor airplane,” Jacobson said at a Wolfe Research conference, held virtually.
The airline industry has been among those hardest hit by the coronavirus, with global travel brought to a standstill and U.S. airlines collectively burning through $10bn per month as a result, according to Reuters. Still, there are signs of improvement. Southwest, which has a more domestic focus than its larger rivals, is adding some flights back to its network in June. It is predicting that its daily cash burn rate will slow to the low-$20m range in June down from $30-35m in the overall second quarter.
United, on the other hand, which has greater international exposure, has said its capacity next month would still be down by about 90% year on year, possibly rising to 75% in July. It said its total adjusted capital expenditure for 2021 would be close to $2bn versus around $4.5bn this year and hopefully falling below $500m in 2022. Yet pending immunization, industry experts don’t expect the picture to get much brighter anytime soon.
The U.S. Transport Security Administration (TSA) screened 250,467 travelers on May 15, the first time the number has surpassed 250,000 since March 24, according to its website. That’s still way below the 2.66m passengers screened the same day last year, but significantly more than the mid-April low of 87,534.
Social distancing on planes has also become a topic of debate. The International Air Transport Association (IATA) has warned that airlines will not make a profit if they limit their planes to two-thirds of their normal capacity. Yet there is political pressure to do just that, with the chairman of the U.S. House Transportation and Infrastructure Committee urging airlines to maintain at least one seat between passengers and cap overall seating at 67% capacity on narrow-body planes.
In an effort to rebuild passenger confidence, U.S. airlines have also intensified cabin cleaning protocols, in many cases using electrostatic cleaning and fogging procedures. Notably, while they have endorsed temperature screenings by the TSA at airports, this has yet to be implemented.
