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Delta Air Lines' recovery takes root as domestic travelers return


Delta to reopen middle seats on May 1

75% load factor seen in May

Working to decarbonize footprint across operations

  • Author
  • Janet McGurty
  • Editor
  • Benjamin Morse
  • Commodity
  • Oil
  • Topic
  • Coronavirus and Commodities

Delta Air Lines, the nation's second largest airline, saw a major uplift in fliers at the end of the first quarter as coronavirus vaccine rollouts grew, finally becoming cash flow positive in March, CEO Ed Bastian said.

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"The first quarter had two distinct periods, with the first half feeling very much like an extension of 2020 as demand was slower than expected," he said on the April 15 first quarter results call.

"But as case counts decline and vaccinations accelerated, demand picked up meaningfully later in the quarter, allowing us to achieve $4 million of daily positive cash generation in the month of March, the first positive cash generation since the onset of COVID-19," he added.

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An important step forward for the recovery of the airline industry was the US Center for Disease Control's April announcement that was safe to travel in the US for fully vaccinated travelers.

"Based on our survey work, 75% of our customers expect to be vaccinated by Memorial Day. With improving demand in vaccine trends, we announced that we'll start selling middle seats May 1, providing a powerful tool for improving our financial performance," Bastian said.

Opening these seats has Delta expecting May's absolute load factor to reach 75%, growing as peak summer travel season begins.

Unblocking middle seat to meet growing demand

Delta blocked the middle seat on airplanes at the beginning of the coronavirus pandemic and have kept this in place since then to restore confidence in air travel.

"We are now seeing more normal booking behavior as customers make plans for spring and summer travel. In fact, our daily net cash sales in March were twice what they were in January," he said, adding Delta expects to see a "significant capacity bump from April to May because of the seats."

Pent-up demand is also evident with domestic leisure bookings 85% recovered from 2019 levels and leisure markets more than fully restored, Delta's data show.

However, while Delta's revenues will increase with the return of the middle seat, it will neither increase flights nor demand for jet, the fuel most impacted from the coronavirus pandemic as people stopped flying

US jet demand averaged 1.08 million b/d in 2020, compared with 1.74 million b/d of demand in 2019, Energy Information Administration data showed.

Jet demand creeps higher

The return of Delta's domestic travel illustrates the narrowing gap between pre-coronavirus and post coronavirus demand. As estimated by S&P Global Platts Analytics, first quarter 2021 global jet demand is down 32.5% from first quarter 2019 levels.

"That [global domestic demand] impairment is expected to lessen over the course of 2021. Still for the year, demand will still register impairment of 23.1%.," according to Alan Struth, Senior Advisor, Global Oil at Platts Analytics.

Global commercial flights fared worse, due to border closures. First quarter 2021 global commercial flights were down 42.2% from first quarter 2019 levels, with international flights down much more than domestic travel," said Struth.

Delta still struggles in international markets, particularly in transatlantic markets where volumes have recovered by 15% to 20% but with no meaningful demand increase seen until later in 2021.

"We're working on reopening international corridors. I think the one that is most likely to be open for the third quarter, hopefully, is the US-UK travel corridor," said Bastian.

Business travel also remains depressed. Delta's corporate travel customers survey shows about one-third of them expect to increase travel in the third quarter with the majority returning in the second half of 2021. Longer term, Delta expects about 75% to 80% of corporate revenues coming back over the next few years.

Sustainability commitment

Delta's CEO Ed Bastian said the company is committed to achieving carbon neutrality across all businesses including the 190,000 b/d Trainer, Pennsylvania refinery, and all other aspects of airline operations, by accelerating its fleet renewable and using offsets like sustainable aviation fuel, carbon sequestration and clean propulsion technology.

Delta hopes for government support from the Biden Administration, particularly in the area of sustainable aviation fuels or SAF will increase as it works with energy producers to lower emissions.

Delta is working Finland's Neste, a first mover and dominant player in SAF, one of many airlines Neste has offtake agreements with, said Theodore Rolfvondenbaumen, a spokesman for Neste.

And Neste sees demand for SAF continuing to grow – expecting to produce 15 times more than the 515 million gallons of SAF they currently produce.

"I can confirm that every gallon of SAF Neste has brought into the US market has found a home. Demand is there - from airports, from airlines and from passengers, "he said.