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Delta Air Lines sees positive growth in business travel as offices reopen

Highlights

Domestic travel demand returns to 2019 levels

Business, international travel slower to recover

RINs costs "fully accrued" for Trainer refinery

Delta Air Lines sees business travel recovering to as much as 60% of 2019 levels by the end of September as companies reopen and people return to the office.

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Delta's CEO Ed Bastian said on the company's July 14 second quarter results call that Atlanta-based Delta officially reopened its office in June . He added that Delta's most recent survey of its corporate client base showed that almost 95% of them indicated they will be returning to the office by the end of 2021.

Domestic corporate travel volume grew from 20% base in March of this year, to 40% in June.

"And we expect it to be close to 60% recovered by September based largely on these re-openings," he said.

Increased coronavirus vaccines and the return to more normal business environments continues to be a boon for corporate air travel which had been lagging domestic leisure travel, now fully recovered to 2019 levels, he said.

Bastian said he is also encouraged by the strength Delta has been seeing in international travel.

"While we know that international demand recovery will be very choppy and uneven, we are seeing strong bookings to Europe when countries open their borders," he added.

In Latin America, Delta said bookings in domestic and short-haul and leisure markets have recovered to nearly 90% of 2019 levels.

The surge is coming

Bastian said Delta's most recent survey last week of a large number of its business clients – which include some of the biggest companies in the world – showed that 36% of "big corporates" expect business travel to return to pre-coronavirus levels no later than 2022.

Another 21% expect to be back pre-coronavirus travel levels no later than 2023, 5% say they never expect to return to pre-coronavirus levels, while 38% remain unclear as to what their levels of corporate travel will be and when.

"Also in that survey, 93% of our customers say they are going to increase travel in Q3 over Q2, and many of those by meaningful amounts. So I think the surge is coming," he added

Delta's fleet consumed 690 million gallons of jet fuel in the second quarter of 2021, 37% lower than the 1.099 billion gallons consumed in the second quarter of 2019, which provides a more accurate quarterly comparison metric than 2020 due to the staggering demand drop related to 2020 coronavirus pandemic lockdowns which paralyzed air travel.

S&P Global Platts Analytics expects global oil demand to grow by 4.7 million b/d in 2022, exceeding pre-coronavirus levels by 1.2 million b/d, with the exception of jet fuel.

"We expect business and long-haul flights to remain depressed as quarantine requirements and other impediments to travel are still in place," Platts Analytics said.

Platts Analytics expects 2021 jet fuel demand to grow by 1.1 million b/d, and remain well below pre-pandemic levels.

Higher fuel costs

Delta paid, on average, $2.16/gal for jet fuel in the second quarter of 2021, compared with the $2.08/gal in the second quarter of 2019. The higher price was due in part to lower supply as weak jet margins from reduced air travel forced refiners to blend jet back into their diesel transportation pool.

In the third quarter, Delta expects to pay between $2.05/gal and $2.15/gal as refiners increase supply due to higher refinery runs and less diesel blending.

These prices are adjusted to include operating results from the 195,000 b/d refinery Delta's Monroe Energy subsidiary owns and operates in Trainer, Pennsylvania. Delta swaps out the gasoline and diesel produced at the plant for jet fuel.

While Delta remains open to a strategic partnership at the facility, they said they have "no new news" in that regard.

On fulfilling the refinery's Renewable Fuel Standard obligation, Bastian said they are "fully accrued" in its RINs requirement, despite "discussions in the press" that they have pulled away from acquiring RINs credits.

RINs credits are used by obligated parties like refiners to fulfill the renewable volume mandate set by the Environmental Protection Agency and record high prices in 2021 have sidelined many obligated parties.

"We just know the pricing of RINs is not a market-based price at the present time," Bastian said.

RINs prices set new highs 46 times in 2021, according to the American Fuel & Petrochemical Manufacturers. So far in 2021, D4 biomass-based diesel RINs are averaging $1.4649/RIN, compared with the 64.11 cents/RIN 2020 average price, according to Platts Assessments.

"We are not going to spend good cash chasing a marketplace that isn't transparent. So we've accrued the cost, but we have time to decide as we settle those obligations over the next couple of years," Bastian added.