Delta Air Lines Expects Revenue To Fall By 90% In Q2

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Today, Delta Air Lines warned that it expects its second-quarter revenue to be down 90% compared to the same time last year. In the airline’s regulatory filing, it also confirmed that capacity is down by 85% year-on-year. Unlike previous years, where estimations could be reasonably accurate, a second wave of the virus could completely disrupt any recovery plans.

Delta 737
Delta is expecting a 90% drop in revenue for Q2 compared to the same time last year. Photo: Getty Images

As predicted, the impact of COVID-19 continues to wreak havoc on airlines’ finances. Today, Delta’s regulatory filing confirmed just how difficult the situation is. The airline has said it is seeking to renegotiate its debt agreements, or it would be risking defaulting on loans by the end of the year.

Since March, Delta has raised just over $10 billion through various financial arrangements and loans, including the CARES act loan of $3.8 billion. The airline hopes that, by the end of June, it will have between $6 – $7 billion of unencumbered assets such as aircraft and spare parts. It also hopes to have over $14 billion in cash and cash equivalents. It hopes to reduce this to $10 billion by the end of 2020 while negotiating with creditors.

Delta is prepared to spend extra cash to keep passengers safe, including social distancing and sanitization measures. This may be bad for business in the short-term but is a necessary expense. Photo: Delta Air Lines.

Making changes which affect the airline

Delta’s message was firmly focussed on how quarantining, international border closures, and social distancing affect the aviation industry for several months. But it also drew attention to some of the airline’s policy changes, which are necessary but negatively impact the business.

For example, the airline says that by capping capacity on flights, they are losing revenue on unsold seats.  However, the airline is clear that this negative change is necessary, and in the long-term, a flight operating at a loss is better than a flight not operating at all.

The airline also stated that waiving cancellation and rebooking fees could be seen as negative for the business but is also the right thing to do in this circumstance. The unprecedented situation has resulted in changes that are hard to control and even harder to predict.

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Delta Air Lines grounded planes
Delta received $3.8 billion from the US government under the CARES act. But the airline still needs to renegotiate debt agreements to avoid defaulting on a loan. Photo: Getty Images

Looking forward to the rest of 2020

Although the statement is understandably negative, the airline has started to look to the future.  Delta is adding 100 domestic flights to its June schedule and will add even more flights from September as demand increases.

The airline has also seen a reduction in the number of refund requests reducing its outgoing cashflow. It hopes to reduce its average daily cash outflow to zero by December 31st. However, an increase in demand will not be enough to achieve this, and cost-cutting will occur. Cash outflow is expected to be around $40 million by the end of June. This is already down from $100 million in March.

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Perhaps the most notable part of Delta’s statement the focus on how unstable and unpredictable the current situation is. While predictions are always subject to change, this year that is more true than ever. Government restrictions within the US as well as internationally will massively impact airline’s abilities to recover.

What do you think of Delta’s announcement? Do you think airlines will start to see a significant recovery this year? Let us know in the comments.

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