- Airlines are betting that coronavirus vaccines will reignite demand for travel this year. The question is when.
- Delta Air Lines Inc. Chief Executive Ed Bastian expects improvement starting this spring. Alaska Airlines President Ben Minicucci said he hopes to get back to 80% of pre-pandemic capacity by summer. United CEO Scott Kirby, however, said travel may not start getting back to normal until vaccines are widely distributed—in late 2021.
- Airlines are shutting down some international markets and running reduced schedules while also buying new planes and adding new cities in an attempt to capture demand where it exists. United is returning to New York’s John F. Kennedy International Airport in February after a five-year absence, while rival Southwest Airlines Co. plans to fly from Chicago’s O’Hare International Airport for the first time ever in 2021. JetBlue Airways Corp. is also adding flights this year at Miami International Airport—the busiest U.S. airport it didn’t yet serve.
- The fragility of any rebound became evident last month when a new, more infectious strain of the coronavirus emerged in the U.K., prompting a new wave of travel restrictions. That followed other such setbacks in the U.S.
- “It’s a little bit of an emotional roller coaster,” said Mr. Minicucci, Alaska’s president.
- Competition among airlines will likely be fierce in 2021 as they duke it out for shares of a smaller pie. International travel—a mainstay for legacy airlines like United, Delta, and American Airlines Group Inc. —could be slow to come back as international borders remain closed and travelers fear new lockdowns.
- A spokeswoman for American said the airline was adding flights to match demand in Latin America and the Caribbean, but planning a more muted trans-Atlantic schedule due to weak demand.
- Because New York-based JetBlue has strongholds in the Northeast, where the virus spread aggressively last spring, it learned to open new routes and cities more quickly and with less expense, she added. JetBlue has added dozens of new routes and recently announced service to new cities, including Miami and Key West.
- Southwest is also being opportunistic by adding a dozen new cities as it looks to expand its reach.
- Another major carrier, Alaska, is pushing ahead with an order to replace most of its Airbus planes in the coming years with Boeing 737 MAX jets—a move that it says will make the airline more efficient.
- Airline executives and industry observers say pent up demand for travel could be unleashed in a fury next summer when more people are expected to be inoculated.
- Analysts expect business travel will lag behind leisure in the recovery. That is bad news for big carriers that rely on business customers for large chunks of revenue but potentially less troubling for smaller carriers such as Allegiant Travel Co. , which mostly flies from smaller cities to sunny vacation destinations.
- Original U.S. government estimates called for 20 million vaccinated by the end of 2020. As of January 4, 2020, the NY Times reported that approximately 4.6 million people have been vaccinated in the U.S.
- On December 3, 2020, well before peak travel season, Bastian was quoted as saying “we’ve seen some slowing of demand and forward bookings as COVID cases have risen across the U.S.”
- Other carriers were already warning investors of weakened demand when Bastian made that quote.
- With a new virus strain, demand will be touch and go until this gets under control. Plus, we haven’t seen the case and death rate increases from the holiday travel season.
- Jet fuel costs have increased by approximately 20% in the last 30 days.
- Average domestic fares towards the end of 2020 were down anywhere between 18% and 25% YoY while Load Factors are still in the 50% to 60% range. In general, airlines require around 70% load factors break-even during normal fare pricing.
- In today’s world, with fares dropping, load factors need to be even higher than normal to make up for these fare drops and are stagnating well below newly required levels.
- Delta daily cash burn averaged $24M in Q2, with an average of $18M in Sept. In a December 3, 2020 CNBC article found HERE, Ed was quoted as saying, “weaker bookings are adding about $2 million in daily cash burn.”
- Delta’s daily cash burn trend is moving in the wrong direction. How are they going to overcome this with variable fuel costs increasing, ticket fares plummeting, load fares stagnating, pilot furloughs postponed, and still maintaining blocking middle seats through March 2021?
- Business travel is not returning anytime soon which kills Delta’s revenue boosters like seat upgrades, business class tickets, lounge access, and last-minute change fares.
Raven’s take: The math doesn’t work out. 1+1 isn’t equalling 2 here. If Delta were talking about concrete ways to cut costs or had tailwinds at their back with rising fares and load factors paired with lowered costs, we’d buy it. Calling for positive cash flows come Springtime sounds more like marketing theatre than reality.
- Delta Air Lines CEO Ed Bastian said in a memo on Friday that he continues to expect that the company will achieve positive cash flow by the spring.
- Bastian had told investors in October that Delta plans to start paying down its debt in 2021 once it has positive cash flow.
- Revenues at Delta, which is blocking middle seats until March 30, fell 76% to $3.1 billion in the third quarter from a year earlier.