• Wed. Oct 5th, 2022

Amid omicron and flight cancellations, revenue lights up airline industry

Bastian’s comments offered a first indication of how airlines view the year ahead after a fourth quarter marked by the emergence of omicron and numerous flight cancellations around the busy Christmas travel period. Delta was the first carrier to report its earnings. American Airlines, United Airlines, Southwest Airlines, JetBlue Airways and others will follow over the next two weeks.

Delta reported a net loss of $408 million in the last quarter of 2021, but ended the year profitably thanks, in part, to billions of dollars in federal pandemic assistance. The carrier said it expects to lose cash in the first quarter of this year, but also expects “healthy earnings” for the rest of 2022.

During the earnings call on Thursday, Bastian said 2021 was “a year like no other” for the Atlanta-based carrier. He said the rapid rise in omicron-fueled coronavirus infections combined with “extreme weather” during the peak of the holiday travel period, “has created some of the toughest travel conditions we have had. never known”.

Flight disruptions that began Dec. 24 and lasted into the new year forced the airline to cancel more than 2,400 flights, representing a loss of around $80 million for the carrier. However, Bastian said on Thursday that operations have stabilized in recent days with only one omicron-related cancellation on Wednesday. The number of positive virus cases among Delta employees has also slowed after about 8,000 employees tested positive in the past four weeks, the carrier said.

“The new variant is not finished, but the worst may be behind us,” Bastian said.

Bastian said he expected omicron to delay Delta’s recovery, slowing demand in January and February. But with the number of cases set to peak soon, he said he was confident air travel demand would return in March and continue to grow for the rest of the year.

Analysts agreed, saying pent-up travel demand will help fuel the industry after omicron’s effects wane.

“Cost headwinds are likely to persist for airlines, but the desire to travel is strong,” said Peter McNally, global sector head at Third Bridge, an investment research firm. “Delta is betting that omicron will delay recovery for two months. Beyond that, the challenge will be to meet demand and manage the global operation until a full recovery is achieved.

Bastian said Delta employees will also benefit from the carrier’s improved financial outlook, adding that employees will receive a one-time bonus of $1,250 next month.

Airlines were optimistic entering the final quarter of 2021, having weathered the delta variant of the coronavirus, which slowed passenger demand in late summer and early fall. At least five U.S. carriers were profitable in the third quarter and, of those, at least two, Delta and Alaska Airlines, reached that mark without the benefit of billions of dollars in federal pandemic aid that expired in late September. .

Hopes of an industry recovery and the return of lucrative international and business travel have been further bolstered by the Biden administration’s decision to end the November ban on foreign travelers, replacing it with a system which would be based on vaccination, testing and contact tracing. The move opened the United States to visitors from 33 countries for the first time since restrictions were put in place in March 2020.

But even as more people started flying, there were signs that airlines weren’t fully prepared. An estimated 50,000 airline workers have left the industry during the pandemic, leaving carriers scrambling to hire replacements in a tight labor market.

Bastian said Thursday that Delta hired 9,000 workers in 2021 and plans to hire 3,000 to 5,000 this year. He said pilots remain a priority, adding that Delta is hiring 100 to 200 pilots each month, a pace that could continue through 2023.

The hiring spree at Delta and other airlines comes after several carriers, including Spirit Airlines, American and Southwest, suffered high-profile collapses last year as bad weather exacerbated staff shortages, leaving stranded passengers and thousands of canceled flights.

Hoping to avoid a repeat, American and Southwest cut flight schedules and offered employee bonuses during the weeks around the holidays to ensure they had enough workers.

The arrival of the omicron variant has muddied those efforts, with signs of trouble appearing just before Christmas and extending into the new year as weather hampered carriers’ efforts to regain a foothold.

Cancellations and rising labor costs are expected to dampen fourth-quarter results for some carriers, but analysts say the effects will likely be short-term.

Henry Harteveldt, aviation analyst and president of the Atmosphere Research Group, said January is a traditionally slower month for leisure travel, which will give airlines a chance to regroup. He said he expects travel demand to rebound when the number of coronavirus cases declines as travelers plan for spring break and summer.

“Airlines are hoping we’ll be over the worst by mid-February when we get closer to Presidents Day weekend,” he said. “March kicks off the spring break period, and airlines want to be ready for what I suspect will be a very busy spring and summer travel season.”

“Our global outlook for passenger airlines remains positive as we continue to expect pent-up demand for air travel to remain strong through 2022 and beyond,” wrote Jonathan Root, senior vice president of Moody’s. Investors Service, in a report last week.