On December 3rd, Delta Air Lines CEO Ed Bastian sent out a wide-ranging memo to its staff worldwide. In it, the airline expanded on its testing program for employees while also offering a vision of getting the airline through the crisis as a vaccine nears distribution. One of the biggest details was that the airline had cut its cash burn from the third quarter to the fourth quarter by up to 50%.
Delta’s fourth-quarter cash burn
Delta Air Lines is expecting fourth-quarter daily cash burn to be about $12 to $14 million per day. This is down by up to 50% from the $24 million a day it saw in the third quarter. The carrier noted that the slowdown in demand and forward bookings amid the ongoing crisis pushed up the carrier’s daily cash burn by about $2 million per day. While still high, Delta’s cash burn is expected to be just under half of what American expects its fourth-quarter average daily cash burn to be.
The airline continues to target break-even by the spring, and CEO Ed Bastian highlighted recent developments with a vaccine as one reason to be encouraged.
The airline is trying to get more people to get onboard its aircraft again. This includes new quarantine-free trials for flights to the Netherlands and Rome. It is also looking towards cargo operations as it gears up to ship around the vaccine once it comes to market. It has also embarked on a contact tracing option for international passengers.
Delta’s CEO is bullish on a vaccine
In the memo, Mr. Bastian explicitly stated the following:
“While it will take months for a vaccine to be broadly distributed, it’s a clear sign of light at the end of the tunnel. Widespread vaccinations among our customers and our employees will be essential to Delta’s sustained recovery and the start of our rebound.”
Though stopping short of saying Delta will be mandating vaccinations for all customers, as Qantas has already indicated, it is part of Mr. Bastian’s push to encourage people to get a vaccine once it gets to market.
In the meantime, the airline continues to work with the Mayo Clinic on ensuring a safe travel experience. The airline is now broadening its testing capacity to allow people to test weekly for the virus. Its partners at the Mayo Clinic told the airline that viral spread could be reduced by 90% if Delta moves to weekly testing, as this would help reduce asymptomatic transmission. Delta will do this by expanding onsite rapid testing; it will provide test kits at workplaces with smaller employee populations and offer at-home testing kits to all US employees.
Vaccines are not the solution to the airline crisis. They are part of the solution to the travel one. Most airlines and countries have not yet indicated how or to what extent they would require vaccinations before travel, or even if vaccinations will open up travel. There are still a few months to go, however, before discussions on that become necessary.
What about blocked middle seats?
Delta Air Lines is blocking the selection of middle seats onboard aircraft. On jets with middle seats, the airline will block the selection of middle seats in Premium Select, Comfort+, and Main Cabin. Parties of three and more can still select seats together, however.
On jets without middle seats, Delta will be blocking the selection of one aisle of seats on smaller aircraft. In first class, Delta is blocking adjacent seats. However, the airline is not blocking any seats in Delta One cabins with two aisles. This applies only to widebodies. This impacts the Airbus A330, A350, and Boeing 767 fleets.
Blocked middle seats do cost an airline, though not directly. Blocking seats means fewer seats available for sale, which means less revenue if the price is held constant. To compensate, Delta would have to increase its prices, which it has done on some routes compared to the competition, but not on all of them.
Southwest Airlines, which has ended its policy of blocking middle seats, stated it expected to incur $100 million in costs from the policy, mostly as lost revenue.
Delta has relaxed its policies over the last few months. The carrier has been offering more of its seats for booking, especially in the lucrative business class cabin. Delta did commit to blocking seats through early 2021, though it is unclear if it will extend its policy beyond then. The carrier still has hundreds of parked aircraft it can bring into service to upgauge certain routes or add new flights to capture growing demand, but even that has a breaking point, as those new flights may not be optimized for the connections people want to take.
For now, Delta appears confident it can reach a break-even point with blocked middle seats. However, turning a profit is highly unlikely until the airline fills up all, or at least more than 70-75% of its aircraft.
Are you glad to see Delta’s fourth-quarter cash burn rate down from the third quarter? When do you think the airline will stop blocking middle seats? Let us know in the comments!