MIAMI- Delta Air Lines (DL) will reduce from 20% to 25% its international capacity and from 10 to 15% its domestic capacity, according to the latest airline’s statement.
Additionally, the carrier will make cash flow decisions, deferring US$500m in capital expenditures, delaying US$500m of voluntary pension funding and suspending share repurchases. With this, it expects to gain at least US$5bn liquidity by the end of Q1.
“As the virus has spread, we have seen a decline in demand across all entities, and we are taking decisive action to protect Delta’s financial position,” said DL’s CEO Ed Bastian.
“As a result, we have made the difficult, but necessary decision to immediately reduce capacity and are implementing cost reductions and cash flow initiatives across the organization,” Bastian added.
However, the recent material fuel price decline means good news for the airline as it will provide an approximate US$2bn of full-year expense benefit.
“Domestic is where we have the most uncertainty, as booking trends have worsened materially over the past week,” said DL’s President Glen Hauenstein.
By region and total DL’s FY19 revenue, pacific has a 6% with a down of 65% because of the government travel restrictions, mostly affecting China, South Korea, and Japan.
The trans-Atlantic operations represent 15% in a lowering of 15-20% as a result of the largest impact in Italy and the growing impact in France, in which flights to Milan and Tel Aviv have been suspended and frequency reductions to Rome and Mumbai have taken place.
The Latin region in its part has 7% of total revenue in a 5% capacity lowering due to specific canceled weak demand flights, for a limited impact.
The domestic demand has a major earnings impact with 72% and a cut of 10-15% capacity because of the close-in booking weakness and increased cancelation rates that reduce demand in high-frequency markets.
Cost reduction initiatives
Further, DL announces in the statement that it is not only instituting a hiring freeze but also offering voluntary leave options. The new actions to reduce expenses include parking aircraft and evaluating early retirements of older airplanes.
With these developments, DL follows suit in what has become an industry-wide strategy to cut costs, as airlines try to maneuver these turbulent times.