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Picture: BLOOMBERG
Picture: BLOOMBERG

Delta Air Lines says the rapidly spreading Omicron variant will delay a recovery in travel by at least 60 days and contribute to a first-quarter loss but won’t derail the carrier’s expectation to remain profitable for the rest of 2022.

With coronavirus cases expected to peak in the US in the next seven days, the pace of improvement in travel should resume its original December trajectory in the second half of February, Delta said in an earnings release Thursday.

“We still see our President’s Day and beyond booking patterns to be very healthy,” CEO Ed Bastian said in an interview. “People are ready to go, ready to travel.”

The omicron-related pause in recovery for corporate and international travel could last as long as 90 days, Bastian said on CNBC. While the Atlanta-based carrier projected pretax losses in January and February, it forecast a profit in March and meaningful earnings for the final three quarters and full year.

Delta is the first major US airline to report results for a quarter battered by more than 20,000 flight cancellations, according to FlightAware.com. But widely varying employee sick rates among carriers, which continue to ground flights, may mean Delta’s results aren’t the industry bellwether that they typically are. 

Delta climbed 1.9% to $41.37 in New York. The stock had dropped less than 1% for the 12 months through Wednesday, while the S&P 500 advanced 24%.

About 8,000 Delta employees have caught the virus over the past four weeks, Bastian said, though disruptions have decreased in recent days. At its peak in late December and early January, the virus and winter storms forced the airline to cancel as much as 10% of its flights. That shaved about $75m from fourth-quarter revenue and trimmed pretax profit to $170 million from Delta’s earlier forecast of $200 million to $250 million.

Unit costs rose 11.4% from the pre-pandemic fourth quarter of 2019. Delta sees the measure, an indicator of efficiency, rising 15% in the first quarter from two years ago.

“The cost outlook is likely the biggest point of contention for investors, as airlines (not just Delta) have consistently seen higher than expected costs relative to expectations,” Conor Cunningham, an MKM Partners analyst, wrote in a note to investors.

Delta’s adjusted fourth-quarter profit of 22c a share was a penny short of the average of analyst estimates compiled by Bloomberg. Adjusted net income of $143m gave Delta a second straight quarterly profit after excluding US financial aid. Revenue, excluding refinery operations, was $8.43bn, while analysts expected $8.45bn. 

Traveller volume

Revenue recovered to 74% of the level in the same period of 2019, pre-pandemic, though international passenger revenue remains at 50% amid continued travel restrictions in some nations. Fourth-quarter domestic business traveller volume was near 60% of the 2019 level. 

“If Omicron does recede as rapidly as medical experts are thinking, I’d expect offices will be reopening in the spring and we’ll see business traffic increase from there,” Bastian said. 

Delta expects revenue this quarter to be 72% to 76% of the 2019 level.  Flying capacity will be as much as 85%. 

Delta also announced a special profit-sharing payment of $1,250 per employee set for February 14. The carrier will hand out about $100m total, or about 20% of a profit earned in the first half of 2021. Delta’s profit-sharing payments peaked at $1.6bn for 2019.

Bloomberg News. More stories like this are available on bloomberg.com

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