Delta Eliminating Europe Flights, Parking 300 Aircraft, and Asking For Government Subsidies

At the beginning of the week airlines knew the novel coronavirus impact on their business could be large, but no one was taking this as seriously as United. That’s changed. Delta has sent a memo to employees outlining unprecedented changes to their business in light of drying up revenue.

Delta’s CEO Ed Bastian says that they’re receiving more cancellations than new bookings, and that “the demand fall-off is unlike anything we’ve seen” as a result they are “moving quickly to preserve cash and protect” the airline.

  • 40% capacity reduction
  • Eliminating Europe flights for 30 days (other than London)
  • Parking “up to” 300 aircraft
  • Deferring new aircraft deliveries
  • Reducing capital spending by ‘at least’ $2 billion this year “including delaying aircraft mods, IT initiatives”
  • Seeking voluntary unpaid leaves and implementing a hiring freeze
  • Terminating consultants and contractors

Delta is also asking for government subsidies after spending years railing against government support for airlines. There is, of course, absolutely no reason for a bailout. Delta (and Northwest) have been through bankruptcy and continued flying. So did American (and US Airways twice) as well as United (and Continental twice).

Indeed, Delta’s CEO says they will “get through this” even without waiting for government help, and emphasizes that “Delta remains better-positioned to weather a storm of this magnitude than ever before in our history.” Asking taxpayers who are themselves going to be hurting in coming weeks to give money to Delta’s shareholders is an affront.

Here’s Delta CEO Ed Bastian’s memo:

To: Delta Colleagues Worldwide
From: Ed Bastian, CEO

Earlier this week, I updated you on the steps we are taking to protect our people, our customers and our business amid the COVID-19 (coronavirus) outbreak. In just the few days since, the situation has worsened considerably, with large public events cancelled, businesses suspending travel, and popular destinations facing heightened government travel restrictions, including a 30-day ban to continental Europe announced Wednesday night.

Demand for travel is declining at an accelerated pace daily, driving an unprecedented revenue impact. Cancellations are rising dramatically with net bookings now negative for travel over the next four weeks. To put that in perspective, we’re currently seeing more cancellations than new bookings over the next month.

The speed of the demand fall-off is unlike anything we’ve seen – and we’ve seen a lot in our business. We are moving quickly to preserve cash and protect our company. And with revenues dropping, we must be focused on taking costs out of our business.

In order to do this, we are taking difficult but determined actions to protect the financial position of the company. These include:

• An overall capacity reduction in the next few months of 40 percent – the largest capacity reduction in Delta’s history, including 2001.
• Elimination of flying to continental Europe for the next 30 days, which could be extended. We will maintain service to London.
• Parking up to 300 aircraft as our reduced capacity requires a substantially smaller fleet.
• Deferring new aircraft deliveries to manage our reduced capacity and preserve cash.
• Reducing capital expenditures by at least $2 billion for the year, including delaying aircraft mods, IT initiatives and other opportunities to preserve cash.
• Immediately offering voluntary short-term, unpaid leaves as well as an immediate hiring freeze.
• Substantially reducing the use of consultants and contractors.

We’ll be making more critical decisions on our response in days to come. The situation is fluid and likely to be getting worse. But what hasn’t changed is this: Delta remains better-positioned to weather a storm of this magnitude than ever before in our history. We’ve spent a decade building a strong, resilient airline powered by the best professionals in the business. We will get through this, and taking strong, decisive action now will ensure that we are properly positioned to recover our business when customers start to travel again.

In coming days and weeks, every one of us will have an opportunity to contribute to Delta’s durability. That ranges from considering a voluntary leave that works for you and your family, to identifying opportunities to save money in your division or department, to volunteering for the Peach Corps to help our customers and colleagues at the airport. I ask all of you to see what you can do to help us save cash.

In light of these developments, I’m foregoing 100 percent of my salary, effective immediately, for the next six months.

We are in discussions with the White House and Congress regarding the support they can provide to help us through this period. I’m optimistic we will receive their support. That said, the form and value is unpredictable, and we can’t put our company’s future at risk waiting on aid from our government.

Above all, nothing is more important than the care, safety and health of our customers and each other. That includes the many steps we are taking to keep our planes and facilities clean and disinfected, as well as our never-ending commitment to flight safety even among these distractions. We need to assure our customers it is safe to fly in all respects, now more than ever. We also understand the need for social distancing as a means to protect our customers and each other, and we encourage all of our people to be mindful of every opportunity to reduce the risk of transmission at work and in your daily lives. This is a severe crisis.

I know many of the newer members of the Delta family have never experienced this level of uncertainty in our business. Your veteran colleagues will tell you that we have been through turbulent times before, and what has always carried us through has been our commitment to our values, our culture and each other. I am confident that we will emerge from this crisis as a strong, trusted global brand that truly connects the world like no other. And we will be stronger for having gone through this experience.

I continue to be honored and humbled to lead this team. I will give you another update early next week. Thank you for all that you are doing, and will continue to do in the days ahead, to care for the Delta family and our customers.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. An absolute disgrace. And an absolute certainty the government will bail these (all airlines) clowns out.

  2. Government subsidies… OK for us, but not for others. LOL. Oh my, the irony is delicious.

  3. Your quote boxes are annoyingly narrow on mobile, further exacerbated by excessive padding.

  4. I think one can make an argument for short-term reductions in landing fees, given that even with a massive capacity dump, load factors are likely to be down for a period of time after the infection spike. Waivers from slot utilization requirements are another government relief that seems appropriate.
    Beyond that, I agree with Leff that Delta and the other airlines have had a long stretch of excellent profitability, and should have sturdy balance sheets. Any relief beyond what I mentioned above should be in the form of extended unemployment benefits for DL workers who are furloughed, maybe some bump to their 401(k)s or other retirement savings, and help with job outplacement. No bailouts for executives or shareholders (Disclosure: I’m a shareholder. I’ll be fine.)

  5. After foregoing 100 percent of his salary for the next six months, for frequent flyers who say Delta’s CEO Ed Bastian is now getting paid exactly what he is worth, I disagree. I think Ed Bastian is priceless.

  6. I would be in favor of a highly restrictive preferred loan at 3% that requires every dollar of gross profit to go entirely toward paying it back. Not many businesses can survive a 90% reduction in revenue, this is (or at least should be) a short-term black swan event, and government can shove its way in line in front of all the other creditors. None of this buyback nonsense, airplane mods or purchases, etc. This is a loan to get you through net negative bookings and when things return to normal and you are making money flying, every dollar of the loan gets repaid before any of the funny business.

    Worst case, we taxpayers own an airline and flip it out later.

    This industry doesn’t deserve a bailout but it might need a bridge to a different day.

  7. No cancellation shown yet on my 4/1 reward flight to AMS, and no luck in “modifying” it. Not going to get in a two-hour long queue for a phone rep…..

  8. Won’t guarantee paid leave but will give bailouts to companies and other tax breaks that will cost much more. What a FU government.

  9. Ken A: “After foregoing 100 percent of his salary for the next six months, for frequent flyers who say Delta’s CEO Ed Bastian is now getting paid exactly what he is worth, I disagree…”.

    From what I gather he is indeed forfeiting approx $450K (half of his $900K annual salary), BUT the lion’s share of what he makes is in stock awards and options, which was approx $15 MILLION last year. The $450K cut is chump change to him, more of a publicity stunt.

  10. Typical. The same idiots who claim “government should be small” and “regulation sucks” and that “the market knows all” become socialists when the shit hits the fan. Guess that’s why certain anti American creeps are suddenly quiet on this blog.
    After all they decry bailouts till their Orange Nitwit decides to hand over cash to companies

  11. 747always the Stupid Anti-American WIMP shows his face. He supports massive government, until there is no room for the individual. Moreover, in that case, power flows to the top of the political chain. That is always how people more from freedom to tyranny. That is how Chavez, a Marxist ideologue for the people drove his country into dirt poor poverty.

    Note: No insult intended about 747always’ name. I am just reporting the facts. Remember Democracy Dies In Darkness, so I cannot lie about these things.

  12. For the record, I am against bailing out the airline industry.

    Also, I listen to Cramer, the Money Guy. He is supporting a massive fiscal stimulus program (which economically means direct government spending and tax breaks) like FDR. I have heard a lot of pundits say the same thing.

    The history of these stimulus programs to prevent recessions is dubious at best. Moreover, the spending is never temporary. In other words, if the US government bails out the airlines today, 30 years from now, the airlines will still have a permanent subsidy. Moreover, there will probably be a department of saving airlines, with 10,000 useless bureaucrats all making 3 times the salary of the average american, to manage the ongoing bailouts. Its mandate will probably expand to all moving things.

  13. ” Not many businesses can survive a 90% reduction in revenue, this is (or at least should be) a short-term black swan event, and government can shove its way in line in front of all the other creditors”

    I’ll get off topic here:

    While I get that people try to be positive and everyone says “we will get through this” the fact is that reductions in demand , followed by reductions in supply , become very “sticky” economic events.
    To clarify, demand and supply won’t just suddenly ramp back up . It’s going to take many years for a return to pre-crisis levels. I’d argue we have just begun contracting in all sorts of ways.
    Further, there’s just no appetite for bailing out big businesses.

    Beyond that, when coupled with low oil prices, I suspect massive unemployment and corporate bankruptcies will occur. Illiquid asset prices, such as commercial real estate, will be in free-fall. It’s great if one can work from home ; however , there actually has to be some business to conduct.

    I’m afraid we are spiraling down at such a fast rate the demand -supply contraction is going to lead to a a very deep, very dark recession. I’ll even call it what I think it’s going to be: A depression.
    The World can sure become a mess at lightning speed.

    I’ve been trading markets for decades and credit markets are a mess. A week ago there was so much demand for treasuries that this most liquid US market was briefly not even showing an offer to buy a treasury. One week later, there is massive selling of treasuries. In fact the selling is so great the government is forced to buy to maintain a liquid market. The decline in stocks touched off a deleveraging event ….The need for cash.
    The demand for liquidity in credit markets continued to be great even with the 2000 point Dow rise today. As an example I hold AAA -rated long term municipal bonds and they are being marked down 15% .
    However this isn’t something that wasn’t presaged: The collapse in treasury rates over the last 15 months has been startling. So, the virus is just kicking off what was likely to happen rather soon anyway.

  14. Awww ickle @otherjustsaying, the offspring of cowards and a coward himself thought Im talking about it. Why are you such a snowflake little nancy boy? I never even used your name, but you got your panties in a twist.
    Huge ego + Lack of Common Sense & Decency + Racism + Cowardice = @otherjustsaying

  15. @747always. Did I offend your poor little Anti-American socialist sensibilities, you WIMP? Oh so sad.

  16. @ losingtrader. That was an intelligent comment. I hope you are wrong about the depression conclusion. No doubt you also hope you are wrong.

    To be honest, it is hard to see how the shutdown of the travel and sports industries would not have a dire effect on the economy. Low oil prices used to be good, but the oil industry is a big part the the USA economy due to fracking. The current oil prices in the 30s is below the finding, development, and transportation costs of domestic frackers. In other words, there could be many bankruptcies in the oil patch. To summarize, it is hard not to be concerned. I am just hoping that the downturn is short-lived.

  17. @Otherjustsaying:
    I did use a double negative in that last paragraph., but flattery will get you everywhere.

    Oil prices have an enormous effect on the economy of the US’ 4th largest city, the hot, humid, traffick-y and roach-infested hell-hole called , “Houston. ”

    Houston is one engine of the country’s economy.

    In the 1980’s low oil prices crashed the Houston economy. It’s not tied as greatly to oil as it was then, but it’s close enough that many of the effects on the economy from then may be felt:
    90% decline in raw land prices, and a crash in all types of real estate .
    Perhaps we are smarter and keep money flowing to people laid-off.

    As to production prices, I am told by my former college roommate, who holds a masters in petroleum engineering and made a fortune in resource , production costs range from the 30’s to the 60’s for new exploration, but can be substantially lower for existing wells.

  18. @Otherjustsaying:

    I missed your Cramer comment.

    I’ve watched the guy for years out of boredom. Do you ever wonder why they don’t allow any calls from people angry that he’s often wrong?
    Cramer admitted making lot of money on inside information.

    When his show first started , we would stay in the office to bet against the big run-ups in stock prices he would cause in after -hours trading markets.
    But, honestly , anyone without specific industry experience and an accounting background is incapable of “doing the research” he claims to do.

    I wish I were still using a professional trading system. There were millions to be made with little effort at the close of trading as several stocks gapped up 45-90% on the closing auction trade Friday. It takes automation and a clear, sharp mind.
    Sorry, I digressed because I’ve been missing out on the millions professional traders are making .

  19. @Losing Trader. I like Cramer for two things. (1) He summarizes the market in trader like simplicity every day. (2) He talk about 10 to 20 companies a day and has many CEOs on.

    Most of the companies I have no interest in. However, every now and then a company hits my fancy and I research it. Nobody should buy and sell stocks because someone else said it was a good stock. That is a good way to lose money.

    I do not agree with much of what he says. However, I used his comment as a jump off point to what I have been hearing all day by various so called experts.

  20. I don’t know why some writers are being nasty and name calling. The moderator should ban these writers from this cite if they cannot be civil. As for the airlines being bailed out……….why just them? Restaurants are shutting their doors, hotels are laying off, theaters live and otherwise are shutting down all over, film production companies are shut down, sporting events are shut. Lots of jobs lost and salaries cut off. Everyone who needs it is not going to get help. So, the question I ask is, why the airlines? This virus is out there and a report I just heard from a professor at John Hopkins Medical School said 50,000-500,000 are already infected in the U.S., but there is no way to know do to lack of significant testing. Every expert says that all our efforts now are just to spread this thing out so as not to overwhelm our medical system. This is not a Democratic or Republican issue or problem. It is a virus. What we as all Americans should care about now is our response to this in the past few months (and how we can improve upon that and learn from that for the future) and in all our actions going forward. What we all want and deserve from everyone in our government is the truth in a timely manner and complete openness. No matter what, this is going to be a financial disaster for the nation, companies and most citizens. Companies are going to go under, small businesses are going to go under, restaurants and hotels are going to go under…….and so might Delta………we can’t possibly save them all, even if we want to. STOP BEING NASTY TO EACH OTHER.

  21. @Jeffrey. When the lefties on this blog stop calling me a racist who is following a dictator, I will stop mocking them. Lefties think that they can mess with any conservative they want, with no repercussions, and they get offended and insulting when a conservative pushes back. It is kind of funny, since it is hard to take their intelligence seriously.

    Goodfellas: a made member of the “mob family he was associated with, and that no one could hassle him, or they would get messed with, badly, also he could mess with anyone he wants, with no repercussions.”

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