Delta’s CEO had an unenviable job. Running a global airline with the best revenue through a pandemic – something the industry has never experienced before – has meant a lot of revaluation and reconstruction. While the airline is now working to provide a way forward, a memorandum from CEO Ed Bastian shows that the airline expects a rocky road ahead.
The memorandum from Delta CEO
Traditionally, at the beginning of each new calendar year, airlines draw a path forward for the next 12 months and try to share the vision with their staff and customers. These memos were nothing like the last few years. The remark of mr. Bastian this year is the start of what the airline is expected to be another tough year, but one in which it can hopefully reduce losses and cash burning.
“The beginning of 2021 is no different. Once again, we have ambitious goals for the next 12 months, and these are focused on our core values: caring for our people and our customers. Although I am optimistic it will be a year of recovery, but the continuing uncertainty of the pandemic means that we must be smart, ready to adjust our course and adapt to an ever-changing environment. ”
After having the lowest number of passengers on a day in recent history in 2020, airlines are pretty sure that 2021 will be much, much better.
Mr. Bastian expects the year to be in two different parts:
It is likely that we will experience two different phases over the next 12 months. The first will look very much like 2020, with the travel demand deeply depressed and we focus on ensuring the health and safety of our people and customers. The second phase will only begin when we reach a turning point with widely available vaccinations that encourage significant return to travel, especially business travel. We still expect to achieve positive cash flow by spring.
Break it down
This statement is complex and highlights the changing nature of the current aviation industry. First, the industry is running on a vaccine that has just begun to spread. At present, almost no countries have indicated what restrictions will continue or proof of vaccination needed to be able to travel again.
With most people waiting for a vaccine, they will probably wait until March and beyond, depending on where they live, governments have time to figure out how they want to handle it. However, airlines will know that this will not happen simultaneously in the major markets, and that it will not happen uniformly with similar restrictions in each country. It proposes airlines to deal with a complex set of restrictions before they can fly paying customers again.
Until then, airlines must continue with what they did in 2020: reduce cash burning and increase liquidity. While Delta looks at 2021 from a liquidity standpoint, cash could quickly evaporate in the management of a massive global airline.
A smaller, smarter Delta in 2021
Delta Air Lines hijacked more than 200 aircraft from its main and regional fleets by 2020, making the airline much smaller and more agile. In many ways, 2021 is the year to be small. In the first place, the world market is going to remain volatile. And airlines followed two different ways.
First, airlines such as United, JetBlue and Southwest followed an expansion plan. This means airlines have spotted and jumped on market opportunities in an effort to gain new revenue and more passengers. These include point-to-point routes and hub-and-spoke routes where airlines can use connections to refill their aircraft.
Delta took a second approach. It postponed plane orders and preferred to stay small. Instead, it’s good to waste on demand rather than having too much capacity. Until at least March, the airline will continue to block seats on its aircraft.
If you stay small, Delta’s risk is kept to a minimum, helping it to achieve an investment grade balance with a consistent financial result. However, this comes at the expense of a robust route map that could be a decisive blow to the airline in the future. Although the expansions in the past have not always worked well for Delta during a crisis, it has been successful in guiding passengers through partner buttons for international travel.
Delta is rebuilding itself. Mr. Bastian is clear that he does not want to see Delta return in its 2019 form, but rather a customer-oriented airline from 2021 and beyond amid an uncertain market. 2021 will be a crucial year in Delta’s future strategy. In this industry, anything is possible. Delta is more likely to stay small and add routes or postpone it until 2022 and beyond.
What about plane orders?
Delta’s order book remained constant throughout the crisis. The airline only postponed new deliveries of aircraft, but in the second half of the year it started taking aircraft. Delta has planned most of its fleet replacement strategy, except for the Boeing 757s – for which there is no clear replacement, but if there is nothing new from Boeing, the A321LR or A321XLR are likely to win.
Delta will likely continue to secure the new long-term narrow-gauge slots before losing them. It may even get a good price from Airbus as it is a major Airbus customer and the European planner is also hoping to sign new orders as Boeing has started receiving some of them.
The other game card could be the 737 MAX. Delta was in talks with Boeing about the plane, and Boeing is likely to issue it at a great price. Whether Delta prefers to take the plane remains to be seen. The MAX would be primarily a domestic and short-haul international aircraft for Delta, probably in the 160-170 seat range, as the A321neos and the new A321ceos fit into the 190+ category. The MAXs can easily replace the older 737-800s and Airbus A320s.
In short, 2020 was a difficult year for airlines, but 2021 will be another difficult year. The first half of the year will have at least the same uncertainty as 2020. Until the vaccine guidelines become available, the borders reopen and more people are comfortable traveling again, Delta will be on the verge of planning for the year .
If demand rockets return in the second half of the year, Delta will have a much smaller fleet and less uninterrupted international routes compared to its competitors. Delta’s team believes this scenario is unlikely, and it is preparing for a slow and turbulent recovery.
What do you think the aviation world will look like in 2021? Do you think Delta is on the right track? Let us know in the comments!