March 10, 2020
Delta Air Lines Inc. and American Airlines Group are meeting the economic fallout of the coronavirus outbreak with plans to dramatically cut domestic and international flights.
The airlines announced the cuts Tuesday morning after markets suffered their biggest drop since the 2008 recession. The shock came as demand for flights sunk worldwide.
“As the virus has spread, we have seen a decline in demand across all entities, and we are taking decisive action to also protect Delta’s financial position,” said Delta CEO Ed Bastian in a statement. “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.”
Delta is cutting domestic flights by 10-15 percent and international flights by 20-25 percent. American is cutting domestic by 10 percent and international by 7.5 percent. Both airlines are cutting trans-Pacific flights by more than 50 percent.
United Airlines Holdings Inc. had previously announced that it was cutting domestic flights by 10 percent and international by 20 percent in April. JetBlue is cutting overall capacity by 5 percent.
Expenses are also on the chopping block.
Delta has instituted a company-wide hiring freeze, suspended share buybacks, and is parking some aircraft and evaluating them for early retirement. It’s also deferring $500 million in capital expenditures and delaying $500 million in voluntary pension fund payments.
American has not made similar commitments but followed Delta’s lead in waiving fees for customers who would like to cancel or change their flights.
One upside for airlines: oil prices are way down, offering some cost benefits amid the turmoil.
The cuts are the first public signs that airlines are bracing for a major hit in the coming year, but some are predicting a rough patch on par with the aftermath of the 9/11 terrorist attacks.
Airlines for America, a trade group, predicts the outbreak could wipe out between $63 billion and $113 billion in worldwide airline revenues in 2020.
“The environment is fluid and trends are changing quickly, but we are well positioned to manage this challenge and are taking actions to ensure that Delta maintains its leadership position and strong financial foundation,” Bastian said.