By Alison Sider | Wall Street Journal
Updated Jan. 13, 2022 12:57 pm ET
Airline expects variant to delay demand recovery by 60 days but said its effects will soon begin to dissipate
Delta Air Lines Inc. DAL 2.12% said Thursday it expects to shake off the impact of Omicron, the fast-spreading Covid-19 variant that knocked the airline’s operation off course and damped revenue at the end of the year.
The Omicron variant upended what airline executives had expected would be a smooth and lucrative holiday travel season. Airlines canceled over 30,000 U.S. flights between Christmas Eve and Jan. 11, as Covid-19 infections ravaged airline workforces, and winter storms further derailed operations in many parts of the country.
Delta’s $9.47 billion in revenue during the quarter was the highest since before the pandemic began to decimate travel in 2020. But Delta Chief Executive Ed Bastian said in an interview that the Omicron variant resulted in a roughly $75 million hit in the fourth quarter, including lost revenue from canceled flights and a slowdown in bookings.
“It came on the scene, not just for us but for our country, literally overnight,” Mr. Bastian said. With high volumes of passengers, the airline struggled to manage surging rates of sick calls by staff and challenging weather. “It was the most difficult holiday operation we’ve ever experienced,” Mr. Bastian said.
Delta expects Omicron to continue weighing on demand in the near term, delaying demand recovery by 60 days, before the variant’s effects begin to dissipate as quickly as they emerged by this spring.
Mr. Bastian said consumers are hesitant to book trips now while case counts are high and airline operations are still shaky. But he said few people canceled holiday travel, signaling the beginning of a new phase of the pandemic in which Covid-19 is likely to become more of a seasonal nuisance than a major impediment to travel and normal life.
“As each successive wave occurs, I think people are getting more used to the fact that this is a virus we’re going to have to manage and live with over time,” he said Thursday during a call with analysts and reporters.
The airline expects to spend an extra $60 million to $70 million in the first quarter on premium pay, overtime and other Covid-related costs. But after a first-quarter loss, the airline expects to post profits for the rest of 2022.
Delta on Thursday reported a fourth-quarter loss of $408 million, following two profitable quarters. For the full year, the airline reported a profit of $280 million. Excluding the impact of certain charges and the impact of government aid earlier in the year, Delta reported an adjusted profit of $143 million for the quarter and a loss of $2.6 billion for the year.
The case numbers among Delta employees are declining quickly and the airline’s operation has stabilized over the past week, Mr. Bastian said. The number of pilots out has fallen by about a third from the peak, and flight attendant sick rates have been halved, he added. Delta said it canceled just 1% of flights because of Omicron over the past seven days.
“We feel like the worst is behind us, hopefully,” Mr. Bastian said. Over the course of Omicron’s surge, about 8,000 Delta employees have come down with Covid-19, and the airline was canceling 5% to 10% of daily flights, he added.
Other airlines have faced similar difficulties. United Airlines Holdings Inc. Chief Executive Scott Kirby said this week that the airline has about 3,000 United employees with active Covid-19 infections. On one recent day, about a third of the airline’s employees at Newark Liberty International Airport were out sick, he said. Flight cancellations have started to decline in recent days following a more than two-week stretch of at least 1,000 canceled flights a day.
Delta had asked the Centers for Disease Control and Prevention to shorten quarantine periods for vaccinated people who came down with Covid-19. The airline changed its own policies after the CDC recommended people isolate themselves for five days, rather than 10, after being ill with Covid.
That sparked a dispute with a union that is seeking to organize Delta’s flight attendants. The airline has defended its policies and accused the union of making false statements about how it handles bringing people back to work after illness. The union has defended its statements and said Delta is putting workers and travelers at risk.
The new variant’s rapid spread has also slowed a resurgence of travel demand that had been under way throughout much of last year. With some companies pushing back plans to bring workers back to offices, the business-travel recovery that airlines have been counting once again looks to be delayed. Delta President Glen Hauenstein said Thursday that Delta is taking a more conservative approach to long-haul international flying in the coming months while travel restrictions remain in place.
The airline had previously expected travel appetite in January and February to match that in December, when demand had returned to close to 80% of 2019 levels. Instead, Mr. Bastian said, demand is about 70% of 2019 levels.
Delta said it sees bookings regaining momentum starting around Presidents Day weekend in mid-February, and the airline expects to become profitable again in March. In the first quarter, Delta expects revenue to recover to between 72% and 76% of 2019 levels, compared with 74% in the fourth quarter.
As a result, the airline isn’t backing off flying plans for the rest of the year. “We see no reason to adjust at this point. We’re gonna get through this thing quickly,” Mr. Bastian said.
Omicron isn’t the only challenge airlines face, as they navigate the rocky recovery from the pandemic. Carriers are also facing steeper costs for labor and fuel. Mr. Bastian said Delta hired around 9,000 people in 2021, for the most part without increasing the airline’s pay scales. Delta expects fuel costs to rise to $2.35 to $2.50 a gallon in the first three months of the year, up from an adjusted fuel price of $2.10 a gallon in the fourth quarter.
Delta’s fourth-quarter results were also adjusted to reflect a $108 million special profit-sharing payment to employees.
Delta reported an adjusted profit of 22 cents during the quarter, beating the 16 cents a share profit analysts expected, according to FactSet.