The CEO of Delta has got an uncertain job. In the midst of the epidemic was one of the world’s top performing airlines relays by revenue that operating – which has never been experienced by the industry – means a lot to evaluate and rebuild. Now, as the airlines work to chart the way forward, CEO Ed Bastian’s memo shows that the airlines expect no rocky roads ahead.
Memo from Delta’s CEO
Traditionally, at the beginning of each new calendar year, airlines make their way forward for the next 12 months and try to share that vision with their staff and customers. This year, those memos were nothing like the last few years. Mr Bastian’s memo marks the start of another difficult year the airline expects this year, but one where he hopes losses and cash burns can be reduced.
“The beginning of 2021 is no different. Once again, we have ambitious goals for the next 12 months, and that revolves around our core values: taking care of our people and our customers. While I am optimistic that this will be a year of recovery, the constant uncertainty of the epidemic means that we need to be agile, ready to adjust our course and adapt to the ever-changing environment. “
After 2020, seeing the fewest passengers flying in a single day in recent history, airlines are sure that 2021 will be more, better.
Mr. Bastian expects the year to be in two different parts:
It is likely that over the next 12 months we will experience two different phases. The first will look like 2020, in which travel demand is deeply depressed and our focus will be on ensuring the health and safety of our people and consumers. The second phase will only begin when we reach a turning point with widely available vaccinations that offer significant returns in travel, especially in business travel. We expect to receive a positive cash flow by spring.
Breaking this
This statement is complex and emphasizes the diversity of the current aviation industry. First, the industry is riding on a vaccine that has begun distribution. Currently, almost no countries have indicated what restrictions will exist or the evidence of vaccinations that are required to resume travel.
Most people have little time to figure out how to get governments to control this, depending on where they live, with the expectation of getting a vaccine in March and beyond. However, airlines will know that this will not happen simultaneously in large markets, or that it will not happen uniformly in every country with the same restrictions. This sets airlines to deal with a complex array of delegates, before they can fly to paying customers again.
Until then, airlines need to continue to do what they were supposed to do in 2020: reduce cash burns and streamline liquidity. As the Delta Liquidity Standpoint draws to a close in 2021, the cash in the operations of global airlines could quickly evaporate.
A smaller, more agile delta in 2021
Delta Air Lines cut more than 200 aircraft from its main line and regional fleet in 2020, making the airline much smaller and more agile. In many ways, 2021 is the year to stay small. First and foremost, global markets will continue to be volatile. And, two different courses of action have been taken by the airlines.
First, carriers such as United, JetBlue and Southwest have an expanded plan. This means that airlines have experienced market opportunities and jumped on them to get new revenue and more passengers. These include point-to-point routes and hub-and-speak routes where airlines can take advantage of the connection to fill their aircraft.
Delta has taken a different approach. He has postponed the order of the plane and has chosen to stay small. Instead, it is better than demand rather than having more capacity. At least through March, the airline continues to block seats on its aircraft.
Staying small reduces Delta’s risk and helps it enter the investment-grade balance sheet with break-even financial results. However, this comes at the expense of a strong route map that could prove to be a decisive blow against the airline in the future. While past expansion has not always worked well for Delta during crises, it has succeeded in funneling passengers through a partner hub for international travel.
Delta is rebuilding itself. Mr Bastian made it clear he did not want Delta to return to its 2019 form, but to be a customer-centric airline from 2021 and between uncertain markets. 2021 will be a crucial year in Delta’s future strategy. In this industry, anything is possible. It is possible that deltas remain small and ax routes remain or postpone them until 2022 or later.
What about aircraft orders?
Delta’s order book has been consistent throughout the crisis. The airline has just postponed delivery of the new aircraft but has started taking some flights in the second half of the year. Delta has devised most of its fleet replacement strategy, except for the Boeing 757s for which there is no obvious replacement, but with anything new from Boeing, the A321LR or A321XLR will likely win.
Delta can move forward and this new long-range compressed aircraft can secure its slots before it loses. It could also get a good deal from Airbus, however how is it a big Airbus customer and even the European aircraft maker is hoping to lag some new orders as Boeing has started receiving some of them.
The other wild card could be the 737 MAX. Delta has been in discussions with Boeing on the plane, and Boeing probably. Will give them at a great price. It remains to be seen whether Delta prefers to take the plane. The Max will be primarily a domestic and short-haul international aircraft for the Delta, potentially in the 160-170 seat range, as the A321neos and the new A321 Seos fit into the 190+ category. The MAXes can easily replace the 737-800s and the Airbus A320.
In short, 2020 was a difficult year for airlines, but 2021 will be another difficult year. The first part of the year, at least, will see the same uncertainty that was seen in 2020. Until the vaccine guidelines come out, borders are reopened, and more people are comfortable traveling again, Delta will be in a tight spot when it comes to its plans for the year.
If the demand rocket returns in the second half of the year, Delta will suffer from having far fewer fleets and fewer nonstop international routes than its rivals. Delta’s team believes this scenario would be unlikely, and it is preparing for a slower and textile recovery.
What do you think the world of aviation will look like in 2021? In your opinion, is Delta on the right track? Let us know in the comments!
