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Earnings Reports Begin To Shed Light On Health of Airline Industry

Date: January 13, 2022

By Lori Aratani, Washington Post

Delta Air Lines on Thursday offered an upbeat assessment of its prospects in 2022, saying that despite a temporary slowing of its recovery due to the omicron variant, travel demand will fuel strong ticket sales this spring and into the rest of the year.

“While the downturn in demand has been quick, we expect an equally rapid improvement once U.S. case counts begin to decline,” said Delta chief executive Ed Bastian. “We remain confident in a strong spring and summer travel season given significant pent-up demand for consumer and business travel, both domestically and internationally.”

Bastian’s comments offered an early indication of how air carriers view the year ahead following a fourth quarter marked by the emergence of omicron and extensive flight cancellations around the busy Christmas travel period. Delta was the first carrier to report earnings. American Airlines, United Airlines, Southwest Airlines, JetBlue Airways and others will follow over the next two weeks.

Delta reported a net loss of $408 million in the final quarter of 2021, but closed the year profitable thanks, in part, to billions of dollars in federal pandemic aid. The carrier said it expects to lose money in the first quarter this year but also expects “a healthy profit” for the remainder of 2022.

During the earnings call Thursday, Bastian said 2021 was “a year like no other” for the Atlanta-based carrier. He said the rapid rise in coronavirus infections fueled by omicron combined with “extreme weather” during the peak of the holiday travel period, “created some of the most difficult travel conditions that we ever remember experiencing.”

Flight disruptions that began Dec. 24 and have stretched into the new year forced the airline to cancel more than 2,400 flights, adding up to a loss of roughly $80 million for the carrier. However, Bastian said Thursday that operations have stabilized in recent days with only one omicron-related cancellation Wednesday. The number of positive virus cases among Delta employees has also slowed after about 8,000 employees tested positive over the last four weeks, the carrier said.

“The new variant isn’t done, but it may be the worst is behind us,” Bastian said.

Bastian said he expected omicron would delay Delta’s recovery, slowing demand in January and February. But with case numbers expected to peak soon, he expressed confidence that demand for air travel would return in March and continue to grow for the rest of the year.

Analysts agreed, saying pent-up demand for travel will help to fuel the industry after omicron’s effects are diminished.

“Cost head winds are likely to persist for airlines, but the desire to travel is strong,” said Peter McNally, global sector lead at Third Bridge, an investment research firm. “Delta is making the bet that omicron will delay the recovery by two months. Beyond that, the challenge will be meeting demand and managing the global operation until a full recovery is made.”

Bastian said Delta employees also will benefit from the carrier’s improved financial outlook, adding that employees will receive a one-time bonus of $1,250 next month.

Airlines were optimistic when entering the final quarter of 2021, having weathered the delta variant of the coronavirus, which slowed passenger demand in late summer and early fall. At least five U.S. carriers were profitable in the third quarter and, of those, at least two, Delta and Alaska Airlines, reached that milestone without the benefit of billions of dollars in federal pandemic aid that expired at the end of September.

The industry’s hopes for recovery and the return of lucrative international and business travel were further buoyed by the Biden administration’s decision to end a ban in November on overseas travelers, replacing it with a system that would rely on vaccination, testing and contact tracing. The move opened the United States to visitors from 33 countries for the first time since restrictions were put into place in March 2020.

But even as more people began flying, there were signs that airlines weren’t fully prepared. An estimated 50,000 airline workers left the industry during the pandemic, leaving carriers scrambling to hire replacements in a tight labor market.

Bastian said Thursday that Delta hired 9,000 workers in 2021 and plans to hire 3,000 to 5,000 this year. He said pilots remain a priority, adding that Delta has been hiring 100 to 200 pilots each month, a rate that could continue into 2023.

The hiring spree at Delta and other airlines comes after several carriers, including Spirit AirlinesAmerican and Southwest, suffered high-profile meltdowns last year as bad weather exacerbated staff shortages, leaving passengers stranded and thousands of flights canceled.

Hoping to avoid a repeat, American and Southwest reduced flight schedules and offered bonus pay to employees during weeks around the holidays to ensure they had enough workers.

The arrival of the omicron variant scrambled those efforts, with signs of trouble surfacing just before Christmas and extending into the new year as weather hampered carriers’ efforts to regain their footing.

The cancellations and increased labor costs are expected to be a drag on some carriers’ fourth-quarter results, but analysts say the effects will probably be short term.

Henry Harteveldt, an aviation analyst and president of Atmosphere Research Group, said January is a traditionally slower month for leisure travel, which will give airlines a chance to regroup. He said he expects demand for travel to rebound when coronavirus caseloads decline as travelers make plans for spring break and summer.

“Airlines are hoping we’ll be past the worst by the middle of February, when we get closer to Presidents’ Day weekend,” he said. “March starts the spring vacation period, and airlines want to be ready for what I suspect will be a very busy spring and summer travel season.”

Other analysts agreed.

“Our global outlook for passenger airlines remains positive as we continue to expect pent-up demand for air travel to remain strong through 2022 and beyond,” wrote Jonathan Root, senior vice president at Moody’s Investors Service, in a report last week.

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