Delta Air Lines Reports MASSIVE Second Quarter Loss

Filed Under: Delta

Delta Air Lines has just become the first major US airline to report its second quarter earnings, and goodness is it rough… as you’d expect.

Delta Air Lines reports $7 billion loss

Delta Air Lines has reported its second quarter results:

  • The airline had a GAAP pre-tax loss of $7.0 billion (or $9.01 per share) on a total of $1.5 billion in revenue
  • The airline had an adjusted pre-tax loss of $3.9 billion (or $4.43 per share) on a total of $1.2 billion in revenue

The adjusted pre-tax loss of $3.9 billion excludes $3.2 billion of items directly related to the impact of coronavirus and the company’s response, including fleet related restructuring charges, write-downs related to equity investments, and the benefit of the CARES Act grant recognized in the quarter.

Furthermore, the adjusted revenue of $1.2 billion, which excludes refinery sales, declined 91% compared to the prior year on a system capacity reduction of 85%

At the end of the June quarter, the company had $15.7 billion in liquidity.

As a point of comparison, Delta posted its first quarterly loss since 2014 in the first quarter of 2020. The company reported a $534 million loss in the first quarter, so it was significantly less than this quarter, as you’d expect.

As Delta CEO Ed Bastian describes the loss:

“A $3.9 billion adjusted pre-tax loss for the June quarter on a more than $11 billion decline in revenue over last year, illustrates the truly staggering impact of the COVID-19 pandemic on our business. In the face of this challenge, our people have acted quickly and decisively to protect our customers and our company, reducing our average daily cash burn by more than 70 percent since late March to $27 million in the month of June.

Given the combined effects of the pandemic and associated financial impact on the global economy, we continue to believe that it will be more than two years before we see a sustainable recovery. In this difficult environment, the strengths that are core to Delta’s business – our people, our brand, our network and our operational reliability – guide every decision we make, differentiating Delta with our customers and positioning us to succeed when demand returns.”

Delta reported a second quarter loss of $7 billion

Delta’s second quarter cash burn

Delta’s cash burn rate has been reduced significantly since the pandemic started:

  • Cash burn for the quarter averaged $43 million per day
  • For the month of June, Delta averaged just $27 million per day in cash burn

This is lower than was initially expected. For example, when Delta reported first quarter results, the company anticipated reducing cash burn to $50 million by the end of the second quarter. Obviously the company has done much better than that.

The company now hopes to achieve breakeven cash burn by the end of the year.

In the second quarter, total operating expenses at the airline decreased $4.1 billion compared to the prior year.

Delta saw a 93% drop in passengers

In the second quarter, Delta saw a 93% decrease in passengers and a 91% decrease in revenue compared to the same quarter last year. Furthermore, non-ticket revenue decreased by 65%, as cargo, MRO, and loyalty revenue declined at a lower rate than ticket revenue.

While all airlines saw huge decreases in passenger numbers, that drop in passengers is especially high, given Delta’s practice of blocking middle seats.

Delta had over $2 billion in write-downs from partners

In the second quarter, Delta had write-downs of over $2 billion from its equity investments in other airlines, including:

  • $1.1 billion for its LATAM investment
  • $770 million for its Aeromexico investment
  • $200 million for its Virgin Atlantic investment

This comes after both Aeromexico and LATAM have filed for Chapter 11 bankruptcy. Delta has spent the past years investing in all kinds of other airlines to build a global network, and that sure seems to be backfiring right now.

Delta had write-downs of over $2 billion through its equity investments

Delta reveals more fleet retirement plans

Delta plans to become a smaller and more efficient airline as a result of the pandemic, and plans to accelerate fleet simplification. In 2020:

  • Delta is retiring its entire MD-88, MD-90, 737-700, and 777-200 fleet
  • Delta is retiring portions of its 767-300 and A320 fleet

Delta will retire some 767s in 2020

Bottom line

The second quarter will likely (hopefully?) be the roughest quarter for US airlines. We saw all US airlines report big first quarter losses, but obviously the second quarter would be significantly worse, as passenger demand only really dropped off towards the tail end of the second quarter.

I’ll be curious to see how other airlines performed in the second quarter. Usually we expect Delta to outperform American and United, but that might not be the case here:

  • Delta’s strategy of taking equity stakes in other airlines backfired last quarter, as the airline had over $2 billion in write-downs
  • American added a lot more capacity in the second quarter than other airlines, so I wonder how that will impact its financial performance

What do you make of Delta Air Lines’ second quarter results?

Comments
  1. Interesting you didn’t mention Ed saying no or very limited need for furloughs given take rate on retirement packages. What’s United saying? 35000 layoffs?

  2. Certainly not good, but Delta is managed smartly.

    Management at delta takes targeted action to protect the company. The only other large airline that probably will do better than Delta is Southwest (fleet synchronization) and mostly domestic footprint.

    I can only imagine how poorly United and American will perform. Oh boy it’s not going to be good

  3. I consider Delta and Southwest to be the strongest, so this is very concerning for the future of airlines. Not great to see. 2 more quarters of this and we could be talking about a new airline landscape completely.

  4. They just took delivery of their last 737-900s, and are retiring the 737-700s, which are a small subfleet.

  5. Good management? They put all there eggs in one basket aka foreign airline invents. BuT DeLtA iS So AmAZiNg.

  6. Let’s keep things into perspective. The news is as bad as it gets and the stock only goes down 2-3 %? Is this the floor barring any further covid setbacks?

    I think it’s astounding that Delta have been able to lower their cash burn down from 100 million to 27 million in a few months. They have 19 months of liquidity today and that’s assuming the status quo on lockdown remains and we don’t improve. They likely have an extra 4 billion in cheap loans from the cares act that will likely increase their liquidity position from 19 to 24 months if they choose to take it.

    I could see the stock slowly rebounding by Q4. These stocks are poised to bounce up very sharply with any good covid vaccine news. Granted it won’t reach pre-pandemic levels for a long time because I question if corporate travel will ever return.

    Post covid, delta and Southwest will be positioned well to take market share from AAL and UAL who don’t have strong balance sheets.

  7. @etravelstheworld look at the stock price over the last few months. These kinds of losses were long priced into the share price which has overall dropped 60 odd percent.

  8. Delta is retiring the 10 737-700’s not the 130 737-900ers. They could get rid of all the a320’s their very old and outdated. The 757’s and a321’s will still be the narrowbody workhorse for them. I can see about 20 of the 767-300’s retiring but still the right size plane for the medium hauls. If this doesn’t get any better look for some of the bigger a330-300’s to be retired also. I have one question for anyone that can answer this when delta gets rid of all these planes and business magically picks back up can you bring planes out of retirement or just wait on the ones you have on order to be delivered?

  9. May be doing things such as blocking the middle seat or other non essential requirements which does not really control the spread of the virus is partly to blame.

  10. @dave you should have taken the advice I gave you yesterday. Stock is up 10 percent today on positive covid news 🙂

    “ These stocks are poised to bounce up very sharply with good vaccine news”

    That’s not to say there won’t be bumps in the road. However this week we’ve likely seen the floor as the news on Q2 earning was as terrible as it gets yet the stock was only down 3%. This is often a sign a stock is oversold and any negative news is already priced in. The very next day it pops 10 percent on the smallest slim positive vaccine news.

  11. Roberto, do you know what out your eggs in one basket means? Lol not divesting. Putting all your money in Delta is putting money in one basket. Korean air and china eastern will bounce back. Asia is pretty much open and domestic travel is pretty high. Think before you talk. Yes delta is a great airline and the mgmt are way better than AA or UAL.

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