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Travel: ‘Worst may be behind us’: Delta sees demand hit from omicron, but thinks it won’t last long

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  ‘Worst may be behind us’: Delta sees demand hit from omicron, but thinks it won’t last long © Provided by The Points Guy
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Delta Air Lines CEO Ed Bastian said Thursday that 8,000 of the airline’s employees had tested positive for COVID-19 over the past four weeks, which caused the operational disruptions that saw Delta cancel nearly 2,000 flights over the busy holiday travel period.

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“The good news is that they were all fine, there have been no significant health issues that we’ve seen from it, but it’s knocked them out of the operation for a period of time at the same time that we’ve had the busiest travel that we’ve seen in two years,” Bastian told CNBC’s Squawk Box ahead of a quarterly earnings call with investors.

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About 20,000 U.S. flights across all airlines were canceled during the holiday period. United Airlines had 3,000 employees out sick with COVID-19 on Tuesday, CEO Scott Kirby said.

The airline posted a net loss of $408 million for the fourth quarter of 2021 and forecasted another loss for the first three months of this year, both driven by disruptions caused by the spread of the omicron variant, but said that things have already begun to improve.

“The good news is that over the past seven days, our operation has stabilized with omicron-related cancellations impacting only about 1% of our flights,” Bastian said during the call. In an even narrower time frame, he added, things have gotten even better.

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“Since Sunday, the number of omicron-affected cancellations are around 20 a day out of nearly 4,000 daily flights,” he said. “And in fact, yesterday we only had two omicron-related mainline cancellations.”

“So while the new variant is not done, it appears that the worst may be behind us,” Bastian added.

Delta was the first airline to ask the CDC to consider shortening its isolation period for vaccinated people who tested positive for omicron, citing potential operational disruptions.

Although travel demand was trending up towards the holidays, demand has fallen sharply — even for what is typically a slow travel season — and close-in cancellations remain high due to the prevalence of the virus, Bastian and other airline executives said.

Still, despite the impact to holiday travel, the timing of the omicron surge is actually fortuitous going forward, Delta president Glen Hauenstein argued.

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“These five weeks that it’s impacting are five of the lightest weeks in terms of business travel,” Hauenstein said, adding that “it’s really impacted more the close-in demand than the further out demand.”

Although people typically book flights in January for later in the year, Hauenstein said that a temporary shortening of the booking curve is not expected to impact demand later in the year.


Video: Delta Air Lines CEO on Covid's travel impact: The next few weeks will be difficult (CNBC)

“We believe we have plenty of time to recover those deferred vacation bookings for summer. If they don’t come in the third or fourth week of January, it’s easy for them to come in sometime in February and March,” he said. “So we’re really not concerned yet about spring or summer, we feel that we’ll have a very, very robust demand.”

The airline also remains optimistic on business travel demand later this year, although new delays in office reopenings have impacted that for the first quarter.

“There’s a correlation. A lot of business. travel is triggered by going to visit companies and the companies are closed,” Bastian said during the call. “There’s a real cause-and-effect there.”

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Still, recent customer surveys have executives confident that business travel demand will surge later in the quarter and the year.

“The percentage of customers who thought in the first quarter that they would travel the same or more went down slightly, but still, 80% of the corporate travel survey respondents thought they would travel the same or more in the first quarter [compared to] the fourth quarter,” Hauenstein said.

Bastian said that recent indications that the current surge is peaking and even beginning to decline in some parts of the country has boosted consumer confidence.

“We’re expecting,” Hauenstein added, “when we get to spring and summer that we’ll see a robust demand for business travel as people get back into the regular routine and feel safe traveling.”

The airline is set on looking beyond the variant, and plans to hire between 3,000 and 5,000 employees this year “depending on how demand shapes and comes back,” Bastian said. That includes between 100 and 200 pilots per month into early-2023.

Read more: Delta doubles down on pre-pandemic international airline investment strategy

Although the airline has not had trouble hiring pilots for its mainline operation, a shortage of pilots at the regional carrier level has put a strain on Delta and forced it to pull out of some smaller markets for the first part of the year. Part of the issue has been the training and hiring pipeline, Hauenstein said. He expects it to normalize later this year.

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“We’re pretty confident that by the second half of this year, that the pipelines will be more full and we’ll be able to restore a lot of the small and medium-sized communities that we’ve had to pull down during the shortage,” he said.

As the airline sees demand return, it also plans to bring on-board service back more fully than it has so far.

“Over the course of the next 2 to 3 months you’re going to see our service patterns largely restored to where we were in 2019,” Bastian said. “It’s going to be improved.”

“We’ve taken the opportunity during the pandemic to make substantial changes to the whole catering spec,” he added. “A really big change that customers are going to be delighted by when they start traveling again in the springtime, particularly internationally. It’s going to be good.”

Delta reported a $208 million profit for 2021, its first in two years, largely thanks to the Payroll Support Program, which covered some labor costs. The airline posted a $12.4 billion loss for 2020, its biggest ever.

United and American are scheduled to report their earnings and brief investors next week, with Southwest the week after.

Featured photo by David Slotnick/The Points Guy

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