The slump in demand for air travel as a result of the COVID-19 pandemic has left the aviation industry in shambles. Amid mounting revenue losses and a sustainable recovery still at least two years away, airlines and airports around the world are now scrambling to deal with challenges unlike anything the industry has faced before.
Delta, one of the largest US airlines by passenger traffic, had been expanding aggressively over the past several years, growing its route network, adding more modern, fuel-efficient aircraft to its fleet, and investing in airlines outside of the US.
The pandemic has forced the Atlanta-based carrier to reduce flights, park its planes, cut costs, and raise more capital to curb its losses. It also wrote off over $1 billion against its investments in LATAM Airlines and AeroMexico, both of which had filed for Chapter 11 bankruptcy. Delta chief executive Ed Bastian described the airline’s situation as being “at a stall.”
According to Bastian, leisure travel to destinations such as Las Vegas, Florida, and New York is suffering as the number of infections continues to rise. He added that business travel has also experienced a setback, lagging by 12 to 18 months as companies await the arrival of a COVID-19 vaccine before putting their employees back on the road. He does not believe that Delta’s volume of business traffic will ever get back entirely to 2019 levels as former business travelers will likely take fewer trips and resort to video calls as an alternative.
As a consequence of these developments, Delta reported a $2.8 billion adjusted net loss in the second quarter of 2020 as its passenger revenue fell by as much as 94 percent. Its shares also tumbled by 3.1 percent during this time.
At the start of the crisis, Delta had a daily cash burn of around $100 million, which it successfully managed to slow to around $27 million in June. It expects this figure to remain steady, with gradual improvements as the demand for travel returns.
At the end of June, the airline had $15.7 billion in liquidity, with an option to either secure a $4.6 billion loan under the CARES Act or seek other means of financing. It also received $5.4 billion in taxpayer funds to pay its employees through September.
In mid-July, Delta reported that it expects its third-quarter revenue and flight capacity to be around 20 to 25 percent lower compared to the previous year. It also cut its planned flights for August by half.
After American Airlines ended its policy of blocking off the middle seats in economy class in late-June, Delta became one of three remaining US carriers — along with Hawaiian Airlines and JetBlue — to continue implementing this policy in the name of preventing the spread of disease. Bastian, however, warned that Delta cannot make money if only 60% of its planes are filled, saying that it cannot raise its prices high enough when its competitors have more seats available.
On a more positive note, while other US carriers warned of massive furloughs by October when stimulus funds run dry, Bastian is hopeful that Delta will be able to avoid a similar fate after over 17,000 employees accepted buyouts or early retirement, and more than 45,000 opted for short-term leave.
Airports adapt to the “new normal”
In the first few months of the pandemic, airports worldwide began introducing measures aimed at preventing the spread of COVID-19 and ensuring traveler safety.
According to Dallas-Fort Worth International Airport (DFW) chief executive Sean Donohue, the “new normal” for airports will focus more on self-service, with technology becoming critical to their day-to-day function.
The airport has been working closely with American Airlines — whose largest hub is at DFW — to roll out self-service baggage drop facilities. DFW is testing three options for its self-service luggage check-in system: Amadeus’s ICM, Materna IPS, and SITA.
In 2019, DFW introduced biometric boarding — which uses facial recognition to confirm passengers’ identities — for international flights. The airport has also been in talks with US Customs and Border Protection to use a similar system for arriving passengers as well. Though this technology has been in use in several airports in Europe, Asia, and the US for the past few years, there are growing concerns regarding racial bias in the technology, as discovered by a US government study. In early 2020, the European Union also considered banning it over privacy concerns.
In the wake of the pandemic, DFW went over its cleaning and sanitation budget to introduce new technology to improve sanitation at the airport, such as electrostatic foggers and ultraviolet technology to prevent the spread of germs in the HVAC system. The airport also introduced touchless temperature checks for its employees, and its restrooms are also being fitted with hands-free sinks, soap dispensers, paper towel dispensers, and flushing toilets to minimize contact between travelers. An additional 150 people were also hired to physically sanitize high-touch areas throughout the airport.
Michael Davies of the New Technology Ventures program at London Business School believes that technology upgrades will be just one of many changes to the airport experience going forward. And with fewer travelers seeking more space and spending less time dining and shopping at the airport, Davies sees this as a step back in time to the golden age of travel.