Delta and American cut flights, freeze hiring as coronavirus hurts travel demand

Key Points
  • Delta and American made broad cuts to flights as coronavirus drives down demand.
  • Delta is also instituting a hiring freeze and offering voluntary, unpaid leave.
  • The measures follow similar steps by competitors including United and JetBlue.
A Delta Air Lines Boeing 767-300 landing in Amsterdam.
Nicolas Economou | NurPhoto | Getty Images

Delta Air Lines and American Airlines announced deep flight cuts and other cost-saving measures Tuesday as the coronavirus poses the biggest threat to travel demand since the Sept. 11, 2001, terrorist attacks.

Delta said it is reducing its international flights by as much as 25% and domestic capacity between 10% and 15%, among some of the deepest cuts announced in the U.S. so far. With so much uncertainty, the airline suspended its financial outlook for this year, which other U.S. carriers have also done.

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For its part, American said it will shave 10% off its peak summer international flying, one of the clearest signs yet that airline executives expect the coronavirus's impact on the business to last longer than expected. That includes a 55% cut to its trans-Pacific flying capacity as travel demand throughout Asia plummets. The virus originated in Wuhan, China, in December and quickly spread throughout that country and to nearby South Korea, Singapore and Japan. 

It will also cut April domestic capacity by 7.5%. American, which had already suspended service to mainland China for several weeks, extended that to October. 

The carriers' cuts follow similar measures taken at United and JetBlue last week. President Donald Trump late Monday said his administration is working with industries hard hit by the coronavirus, including airlines, hotels and cruise lines, but he did not provide specifics on what aid could look like.

Bookings have dropped sharply in recent days as more cases of the coronavirus have been reported in the U.S. and booking trends will likely worsen, Delta CEO Ed Bastian said at the J.P. Morgan Industrials Conference, which was changed to a webcast last week from a live event amid increasing corporate precautions to prevent the spread of the virus.

Airline executives at the conference sought to calm nervous investors, playing up their stronger balance sheets compared with previous crises when they were saddled with debt and faced more domestic competitors. They also said a sharp drop in fuel prices could help soften the blow.

But they also detailed the impact of the coronavirus. As the virus spread outside of Asia, Delta registered a "25% to 30% decline in net bookings and are prepared for it to get worse," Bastian said. "We expect demand erosion to continue in the near term and have built a plan that prioritizes free cash flow generation and preserves liquidity."

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In addition to cutting flights, the Atlanta-based airline will halt hiring and is offering voluntary, unpaid leave. It is also suspending its stock repurchase program and delaying $500 million in capital expenditures and $500 million in voluntary pension funding. Delta also may park aircraft and look to retire some planes earlier than expected. 

Bastian said that there was "no question" we'll see some form of government intervention in the sector around the world to soften the impact of the virus, but his counterpart at American said at a meeting between airline executives and Trump last week in Washington, that no U.S. airline CEOs asked for aid.

Meanwhile, Southwest Airlines CEO Gary Kelly, who told CNBC last week that the low-cost airline could also follow suit with flight cuts, has told employees that he is taking a 10% cut in pay.

"Given all the news and near-panic about the virus, none of this is shocking; but the velocity and the severity of the decline is breathtaking," Kelly told employees in a video message, a transcript of which was viewed by CNBC. "There is no question this is a severe recession for our industry and for us. And, it is a financial crisis."

He warned that the carrier could have to ground airplanes and furlough employees. "I can promise you it will be the last thing we do, not the first," Kelly said.

United, which is presenting at the conference Tuesday afternoon, said in a filing that it expects to post a first-quarter loss because of the coronavirus. CEO Oscar Munoz and President Scott Kirby, who takes over as CEO in May, will forgo their base salaries at least through June 30.

Delta cuts capacity, Southwest CEO takes pay cut as coronavirus drives down demand
Delta cuts capacity, Southwest CEO takes pay cut as coronavirus drives down demand