Delta's earnings proves airline recovery is taking 'much longer than expected': Analyst

Delta reported a $5.4B loss in the third quarter. Cowen Analyst Helane Becker joins the On the Move panel to discuss.

Video Transcript

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ADAM SHAPIRO: The airline shares are under pressure this morning, after Delta, the first of the major carriers to report, [AUDIO OUT] and their shares at Delta are trading lower right now, off more than 3%. We got a statement from Ed Bastian earlier, in which he said that he expects the airline to be cash flow neutral or positive in spring of 2021.

Let's break this down with Helane Becker, an analyst at Cowan, who covers Delta and the airlines. And you actually alluded to that in your October 6 note, when you said without the return of business travel, you folk don't believe that the airlines, it's going to be difficult for them to get back to cash flow break-even by the second half of 2021. What do you think about what you saw with Delta today?

HELANE BECKER: Exactly as expected. The recovery is taking much longer than anybody expected it would at the start. I think when the airlines met with the president in early March, there was some thought that it would be a V-shaped recovery. You see that in China. I mean, you look at the numbers for Golden Week last week and in domestic China, they were actually up 10% year over year because of course, they can't travel internationally. But I think there was this expectation in the United States that we'd have a similar recovery, and we're not. And business traffic is down still between 85% to 90% year over year.

Leisure's different. I kind of think leisure is 85% or 90% back to where it was a year ago, especially the visiting friends and relatives component. But without international coming back, and that's still down 95%, and without business coming back, I don't see how we get back to any kind of revenue recovery that the industry would need to support the balance sheets they have.

JULIE HYMAN: Helane, it's Julie here. When you look at these Delta numbers and compare them with perhaps what you expect from the other airlines, Delta is one of those airlines that from a consumer's perspective, it does tend to rate a little bit higher. Does that make a difference right now? If people are traveling, are they being more discerning about which airline they're flying with? And is that making a difference in terms of profitability ultimately?

HELANE BECKER: I think so. They said this morning on their call that their net promoter score was 70, I think of a 73 points or 75 points up 20 points from where it was a year ago. And I think that's really significant. The fact that they're still blocking middle seats, I think consumers view that favorably versus other airlines are flying 85% full and not blocking middle seats.

So I think that as you think about coming out of the pandemic and getting to recovery, Julie, the other thing I would point out, is that the airlines, the airlines in general, and Delta in particular, are accelerating retirement of older aircraft. And that means, should mean actually, reliability should improve as we come out of this.

So airlines won't have the level of maintenance delays they've had in the past. Those who are environmentally concerned will see a younger, more fuel efficient fleet. So lower fuel burn. The industry will be able to accelerate 10 years worth of fleet adjustments in three to four years. And Delta is certainly in the leading edge of that.

JARED BLIKRE: Hey, Helane, Jared Blikre here. I just want to get your take on United, which is reporting after the bell tomorrow. Any differences between the two earnings, two sets of earnings? And what are expectations for United?

HELANE BECKER: Yeah. Well, OK, for earnings differences, I think a big difference between Delta, American and United, is that Delta and American have announced its fleet retirements and United hasn't. They've grounded aircraft, for sure. They've parked aircraft. But they haven't made any decisions yet on aircraft, permanent aircraft retirements the way Delta and American have. So I think that's a big difference right there, number one.

Number two, United has more exposure to location. Chicago and Newark come to mind, where there are still quarantine rules in effect and where things just aren't open yet. So I would suspect that United's results are probably going, I mean, they're losing money. They're not going to be any better than Delta's. And I expect that similar to Delta on the corporate side, they're not seeing huge increases in corporate travel, especially in this New York area. Maybe out of Denver and then their other hub. I forgot to mention San Francisco, also, lockdowns are continuing, quarantine rules in effect.

So I think it's going to be hard for them, harder for them to recover. And United also has a bigger international or had a bigger international footprint than Delta does or American. And so that's impacting their business on the wide bodies side as well. So yeah, I think numbers in general for 2021 among my peer group are probably too high. I think investors are probably ahead of the sell side. We adjusted all our numbers last week when we published our earnings preview. And we're hopeful that we'll actually be able to, by the second half of next year, see some positive surprises rather than this continued pandemic.

ADAM SHAPIRO: Helene, I think many in the flying public will miss the MD 90s, which Delta is retiring. But we thank you for being here and joining us "On the Move." Helane Becker is an analyst with Cowen. We have more "On the Move" after this.