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Airlines Announce Sweeping Cuts to Combat Coronavirus Travel Slump

By Lou Whiteman - Mar 10, 2020 at 9:37AM

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International and domestic schedules to be trimmed until travel demand returns.

Delta Air Lines (DAL 2.28%) and American Airlines Group (AAL 3.01%) on Tuesday became the latest U.S. airlines to announce broad domestic and international capacity cuts as the industry attempts to grapple with collapsing demand due to the COVID-19 coronavirus outbreak.

Delta in a statement said it would reduce international capacity by 20% to 25% and domestic by 10% to 15%, with transpacific capacity to be reduced by about 65%. The airline is also instituting a companywide hiring freeze and will park some aircraft, as well as defer about $500 million in capital expenditures and delay a $500 million planned voluntary pension funding.

A plane landing at night in an urban setting.

Image source: Getty Images.

"Over the last 10 years, we've transformed Delta by strengthening the balance sheet, diversifying our revenue streams and enhancing operational and financial flexibility," CEO Ed Bastian said in a statement. "The environment is fluid and trends are changing quickly, but we are well positioned to manage this challenge and are taking actions to ensure that Delta maintains its leadership position and strong financial foundation."

American, meanwhile, said it would reduce summer peak international capacity by 10% and April domestic capacity by 7.5% compared to the current schedule. As with Delta transpacific flying will account for the bulk of the cuts, with capacity to drop by 55%.

Both airlines also suspended their first quarter guidance.

The airline sector has been hard hit by coronavirus concerns, which has caused corporate and leisure travel demand to evaporate. Though it is too soon to say when demand will return, airlines are assuming the outbreak will affect the key summer travel season. United Airlines Holdings (UAL 2.78%) and JetBlue Airways already announced capacity cuts, while Southwest Airlines (LUV 1.71%) CEO Gary Kelly said he would take a 10% pay cut during the crisis.

United on Tuesday it expects to incur a loss in the first quarter. The airline suspended its share buybacks and said it raised $2 billion in new liquidity on Monday to provide more of a cushion through the downturn. The airline's CEO and president are also forgoing their base salaries during the crisis.

The airlines should at least benefit from a drop in oil prices, as fuel represents upwards of one-quarter of their total operational expenses. Delta said the recent drop in crude prices amounts to an annualized $2 billion cost benefit for the company.

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Stocks Mentioned

Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
LUV
$43.38 (1.71%) $0.73
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$39.52 (2.28%) $0.88
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
UAL
$44.76 (2.78%) $1.21
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$16.75 (3.01%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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