Delta Air Lines CEO Ed Bastian joins Yahoo Finance's All Markets Summit with his take on the health of the airline industry and the future of travel.
- Ed Bastian has been CEO of Delta Airlines since May of 2016. With a fleet of 830 aircraft, Delta is one of the world's biggest airlines. But the COVID-19 pandemic has crushed the travel and tourism industry. Delta, like many of the world's airlines, has grounded much of its fleet and sent other planes into early retirement. The challenge for Bastian-- leading over 75,000 employees worldwide and millions of passengers through the greatest challenges for the airline industry in history.
ADAM SHAPIRO: I'm Adam Shapiro, and it's a pleasure to welcome Ed Bastian right now to the All Markets Summit. Ed, thank you for joining us.
ED BASTIAN: Great to be with you, Adam.
ADAM SHAPIRO: I want to read something that you said in January of this year. And it was about the strong performance Delta had going into the year, closing out 2019 with a record net income-- over $6 billion-- with $1.6 billion in profit sharing returned to what was then Delta's 90,000 employees. You said that 2019 was truly astounding. As we enter 2020, demand for travel is healthy. And our brand preference is growing, positioning Delta to deliver another year of strong results.
I don't have to tell you what's happened in the last eight months. And as we jump into this, I am curious personally-- as the leader of a very large company and one that is known worldwide-- personally, what has this been like to watch everything literally fall off a cliff, no fault of yours or the airline's?
ED BASTIAN: Well, in the travel industry we're accustomed to managing crises, whether it was 9/11, going through the recessions, the Gulf War back in the early 90s. But we've never seen anything that comes close to the challenges of managing through the pandemic. We went from the highest of highs-- as you mentioned last year-- to the month of April, where we were only at about 5% of our revenue from the prior month period.
So it's been a challenge. We don't have time, Adam, in this environment to look back and wonder what happened. We have to be very focused every single day on what we can do to protect our people, to protect our customers, to protect our future, and continue to see the slow and steady progress back which we are making.
ADAM SHAPIRO: Let's talk about progress back, because we just had Dr. Anthony Fauci on the All Market Summit within the last couple of hours. And he said that the COVID pandemic-- we're still in phase one or the first wave here in the United States. And when I speak to different analysts that look at the travel, hospitality, and leisure industry, they point out that recovery in these industries is dependent upon us not going into a stall with the COVID cases. So what trends are you seeing now, and what concerns you about what we're witnessing in real time with the new cases?
ED BASTIAN: Well, there's no question that the recovery is quite choppy. And some weeks are better than other weeks. But over the last six months, we've seen a steady 1% to 2% progression a week of customer demand coming back to travel.
Obviously, we're doing everything we can to keep travel safe, protect our customers, protect our people, to ensure our aircraft and our facilities are immaculate as best we can with the filtration systems, blocking middle seats, doing everything we can to ensure customers are wearing masks. And the travel that they're-- we went from the early days of the pandemic to the travel that customers were making was really essential, something that they needed to do, to now where customers are finding opportunities to go out and see family, friends in a safe way.
But there's opportunities out there. We're about one third of the way back. That's a 3x improvement from just the second quarter. But we're going to need a another 3x improvement as an industry to get anywhere close to 2019 levels.
So all in, it's a couple of year journey. Domestic is going to come back faster than international. Leisure is going to come back faster than business. But we're staying focused every single day to continue to see small signs but encouraging signs of light at the end of the tunnel.
ADAM SHAPIRO: Want to talk about those encouraging signs and also the safety measures that are in place that bring back confidence for people who might be hesitant to fly right now. And there's the IATA-- the International Air Transport Association-- report that showed of roughly 1.3 billion people who traveled from the first of the year through today, only 44 cases of COVID can actually be attributed to contagion perhaps from air travel. What do you do when there's a drastic data point like that to convince people that this is safe to fly?
ED BASTIAN: Well, we are continuing to engage with the experts. And as you mentioned, IATA put out the international lack of known transmission at Delta. We haven't had a single case of documented transmission aboard our aircraft, despite the fact that we're carrying a million people a week. We're working with experts such as the Harvard School of Public Health, which is coming out with their analysis this week to indicate the safety and the really extraordinary low transmission risk aboard airplanes because of the filtration systems, because of masks, because of our cleaning procedures, and at Delta especially because of the blocked seats-- the middle seat-- and capping load factors.
It is a safe way to travel. And travel as a whole has to be a personal decision. We don't expect anyone that's going to be vulnerable or at risk to travel. But if you either need or want to travel, air travel is incredibly safe.
ADAM SHAPIRO: When I say drastic, I mean it's dramatic that only 44 people out of 1.3 billion can be considered having caught COVID on an airplane. But you brought up the middle seat. Southwest Airlines recently announced they're going to start selling the middle seat. You're going to keep it blocked into next year. And yet there's another study-- from the US government actually-- that shows that it's not necessary to block the middle seat. So why will Delta continue to block it?
ED BASTIAN: Well, we will continue to watch that and make those decisions as we get into the next year. We believe it's safe to sit in the middle seat. That's not a question. It's really a question of consumer confidence-- sitting in the middle seat.
And I think when you speak to consumers, if they have an option not to sit in a middle seat and to have the middle seat open, that's their clear preference. We saw that in our results in the third quarter-- our revenue performance. On a like for like basis, was the best in the industry. Even with 40% of our seats not being sold, we had more average passenger revenue at Delta than the main competitors that we go up against.
So it's going to be something we watch and study. We are looking at probably sometime in the spring to make the determination as to when the right time is to start to sell those middle seats. But they're going to be blocked through the winter.
ADAM SHAPIRO: There's a metric that reporters like myself use and that the airlines use-- the core cash burn. And Delta in the last quarter actually had it down now-- I think-- to 24 million. And it's actually going lower as we're talking right now.
But I want to quote one of my favorite analysts from Raymond James, Savi Syth because she always points out cash burn is important, but liquidity is the key here. And she said, I think the answer for most of these airlines-- unless we get some kind of new strain or something that gets turning things really bad, is that they have the liquidity to survive. So in Delta's case, you finished the quarter with 21.6 billion in liquidity. Where will you be at the end of the year with liquidity, and how much longer, given the slow trajectory of recovery in passenger revenue, does that liquidity take you out?
ED BASTIAN: Well as you mentioned, we closed the third quarter at $21 billion. We're looking at a cash burn in the fourth quarter as somewhere between $10 and $12 million a day. So call it $1 billion general level for the fourth quarter. We have some debt maturities that we're going to pay off in the fourth quarter, and we expect to end the year somewhere between $16 and $17 billion in cash.
From a liquidity perspective, we're in good shape. We need to get that cash burn eliminated. We expect to get it done by the spring. And when you think about it, Adam, to go from burning what we were at Delta-- almost $100 million a day-- to eliminating it entirely by the spring would mean that we did that in a span of 12 months, which was 12 months since the start of the pandemic. That's a pretty good recovery.
ADAM SHAPIRO: Just before the pandemic, I was fortunate because I actually had a chance to go overseas. I went down to Buenos Aires. And it was part of this seamless travel concept that Delta Savi Syth again at Raymond James points out-- was in the lead compared to other airlines. That's all taking a back seat-- the partnerships with the international carriers. But is that something that you discuss with your C-suite about at some point we're going to be traveling internationally again and getting back on that strategy. Or is there going to be a new strategy for Delta and all the other carriers after the pandemic?
ED BASTIAN: Well, we are absolutely committed to our partnerships around the world. And while each one of those carriers are in a little different state of the pandemic, I'd argue in the US we're in the best shape of any of the international countries with respect to air travel, given the support that we've received from the federal government. We know international travel will come back. It may take a couple of years before people start traveling at scale internationally, but it's going to come back. Those carriers are taking this opportunity while travel is low to make improvements in their business, whether it's in technology, in any other resilient and improvement measures that can prove the resilience of their business going forward.
But it's going to come back. As a rule, we're probably more distant internationally today than ever before. And there is a real longing for people to get back together and to bring the world closer together-- not just in the US, but the world. We have quarantine measures. We have restrictions. We have a lot of reasons why we can't travel. But once travel is deemed appropriate, we're going to be ready to go and our partners will be ready right alongside us.
ADAM SHAPIRO: I'm curious, because in our previous discussions I know your priority is the Delta family and the shareholders. But would this involve in the future perhaps investment-- the way that Delta had invested in LATAM-- with other international carriers on the other side of this pandemic?
ED BASTIAN: I don't think so, Adam. I think we've got the partner network that we want. LATAM, as you mentioned, in South America, Aeromexico, Virgin Atlantic, Air France, KLM, Korean, China Eastern-- we've got a great list of companies that are not just partners, we're investors in. And I think that provides us the foundation we need as we get back.
ADAM SHAPIRO: Delta did not take advantage of the totality of moneys it could have borrowed from the US government through the CARES Act and the paycheck support system-- the PSP. But I know that you and the other CEOs from the airlines are pushing the government and saying, look, the PSP 2, as it's called, is necessary for the industry. What do you think of the chances that the next stimulus bill-- whatever it looks like from Congress-- will include the $20 billion that they've proposed to help the airlines?
ED BASTIAN: It gets to a bigger question of what's the future of a stimulus program in general. I think there has been bipartisan support for another round of stimulus for the airlines, given the important place that we sit and serve in our national recovery. Right now, it doesn't look like a stimulus will happen prior to the election. Whether it happens during a post election, potential lame duck session-- I don't know whether it's going to be next year. I don't know. But at whatever point a stimulus program is approved, I'm optimistic that the airlines will be a piece of that.
ADAM SHAPIRO: Ed, I want to shift gears as we wind down as to what Delta is going to look like in the future. And it's not related to the pandemic. It's an issue that you've made front and center for the company.
That's the memo from August where you talk about racial issues. And you pointed out in that memo that people of color currently represent 43% of Delta's current employees. And then you went through the data, which shows the percentage that people of color represent in different work units. And you said, this is not a picture of equity, nor is it reflective of the world we serve.
You then took responsibility. Quote, "I take ownership of that performance." You outline some of the steps that you and Delta are going to take over the next couple of years. I think 2025 are some of the goal posts you've set. Can you tell us a bit of what those steps look like for people of color, but also for people who might worry they could get left behind?
ED BASTIAN: Well this is about raising the bar for everyone, Adam. It's not about lowering the bar or making the bar achievable only for some. To create an environment where we want to be seen, Delta, as a great company in our community, a great airline for our customers, and a great employer for employees, it means we have to create a just and equitable set of opportunities for all of those employees.
It's clear looking at the data that there's certain groups-- our African-American community-- have been not afforded at least on paper the same level of opportunities as other groups. And we're leaning in hard to understand why and what opportunities we can do to create a better future for our African-American colleagues. 20% of our employees are Black, and only about 6% to 7% of our leadership is Black, for example, at the top levels.
So there's a lot of in those statements, and it's going to take years. But this is the perfect time to address it. This is the time when the business has stopped. The world has stopped. We have opportunities to learn how we're going to get better, how we're going to be more resilient. And we need to be a more fair and just company right alongside that.
So there's a lot of work going on. We're going to be transparent. We're going to be accountable. We're going to make certain the world sees how we do.
ADAM SHAPIRO: And a final thought from you as we wrap up-- I know a lot of people are rooting for the airlines not only to travel, but because we have friends and family who work for the different carriers. But what's the most important thing you would want-- not just the investors who are watching right now-- but the flying public to know as we head toward the New Year 2021.
ED BASTIAN: Well the importance that we place around protecting health and safety of our people and our customers is paramount. And it's never been more important. Customers have become comfortable. Most customers that fly aboard our planes don't even think about their flight safety. We are that good. Of course, we think about it every moment of the day.
And we want customers not to worry about their public health aboard our planes just as they don't worry about their flight health aboard our planes. And so we are doing everything we can, reexamining every step of our protocols to ensure that people are safe in all aspects of their journey. And at Delta, we're going to be ready to come back when they are.
ADAM SHAPIRO: Ed Bastian is the CEO at Delta Airlines. We appreciate you being here. I remember the first time I met you, Ed, was aboard a brand new Delta airplane over a year ago. I'm looking forward to the day we can get on another airplane together and talk in person. All the best to you.
ED BASTIAN: Me too, Adam. Thank you.