Delta Air cuts capacity, goes on hiring freeze to save its cash

Delta Air Lines Inc. said Friday it will cut capacity by 40% in the next few months, the most in its history, as the airline takes steps to preserve its cash and brace for more fallout from the novel coronavirus pandemic.

Delta DAL, +7.62% is also cutting $2 billion in expenses, offering unpaid short-term leave to employees, cutting flights to continental Europe, and sidelining up to 300 airplanes as it manages its reduced capacity.

A hiring freeze is in place, and it will cut down on using the services of consultants and contractors, Delta said.

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“Demand for travel is declining at an accelerated pace daily, driving an unprecedented revenue impact,” Chief Executive Ed Bastian said in a memo to employees. The situation is likely to become worse, he said.

Delta is seeing more cancellations than new bookings over the next month, he said. “The speed of the demand fall-off is unlike anything we’ve seen – and we’ve seen a lot in our business.”

The company’s 40% capacity reduction is its largest ever, including post-Sept. 11, 2001, reductions, Bastian said.

“We’ll be making more critical decisions on our response in days to come. The situation is fluid and likely to be getting worse,” he said.

Related:Airlines move to cut capacity and rein in costs as coronavirus effect intensifies

Bastian reiterated Delta “remains better-positioned to weather a storm of this magnitude … We will get through this.”

Delta earlier this week said it expects to have “at least” $5 billion in cash at the end of the first quarter, plus about $20 billion in “unencumbered” assets. It had already decided to defer $500 million in capital spending, delaying $500 million in pension funding, and suspend share buybacks.

Action now “will ensure that we are properly positioned to recover our business when customers start to travel again,” Bastian said.

Delta shares have lost 27% in the last 12 months, compared with losses of 9% and 14% for the S&P 500 index SPX, +4.05% and the Dow Jones Industrial Average. DJIA, +4.14%

U.S. stocks were broadly higher on Friday after routs in previous sessions, including the biggest one-day drop since the 1987 crash, as much of the U.S. took social-distancing measures to face the pandemic.