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Delta Could Spend $3.3 Billion on Separations, While SkyMiles Makes Money

Delta Could Spend $3.3 Billion on Separations, While SkyMiles Makes Money
Joe Cortez

More details on Delta’s second quarter financial report show that while separations will cost money, the loyalty program is still earning money. Early retirement and buyouts could cost the airline up to $3.3 billion, while SkyMiles cash sales are $1.5 billion year-to-date.

New regulatory filings by Delta Air Lines one day after their second quarter earnings report suggest early retirements and voluntary leaves could cost the carrier up to $3.3 billion. The Atlanta-based company revealed the detailed numbers in a 10-Q report submitted to the U.S. Securities and Exchange Commission.

Airline Separations Estimated between $2.7 and $3.3 Billion

Prior to the catastrophic earnings announcement, Delta chief executive Ed Bastian encouraged employees to consider taking a voluntary buyout or early retirement package. These packages are only available to “U.S. merit, ground and flight attendant and pilot employees,” and include separation payments and health benefits. The window to accept those policies will close in July 2020.

Although Delta has not revealed the number of employees who have accepted early retirement or voluntary leave packages, the actual cost of supporting them is estimated to cost between $2.7 and $3.3 billion. Of those costs, the airline anticipates spending up to $600 million in cash payments to leaving employees. These numbers will be reflected on the airline’s September 2020 reports.

Total Cash Sales from SkyMiles to Partners Exceeds $1 Billion

Despite the lack of flyers in the air, the airline’s loyalty program continues to bring in money – but at a much lower rate. Over the second quarter, Delta SkyMiles earned $269 million, 45 percent less than the same period in 2019. For the first six months of 2020, SkyMiles brought in $743 million, just 23 percent less money compared to the first six months of 2019.

The loyalty revenue numbers from Delta Air Lines’ 10-Q report. Courtesy: Delta Air Lines

Much of the program’s financial activities come from their partnerships with partners, including “non-airline businesses, customers and other airlines,” and credit card partner American Express. The airline noted the combined total of mileage sales to all partners over the first six months of the year was $1.5 billion – a reduction of $500 million compared to the same time in 2019.

According to Delta’s accounting, the combined total of the current and noncurrent loyalty program deferred revenue is $6.98 billion. This includes $872 million in earned miles sold to partners to date in 2020, minus $588 million in miles redeemed for flights and $31 million redeemed for “non-travel” purchases.

The table of SkyMiles sold and redeemed over the first six months of 2020. Courtesy: Delta Air Lines

“The loyalty program deferred revenue classified as a current liability represents our current estimate of revenue expected to be recognized in the next 12 months based on projected redemptions, while the balance classified as a noncurrent liability represents our current estimate of revenue expected to be recognized beyond 12 months,” Delta writes about their loyalty program accounting in the filing. “As a result of the COVID-19 pandemic, a larger portion of mile redemptions is projected to occur beyond 12 months and is therefore reflected as a noncurrent liability as of June 30, 2020. We will continue to monitor redemptions as the situation evolves.”

Overall Sales Down 60 Percent Compared Against 2019

Through the first six months of 2020, airfare sales are down 60 percent compared to the first half of 2019, with equal distribution across all cabins. Main cabin sales were down 61 percent, premium and business class bookings dropped by 60 percent, and flights booked using Delta SkyMiles dropped 59 percent.

However, Delta noted that the current outlook may not affect the rest of their year. “Due to severe impacts from the global COVID-19 (coronavirus) pandemic, seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, operating results for the three and six months ended June 30, 2020 are not necessarily indicative of operating results for the entire year,” the airline wrote in their filing. Despite that optimism, the airline warns an actual timetable to recovery may be impossible to predict.

“Although demand improved through the quarter, it remains significantly below the prior year,” the report reads. “The exact timing and pace of the recovery are uncertain as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, while others, particularly international markets, remain closed or are enforcing extended quarantines for most U.S. residents.”

View Comments (2)

2 Comments

  1. rjg319

    July 16, 2020 at 8:23 pm

    You need to correct the error in the first paragraph. Separations are not going to cost $30 billion… they are going to cost $3.3 billion… you’re missing a decimal point. It’s important to have the number consistent throughout a story.

  2. Joe Cortez

    July 17, 2020 at 9:14 am

    Thanks for the note. It’s been corrected.

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