Delta Air Lines' (DAL) turbulent takeoff in 2019 could be tempered further by a government shutdown shocking the airline industry.
With some 800,000 government employees furloughed or working without pay, the government shutdown is far reaching, as the entire economy could be stung by the continued battle over border security on Capitol Hill.
"Someone estimated that if [the shutdown] goes on for the whole quarter, it can reduce growth to zero," JPMorgan Chase (JPM) CEO Jamie Dimon told reporters on a media call on Tuesday morning. "We just have to deal with that. It's more of a political issue than anything else."
The impact appears to be even more pinpointed on the airline industry, which depends on both frequent flyers from federal agencies and services from the federally funded TSA.
"Our March quarter adjusted unit revenue growth is expected to be flat to up two percent including impacts from the timing of Easter, increasing currency headwinds, and the ongoing government shutdown," Delta commented in its earnings release.
Shares of Delta fell in premarket trading Tuesday, before rebounding, as the tempered forecast has reined in analyst price targets and the perception of persistent pain through the first quarter.
"We need to get the business moving again, one of the issues for us is that we're seeing a reduction in revenues in the month of January," CEO Ed Bastian told CNBC on Tuesday morning. "About $25 million per month [is lost] due to the fact that some government contractors and officials are not traveling the way they would've anticipated. We're also having some certification delays in getting new aircrafts brought onto our operating certificate as the FAA has shut down some inspector functions."
Essentially, as the FAA remains shut down, new aircraft from manufacturers sich as Boeing (BA) and Gulfstream Aerospace are not able to be added to the fleets of major airlines like Delta, United Airlines (UAL) , and American Airlines (AAL) .
For example, Reuters reports that American Airlines has accepted the delivery of two new MAX 8 planes from Boeing, but the planes are sitting idle while they await FAA approval for commercial operation. The lack of new planes in rotation could serve to hurt capacity for the industry.
Bastian also acknowledged longer lines for Delta passengers at airports, though he was unsure as to how much this might affect the travel plans of its customers.
This morning, TSA experienced a national rate of 7.6 percent unscheduled absences compared to a 3.2 percent rate one year ago, Monday, January 15, 2018. Most importantly, security standards remain uncompromised at our nation's airports.
— Michael Bilello (@TSA_Bilello) January 14, 2019
Advice to always get to @iah 2 hours before your flight is especially important today. Shortage of TSA workers, unpaid during the US gov't shutdown, is causing this change. Terminal B is solely @united flights. pic.twitter.com/ijCKa4k1NP
— Sylvester Turner (@SylvesterTurner) January 13, 2019
To be sure, the impact of a $25 million loss per month is not overly material for a company that generates nearly $11 billion in revenue per quarter. This is especially true if the shutdown is ended before the quarter closes, as Bastian anticipates.
It is worth noting that stock has rebounded strongly from its depressed premarket level to a positive result on the open as the market shrugs off the impact.
Optimism is further buoyed by a scheduled meeting between President Trump and lawmakers for lunch on Tuesday. The industry will be hopeful that an end will be called to the standoff as it moves toward its one-month anniversary, marking the longest government shutdown in U.S. history.
Management comments on the subject will be highly anticipated as the company kicks off its quarterly earnings call at 10 a.m. on Tuesday.
