DAL Ups Unvaccinated Health Costs: Other Airlines to Follow?

Delta Air’s (DAL) decision is aimed at addressing the financial perils the company might grapple with pertaining to unvaccinated employees.

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The emergence and the rapid spread of the Delta variant of coronavirus in the United States is threatening to derail the uptick in air-travel demand (particularly for leisure) witnessed in the past few months. Evidently, passenger revenues shot up in the June quarter owing to the resurgence of economic activities. The sharp spurt in passenger revenues, which in most cases form the key component of the top lines of airlines, drove total revenues above 100% on a year-over-year basis.

Decelerating air-travel demand can be gauged from the fact that the Transportation Security Administration (TSA) screened 1.47 million passengers at airports across the United States on Aug 24, which was the lowest since May 25. The TSA data further shows that less than 2 million passengers have passed through its checkpoints each day since Aug 16.

The highly transmissible strain not only induced a spike in COVID-19 cases in the United States but hospitalization and deaths too are surging with places like Texas being the worst-affected. Due to this deadly contagion, bookings are being hampered and ticket cancellations are on the rise. Consequently, Southwest AirlinesLUV management stated that it will be difficult for the company to be profitable in the September quarter. Also, due to the pandemic-induced booking-weakness, American Airlines AAL authorities also confirmed that August revenues are falling below its expectations. Additionally, Spirit Airlines SAVE had warned of softness in bookings and increase in cancellations.

One must observe that the Delta mutant in the country is rife in those places where vaccination rates are relatively low. In a bid to promote vaccination among its employees, Delta Air Lines DAL, currently carrying a Zacks Rank #3 (Hold), announced that its unvaccinated employees will have to pay $200 more per month for their company-sponsored healthcare scheme. The surcharge will be effective Nov 1.

You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Will Other Airlines Walk the Same Path?

The FDA’s recent decision to grant full approval to Pfizer PFE/BioNTech’s BNTX coronavirus vaccine in individuals aged 16 years and above, is likely to increase the frequency of immunization programs in the United States. Previously, the vaccine was approved only for emergency/conditional use. The full nod is likely to instill the trust of Americans in the safety and efficacy of the jabs. They are therefore expected to come forward in large numbers to get the COVID-19 shot, shedding inhibitions, if any.

Against this backdrop, Delta Air Lines’ decision is highly prudent. In a memo to employees, the carrier’s CEO Ed Bastian said that the additional charges are aimed at addressing the financial risks the company might face pertaining to unvaccinated employees. That the FDA’s decision provided more incentives to the unvaccinated employees to get them inoculated was stressed by Bastian when he said, “With this week’s announcement that the FDA has granted full approval for the Pfizer vaccine, the time for you to get vaccinated is now.” Another airline heavyweight United Airlines UAL has mandated shots for its employees.

The full approval is expected to prompt other airlines as well to opt for measures, ensuring that their employees get the protection against COVID-19, which again reared its head in the United States. If all employees of an airline are vaccinated, then passengers will naturally feel safer to board the plane. This is likely to boost air traffic, which is being challenged currently by the Delta strain.

Watch this space for further updates on how other airlines propose to make their entire workforce get the anti-COVID injection.

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