(Updated Aug. 25, 2:40 P.M. ET with details on Spirit Airlines)
American Airlines (NASDAQ: AAL) notified employees in a memo Tuesday that it plans to eliminate 19,000 jobs on Oct. 1, unless Congress renews the emergency coronavirus assistance that helped airlines retain staff for the past six months.
Airlines, struggling to survive, are transforming into much smaller organizations with passenger travel not expected to fully bounce back until 2024 and lucrative international business lagging by at least another year. The federal Payroll Support Program provided $25 billion to passenger airlines to help pay salaries and benefits as a temporary bridge to a post-pandemic recovery phase.
“The only problem with the legislation is that when it was enacted in March, it was assumed that by Sept. 30, the virus would be under control and demand for air travel would have returned. That is obviously not the case,” Chairman and CEO Doug Parker and President Robert Isom said in a publicly shared letter to workers. “Based on current demand levels, we at American now plan to fly less than 50% of our airline in the fourth quarter, with long-haul international particularly reduced to only 25% of 2019 levels.”
American Airlines will have 40,000 fewer employees as of Oct. 1 after 12,500 employees took advantage of early retirement packages and an additional 11,000 have agreed to take unpaid leaves of absence to help ride out the crisis. Executives said the 19,000 job cuts will fall differently across the organization, noting that international operations are likely to be hit harder since international business is much lower than domestic service. About 17,500 rank-and-file positions, including 1,600 pilots and 3,000 at regional subsidiaries, will be terminated, plus 1,500 management jobs.
Airlines increased capacity last month amid early signs of pent-up demand for leisure travel, but the short boost has tapered off with the spike in COVID cases in the U.S., outbreaks in other countries and a patchwork of travel restrictions. Unpredictable traffic flows, plus a reduction in forward bookings as customers wait until the last minute to decide on travel because of COVID concerns, has forced airlines to pare back the number of flights for the winter schedule.
Last week, airport throughput was about 70% less than the same period a year earlier, according to Transportation Security Administration statistics. That represented a 1-point improvement from the previous week, and an improvement from the 80.5% traffic reduction in June. But it is becoming increasingly clear there is a ceiling to the demand recovery.
Freed from service mandates under the emergency payroll funding, airlines are also eliminating service to low-volume markets. Last week American Airlines removed 15 cities, including Greenville, North Carolina, and New Haven, Connecticut, from its October schedule that runs through Nov. 3.
The 19,000 furloughs are fewer than the number the Fort Worth, Texas, airline last month estimated might be needed to stay solvent.
Meanwhile, Delta’s head of flight operations told pilots the airline is overstaffed for the amount of flying it expects to do in the foreseeable future. Early retirement and voluntary separations enabled Delta to reduce by about 600 the number of layoffs it originally estimated. The airline will retain about 11,200 pilots.
Delta told pilots they could avoid involuntary separations if they agreed to a 15% cut to minimum pay.
The Air Line Pilots Association expressed anger with Delta’s workforce reductions.
“While the rest of the industry is working with their employees to explore and develop creative solutions that mitigate massive layoffs, Delta management has instead decided to use the threat of furloughs to force acceptance of involuntary concessions,” it said in a statement.
“This management team has repeatedly struggled to maintain proper staffing in healthy situations. This drastic reduction of nearly 4,000 in pilots will unquestionably undermine our airline’s ability to successfully and efficiently increase flying and take advantage of competitive opportunities as the industry recovers.”
Pilots at Spirit Airlines, also represented by ALPA, recently reached an agreement with management under which about half the force will temporarily work fewer hours each month to prevent 600 pilots from being furloughed beginning Oct. 1.
Airlines and labor unions have received strong support on Capitol Hill for a six-month extension of the Payroll Support Program. Passing the industry aid is unlikely while Congress is still divided along partisan lines on a broader economic relief package that would include more unemployment assistance and aid to states and small businesses.