U.S. Airlines Prepare for a Turbulent Future

By Paul Riegler on 28 March 2020
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At first glance, it sounds like good news. Congress passed a $2 trillion stimulus bill and promised the airline industry $50 billion in aid.

The $2 trillion economic stimulus act passed by Congress this week will unquestionably prevent a wave of layoffs but it won’t stave off permanent changes in how the industry will operate going forward. The aid will arrive in the form of up to $25 billion in payroll support and another $25 billion in loans.

Indeed, the pandemic will change the industry far greater than the September 11, 2001 attacks, said United’s CEO, Oscar Munoz, and president, Scott Kirby, in a memorandum to all staff on Friday.

“The impact of Covid-19 on demand for air travel has been dramatic and unprecedented – far worse than even the aftermath of 9/11,” the United executives said in the memo.

Airlines are clearly facing a bleak future.  American Airlines, United Airlines, and Delta Air Lines have all asked employees to take voluntary leaves, during which they will continue to receive health and travel benefits, and warned of waves of downsizing to come.

“If the recovery is as slow as we fear, it means our airline and our work force will have to be smaller than it is today,” the United executives wrote in their memo.

That sentiment was echoed at other airlines.

“There are going to be fewer hours available to work for many of our team members,” said American Airlines CEO Doug Parker Thursday.

Southwest Airlines CEO Gary Kelly struck a blunt note in a video message to employees, saying that the airline is losing “big money” on every flight.

“The load factors are at levels we’ve never seen” and that “can’t be sustained indefinitely,” he said.

The Dallas-based airline has never furloughed employees or cut pay and doesn’t have plans for layoffs now, but “I can’t promise that won’t happen” in the future, Kelly said.

What does the $50 billion buy us? The answer depends on whom you ask.

“This federal assistance buys us time to adapt to this new environment,” Munoz told United’s employees.

Meanwhile, American’s Parker struck a more optimistic tone.

He told employees in a recorded message on Thursdaythat the combination of the stimulus and the cash available to the airline would allow American to “ride through even the worst of potential future scenarios.”

Southwest’s Kelly made it clear that taking the government assistance is an option that is being considered but far from a certainty, saying it could also raise capital in lieu of the aid.

“We have opportunities to raise capital in the private markets, and now we also have that opportunity with the federal government,” he said.  “We’re going to work hard to make a commitment not to furlough people anyway, but the government grant program could prove to be something that gives us a lot more confidence that we can follow through with that.”

(Photo: Accura Media Group)

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