A Flood Of Job Losses Looms As Airline Industry Struggles In Pandemic

Just as the U.S. labor market shows signs of recovery, tens of thousands of airline workers are preparing themselves for economic pain from the coronavirus pandemic to come in the months ahead.

U.S. airlines have warned more than 75,000 employees that their jobs are at risk on Oct. 1 when the terms expire on a $25 billion federal aid package that protects passenger carrier workers’ paychecks, about a month before Election Day on Nov. 3. Despite the recent job gains in the U.S., the Department of Labor earlier this month said 16.3 million Americans are out of work.

A push by airline labor unions and later, company executives, to include another $25 billion for airline payrolls to keep jobs through the end of March has won bipartisan support from lawmakers and from President Donald Trump. But Congress and the White House have failed to reach an agreement on a new national aid package that could include the additional airline support.

The trouble in the airline industry and lack of a new aid package have left employees in limbo. U.S. passenger and cargo carriers together employ around 700,000 people, but other jobs could be at stake. The industry supports some 10 million jobs, according to Airlines for America, a trade group that represents large U.S. carriers. Those include more than 6 million jobs in tourism and hospitality.

“We do recognize that there is fairly significant spillover” into the economy from the pandemic, said David Lebovitz, global market strategist at J.P. Morgan Asset Management. “You’re not paying for gas in your car and then you’re not going out and buying a sandwich at lunchtime.”

Without a new stimulus bill in Congress, airline workers could face lower unemployment benefits than in previous months and a bleak job market if they are let go after the airline aid terms expire after Sept. 30. Trump earlier this month ordered a $400 unemployment benefit boost, $300 from the federal government. Congress has left for recess but could return before September if an aid package is reached.

“Anyone who is losing their job now is looking at a job market that is really unfavorable to them,” said Sara Nelson, president of the Association of Flight Attendants-CWA, the labor union that represents cabin crews at more than a dozen airlines and has urged Congress to provide additional aid to the sector.

“This is a horrible position to put people in,” Nelson said of the lack of a new national aid package. “We’re keeping the whole country in this position of uncertainty.”

More than $10 billion in losses
The four biggest U.S. airlines lost more than $10 billion, combined, in the last quarter. Travel demand has ticked higher, but screenings by the Transportation Security Administration at U.S. airports is about 30% of last year’s levels this summer, usually airlines’ most lucrative season. Executives have repeatedly said that they expect to emerge from the crisis as smaller carriers, meaning fewer jobs.

The International Air Transport Association, which represents most of the world’s airlines, forecast last month that global air travel demand won’t recover to 2019 levels until 2024, a year later than previously expected.

“It’s obviously going to have devastating effect,” said Severin Borenstein, professor of business administration and public policy at the University of California-Berkeley’s Haas School of Business, who has studied airlines extensively. “The U.S. paid the airlines a whole lot of money to keep people on the payroll and the moment that stops they’re going to do what airlines do and they’re going to cut flights that are uneconomic.”

Airlines have already cut back on flying. They hoped demand would return in the summer but said a modest recovery in late spring has since stalled. CEOs cited challenges in the spike in U.S. coronavirus cases and quarantine orders for travelers in arriving in states like New York.

“At the beginning of April, we saw the sharpest, deepest drop in demand in history, far worse than 9/11 or the Great Recession or any other stress test scenario that anyone had modeled,” United Airlines CEO Scott Kirby told investors on July 22. “And near the end of the quarter, just as optimism about a recovery was beginning to build, we watched demand fade once again as Covid-19 spiked in the Sun Belt.”

Aid could come too late for some
Another round of aid that would prohibit job cuts would come too late for tens of thousands of airline employees that have already departed.

Airlines have been frantically trying to reduce their payrolls and by urging their staff to take early retirement and buyout packages, forcing employees to weigh the threat of furloughs against severance packages that include cash and extended health care benefits, among other perks like flight benefits. That will reduce the number of involuntary job cuts.

At Southwest Airlines, about 28% of the company, or 17,000 employees opted to depart the company or take partially-paid leaves of absence. That was enough for the airline to declare it doesn’t intend to pursue layoffs or furloughs in 2020, though demand still remains weak.

United CEO doesn’t expect to get above 50% revenue until vaccine is available
More than 20,000 employees have already voluntarily left their airlines and can’t go back unless they are rehired.

Some non-union employees at American Airlines who were told they were getting involuntarily cut already worked their last days in July, though their pay is guaranteed through Sept. 30. It isn’t clear what happens to employees who have already been told their jobs are getting cut if Congress approves additional aid to support sector jobs. Volunteers that took time off as well as fewer hours available to work helped cut airlines’ labor bills in the last quarter, though it’s not yet also wasn’t clear whether another round of aid could stretch beyond next March because of the lower headcounts and reduced schedules.

About 17,000 or 20% of Delta Air Lines workers have taken the company up on buyout or early retirement plans. The revocation window has closed and those employees are now off the company’s payroll.

“The departure of 20 percent of our workforce was a difficult but necessary step towards Delta’s transformation into a smaller, more nimble airline that will be better positioned to endure the crisis and recover quickly,” CEO Ed Bastian said in an employee note on Aug. 6. Bastian told The Washington Post earlier that week that he also supports an extension of payroll aid though it isn’t clear that workers who opted to separate from Delta can come back.

Some 2,500 Delta pilots are still at risk of furloughs this fall, however. Management has asked pilots to agree to reduce their minimum hours by 15% in exchange for no forced furloughs for a year. And in a note to flight attendants earlier this month, Delta said it still expects to be overstaffed by 3,000 cabin crew members.

Chart showing daily passenger traffic through TSA checkpoints in 2019 compared to 2020.
“This is going to be really ugly for a long time,” said Kit Darby, a retired United Airlines captain who is now a pilot pay consultant. Pilots should update their resumes and network anywhere possible, he said.

“Regular job search techniques are unlikely to work in a very tight market. You must think outside the box and be a hornet or be lost in the crowd,” he said. “Do it now. it will be much worse in six months. All advice no one wants to hear but it only gets harder in the future.”

United earlier this month said it could furlough more than a third of its pilots as demand remains weak and extended a deadline for front-line employees to take partially paid absences as Congress debates additional aid. American took a similar measure, leaving the window for voluntary leaves open until Monday.

Aircraft manufacturers reel
The trouble facing airlines has already spilled over to airline manufacturers and their web of thousands of suppliers as the coronavirus pandemic derails demand for new aircraft. Both Airbus and Boeing are reducing the number of aircraft they plan to produce.

The Aerospace Industries Association estimates that more than 200,000 jobs in the sector are at risk.

Boeing earlier this year said it would aim to cut 10% of its workforce, which stood at 160,000 as of the end of 2019. While it is hiring for its defense unit, the commercial aircraft division has been hit by hundreds of cancellations this year, and CFO Greg Smith told investors on July 29 that 19,000 employees are departing Boeing. About 6,000 had left as of the end of June.

Boeing is also evaluating its dual production lines for its 787 in the Seattle area and in North Charleston, S.C. It has again slashed production of the planes and said it would stop making the 747 after more than 50 years, in 2022.

At General Electric, which makes engines for both Boeing and Airbus planes, the company is cutting a quarter of the jobs, or 13,000 people in its aviation unit, which is based in Ohio. Spirit Aerosystems, based in Wichita, Kansas, earlier this month said it had cut more than 1,000 additional jobs after Boeing cut production targets, bringing the number of job reductions this year to about 8,000.

– CNBC.