American And United Airlines Plans To Furlough Up To 41,000 Workers This Fall (#GotBitcoin?)
Carrier said travel demand is falling again as U.S. coronavirus cases climb. American Airlines Plans To Furlough Up To 25,000 Workers This Fall (#GotBitcoin?)
American Airlines Group Inc. told 25,000 workers that their jobs are at risk after federal aid expires Oct. 1, as air-travel demand falls again amid climbing coronavirus case numbers.
The pandemic has caused a rout for air travel deeper and more persistent than almost anyone anticipated. Executives expect it could take years for travel demand to return to its 2019 highs. Meanwhile, airlines are grappling with how deeply to make cuts to hold on to enough cash to survive. United Airlines Group Inc. said last week it would send such notices to 36,000 employees—close to half its U.S. staff.
American said in a letter to employees Wednesday that it expects to have 20,000 more employees than it needs this fall. The Fort Worth, Texas-based carrier sent notices for potential furlough to 25,000 of its employees as stipulated by federal labor laws. The figure includes airport and technical operations workers who could be shifted to other locations, the airline said.
The potential cuts affect about 29% of the airline’s front-line workers. American has previously made cuts to its administrative and management employees that resulted in about 5,000 people leaving the company, a spokesman said.
U.S. carriers received $25 billion in government aid to cover most of their payroll costs under the broad $2.2 trillion stimulus package approved in March. They agreed not to furlough any workers until the funding runs out Oct. 1. American Chief Executive Doug Parker and President Robert Isom said Wednesday in the letter to employees that passenger demand has started to slow again as infection rates rise and several states have reimposed curbs on travel. Some of those measures include quarantine requirements for anyone arriving from a growing number of hot spots across the country. American’s passenger revenue in June was down 80% from the same month in 2019.
“We had a stated goal of avoiding furloughs because we believed demand for air travel would steadily rebound by Oct. 1 as the impact of Covid-19 dissipated,” Messrs. Parker and Isom wrote. “That unfortunately has not been the case.”
American said employees who received notices of potential furlough include 9,950 flight attendants, 37% of the airline’s total. The notices will also go out to 2,500 pilots and thousands of other workers, American said.
The company is also offering new voluntary leave packages, potentially limiting forced cuts. The packages include extended leaves that provide medical coverage and partial pay for eligible employees for up to two years, as well as early retirements. The final number of furloughs will depend in part on how many employees accept these offers, American said.
Delta Air Lines Inc. said this week that 17,000 employees had agreed to depart the company and that thousands more had signed up for unpaid leaves of absence. Chief Executive Ed Bastian told analysts and investors he was hopeful Delta would be able to avoid furloughs altogether through similar voluntary programs.
Unions representing flight attendants, pilots and others are seeking to get federal payroll support extended another six months. American executives voiced support for the effort Wednesday, saying it would delay forced cuts until next spring when demand is expected to have improved.
Rep. Peter DeFazio (D, Ore.), chairman of the House Committee on Transportation and Infrastructure, and six other lawmakers this week backed a move to extend the aid due to expire Oct. 1, writing in a letter that more funding is needed to prevent hundreds of thousands of job losses.
American Airlines To Cut 19,000 Jobs by Oct. 1 When Federal Stimulus Ends
Airline to shrink workforce by 30% as pandemic continues to weigh heavily on travel demand.
American Airlines Group Inc. said it would shed 19,000 workers Oct. 1, the first big wave of the tens of thousands of pilots, flight attendants, mechanics and other airline employees in jeopardy of losing their jobs when protections tied to federal aid to U.S. carriers expire this fall.
American’s cuts are short of the 25,000 potential job losses it warned were possible last month. But together with retirements and temporary leaves of absence, the reductions will make the carrier about 30% smaller than it was in March and are the clearest sign yet of the devastation coming for the airline industry as the summer travel season winds down and government funds run out.
U.S. airlines have warned employees that more than 75,000 jobs could be cut this fall. This week Delta Air Lines Inc. said it would furlough 1,941 pilots unless it reaches a deal with their union on other cost reductions. Earlier in the summer, United Airlines Holdings Inc. sent notices to 36,000 workers whose jobs it said could be at risk, though it hasn’t yet said how many will be cut.
The airline sector was one of the few that had protections as broader unemployment surged in recent months. Airlines agreed not to let any workers go through the end of September as a condition of the $25 billion they received under a broad economic stimulus package passed in March.
Efforts to secure another $25 billion in funds to keep airline workers in their jobs through the end of March 2021 garnered bipartisan support but have stalled in recent weeks, as Congress has been unable to reach an accord on a broader pandemic relief package.
“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,” American Chief Executive Doug Parker and President Robert Isom wrote in a message to employees Tuesday. American plans to fly less than half its typical schedule in the fourth quarter.
Airlines had hoped to prevent the tumult the industry and its workers experienced after the Sept. 11, 2001, terrorist attacks, when carriers within a matter of weeks outlined plans to let go tens of thousands of employees. Mr. Parker has said American wanted to avoid repeating moves from “the old playbook” in which airlines would immediately turn to job cuts in times of crisis.
After years of turmoil, including the 2008 financial crisis and the waves of bankruptcies and consolidation it triggered, airline employment levels only recently returned to near where they stood before Sept. 11.
Airlines’ ranks swelled by about 20% in the past decade as the industry enjoyed a record-long stretch of profits, according to figures from the Bureau of Transportation Statistics. Airlines’ biggest labor challenge before the pandemic was finding enough pilots to keep up with surging travel demand.
The pandemic is set to have an even deeper and longer-lasting impact on airlines’ finances than 9/11, several industry executives have said.
Carriers have spent months trying to lure passengers back onto planes after the pandemic nearly halted travel last spring. They have developed more-thorough cleaning procedures and toughened rules requiring passengers to wear masks. They have struck partnerships with medical institutions such as the Mayo Clinic and brands like Clorox. They have offered deep discounts.
Nevertheless, travel demand has stalled at around 30% of last year’s levels. Executives believe it will take years—and likely a Covid-19 vaccine—for it to fully rebound.
“We are six months into this pandemic, and only 25% of our revenues have been recovered,” John Laughter, senior vice president of flight operations, told Delta pilots in a memo Monday. “Unfortunately, we see few catalysts over the next six months to meaningfully change this trajectory.”
Airlines had hoped that summer, when throngs of people typically go on vacation, would bring higher travel numbers. American made plans to sharply expand flying to capture the increased traffic as demand started to rise in May and June.
But the early optimism waned quickly as the virus continued spreading, triggering new travel restrictions that damped travel demand in July. Airlines began to scale back their plans.
The corporate traffic that would typically ramp up in the fall as business travelers jet to client meetings and conferences in the final months of the year shows no signs of returning. Governments around the world are still restricting travel—including between the U.S. and Europe—cutting off lucrative international traffic for major airlines.
“I’m afraid it’s hard to be positive for anything between now and the end of the year,” said John Grant, chief analyst at airline data provider OAG.
American’s reductions include 17,500 furloughs of pilots, flight attendants, mechanics and others, as well as 1,500 cuts from management and administrative ranks. They cover American Airlines itself as well as the two regional airlines it owns.
Other airlines including Alaska Air Group Inc., JetBlue Airways Corp. and Spirit Airlines Inc. have said they would be able to avoid furloughs at least for pilots, who are expensive to train and difficult to replace.
Southwest Airlines Co. has said it can likely manage through this year without letting employees go after thousands agreed to take extended leaves or depart on their own.
“They did a good job enticing people away,” said Charlie Mattingly, one of the hundreds of pilots who accepted Southwest’s early-retirement offer and recently made his last flight. The prospect of giving up a decadeslong career was an emotional one for many pilots, said Mr. Mattingly, who is also a principal at Leading Edge Financial Planning, which provides financial advice to pilots.
“I’ve been a pilot for 23 years,” he said, “and I’m not a pilot anymore.”
As Job Losses Loom, The Airline Recovery Is Under Threat
Uncertainty about travel restrictions is slowing the rebound in flights and could also be hitting how much carriers make from each ticket sold.
The future is bleak for airline employees, and the latest round of job cuts doesn’t even come with a silver lining for investors.
American Airlines said this week that it would lay off roughly 19,000 staff when the industry’s federal-aid package expires on Oct. 1. While American is the most troubled of the three major U.S. full-service carriers, United Airlines and Delta Air Lines have also warned of potential cuts in the fall.
Airlines and their unions have unsuccessfully pushed Washington to approve a second $25 billion package, which would prevent redundancies until March 2021.
Yet the Dow Jones U.S. Airlines Index has gained 13% over the past month, outpacing the S&P 500.
Financial markets have already discounted the need for long-term changes, and major airlines’ cash buffers seem adequate to ensure their survival. Importantly, July air traffic showed that people are still eager to hop on a plane to go on vacation.
Recent signs, however, suggest the pain may be greater than investors expect.
Back in July, as Covid-19 cases rose again, the International Air Transport Association updated its forecast for global passenger traffic, saying that it wouldn’t return to its pre-pandemic level until 2024—a year later than previously thought. Ever since, trends have taken a worrying turn.
According to data by travel analytics firm OAG, global scheduled capacity has now fallen for three weeks in a row. Capacity is still set to continue its recovery, but the August lull is a bad omen for the industry’s prospects.
An optimistic explanation for a slowing number of seats flown would be sensible efforts by airlines to restrict supply and push up ticket prices. American has indeed moved away from its aggressive July strategy. Broadly, though, it is more likely that uncertainty is weighing simultaneously on demand for flights and on the price customers are paying for them.
Evidence from Europe, where sun-seeking cross-border leisure travel has partially resumed, shows that half of all bookings are now happening two weeks before departure. Budget airlines are using different pricing strategies to cope with this change in behavior and fill their planes, but analysts expect average fares per passenger-mile to be roughly 10% lower in the third quarter compared with a year earlier.
In the U.S., American and United are publishing higher fares than they did a year ago, research by analysts at Cowen shows, but these annual increases have also moderated even as capacity has stalled.
The figures also are skewed higher by published business-class fares. These have remained elevated and stable, despite all evidence pointing to almost nonexistent corporate travel, which in normal times was the big moneymaker for full-service airlines.
Minimum leisure fares, by contrast, point to large drops, as legacy carriers try to compete with their budget peers by offering bargains—particularly close to departure.
All told, a lack of visibility about demand seems to be upending carriers’ pricing strategies and depressing the actual prices at which most tickets are sold. Given that the air-traffic recovery will take years, airlines have no choice but to slim down.
Shorter-term, though, large job cuts are just another telltale sign for investors of how much damage is going on under the surface.
United Plans To Cut More Than 16,000 Staff
Thousands of airline workers have taken leave and retirement packages but weak demand forces more job losses.
United Airlines Holdings Inc. UAL 2.44% on Wednesday said it plans to cut 16,370 staff as part of efforts to halve its domestic workforce amid a pandemic-driven slump in passenger demand.
The cuts, which are involuntary furloughs—meaning workers can be called back if demand resumes—are short of the 36,000 potential job losses the airline in July warned were possible.
Thousands of United employees already have taken voluntary retirement and extended leave packages in recent months. Most of the workers would leave when federal financial support expires on Oct. 1.
Overall, U.S. airlines had already shed around 50,000 jobs this year through the end of June, and in recent weeks have detailed compulsory cuts—including 19,000 at American Airlines Group Inc.
Airlines, unions and lawmakers are lobbying for a second round of federal support. President Trump on Tuesday said the administration was considering more support for the airline industry but didn’t provide specifics.
United said it is sending furlough notices to 6,920 flight attendants, 2,850 pilots, 2,260 airport operations staff and 2,060 maintenance workers. Other employee groups take the furlough total to 16,370. Talks are continuing with its pilots union, who have called on United to be more flexible in areas such as job sharing.
The pandemic is set to have an even deeper and longer-lasting impact on airlines’ finances than 9/11, several industry executives have said.
Carriers have spent months trying to get passengers back onto planes after the pandemic nearly halted travel in the spring, including by developing more-thorough cleaning procedures and toughening rules requiring passengers to wear masks. Nevertheless, travel demand has stalled at around 30% of last year’s levels. Executives believe it will take years—and likely a vaccine—for it to fully rebound.
Chicago-based United made some of the earliest and most aggressive cuts to flying schedules, and though demand has improved from its low in April, United is operating at only 63% of capacity in September compared with a year ago. It said it expects traffic will plateau at 50% of prepandemic levels until a treatment or vaccine becomes widely available.
The airline started the year with around 95,000 employees and just over 7,000 already have agreed to leave the company, while around 20,000 are on a variety of extended leaves and work-share programs.
Most of the planned furloughs involve unionized workers, whose contracts allow them to be recalled if demand improves and United resumes more flying. The carrier recently said it would drop change fees permanently on most domestic tickets in an effort to boost demand, though the levies are already suspended through the end of the year.
While the growth in domestic Covid-19 cases has slowed in recent weeks, the patchwork of state quarantine restrictions and isolated flare-ups have forced airlines to adjust schedules, with most trimming planned flying following the traditional drop in demand after Labor Day. With few or no business passengers, United is redirecting more capacity to fly from the Northeast to Florida.
Delta To Use Frequent-Flier Program To Raise $6.5 Billion
Carrier follows United Airlines in putting up loyalty program as collateral, says it won’t seek government loan.
Delta Air Lines Inc. is the latest carrier to use its frequent-flier program to secure cash to weather the coronavirus pandemic, announcing plans to raise $6.5 billion backed by its SkyMiles program.
Delta said on Monday that it will issue a private-notes offering and enter a term loan facility backed by the program, its biggest fundraising yet as it looks to build its war chest. While Delta has raised $16.5 billion since the start of the pandemic, the carrier is still bleeding about $27 million in cash a day, Chief Financial Officer Paul Jacobson said last week.
U.S. carriers received $25 billion in government funds under the Cares Act, a broad stimulus package passed in March, to help them keep their workers employed through the summer. But that money is due to run out at the end of this month, and negotiations for a new pandemic relief package that could include more assistance for airlines have stalled. Airlines have outlined plans to furlough tens of thousands of employees at the start of October, including over 1,900 Delta pilots.
With travel demand hovering at around 30% of last year’s levels and showing few signs of rebounding, airlines’ survival depends on their ability to raise as much cash as possible. After mortgaging planes, slots at congested airports and lucrative routes, airlines have been turning to frequent-flier programs to secure loans.
United Airlines Holdings Inc., in July raised $6.8 billion backed by its MileagePlus program. Spirit Airlines Inc. said earlier this month it would raise $850 million backed by its loyalty programs.
American Airlines Group Inc., meanwhile, has put its frequent-flier program up as collateral for a nearly $4.8 billion government loan as part of another airline aid program under the Cares Act. Though Delta is eligible for $4.6 billion under that program, the airline has decided not to pursue the government loan, a spokesman said.
The International Air Transport Association has said it doesn’t expect passenger demand to recover until 2024. International travel restrictions and minimal demand from corporate travelers have pushed many airlines around the world to the brink.
Cathay Pacific Airways Ltd., Hong Kong’s flagship carrier, said Monday that it is burning through hundreds of millions of dollars in cash each month and closing in on a restructuring plan as passenger demand remains a fraction of its pre-pandemic level.
The airline said passenger volumes scarcely improved in August and that it will continue to burn through as much as 2 billion Hong Kong dollars, equivalent to $258 million, a month, until the market recovers.
Airlines introduced frequent-flier programs in the 1980s as a way to encourage repeat business among their best customers with the lure of free trips. They exploded in popularity, and in recent years have become major sources of airline earnings.
Carriers mainly earn money from frequent-flier programs by selling miles to banks and retailers that then award them to customers who sign up for credit cards and make purchases. That means airlines stand to benefit from every swipe of a co-branded card, whether customers are buying plane tickets or clothing. Airlines have said those revenues have proved stable even at times when flying has dropped off.
Delta said holders of its co-branded American Express Co. cards kept spending this year, even as they have largely eschewed travel. Delta’s passenger revenue fell 60% in the first half of the year, but the airline said Monday that it still received $1.9 billion in cash from sales to American Express—less than a 5% drop from the first half of 2019.
Delta’s shares rose 2% to $32.33.
Airline loyalty programs can also be alluring to banks because of their typically high-value membership. When it renewed its co-brand partnership with American Express last year, Delta said it expected its benefit from the relationship to double to nearly $7 billion annually by 2023, up from $4 billion in 2019. Delta accounts for about 20% of AmEx balances world-wide, making it AmEx’s largest co-brand account.
Airlines have said for years that their frequent-flier programs had untapped potential but that they hadn’t hit on the best way to monetize them. Mr. Jacobson said in July that United’s financing could pave the way for similar deals by other airlines.
In past downturns, airlines have sold big chunks of miles to their credit partners, but the approach has drawbacks. Airlines that do it sacrifice future cash flows, and the amount an airline can raise from a single bank through such a sale is limited, executives have said.
Some airlines around the world have sold stakes in their frequent-flier programs, or spun them off altogether, but U.S. carriers have been hesitant to go that route, arguing that giving up control of the programs can result in them becoming less beneficial.
How a Fortunate Few Airlines Profit In A Pandemic: Lots of Cargo
As Covid-19 eviscerates the travel business, airlines are swapping seats for freight space.
The only major airlines making money these days are busy flying cargo, not passengers.
Of the world’s 30 largest airlines by revenue, just four reported profits for the April-June quarter, according to a Wall Street Journal analysis.
They are all based in export-heavy South Korea or Taiwan, benefiting from the surge in demand for tech components and electronic gadgets as more people work from home, and for personal protective equipment, much of it produced in Asia. Continuing demand for automobile parts and other Asia-made goods has also helped.
The analysis excluded some major carriers that didn’t report recent quarterly earnings.
Industrywide cargo revenue is expected to reach about $111 billion this year, according to the trade group International Air Transport Association. That is only a slight uptick from its pre-pandemic forecast, but the plunge in passenger revenue—IATA has slashed its 2020 forecast to $241 billion from an initial $581 billion—means cargo’s contribution would represent more than a quarter of total industry revenue, compared with the typical eighth.
For the four airlines that showed a profit in the latest quarter— Korean Air Lines Co. 003490 -2.39% , Asiana Airlines Inc., 020560 -0.13% China Airlines Ltd. 2610 -1.89% and EVA Airways Corp. 2618 -2.23% —cargo’s share of revenue ranged from 72% at Korean Air to 93% at China Airlines, compared with no more than a third last year.
Only four of the world’s top 30 airlines by revenue recorded profits in the second quarter.
When the pandemic hit, it wiped out some 40% of the world’s capacity for air cargo carried in the bellies of passenger planes, according to the trade group IATA. Plenty of airlines looked to fill the gap and boost cargo capacity as the pandemic triggered mass layoffs and widespread flight cancellations and led governments to provide more than $120 billion in aid.
They are using passenger planes for cargo operations temporarily, stashing freight in overhead bins and buckling it into seats or removing seats altogether. Travelers aren’t allowed aboard with cargo in the cabin.
The four carriers that showed profits enjoyed gains because they already had sizable cargo fleets. The profit boost came from the low supply of global airfreight capacity that sent the cost of shipping goods on common routes from Asia to the U.S. or Europe soaring; they have increased less going the other way. IATA’s latest figures show capacity still about a third below last year’s levels.
Rates have fallen from recent highs, according to TAC Index, a market researcher, and industry analysts say they should decline further later this year—though demand for shipping Covid-19 vaccines could disrupt that.
Seoul-based Korean Air recently removed passenger seats on two planes and has plans to soon modify two more, said Eum Jae-dong, the head of the airline’s cargo business division. One unexpected benefit: Regulators still treat them as passenger flights, meaning goods can now fly to certain cities, like Yangon, Myanmar, previously difficult to reach for cargo fleets.
“They can fly into airports and other destinations where cargo aircraft couldn’t go because of airport conditions or the lack of operational equipment,” Mr. Eum said.
But their advantage is also their limitation. Under aviation rules, a modified passenger plane cannot make multiple stops as an airfreight plane, according to Kim Yu-hyuk, an analyst at Hanwha Investment & Securities Co. in Seoul. They can make only round trips, as they typically would while carrying passengers.
Routes for airfreight carriers from South Korea and Taiwan typically begin with transporting locally made high-value electronic components to China or Southeast Asia. There, the components are dropped off and the plane picks up finished products to fly to Europe or North America. On the way back home, the planes often carry fresh foods and pharmaceuticals.
U.S. airlines, despite having the federal authority to do so, largely haven’t removed seats to fly more cargo, partly because most flights are domestic, using narrower-body planes that lack significant cargo capacity, industry experts say.
Still, U.S. carriers started cargo-only flights using just the bellies of their planes at the start of the pandemic and have now flown thousands of them—1,200 since February for Delta Air Lines Inc. alone, which now averages about 50 a week, a spokesman said.
The airline did remove seats from one Boeing 777-200ER, boosting its cargo capacity by 35%. The plane was first used on Sept. 11 for a cargo charter flight between Mumbai and New York. Delta, which is retiring its 777 fleet, has no current plans to reconfigure more planes, the spokesman said.
Seats have also come out at Air Canada —on three 777-300ERs—and European carriers such as International Consolidated Airlines Group SA’s British Airways and Deutsche Lufthansa AG. China Southern Airlines Co. reconfigured two Airbus A330 passenger planes. Dubai-based Emirates, which has one of the world’s largest air-cargo fleets, has ripped out economy seats on 10 passenger jets since June.
“The airline industry is still bleeding cash by the billions each month,” said Tim Clark, president of privately held Emirates, in a written statement. “We’re taking baby steps on the path to recovery.”
The shift to cargo is a stopgap measure, say aviation experts. “The core competency for passenger airlines is to serve passengers,” said Bijan Vasigh, of Embry-Riddle Aeronautical University in Daytona, Fla., who specializes in airline economics. But about 3 billion fewer passengers are expected to fly this year than last, with airlines reducing available seats by about half—by about two-thirds on international routes—according to the U.N.-affiliated International Civil Aviation Organization.
Meanwhile, for the April-June quarter Korean Air reported an operating profit of $90 million, hometown rival Asiana Airlines $19 million, Taiwan’s EVA Airways $6 million and China Airlines, also from Taiwan, $92 million—more than four times what it had earned a year earlier.
This month, Korean Air deployed its first modified Boeing 777-300ER; removing most of its 291 cabin seats added 10.8 tons of capacity to its previous limit of 22 tons, the airline said. The newly cleared cabin and belly were packed with boxes of automobile parts, garments and electronics devices.
“South Korean carriers have a geographical advantage being plugged into a location that produces goods,” said Mr. Kim, the Hanwha analyst. “The same applies to Taiwanese carriers.”
American Airlines, United To Cut 32,000 Jobs As Washington Debates Relief
American says it will bring workers back if lawmakers approve an extension of aid to airlines.
American Airlines Group Inc. and United Airlines Holdings Inc. will go forward for now with a total of more than 32,000 job cuts Thursday after lawmakers were unable to agree on a broad coronavirus-relief package, the airlines told employees.
The airlines’ moves put more pressure on lawmakers who have negotiated on and off for months over an aid package that could include relief for airlines and other hard-hit industries like restaurants and small businesses. Both carriers said they would bring workers back if a deal is reached in the next few days.
“We implore our elected leaders to reach a compromise, get a deal done now, and save jobs,” United said Wednesday night. The airline said over 13,400 employees will be out of a job starting Thursday.
American, which has planned deeper cuts than any other carrier, also told Treasury Secretary Steven Mnuchin that it will bring its 19,000 workers back if lawmakers can approve more aid in the next few days, Chief Executive Doug Parker told employees in a letter. Airlines considered postponing their cuts—something Mr. Mnuchin urged them to do earlier Wednesday.
But Mr. Parker said too much uncertainty remained.
“I am extremely sorry we have reached this outcome. It is not what you deserve,” he wrote to employees.
Airline workers had been largely insulated from the deep declines in travel due to the conditions imposed on $25 billion in government aid approved under the broad economic stimulus package passed in March.
That aid was aimed at helping airlines manage through what they hoped would be a temporary crisis without resorting to mass layoffs. While air-travel demand has climbed from the depths it reached in April, it remains nearly 70% lower than a year ago. Analysts forecast that U.S. airlines will lose $30 billion this year, according to FactSet data.
So while tens of thousands of workers opted to retire early or took buyouts as airlines scrambled to cut spending, most have been able to stay in their jobs until now.
Airlines have raised billions of dollars from capital markets and in some cases from additional government loans, and are in little danger of imminently running out of money. But they say they don’t want to pay workers they don’t need while they are burning through millions of dollars a day and flying a fraction of their usual schedules.
Airlines and their labor unions have lobbied aggressively for another $25 billion to continue paying workers for another six months and continued the push into the final hours of negotiations on Wednesday.
While Republicans and Democrats both supported aid to airlines and several other items under consideration, they have remained split on other issues and have been unable to come to terms on how much to spend overall.
Mr. Mnuchin and House Speaker Nancy Pelosi (D., Calif.) renewed their stalled negotiations this week, though they failed to reach an agreement Wednesday afternoon. Still, Democrats and the White House continued to work to find common ground. The House of Representatives opted to delay a vote on a $2.2 trillion coronavirus-aid package, which Democratic aides said would allow the two sides to keep discussing. As it stands now, the legislation has no chance of passing in the Senate.
Labor unions, whose members have picketed and inundated lawmakers with letters and tweets, also said they plan to continue ratcheting up their efforts.
American and United account for the bulk of the job cuts scheduled for this week, though a few others have also planned smaller reductions. Allegiant Air said it remained optimistic and decided to hold off on the 275 job cuts it had planned. Hawaiian Airlines said it would go ahead with its furloughs.
Several airlines have whittled down the number of jobs they plan to cut, offering buyout and early-retirement offers and striking deals with unions to cut costs. Some, including Southwest Airlines Co., aren’t planning any furloughs at all this week, though they have warned they might not be able to avoid them indefinitely without aid.
United, which initially warned 36,000 workers that their jobs were at risk, struck a deal to delay any furloughs of pilots until June.
Both airlines are set to receive larger-than-expected loans from the Treasury under a government loan program set up in the Cares Act passed in March, separate from the aid for worker salaries. United said Wednesday that it has secured a $5.17 billion term loan facility and has been told the Treasury will increase that to as much as $7.5 billion. United said it had already drawn $520 million. American said last week it had secured a $5.5 billion loan facility that could also be increased to $7.5 billion.
Lawmakers have also introduced a pair of bills in the House and Senate that would focus solely on aid for the aviation industry, which could gain more traction in the coming days, though some industry observers have said it might be more difficult to pass legislation that only benefits one industry.
For workers, the last-minute wrangling has added to months of uncertainty about their futures. “I’m scared,” said Leo Valladares, a flight attendant set to be furloughed this week. The coronavirus outbreak in Asia was barely on his radar when he began training in February after two years with a smaller carrier. Now he is faced with spending his savings as he looks for work.
“I thought it was going to be a steady job,” he said.
Seven Airlines Close Billions of Dollars In Loans With Treasury
Treasury Secretary Steven Mnuchin urges Congress to approve more aid for airline workers.
The U.S. Treasury said it has closed loans to seven passenger airlines and joined with the industry to call on Congress to extend more aid to prevent massive job cuts later this week.
Airlines continue to grapple with a sharp drop-off in travel because of the coronavirus pandemic and accompanying restrictions. The loans were one of two major sources of aid to airlines under the Cares Act passed in March. Airlines also received $25 billion to continue paying workers through the summer.
Airlines have said they’ll furlough more than 30,000 workers Thursday when the job protections that accompany that aid expire, with American Airlines Group Inc. and United Airlines Holdings Inc. accounting for the bulk of the cuts.
The Treasury said Tuesday it closed loans to American Airlines, United Airlines, Alaska Airlines, Frontier Airlines, JetBlue Airways Corp. JBLU -0.79% , Hawaiian Airlines HA 0.23% and SkyWest Airlines.
The announcement comes days after American said it had secured a $5.5 billion loan facility that could be increased to $7.5 billion, the most the Treasury will allow any one airline to borrow. The Treasury didn’t say how much other airlines agreed to borrow.
These airlines will be able to receive more money than they originally anticipated after others, including Delta Air Lines Inc. and Southwest Airlines Co. , decided to forgo their share.
Airlines and unions are in the final hours of a major lobbying push to secure another six months’ worth of funds to avert the furloughs.
Treasury Secretary Steven Mnuchin said in a statement Tuesday: “We call on Congress to extend the Payroll Support Program so we can continue to support aviation industry workers as our economy reopens and we continue on the path to recovery.”
Democrats in the U.S. House of Representatives this week included more than $25 billion for airlines in their latest aid proposal, which could come up for a vote in the House as soon as Wednesday. Lawmakers and industry officials have grown more pessimistic about the prospects of a broader agreement before Oct. 1, but House Speaker Nancy Pelosi (D., Calif.) told reporters after a meeting with Mr. Mnuchin Tuesday that she was hopeful they could reach a deal this week.
Norwegian Files For Bankruptcy Protection, Europe’s Biggest Airline Covid Casualty
Trans-Atlantic shuttle pioneered the Europe-U.S. budget market, racking up debt—then the pandemic struck.
Norwegian Air Shuttle filed for bankruptcy protection for two of its core units, marking Europe’s biggest airline casualty yet from the pandemic.
The airline placed the units, including the business that owns and finances almost its entire fleet of aircraft, into examinership in Ireland, an insolvency process that allows a company to restructure its debts and assets over five months.
“Seeking protection to reorganize under Irish law is a decision that we have taken to secure the future of Norwegian for the benefit of our employees, customers and investors,” Norwegian Chief Executive Jacob Schram said in a statement Wednesday. “Our aim is to find solutions with our stakeholders that will allow us to emerge as a financially stronger and secure airline.”
The airline, which was formed and then spearheaded for 17 years by former fighter pilot Bjorn Kjos, upended the European budget market as it pursued an ambitious plan to offer low-cost long-haul flights across the Atlantic.
With its planes’ tail fins emblazoned with portraits of famous Norwegians, the airline became an attractive, if quirky, budget option for travel between the U.S. and Europe.
Mr. Kjos’s plan included using Boeing Co.’s 737 MAX single-aisle jet to fly to major U.S. cities, pioneering the use of narrow-bodies on longer flights. The move triggered efforts by Europe’s three biggest long-haul operators— British Airways ’ owner International Consolidated Airlines Group SA, Air France-KLM Group and Deutsche Lufthansa AG —to try to compete with Norwegian’s prices.
But Norwegian’s ambitions, which included establishing a domestic airline in Argentina, proved too wieldy and expensive. The airline was repeatedly forced to issue new capital and convert debtors into shareholders.
“People have been expecting it for a while, the long-haul low-cost business model does not work.” Alex Irving, a London-based analyst with Bernstein, said. “They tried to grow very, very, very fast, but ultimately what they were trying to do with the operation doesn’t work as a business.”
The low-cost model, which revolutionized short-haul travel in the hands of Southwest Airlines Co. in the U.S. and Ryanair Holdings PLC in Europe, hasn’t yet been proven to work on longer routes. That is mainly because it relies on putting each aircraft to work as much as possible with quick turnaround times between stops, Mr. Irving said, and that doesn’t translate to long-haul.
Norwegian was also caught up in Boeing’s 737 MAX crisis. Following two deadly crashes, the plane has been grounded for 20 months, upending Norwegian’s plan to deploy the model on its trans-Atlantic network. A separate operational issue with Rolls-Royce Holdings PLC engines on the carrier’s Boeing 787 Dreamliners kept much of Norwegian’s wide-body fleet grounded. Production delays for Airbus SE’s A320neo family of jets, which rivals the MAX, also hit its plans.
Before the pandemic, the airline outlined a restructuring plan that it said would have brought it back into profitability this year. The virus and impact on aviation quickly toppled that goal.
Norwegian, which is based in Oslo, said the bankruptcy-protection process gives it five months to reduce debt, off load aircraft and cancel orders, as well as secure new capital. The move comes after the Norwegian government said last week that it would not provide additional funding to secure the airline’s future.
Norwegian placed another 1,600 staff on furlough after that decision. That has left just 600 active staff, with about a half dozen aircraft operating on intra-Norway routes.
The two units placed in examinership are both based in Ireland. Arctic Aviation Assets owns and finances about 140 of the group’s approximately 160 aircraft. The other, Norwegian Air International, last year operated just over a quarter of the airline’s capacity.
The airline is expected, if it’s able to get further funding, to revert to an airline predominantly serving passengers in Norway and the Nordic region, far short of the original ambitions of its founder.
American, Southwest Post Record Losses Amid Covid-19 Crisis
U.S. airlines lost nearly $35 billion last year as the coronavirus pandemic decimated travel.
U.S. airlines had their worst year ever in 2020, due to the coronavirus pandemic, and a rebound in travel remains elusive for now.
Southwest Airlines Co. lost nearly $3.1 billion last year—its first annual loss since 1972, the year after the Dallas-based carrier began flying. The airline lost $908 million during the fourth quarter.
American Airlines Group Inc. reported a record $8.9 billion loss last year, and lost $2.2 billion during the fourth quarter. But losses at both American and Southwest were narrower than analysts expected.
Investors sent American’s shares on a wild ride Thursday. Shares soared by more than 80% before the market opened, but later pulled back and ended the day up 9.3% at $18.10.
The company was named Wednesday on Reddit’s popular WallStreetBets forum, where individual investors have encouraged one another to pile into stocks with high levels of short interest, prompting extreme share-price increases. Shares of Southwest, which hasn’t attracted the same attention from short sellers as American, rose about 1% to $44.60.
The pandemic wiped out travel last year, sparking an unparalleled crisis for airlines. Altogether, U.S. carriers lost close to $35 billion in 2020, according to earnings reports this month.
Airlines had braced for a tough winter, but appetite for travel has deteriorated even further in recent weeks. Southwest said January and February bookings stalled amid high levels of Covid-19 cases and hospitalizations. Airport passenger volumes fell to their lowest level since June this week, according to the Transportation Security Administration.
“Once we get past this January/February winter doldrums, we’ll see what happens and we’ll respond accordingly,” Southwest Chief Executive Gary Kelly said during a conference call with analysts and reporters.
January is typically a slow period for airlines, but this winter is proving to be especially bleak. Carriers are also grappling with the impact of rules put in place this week requiring all airline passengers arriving from abroad to test negative for Covid-19.
Airlines broadly welcomed the testing requirements and believe such rules will eventually allow borders to reopen, but have said bookings to places like Mexico and the Caribbean, which had been tourism bright spots, have slowed down.
While American said the first few days of testing went smoothly, the mandate has deterred travelers: American’s international bookings have halved in the past week, compared with the first two weeks of January before the policy was announced, the airline’s chief revenue officer said.
Now airlines fear that the U.S. will require testing before domestic flights, something that health officials have said they are actively considering. Airline executives said they haven’t been approached about a domestic testing program by the Centers for Disease Control and Prevention. Executives raised alarms that such a requirement would crush demand and create operational headaches.
“I just think it’s wholly impractical,” Mr. Kelly said. Tom Nealon, Southwest’s president, said if domestic testing isn’t consistent across airlines, airports and regions, the program could be “a real goat rodeo.”
JetBlue Airways Corp. President Joanna Geraghty said U.S. testing capacity likely wouldn’t be able to keep up with the strain. “This puts a ton of pressure on an already-fragile system,” she said.
JetBlue on Thursday reported a $381 million loss in the fourth quarter.
The Biden administration said this week that it plans to purchase more vaccine doses, aiming to inoculate most of the U.S. population by the end of summer. Airline executives have different views of what that trajectory means for summer vacations.
American CEO Doug Parker said 2021 would be a year of recovery, but said he doesn’t know when that rebound would begin. The airline expects first-quarter revenue to be down as much as 65%.
Airlines received federal funds to cover payroll, which allowed American to bring back thousands of furloughed workers. That money runs out at the end of March, but the airline hasn’t yet seen demand recover as it had hoped for, Mr. Parker said. “I know everyone is interested in how fast things will rebound. We don’t know the answer to that,” he said during a call with analysts and media.
United executives said last week demand may not start to climb significantly until midway through the year unless vaccine distribution speeds up. Delta Air Lines Inc. CEO Ed Bastian, on the other hand, said this week that he expects the virus to reach a “much more contained state” by spring. “Over the next 90 days, I am optimistic that we’re going to come out of this lockdown period,” he said Wednesday at a Bloomberg conference.
Southwest said it would be cautious about bringing more flights back. The airline expects to stop bleeding cash sometime this year, but said it couldn’t predict exactly when. Reaching that cash break-even level would require operating revenues to double from current levels, the company estimated. In the first quarter, the airline said it expects to lose $17 million a day—more than it lost in the final months of 2020 due to weak demand and rising fuel prices.
Southwest’s adjusted loss of $1.29 a share beat the $1.68-a-share loss that analysts polled by FactSet had expected. Excluding certain items, American lost $3.86 a share compared with the $4.11 a share analysts had anticipated.
American Air Warns of 13,000 Layoffs As Summer Outlook Dims
American Airlines Group Inc. warned 13,000 employees that they could be laid off, many for the second time in six months, saying a much-anticipated summer travel rebound isn’t materializing.
The carrier will send out government-required WARN notices Feb. 5, Chief Executive Officer Doug Parker and President Robert Isom told workers in an email Wednesday. The warning came less than a week after United Airlines Holdings Inc. told 14,000 employees that their jobs may again be in danger.
The risk of new layoffs highlights the weak outlook for travel demand amid heavy coronavirus case totals worldwide and tougher government travel restrictions. With vaccination campaigns still in the early stages, domestic airline passengers are at less than 40% of 2019 levels. Foreign travel is at only about 15%, the International Air Transport Association said Wednesday.
At the end of 2020 “we fully believed that we would be looking at a summer schedule where we’d fly all of our airplanes and need the full strength of our team,” Parker and Isom said. “Regrettably, that is no longer the case. The vaccine is not being distributed as quickly as any of us believed, and new restrictions on international travel that require customers to have a negative Covid-19 test have dampened demand.”
Five weeks into the new year, they said, “we unfortunately find ourselves in a situation similar to much of 2020.”
American fell 1.7% to $17.30 after the close of regular trading in New York. The shares have tumbled 35% during the last 12 months, the second-biggest drop in a Standard & Poor’s index of nine U.S. airlines.
Furloughs could be avoided should travel unexpectedly rebound strongly or if Congress provides a third round of federal aid by April. Notices will be sent to 4,245 flight attendants, 1,850 pilots, 3,145 fleet service workers and others.
U.S. airlines furloughed workers in October when an initial round of $25 billion in government aid expired. Then they recalled most of the affected employees after Congress passed an extension of payroll support in late December. That second round of funding, for $15 billion, expires March 31. Airlines and labor unions are lobbying for additional federal assistance.
“Issuing these required WARN notices isn’t a step we want to take,” the email said. “Tens of thousands of our colleagues have faced extreme uncertainty about their job security over the past 12 months, and that’s on top of the emotional stress all of our team has faced during an incredibly difficult year.”
In hopes of reducing the number of job cuts, the Fort Worth, Texas-based airline also is offering a third round of voluntary separations and 12- to 18-month leave options that frontline employees can choose, excluding pilots.
American furloughed 19,000 workers on Oct. 1, on top of 12,500 who had left the company voluntarily and 11,000 who previously took leaves of varying duration. Leaves are partially paid and include some benefits.
Delta Air Lines Inc. has avoided furloughs, relying instead on 18,000 voluntary departures and 50,000 workers taking unpaid leaves of as long as a year. Southwest Airlines Co. also has said it won’t lay off any workers at least through 2021.
Airlines Don’t Need To Be Saved By Taxpayers Again
The first $50 billion government lifeline was critical to steering the economy through the worst of the pandemic and beyond; the next $29 billion is more complicated.
Last March, the government provided U.S. airlines a $50 billion lifeline in one of the largest industry-wide interventions in American history. The industry received a further $29 billion through the bipartisan year-end relief package and President Joe Biden’s stimulus plan. The enormous volume of support raises a question: Was this in taxpayers’ interest, or was it a classic case of corporate welfare that primarily benefited shareholders?
A careful examination of the record shows that the initial intervention during the height of the panic was certainly the best available alternative. But more recent support to an industry the government had already stabilized raises questions about the marginal return on taxpayer dollars.
With airlines now adding routes as part of the broader economic recovery, it’s easy to forget how precarious the future of the industry was a year ago. The general economic shock from the virus was unprecedented, but the speed and scope of the impact on the aviation industry was particularly breathtaking. More than 95 percent of demand evaporated almost overnight.
Some industry experts feared many airlines could face bankruptcy within weeks. The best-case scenario was Draconian layoffs and service cuts, affecting hundreds of thousands of workers and their families while disrupting businesses across the economy.
Even the strongest carriers were burning cash at an unsustainable rate, while access to credit markets was drying up. Permitting the collapse of a strategic industry that requires long lead times to add capacity would have had profound implications for pandemic response and long-term economic competitiveness.
The fundamental goal of the government’s economic response to the pandemic was to preserve productive capacity in the economy to drive the recovery that would follow from an end to the underlying public-health crisis. The $2.2 trillion Cares Act, which Congress passed last March on a near-unanimous basis, successfully followed this approach. It included $25 billion in payroll support and $25 billion in loans for airlines.
Payroll support stabilized the industry during the most acute phase of the economic shock. Airlines could use the funds only to pay workers and agreed to prohibitions on furloughs and share buybacks, limits on executive compensation, and requirements to maintain flights, particularly to hard-to-reach rural communities. The government benefited in the form of taxes and avoided unemployment insurance. The companies had to repay a portion of the funds, in part by providing warrants.
The loan program addressed airlines’ medium-term financial strength. Taxpayers incurred little direct expense. The government loans eased access to credit markets, helping airlines borrow more than $50 billion in 2020. The Treasury Department’s willingness to accept loyalty programs as collateral also helped unlock a rich source of secured financing for the industry.
Opponents of the rescue argued for letting airlines seek bankruptcy protection while continuing to fly, as many airlines have done through the years. But to keep flying, airlines need customers to buy tickets. At the time, there was no such demand and no certainty as to when passengers would return. Uncontrolled bankruptcies would have caused permanent scarring across the industry and its workforce, impeding the recovery for years to come.
Similarly, a government-financed restructuring like the 2009 auto rescue would have led to a much worse outcome for taxpayers. A slow-moving reorganization would have likely incurred even larger social costs given the industry’s inability to operate and attract financing in the total absence of demand.
Most importantly, putting the government in charge of airlines at the height of the most severe crisis in the industry’s history would have been a profound mistake. The government is good at many things, but running airlines is not one of them.
Yet the success of the Cares Act rescue has made subsequent rounds of payroll support harder to justify. At the time airlines received an additional $15 billion as part of the bipartisan $900 billion relief bill at the end of 2020, the largest four carriers reported nearly $65 billion of combined liquidity.
Nonetheless, there were important reasons to extend relief in December. The overall $900 billion package was critically important at a time when vaccines were still nascent and the country was in the midst of the devastating third wave of infections and associated lockdowns. Airline support was extremely popular in Congress and may have aided the overall bill’s passage.
This justification does not apply to the most recent $14 billion in payroll assistance provided in Biden’s stimulus plan. Vaccines were already allowing the resumption of normal business activity and airlines continued to have ample liquidity.
Proponents of additional support argue that despite the absence of the threat of an industry-wide collapse, one of the rationales for the original rescue still holds: that because airline workers must stay current on training, we can’t allow employees to be furloughed without reducing productive capacity in the economy. However, airlines now have the liquidity available to maintain payroll if they believe it is justified by future demand.
Some carriers are doing just that. We all have sympathy for airline workers who are at risk of furlough. But there are more efficient ways for the government to support these displaced workers than by handing airlines billions of dollars over and above the payroll costs associated with these potential furloughs.
Debating the appropriateness of the government’s economic response to the pandemic is critical to informing policymakers’ responses to future crises.
In the case of airlines, without last year’s swift intervention, there might not be a viable industry at the center of the debate. Yet what was once necessary doesn’t justify endless repetition. There will probably be calls for more payroll support when the latest employment protections expire at the end of September. Taxpayers should be rightly skeptical.
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