Oct. 1, 2020, is looking like a particularly dark day in history for the U.S. commercial airline industry, with unprecedented layoffs and furloughs expected to occur in the absence of a last-minute extension of relief from the federal government.
The CARES Act’s Payroll Support Program (PSP), signed into law March 27, stabilized aviation and kept frontline employees on the job and connected to their benefits programs through a $25 billion bailout package, but it is set to expire at midnight.
Around 35,000 airline workers are expected to be be furloughed or laid off on Thursday unless Congress passes emergency legislation extending aid, but it looked increasingly unlikely as of Wednesday evening.
Even though a bipartisan majority of lawmakers support heading off the looming layoffs, standalone bills have gone nowhere in either chamber of Congress. House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin failed to reach a deal during a Wednesday afternoon meeting on wider economic aid legislation that would include airline funds. While they will continue to work toward an agreement, nothing is imminent and without a concrete path airlines may not delay their layoff plans.
Julie Hedrick, who serves as National President of the Association of Professional Flight Attendants, representing the 27,000 Flight Attendants of American Airlines, said in a Sept. 29 opinion post on The Hill that without an extension, the airlines have no choice but to lay off thousands of employees on Thursday.
“When Congress created the PSP, we were genuinely hopeful that the worst of the pandemic would be behind us by now. While the PSP successfully prevented a massive number of layoffs, the virus continues to present a tremendous challenge to our country and our economy,” Hedrick says in the post. “With the PSP set to expire on Sept. 30, the need to continue this vital program is clear.”
While voluntary early retirement and leaves of absence has reduced the number of airline employees who will lose their jobs Thursday, it is still expected that American Airlines will furlough 17,500 workers Oct. 1, and will lay off another 1,500. About 8,100 flight attendants and 1,600 pilots will be among those furloughed, an American Airlines spokesperson told U.S. News & World Report.
One unnamed flight attendant, who works for a major airline and is slated to be furloughed on Oct. 1 along with her husband (also a flight attendant), shared her fears in the U.S. News piece.
“We’re both going to lose our health care, we’re both going to lose our 401k,” she says, noting that she and her husband plan to file for unemployment benefits once they are furloughed. They are particularly concerned about losing their health care during a pandemic. “It’s crushing, it’s incredibly overwhelming to think about. It’s incredibly scary.”
Majority of cuts from American, United
The domestic airlines have been taking steps to reduce their labor forces since the global pandemic crippled the industry beginning in March, and those efforts will lessen the severity of Thursday’s expected layoffs.
It appears Southwest Airlines and Delta Airlines will be able to avoid layoffs at this time thanks to voluntary measures and tapping private capital markets.
But cuts at American and United are expected to account for the vast majority of Thursday’s pending staff reductions, while travel website The Points Guy is reporting cuts of roughly 532 staff at Alaska Airlines, 495 at Allegiant Air, 466 at Hawaiian Airlines and 125 at Spirit Airlines. JetBlue is reportedly not planning any layoffs prior to May 2021.
United said earlier in September it planned to cut more than 16,000 jobs, but thanks again to voluntary measures at least that was far lower than the 36,000 it had warned could be impacted back in July.
The involuntary cuts, many of them furloughs that mean employees can be called back if demand returns, make up close to 17% of United’s staffing level at the end of 2019. They include 6,920 flight attendants, 2,850 pilots, 1,400 management jobs, 2,010 mechanics and 2,260 in airport operations, among others.
American Airlines announced plans to cut 19,000 jobs, which along with voluntary leaves of absence and buyouts would leave it about 30% smaller than before the pandemic. According to the Dallas Business Journal, the early retirement option offered to American pilots calls for approximately 60% of their pay, medical benefits and travel benefits until he or she reaches 65. The offer was extended to pilots 62 or older. Over the next 15 years, American is expected lose 75% of its pilots to retirement, David Tatum, director of pilot recruitment for American, told the DBJ last year.
Dallas-based Southwest offered what it described as the “most generous buyout package in our history” in an effort to avoid layoffs or furloughs this fall. Nearly 17,000 Southwest Airlines employees, or 28% of its workforce, volunteered for extended time off or early retirement packages, according to multiple reports.
Around 24% of the Southwest employees were pilots while 33% were flight attendants, according to Reuters, with 4,400 opting for early retirement and 12,500 volunteering for time off.
At Delta, 2,235 pilots (about 15%) signed up for early retirement packages, according to their union. The carrier said more than half of its more than 14,000 pilots were eligible. Delta’s early retirement program provides pilots partial pay for up to three years and extended health insurance coverage.
Risk for early retirees?
Decisions to accept early retirement (particularly for highly compensated pilots) are not without risk—the biggest being an airline subsequently going bankrupt and taking pension obligations with it.
Forbes recently reported early retirement offers could be worth as much as $982,000 (Southwest) for some highly experienced pilots, citing data from KitDarby.com Aviation Consulting. Delta pilots could max out around $740,000 while the early-out offer to American pilots is worth a maximum of $715,599.
“Should they accept such early-out offers, eligible pilots could see all that money—and the attractive additional benefits like free travel and extended insurance benefits that come with that early retirement cash—vanish into thin air,” the Forbes article says. “That’s because if their airlines enter bankruptcy, or cease to operate entirely before those pilots who accept the early retirement offers reach 65, any money still owed them at that time likely would never be paid.”
Kit Darby told Forbes it all depends on if the airline stays in business after the pilot leaves. “If they don’t, you likely won’t get all the money they said they’d pay you for not working the last three to five years of your career.”
Darby said there were a lot of pilots burning the midnight oil as they were deciding whether taking early retirement would be the best approach for them financially.
“There’s a ton of variance in the value of these deals because every pilot’s situation is different.”
Frequent flyer website View from the Wing said American Airlines employees are indeed worried about bankruptcy, as American is viewed as “most vulnerable” among the major carriers.
Frequent Travel Expert Gary Leff says they’re worried about what happens to their pensions, and have been reluctant to take the voluntary “early out” retirement option because they’re afraid the promised future payments aren’t going to be there.
“Employees choosing to accept a deal that’s ‘leave now, get compensation later’ are betting that the airline doesn’t go into bankruptcy,” Leff writes, adding that based on the price of credit default swaps for American’s unsecured debt, the market believes this is very likely to happen over the next several years.
Recovery slower than expected
The Associated Press reported this week that air travel is down about 70% from last year, with worldwide air travel forecast to fall 66% during 2020.
“To my understanding, this is the steepest demand shock for commercial aviation in human history,” Morningstar aviation analyst Burkett Huey told AP.
While Thursday is expected to be a horrific day for the airline industry, it was originally thought to be much worse. Initial estimates forecast as many as 100,000 airline employees could involuntarily lose their jobs on Oct. 1, but all the voluntary departures and other actions whittled the number to around 35,000.
AP reports the early retirements and other incentives have already shed about 45,000 airline jobs so far during the pandemic.