United’s check-in counter in San Francisco, June 1. Airline executives believe a rebound in travel will take years, not months.
Photo: David Paul Morris/Bloomberg NewsFederal stimulus money for airlines is keeping them afloat through the coronavirus pandemic, but it’s not proving to be enough to sustain the industry at its pre-pandemic size.
Carriers say they will have to shrink, with fewer planes flying, fewer flights and fewer employees come Oct. 1, after restrictions related to their stimulus money expire. Airlines will likely need to park 20% of their planes and cut their pilot workforces in equal measure, Cowen analyst Helane Becker estimated in a recent research note.
The coming job losses are a sign of how the government’s broad efforts earlier this year to support industries and preserve jobs as the economy shut down have been overwhelmed in some instances by the financial devastation the Covid-19 pandemic has generated.
The $25 billion that airlines received as part of the broader economic stimulus package in March was intended as a bridge to carry airlines through as demand collapsed and keep employees on the payroll through the end of September. The money has also given carriers some time to stabilize, keep workforces trained and ready, and raise billions of dollars from capital markets.
If not for the government aid, “I’m not sure we’d be flying at all,” one airline executive said.
The problem now: demand hasn’t snapped back. Even as travel has picked up a bit lately, it remains a fraction of the record-high levels reached before the pandemic, and now airline executives believe the rebound will take years, not months.
Executives have warned, even before the ink was dry on the government-aid legislation, that without recovery in demand, they would almost certainly have more employees than they need this fall when the law’s restrictions are lifted. Airlines had to agree not to lay off or furlough workers for a period in exchange for the funds.
Airline officials and lobbyists say there haven’t been formal discussions about additional aid, though some labor unions are hoping that the funds to cover worker salaries could be extended. Airlines are also eligible for an additional $25 billion in government loans to fund operations, but such loans are expected to have tougher terms and some airlines have said they will wait to decide whether to tap those funds.
The funds were never meant to be a cure-all, but to keep workers in their jobs so that airlines could be viable when demand returns, a senior Treasury Department official said.
“We can’t create demand for flights, and that’s not the intention of the statute,” the official said. “We had to get them through a period of months where there would be very low demand for travel.”
Some economists believe it’s better to keep workers tethered to their companies rather than going on unemployment, and that other industries should have got the same deal.
“We should have done it for everybody,” said Robert Gordon, a Northwestern University economist. “It’s much more humane, and it would have simplified the restart of the economy.”
Others argue that for airlines, government aid has only delayed inevitable cuts, insulating investors and creditors. “Airlines go bankrupt all the time,” said John Cochrane, senior fellow at Stanford University’s conservative-leaning Hoover Institution.
Funds could have been better spent allowing the airlines to make cuts and then providing direct support for workers or financing for continuing operations during bankruptcy, some economists suggested.
Airline and labor leaders say that without government intervention, the consequences could have been much worse, with hundreds of thousands of employees abruptly let go and cut off from their pay and health benefits at the height of the pandemic.
“The airline industry was going to completely collapse,” said Sara Nelson, international president of the Association of Flight Attendants-CWA, who was one of the main advocates for aid that was directly tied to keeping workers in their jobs. Air service would have been slashed, and deliveries of essential goods and medical personnel would have been disrupted, she said.
“It would have been chaotic,”she said.
Passengers boarded an American flight in San Diego late last month.
Photo: Sandy Huffaker/Getty ImagesAll four of the largest U.S. carriers are now assessing how deeply to cut as they offer buyouts and early-retirement packages to encourage employees to leave on their own and reduce the number they have to force out. United Airlines Holdings Inc. and American Airlines Group Inc. are planning to slash their management and administrative ranks by 30%—about 8,500 jobs between the two.
Airlines’ ranks had swelled by around 20% in the past decade, nearly recovering from declines in the wake of 9/11 and the financial crisis, according to the Bureau of Transportation Statistics. Delta Air Lines Inc. had planned to hire 1,000 new pilots by this summer just to keep pace, and United in February announced it was buying a flight-training school to ensure a steady stream of new pilots.
Delta last month outlined a buyout package that includes cash severance and travel benefits for many of its employees, and said it hopes to get enough volunteers to avoid involuntary cuts.
“We’re trying to take that $5 billion we received and stretch it for as long as we can,” Delta Chief Executive Ed Bastian said Wednesday, adding that it could take two to three years for the industry to recover fully.
Gary Kelly, chief executive of Southwest Airlines Co., said last week that the company will try to protect jobs but that survival is the priority. “Given our planned smaller schedule and network, we are overstaffed and may continue to be overstaffed for the next several years,” he wrote in a memo to employees.
American Chief Executive Doug Parker said during an investor conference last month: “I think we’re all building our airlines in a way that doesn’t anticipate having 2019 revenues in 2021.”
Write to Alison Sider at alison.sider@wsj.com
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