Aviation Industry Updates: April 20, 2020

Southwest Pilot Union Discusses “Massive Layoffs” if Bailouts Not Extended

KEY POINTS:

• SWAPA released a detailed eight-page document outlining the state of Domestic Airlines related to the CARES Act, including funds received and health of the various pilot groups; furloughs, leaves, and bankruptcies. Additionally, SWAPA compares demand to other crisis events, Wall Street forecasts, major airline financial facts, and their predictions for the future of the industry.

• “Overall, it is expected that business travel should recover faster than leisure travel, although incremental structural shifts amid the accelerated development of new communicator tools such as Zoom may prove to be an effective substitute for some traditional face-to-face meetings. Consumer confidence in flying will take time to recover fully, but medium-to-long term fundamentals for leisure travel still exist. Short-haul travel likely to be more favored in the near-term as many passengers could plan short and simple getaways after being housebound for an extended period of time.”

• “Airlines came into 2020 in arguably the best financial shape in their history. Cash generation was strong allowing for investment into the business and return of capital to shareholders. The coronavirus was something economies and airlines were not ready to handle. The airlines are going to have to adjust to new, lower demand levels. We expect it to take 3-5 years for domestic travel to return to 2019 levels and 4-6 years for international traffic to recover to previous numbers.”

• “An initial surge of business travel could be expected but nothing that is viewed as sustainable. There will be significant liability for companies that push their employees to travel too quickly. The working assumption is 2021 revenues will be back to 2016 levels.”

• “There is a path towards a normal environment for the U.S. airlines but before that can happen some tough choices will need to be made. The airlines could shed 800-1000 aircraft which would result in a reduction of 95,000-105,000 airline jobs. The right-sizing of the fleet and workforce is an unfortunate truth. The belief is that the airlines will end 2020 at least 20% smaller than they ended 2019, and quite possibly 30% smaller.”

• “Growth carriers like Alaska, JetBlue, Spirit, etc., could look to maintain their fleet count and defer new deliveries as they wait for the market to stabilize. It would not be a surprise to see the ULCC’s consider consolidating to get through the downturn.”

• “Unless the industry-specific payroll protection grants/loans are extended, it does not seem possible for the airlines to avoid massive layoffs. We feel that the federal government may not be compelled to help out further unless traffic comes roaring back, which is seen as a low probability. IATA forecasts a 40% to 50% decline in global traffic.”

"Some final predictions:

• Airlines will lose much of the work put in on product differentiation, culture, and brand.

• Basic economy will be cut or discontinued.

• Labor pay will become more variable.

• Scope changes, if they happen, are more likely in bankruptcy.

• Brain drain from senior leadership due to government limits on compensation and equity awards.”

>> Click here to read the entire article written by SWAPA

United Executives Release Memo Outlining Painful Reality

KEY POINTS:

• “The government funding we expect to receive soon is helpful in the near-term because we can protect our employees in the U.S. from involuntary furloughs and pay rate cuts through the end of September. But the challenging economic outlook means we have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1.”

• “The challenge that lies ahead for United is bigger than any we have faced in our proud 94-year history.”

• “This government support does not cover our total payroll expense, but we're keeping our promise that there will be no involuntary furloughs or pay rate cuts for U.S. employees before September 30. And, payroll only represents about 30 percent of our total costs. Fixed operating and non-payroll costs like airport rent, supplies and infrastructure are significant and not going away. That's why we've been so aggressive in reducing our schedule, slashing capital expenditures, scaling back our work with vendors and consultants and cutting executive salaries in half.”

• “This weekend, we'll load a revamped schedule that will further reduce our capacity to about 10 percent of what had been planned for May at the beginning of this year. We expect to announce similar reductions to the June schedule in the next few weeks. We have now essentially redesigned our network to be down 90 percent while complying with the CARES Act and maintaining connectivity among nearly all our domestic destinations.”

• “These May and June schedule reductions will have direct consequences for our frontline employees in terms of total hours worked. Those work groups can expect to hear more details from their leaders soon.”

• 20,000 employees have taken various leave options and more will be requested.

>> Click here to read the entire article written by United Airlines Worldwide Media Relations

Alaska VP Flight Ops Details Lengthy Recovery and Fleet Disposal

In a recent communication to Alaska employees, review by Raven Careers, the future of Alaska's recover is detailed.

KEY POINTS:

• “Realistically, we have concluded that this is not going to be a rapid recovery toward pre-pandemic levels. The global and domestic airline industry has severely retracted and will quite certainly remain at a lower level for months, as the economy recovers from this global shock.”

• “Alaska will emerge as a smaller company; however, we will take advantage of our agility to swiftly react to opportunities for economically beneficial prospects and future growth.”

• “To reduce cash burn and bring scheduled flying down, we are temporarily parking 155 of our fleet of 237 aircraft. That leaves 82 planes still flying—19 Airbus and 63 Boeing.”

• The VP outlines the operating costs of the A319 fleet and the fact that Alaska has A320’s that have not completed their cabin modification, as well as the significant cost to complete the modifications. He affirms the belief that these aircraft will likely not return to scheduled service.
• Alaska will begin a transition of 240 Airbus pilots to the 737 fleet in the coming weeks.

Additional Resources

How Does the Coronavirus Compare to 9/11?
How to Survive Disruptive Change
Are Furloughs Coming?
What Should Pilots Do In These Uncertain Times?