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United Publishes Second Displacement Bid | Management’s Math Inconsistent
Disclaimer: Our writers have spent the past week painstakingly verifying all information contained below and recognize a few limitations in United’s data. United does not publish dates of hire, only seniority numbers on their seniority list. Because of previous mergers, seniority numbers don’t easily correlate to dates of hire. Additionally, United’s bidding system is very complex which leads to constantly changing information. As such, we commit to keeping you updated as information changes and recognize some information may become inaccurate as bidding progresses. United published their 2nd Pilot Displacement Bid on June 4, 2020 uprooting approximately 1,591 pilots. According to a memo published by United Airlines ALPA “this displacement was reduced more than 50 percent from what was originally planned only hours ago.” This comes on the heels of United’s first bid which occurred on May 2, 2020 and displaced over 4,700 pilots, as part of the company's plan to cut the airline by 30%.
Some of these 1,591 pilots are now being displaced for the second time since early May. Since United’s displacement process is very complex, we have further explained the nuances of their bidding system below. For reference, prior to COVID-19, a junior Newark based Airbus A320 Captain held around an 11,300 seniority number which was around the bottom 13% of the seniority list.
Currently, a relatively junior Newark based Airbus A320 or Boeing 737 Captain is trending around a 6,100 seniority number which is around the top 45% of the seniority list. This means Captain positions have shifted from around 3 years of seniority to decades. This trend may change for better or worse, over time, as future, new displacement bids are published.
This new displacement shows a daunting shift in trends for seniority, quality of life, and pay. Or as UAL ALPA stated, “Once again, far too many pilots may suffer a further pay cut (on top of currently reduced hours), be forced to commute, forced onto reserve, or in some cases, all three.“
A few facts about United’s bid process:
- United, unlike Delta, does not have a flush type bidding system.
- United cannot unassign a junior pilot. Every pilot will retain a fleet assignment until furloughed.
- Displaced pilots must be listed by name in each displacement bid.
- United must keep a displacement bid open for 20 days.
Before United delivers furlough announcements, they need to fill every junior pilot’s aircraft position with a more senior pilot to avoid schedule disruptions.
There are some inherent benefits of having a displacement system this way to introduce expense and complexity into the process. This complexity theoretically makes it more difficult for management to furlough pilots and lower pay. Since United is required to list pilots by name in every displacement bid, no pilot can be involuntarily displaced unless named in the bid.
Here’s a HYPOTHETICAL scenario to help understand the complexity of United’s process:
- United decides they need to furlough 30% of their most junior pilot staff.
- These pilots are spread throughout bases like Newark, Houston, Chicago and fly multiple aircraft types including the Boeing 737, 757, 767, and 777.
- After these pilots leave property, their spot must be filled by pilots remaining on property.
- To keep things orderly, United puts out a displacement bid to fill these positions ahead of the furlough (i.e. backfill in advance) to avoid confusion, disruption, and financial loss.
The simplest bid process is known as a flush bid. Here is an example of how a flush bid works:
- A Houston based Boeing 777 Captain gets a displacement notice since Brand X Airline decides they want to retire the aircraft.
- This Boeing 777 Captain decides to bid Houston Based Boeing 787 Captain and as such, the most junior 787 Captain is no longer needed.
- As such, the junior Boeing 787 Captain now bids Boeing 767 Captain, and the displacements continue to cascade down.
- Until, the most junior pilot is either placed on a new aircraft, due to buying more Boeings or Airbus, or are furloughed because they are no longer needed.
For comparison, here’s how United’s bid process works:
- An LAX based Boeing 757/767 Captain sees his name listed in the newest published displacement bid since United is removing the 757/767 from the base.
- This Boeing 757/767 Captain decides to bid LAX Boeing 737 Captain since that is the most senior position his seniority number can hold.
- Because flying is reducing, the most junior LAX Boeing 737 Captain was not listed on the original displacement bid, and cannot be displaced.
- 20 days later, when the original displacement bid is closed, United reevaluates their staffing numbers and sees they are overstaffed, by 1 pilot, on the Boeing 737 in LAX.
- As such, they release a new “clean up” displacement bid with this 1 pilot’s name listed.
- If that 1 pilot finds a more junior position somewhere else, let’s say Newark Boeing 737 First Officer, they can bid and hold that position.
- The “clean up” bid process will restart over and over until all positions have been filled.
- Once there are no more displacements needed, and all required pilot positions are filled, the “clean up” bid process stops.
- Once “clean up” bids are stopped, furlough notices will be sent to the most junior pilots who are no longer needed.
Contractually, furloughs need to be announced by early July if United is planning on furloughing anyone hired before January 23, 2016 by October 1st. If a pilot was hired after January 23, 2016, United only has to give a 60 day notice to comply with the US WARN act guidelines.
It is important to note that UAL ALPA has communicated, “The Company continues to remain reluctant to talk about potential furlough numbers.” As such, United must publish multiple bids, known as clean ups, before they settle on a final furlough number.
In March, Scott Kirby, who is serving as CEO, stated that “hope is not a strategy.” This week UAL ALPA stated “the most they [United management] will say is that they hope they can grow United back to be 70% of the size it was in 2019 in the next 18 months. As such, this Displacement reflects an airline that is 30% smaller than it was before the downturn.”
Some final thoughts through historical context:
Post 9/11, airline traffic dropped off by approximately 30%. Aero News Network posted a detailed listing of ensuing 9/11 furloughs, broken down by company, on November 12, 2003. Here's what Aero News showed:
- United and Continental Airlines, combined, employed roughly 12,181 pilots, and furloughed around 2,606 as of November 2003. That equated to approximately 21% of their combined seniority list.
- For comparison, Delta and Northwest, combined, employed roughly 13,753 pilots, and furloughed around 1,988 as of the same date. That equated to approximately 14% of their combined seniority lists.
- The recent Delta displacement shows approximately 14,657 pilots on staff with around 2,327 pilots being placed on unassigned status.
- That means roughly 16% of displaced Delta pilots will be left with a placeholder aircraft position. The recent Delta displacement is eerily close to the 9/11 furlough numbers published by Aero News.
- While not a definitive predictive metric, and only estimated numbers from post 9/11, the Aero News historical context says now is the time to start thinking about what's next. That way, IF things go bad, you aren't left with an empty handful of hope and no backup plan.
Alaska & JetBlue Staffing Reductions | Two Different Approaches
With the cancellation of a second position bid and reductionist comments made by Alaska Airlines management, their ALPA leadership gave a frustrating appeal to Alaska Pilots.
The union expressed “serious cause for concern” with “erratic behavior” leading them to “truly question whether flight ops management has a viable long-range strategy and whether they are up to the challenge of charting a course for our airline's success.”
Alaska management made a statement this week citing “20% smaller demand” and “furloughs are likely across workgroups.” This was all done without coordination with ALPA and does not meet the Collective Bargaining Act’s notification qualification for furlough notice.
ALPA makes it clear that “the company has not completed their modeling of pilot staffing, nor shared specific numbers of potential staffing with ALPA” and expects a meeting next week to discuss projections.
Next week's discussions will focus on furloughs, and furlough mitigation through leave and retirement incentives, citing discussions with the SWAPA Chairman and the programs they were able to negotiate. Meanwhile, over at JetBlue, Chris Kenney, Chairman of JetBlue ALPA MEC, notified their members that they will be meeting with management to discuss ways to mitigate furloughs with their reduction in passenger demand citing that even if they were to double their July flying they would still be “30% below their daily departure from a year ago.”
Captain Kenney summarizes the state of the industry including the public and internal messaging around JetBlue emerging a smaller airline from the COVID-19 crisis stating, “a slower recovery with a longer than expected return in demand is now expected.”
“Last week, management contacted the association to discuss the possibility of both displacements and furloughs, and expressed interest in finding ways to mitigate the impact of the current climate.” stated Kenney.
JetBlue management and ALPA will be meeting this week to discuss how reduced flying will affect the pilot group.
Weekly TSA Numbers:
“There's a lot you can do far above and beyond being positive. There is no reason to be hopeless here, you can take control over how you adapt and react to highly unfair circumstances...Hopium, irrational or unwarranted optimism, is a dangerous and addictive drug. Friends don't let friends do Hopium...it's equally as dangerous as hopelessness but for different reasons.”
Amazon Air to Grow By More Than 14% | Are You Prepared For This Opportunity?
- Amazon “announced the lease of 12 Boeing 767-300 converted cargo aircraft from Air Transport Services Group (ATSG).”
- “These aircraft will join Amazon’s existing fleet of 70 aircraft to bring its total network to over 80 aircraft.”
- “One of the new aircraft joined Amazon’s air cargo operations in May 2020, with the remaining 11 to be delivered in 2021.”
- “We are proud to continue to evolve our partnership with Amazon to support the fast, free delivery for which they are famous,” said Rich Corrado, President and CEO of ATSG. “Our combined experience in the industry and access to a fleet of 767 cargo aircraft make us an ideal partner to support the growth of Amazon Air’s fleet.”
- “Amazon will open new Regional Air Hubs at Lakeland Linder International Airport in Florida later this summer and at San Bernardino International Airport next year, along with the central Amazon Air Hub at the Cincinnati/Northern Kentucky International Airport in 2021.”
- “In May, Amazon Air began Gateway operations at Austin-Bergstrom International Airport in Austin, Texas, and Luis Muñoz Marín International Airport in San Juan, Puerto Rico.”
Click here for the full article.
Leisure Market Continues Climb | Will the Big Three Be Able to Compete?
While the big three airlines talk about the hope of recovering to 70% of their previous size in the next 18 months Southwest, Spirit, and Frontier look like they are attempting to expand market share.
- Southwest Airlines has announced they plan to surpass 2019 capacity levels by a nominal amount before 2021.
- Spirit is working on more than tripling service out of Florida by July, bringing them to 70% capacity.
- Frontier has already pulled almost 14 percent of their stored fleet out of storage and will be adding 18 new routes next month.
While Southwest and Frontier operate primarily domestic schedules, Spirit is waiting for the sunsetting of travel restrictions south of our border to help drive their recovery.
Domestic travel continues to be driven by leisure demand as business travel remains largely stagnant. Business travel is "very much in the infancy stage” according to American Airlines VP of Network and Schedule Planning Brian Znotins.
American Airlines is working to build their schedule to 40% of what it was in 2019 with a major focus on domestic travel. By August, American hopes to have domestic travel restored to over 55% of it’s 2019 levels and international flying back to about 20% of previous levels largely being driven by cargo demand.
While this has excited Wall Street and led to some encouraging headlines this week, it is important to continue to weigh it compared to previous years.
Can the leisure market sustain the industry?
To wrap our heads around what is going on we have been reaching out to our clients and advisors frequently. Leisure travel’s climb isn’t an indicator that business travel will follow in such a positive way.
Business travel volume is going to be largely determined by new travel policies that may be far more restrictive as companies assess their own financial damages post-COVID and need to think about safety and protection for their employees.
It’s likely that many employers will curb the amount of travel especially in the beginning, we could expect to see very slow business travel growth well into 2021. Many corporations are waiting for government restrictions to end, then have a staggered “phased-approach” to opening offices and implementing travel cautiously, with varying target dates for individual regions.
We remain vigilant watching for the signs and indicators that present themselves and continue to have these conversations to provide insight for our clients. A vast majority of companies are limiting themselves to ‘business critical’ or ‘essential’ domestic travel requiring high-level pre-approval.
Corporations have formed groups, which meet frequently, with various internal stakeholders [travel, security, human resources, real estate, insurance, etc] dedicated to ensuring minimal exposure to the virus, and now - limiting exposure to potential or on-going violence at the city level.
Companies that can afford it are utilizing, or at a minimum inquiring for, business-jet travel instead of airlines bookings. Rapidly changing local, CDC, and country-level government guidelines are creating a high-level of uncertainty which requires flexibility that the reduced airline service just cannot provide.
The leisure spike in traffic that began over Memorial Day weekend is a welcome sight, but we must remember it is only the beginning. Few corporations we have surveyed plan to have their employees travel for non-essential/critical reasons before the Fall.
Corporations are being purposely quiet about their plans to allow travel to resume, being very selective of how they choose where and when their employees travel.
Thank you for the clients and trusted advisors that helped us prepare and understand this information.
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