You’ve seen the headlines, some places even reported it as actual WARN letters, but where did the United Airlines 3,900 furlough number come from? Bryan Quigley, United’s Senior Vice President of Flight Operations at United Airlines addressed the Flight Ops Team on Thursday, July 30. To date, United has notified 2,250 pilots, however, in this recent memo Mr. Quigley is making it clear that the situation could worsen.
In an effort to address consistent questions concerning the impact of furloughs related to CARES Act funding expiring after October 1, Mr. Quigley outlined; the current situation, furloughs, outlook, furlough mitigation, and a clear message addressing the “bottom line”. Read on, we're just starting to get into the details of this memo.
The memo begins by addressing the modest strength United is showing over competitors. Across the industry, airlines have been reporting their devastating Q2 results. Mr. Quigley points out that despite the fact that United did better than peers by “matching capacity to demand, raising debt and preserving cash” they are still dealing with the greatest challenge in aviation history.
The memo highlights the honest approach the company has taken in communicating the state of the industry and the effects had on United. The “bleak picture” of the business shows that total revenue at United “is down 85% over the last seven-day rolling average” as is international traffic. Ultimately revenue is suffering at a higher rate; “despite the optimism, you may hear, demand is not meaningfully improved and without very tough decisions, this is simply not sustainable for us.” said Quigley. He states they will burn 2.3 billion dollars over 3 months.
Boldly, Quigley states that this puts United in a better position than “almost every other major U.S. carrier,” quite a diagnosis of the state of the industry.
As with everyone else in the industry United freely admits they do not know when demand will return, and they will need to back the loans. “Going forward we will be forced to focus on paying back these loans rather than buying new airplanes, hiring new pilots, or even returning pilots who may have been furloughed.” They are losing money at an unsustainable rate.
Recently, United decreased its schedule, the low demand caused by the resurgence of COVID-19 and accompanying restriction has had a real impact on the bottom line.
“This is a very real reminder that hope is not a strategy – and that we need to be prepared for very low demand for a long time to come.” - Bryan Quigley
Confirming the previously announced, and WARN Act notified, furlough number of 2,250, Mr. Quigley states that those numbers were calculated using a generally “optimistic outlook” which no longer exists. United does not expect “customer demand to exceed 50% of 2019 numbers until a vaccine is developed, mass-produced, and readily available.” The time-frame for this according to Scott Kirby? Late 2021.
“If 50% seems pessimistic to you, consider that even to get to that 50% level, revenue demand has to increase by about four times compared to where it is now.” - Bryan Quigley
The memo makes it clear that United has already conceived plans to furlough 1,650 additional pilots in 2021. Rolling furloughs will likely be continuing for quite some time unless we see a rapid reversal in travel demand. Additionally, the memo goes on to state that the previously released number of 2,250 pilots furloughed in 2020 will likely increase.
If the trend continues we could see 33% of United’s 11,675 active pilot seniority list on the street looking for work, a devastating blow to the industry when most were planning on a fast-track to their career position.
There has been a lot of talk concerning posturing for congress to approve another bailout. The memo’s furlough mitigation section addresses the fact that without a bailout the only course of action beyond furloughs will be through “a negotiated agreement with our unions to reduce the cost until we see a return of demand to our business.”
Keeping in mind United pilots have the strongest contract protecting against involuntary furlough in the US market, Bryan Quigley addresses the question of cost to furlough below.
“You have often asked me how quickly we are able to furlough and whether it makes sense to furlough so deeply. The answer is that it depends on demand and how long it takes to see signs of a recovery. As we have said, demand is severely impacted and we don’t expect a vaccine to be readily available until the last half of 2021. This is a consistently shared view throughout the industry. So, the answer is that if we do not get relief from the government, or find a solution together with our unions, we will have no option but to furlough these pilots quickly and we wouldn’t expect them to return for years.”
The memo closes with strong language driving pilots to consider mitigation of furloughs, the only two ways posed by flight ops are government bailouts or concessions.
It should be noted that late last week Edward Shapiro, United Board Member since 2016, and member of the board’s compensation and finance committees sold more than 182,000 shares of United stock in two transactions.
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Who’s been WARNed has been a popular conversation this week. 13,589 WARN notices have been sent to pilots; we are on the verge of losing the equivalent of an entire Legacy Airline to the job market. The threats raise the total to well over 15,000 pilots. This week saw multiple revisions upward of carriers and we still have a few airlines that have not made any mention of their downsizing plans.
Be sure to stick with us as we break down these numbers for you but first, let’s explore what is leading to the thousands of WARN notices being issued this week.
US airline passenger volume remains deflated by 75% year over year. Airline daily departures remain 52% below 2019 levels. On those flights that are only happening at 52% of 2019 levels, load factors continue to be remarkably depressed. The ticket prices necessary to get passengers to fly are massively deflated and business travel is nearly non-existent leading to revenue to continue to be down 89% industry-wide. The load factors and ticket sales only tell part of the story. We still have almost 2,000 domestic airline aircraft parked in storage. The majority of wide-body aircraft are parked, but well over 30% of narrow-body and regional jets are parked as well. Airlines are projecting their cash burn to decrease only nominally in the coming months. This is why we have seen the failure of numerous airlines with more coming as the year progresses. The world economy is projected to continue it’s retraction with the US economy projected to dip 5%. Goldman Sachs expects it to take until 2023 to recover to 2019 levels of airline revenue. Now that we better understand the state of the industry beyond the TSA numbers we regularly share let’s take a look at the casualties of this depression in travel.
As noted above we have seen the failure domestically of the following airlines:
Last week started with the announcement that United Airlines would be dropping their Fee For Departure agreement with either Commutair (37 ERJ-145s) or ExpressJet (97 ERJ-145s). By the end of the week, United announced that ExpressJet would be wound down by 2021.
A few of the major airlines have (as of today) offset the need to furlough with voluntary leave and early retirement programs, some have negotiated temporary contractual adjustments to offset furloughs.
Even with some of the airlines having early retirement programs and voluntary leave programs, the following major airlines have issued WARN notices.
The regional airlines are dealing with a non-stop rumor mill of consolidation, downgrades, furloughs, and unfortunately shut-downs. As of Monday afternoon, here are the total WARN notices sent to regional pilots.
About 13,589 pilots have been sent WARN notices already, this does NOT include the additional 1,650 pilots United is projecting to furlough, nor does it include Compass, Trans States, RavnAir Alaska, or Miami Air International.
13,589 does not include the layoffs of qualified ATPs from training centers like Flight Safety International, it doesn’t include pilots that accepted Voluntary Long Term Leaves, early retirements, or the hundreds of pilots that were sent home from initial training at numerous airlines earlier this year.
We are looking at a pilot market that has the potential to have between 15,000 and 20,000 qualified pilots potentially looking for work in a few short months.
Charts created by Airlines for America
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If you’re struggling with:
Finding a new job
Making it past the phone screen
Struggling in interviews
Or are unsure of what you should do next
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If you’re struggling with:
Finding a new job
Making it past the phone screen
Struggling in interviews
Or are unsure of what you should do next
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