United poised to slash payroll costs without quick bailout

United poised to slash payroll costs without quick bailout

A letter sent to United’ (UAL)s nearly 100,000 employees by CEO Oscar Munoz, President Scott Kirby and many of the airline’s union leaders warns that the drop in travel demand because of the coronavirus outbreak will force it to cut its April schedule by 60%

“If Congress doesn’t act on sufficient government support by the end of March, our company will begin to take the necessary steps to reduce our payroll in line with the 60% schedule reduction we announced for April. May’s schedule is likely to be cut even further.”

The reduced cost could come through employee furloughs, pay cuts or a combination of the two.

United, the nation’s second largest airline behind American (AAL), spent $12 billion on payroll and benefits in 2019. It announced on Sunday that it was cutting its schedule for April and May by 50%.

Its revised reduction of 60% to its April schedule is due to additional travel restrictions and steps to battle the virus outbreak. Yet even at that reduced rate of flying, United expects to fill only 20% to 30% of seats. That is far below the 84% of seats that it sold throughout last year, and less than half the roughly 65% of seats that an airline needs to sell to just break even.

Air travel has been hurt not just by strict restrictions on international travelers flying to the United States, but also by warnings from health professionals for Americans to avoid groups of more than 10 people, to stay close to home and to eliminate non-essential travel. Several states, including California, New York and Illinois, have announced orders telling citizens to stay home unless they are shopping for food or medicine, seeking medical attention or performing a job deemed to be essential.
Labor leaders throughout the airline industry have joined with management in an effort to win quick approval of a $50 billion bailout of the nation’s passenger airlines and an additional $8 billion for the nation’s air cargo carriers. Management and union leadership at American Airlines sent a similar joint letter to Congressional leaders on Friday morning.

While there is significant bipartisan support in Congress for a bailout, the first version of the bill announced by Senate Republicans had all the aid going to airlines in the form of loan guarantees rather than half loans and half grants, as requested by the airlines.

United’s letter did not say whether it would need that mix of grants and loans, or if it could avoid payroll cost cuts if it got only loans rather than the requested $25 billion in grants.

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