Airlines promised that more payroll assistance would allow them to avoid dramatic staffing reductions. That relief is now here to the tune of $15 billion but it looks like the furloughs, while temporarily rolled back, are still coming.
As good as the news was for U.S. airlines with additional aid as part of the $900 billion Covid-19 relief package approved by Congress on Monday, a stark reality awaits.
The package doles out $15 billion in additional payroll support to airlines that will see them bring back the more than 30,000 employees who were involuntarily furloughed after October 1. These are furloughs that occurred when Congress failed to extend the provision in the first federal coronavirus aid package, or CARES Act, by its September 30 expiry.
The payroll support extension “will keep critical employees on the job—and out of the unemployment line—so they can perform essential services as our country looks toward recovery,” said trade group Airlines for America (A4A) president and CEO Nicholas Calio in a tweet Monday.
But even with the hard-won relief, the economic impact of the pandemic will still loom large over the airline industry.
Passenger numbers remain at historic lows at the beginning of the Christmas and New Year’s travel season. Even with screenings at pandemic highs over the weekend, the number of people passing through Transportation Security Administration (TSA) checkpoints remains down around 57 percent compared to the same period in 2019.
And all-important goal of stemming the red on airline’s balance sheets by eliminating daily losses, or cash burn, continues to be pushed back. Carriers have raised — not lowered — their burn forecasts for the fourth quarter as net bookings, or reservations minus cancellations, have fallen.
On Monday, United Airlines CEO Scott Kirby and president Brett Hart put the situation bluntly in a memo on the additional aid to staff. While thanking legislators for the relief, the Chicago-based carrier will only be able to recall the nearly 13,500 staff it furloughed on a “temporary” basis, they said citing the weak travel market.
“We just don’t see anything in the data that shows a huge difference in bookings over the next few months. That is why we expect the recall will be temporary,” Kirby and Hart said.
The temporary recalls, or until March 31 when the payroll extension expires, should not come as a surprise. In the months leading up to September 30, many industry observers and analysts warned that additional relief would only delay the inevitable. Staffing reductions at airlines were inevitable given the low demand for travel and slow state of the recovery.
“Rather than tackle difficult but perhaps more sustainable solutions such as complex work rules, the industry would have received an entire year of payroll support,” wrote Evercore ISI analyst Duane Pfennigwerth in an August report. He argued that added support would only delay necessary changes into 2021.
Others were more bluntly. As The Cranky Flier author Brett Snyder put it the same month: “The airlines are walking zombies now. They’re flying more flights than they need with far more employees as well.”
All of this is not to say the additional relief lacks benefits. The funds mean that tens-of-thousands of furloughed airline staff will receive paychecks for four more months — December through March — than they otherwise would. This will help bolster a U.S. economy that it is limping along under the strain of the latest surge in Covid-19 infections.
In addition, many of the small airports that have lost flights since CARES Act protections expired are likely see service return. Both the first package and the extension include minimum air service requirements aimed to keep flights going at every airport served prior to March.
Skift understands that American Airlines plans to return to all of the cities it suspended, including places it exited “indefinitely” like New Haven, Conn., and Worcester, Mass., following the new relief deal.
And the law Congress passed allows the new Biden administration to enforce these minimum service rules through March 1, 2022 — not just March 31. The decision on whether or not to extend these requirements is likely to fall to the incoming Transportation Secretary Pete Buttigieg.
But the reality of temporary paychecks is not what airlines promised in September. Speaking to reporters at the U.S. Capitol late that month, the CEOs of American, JetBlue Airways and United Airlines argued that six more months of payroll assistance would allow the industry to avoid furloughs — or at least the same number of furloughs — as it moved into the busy summer 2021 travel season.
“I believe six months from now it’s going to be a totally different story… we’ll have better sight into when [demand] will improve but we’ll also be heading into a peak travel season,” said American CEO Doug Parker. “For summer, we’ll all be ramping up [flights] anyway.”
For the record, Parker broke with Kirby in calling the recalls temporary. In his own letter to staff on Monday, Kirby and his deputy, American president Robert Isom, said they “believe there are brighter skies and better days ahead — for our country and for American Airlines.”
The summer ramp up in flights is likely to be less than airline leaders once hoped. Even with a national mass Covid-19 vaccination campaign underway, few expect vaccines to reach the majority of Americans before the fall. That would be too late for the many summer holidays, which air carriers rely on for an outsize proportion of their annual revenues.
Earlier in December, JetBlue head of revenue and planning Scott Laurence told Airline Weekly that, even with the vaccine progress, the carrier had a “conservative” outlook on the recovery for the first half of 2021.
The airlines themselves, as Parker put it in September, will be “fine” with or without additional aid. They have built war chests of billions of dollars in liquidity that, based on forecasts, can cover more than a year of expenses even if the travel recovery remains stalled.
What airlines most need now is for Americans to begin traveling again in significant numbers — not more federal aid.
Photo credit: American Airlines will recall some 19,000 furloughed staff following Congress' new coronavirus relief bill. Edward Russell / Flickr