Transportation

Airlines Reduce Employees With Early Retirement, Extended Leave Plans

Paul Ausick

Published: July 20, 2020 2:04 pm

From a year-over-year decline of 96% in mid-April, U.S. air passenger traffic had recovered to a decline of 81% by late June. The bad news is the last week’s data from the U.S. Transportation Security Administration (TSA) reveals that travelers going through TSA airport checkpoints dropped from nearly 695,000 to just over 644,000 week over week. Fewer than 100,000 travelers passed through TSA checkpoints in the week ended April 19.

Airlines have beefed up the balance sheets with large borrowings and received some $25 billion in federal CARES Act funding to keep employees on the job through the end of September as the U.S. economy struggles to deal with the COVID-19 pandemic. As that date approaches, however, the airlines are taking other measures to cut expenses until travelers once again feel confident that air travel is safe.

Monday morning, Southwest Airlines Co. (NYSE: LUV) CEO Gary Kelly told employees that nearly 17,000 of the company’s 60,900 workforce have volunteered either for long-term separation from the company or an early retirement deal. Kelly’s message to employees was “shared” with Reuters.

According to Kelly, about 4,400 Southwest employees have applied for early retirement, and he expects all those requests to be granted. Another 12,500 requests for the extended time off package are being considered on a departmental level. A source told Reuters that the numbers represent 24% of Southwest’s pilots and 33% of the airline’s flight attendants. Southwest is expected to comment further when it reports quarterly results on Thursday.

Some 2,250 pilots at Delta Air Lines Co. (NYSE: DAL) also volunteered for an early out program. The offer was good until Sunday, following an announcement from the airline that the only way to avoid furloughs was a reduction in pay or the early-out option.

Last week, United Airlines Holdings Inc. (NYSE: UAL) reached an agreement with the Air Line Pilots Association union leaders that include voluntary furlough, a leave of absence program and a voluntary separation initiative. The airline had already notified 2,250 pilots that they were at risk of being furloughed this year, with more furloughs likely next year.

The International Air Transport Association expects global passenger revenues to fall from $612 billion in 2019 to $241 billion this year. Load factors are expected to drop from a record 82.5% last year to 62.7% in 2020.

Airlines are not the only firms suffering. Aerospace industry revenues were down 35% year over year in May according to a survey from Alderman & Co., a consulting firm that specializes in small (less than $100 million in annual revenue) firms in the commercial aviation supply chain.

More than a quarter of executives surveyed by Alderman do not expect passenger traffic to recover to pre-pandemic levels for two years or more after a vaccine for COVID-19 is discovered. More than half (56%) don’t expect traffic to recover until 2022.

Southwest’s shares dropped by about 2.6% Monday to $33.23, in a 52-week range of $22.47 to $58.83. The consensus 12-month price target is $41.65.

Delta stock dropped 2.4% to trade at $26.40 in the early afternoon. The stock’s 52-week range is $17.51 to $63.44, and the price target on the stock is $35.47. The company reported poor second-quarter results last week.

United Airlines traded down about 3.7%, at $32.65 in a 52-week range of $17.80 to $95.46. The consensus price target on the stock is $41.27, and United is scheduled to report second-quarter results Tuesday.

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