Southwest Airlines CEO: I'm far more optimistic than Warren Buffett

New York (CNN Business)US airline workers have been largely spared from the carnage that’s pushed the country’s unemployment to record highs since the start of the coronavirus pandemic. But those same workers -— roughly 750,000 pilots, flight attendants, baggage handlers, mechanics and others — will soon be among the most at-risk for losing their jobs.

The federal bailout for the airline industry barred layoffs, involuntary furloughs or pay cuts for employees. But executives have been blunt that job cuts are coming once that prohibition lifts on October 1, with estimates that up to a third of the sector’s jobs could disappear.
The airlines have already requested that workers take voluntary unpaid or low-paid leaves. About 100,000 workers at the four largest carriers — American (AAL), United, Delta (DAL) and Southwest — have done so, equal to about 26% of those companies’ staffs at the end of 2019.

    But even with that level of voluntary leaves, $25 billion in grants and low-interest loans from the federal bailout known as the CARES Act, airlines are hemorrhaging millions of dollars a day. The first-quarter losses in the industry topped $2 billion. The second quarter will be much worse.
    That’s largely because the federal help covers only about two-thirds of overall labor costs through September, said Philip Baggaley, the chief credit analyst for airlines at Standard & Poor’s. He believes that between 20% and 30% of airline jobs could be eliminated through buyouts and early retirement offers, along with involuntary layoffs.

    Southwest (LUV) CEO Gary Kelly said on CNN this week that the carrier is going to do “everything that we can to preserve jobs.” But he pointed out that the federal grant money goes straight to the airlines’ employees, and doesn’t cover all of the company’s payroll between now and September 30.
    “We have a lot of cash today, but we burned through about almost a billion dollars in the month of April as an example,” he said. “So you do the math in your head and you just can’t survive that way.”
    Deep, permanent cuts in the well-paying jobs found across the industry are inevitable come fall, even if the economy has improved by then, because it’s clear that it will take years for air travel to return to previous levels.
    “Ultimately, we will likely see 95,000 to 105,000 jobs lost in the US airline industry,” said Helane Becker, airline analyst at financial services firm Cowen, in a note.
    Airlines are running up huge losses now, partly because they can’t furlough or cut their staffs more deeply despite their bare-bones flight schedules, even though passenger traffic has essentially fallen to zero.
    Tens of thousands of airline jobs are at risk as travel plunges
    “Our schedule is down 90%. And we plan for it to stay at that level until we begin to see demand recover,” said United President Scott Kirby. “If demand remains significantly diminished on October 1, we simply won’t be able to endure this crisis as a company without implementing some of the more difficult and painful actions. These include decisions on involuntary furloughs, further reductions in hours, as well as other actions that will have an immediate impact on our people and their livelihood.”
    United (UAL) this week told many of its nonunion workers — the 11,500 management and administrative employees at the airline — that it plans to cut that staff by at least 30% on October 1. It was the most detailed forecast yet on job cuts from any of the airline.
    The carrier also ordered those nonunion employees to take 20 unpaid days off between now and September 30. JetBlue (JBLU) has ordered its salaried staff to take 24 unpaid days during the same period. Both airlines say those days off amount to reduced hours, which are allowed under the CARES Act, not involuntary job cuts.
    But the unions that fought with management to get the CARES Act passed have objected to some of the airlines’ cost-cutting moves. The Machinists union, which represents 27,000 ground workers at United, including baggage handlers and customer service staff, filed a federal lawsuit this week to block United from cutting its members’ hours by 10 hours a week.
    United backed off and made the cut of hours voluntary instead of mandatory, although it said it might still institute mandatory cuts if there aren’t enough volunteers. The company insists the reduced hours is allowed under the CARES Act and its labor contracts.

      Even if there were no prohibition on layoffs, the airlines wouldn’t cut employment as deeply as they have slashed their schedules, said S&P’s Baggaley.
      “They wouldn’t be able to cut to those levels and have a viable airline coming out the other side,” he said.
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