Nearly 39,000 American Airlines workers are taking early retirement, voluntary leave or reduced pay in the coming months as the company looks to temporarily shrink with demand for travel way down.
American Airlines made the announcement along with its first-quarter earnings Thursday, noting that it lost $2.2 billion as the COVID-19 upended any plans for a profitable start to 2020. That more than wipes out American’s $1.6 billion profit from all of 2019.
Among those are 4,500 early retirements, the company said.
The COVID-19 pandemic has forced the Fort Worth-based airline into an unenviable position, asking how many fewer employees will it need in the coming months and years as the virus takes it toll on the psyche of travelers and the economy. American has about 130,000 workers including regionals carriers Envoy, PSA and Piedmont. But the company is burning through about $70 million of cash a day and will only be able to reduce the cash burn to about $50 million by June, executives said Thursday on a call with analysts and reporters.
“We will emerge from this in the fall with a smaller airline than we had anticipated prior the virus and will go into 2021 as a smaller airline,” said CEO Doug Parker. “We will almost certainly, irrespective of demand, go into the fall with more team members than we have work for.”
American outlined a series of further cuts on Thursday. Flight schedules will be cut by 70% in June and many international routes won’t return in time for the summer travel season.
It will retire an additional 29 planes, including its 9 Airbus A330 planes and 20 Embraer E190s. The company is already retiring its Boeing 757 and 767 jets and is permanently taking 100 planes out of service.
“We all expect the recovery will be slow and the demand for air travel will be depressed for some time,” Parker said. “We at American decided to err on the side of being smaller than we force like than larger.”
American Airlines’ revenue dropped by 19% in the first quarter after air travel demand plunged in the first quarter. It was the worst quarterly loss for the company in more than 50 years, worse than losses that forced bankruptcy in 2011.
Chief financial officer Derek Kerr said in recent weeks that refunds have been outpacing new bookings. The company issued $900 million in refunds in the first quarter, almost entirely in March as the COVID-19 pandemic forced flight cancellations.
Of the 39,000 employees taking retirement or leave, nearly 15,000 of those employees are pilots, of which 715 are taking early retirement, according to the Allied Pilots Association. Because of their contract, pilots received a more lucrative incentive to take leaves, equal to about two-thirds of their pay for minimum flight hours.
Almost 9,500 flight attendants are taking leave between one month and one year, according to the Association of Professional Flight Attendants. Another 823 are taking early retirement, which was offered to employees 62 years and older.
Non-union employees have been given the option to reduce schedules to four day work weeks instead of five.
Employees opted to take time off to care for children out of school or simply to take a summer off, said Elise Eberwein, American’s executive vice president of people and communications.
Still, many of those employees that took time off will be looking to come back later this summer or early in the fall, even though air travel likely won’t rebound for more than a year.
American is also freezing all hiring and halting all new capital projects, putting major projects in North Texas at risk including a new kitchen and parts warehouse at DFW International Airport.
In all, American hopes to save about $12 billion in 2020. It is also receiving about $10.6 billion in payroll grants and loans from the federal government as part of the stimulus program. By the end of the second quarter, the company should have about $11 billion in liquidity.
American’s goal is to avoid furloughs, Parker said.
“It’s hard to tell with the uncertainty around demand where we will be and how fast the consumer returns and how much they want to fly,” Parker said.