American Airlines will need to “right-size” the company heading into fall and 2021 as it deals with the continuing damage to air travel from the COVID-19 pandemic, chief financial officer Derek Kerr told an investor conference Tuesday.
Looking at several more months of depressed leisure travel and a longer recovery for business customers, Kerr said “everything that we do from a cost perspective is under review at this point in time,” including future staffing.
“What we have to do is we have to right-size the airline from a cost perspective, to make sure that what we find next year is cash positive," Kerr said. "We are going to look at all of this staffing in the fall, all the staffing next year.”
The return of the “right-size” term signals how airlines are going to cut down on massive costs with a fraction of the customers they had a year ago. Its use was common in the industry during the Great Recession and was synonymous with layoffs, pay cuts and slashed benefits.
In recent weeks, leaders at Irish carrier Ryanair and Colombia’s Avianca have said they will need to “right-size” their airlines to survive the COVID-19 pandemic and economic downturn that came along with it. United Airlines said last week that it would only need 3,000 of its 25,000 flight attendants in June, Reuters reported.
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Kerr’s remarks came during a Wolfe Research investor conference that was held virtually due to social distancing needs. He also outlined how the Fort Worth-based airline is burning through about $70 million a day during the second quarter to navigate the COVID-19 crisis.
“American’s not going away, so you can you can take that one off the list,” he said.
American is focused on securing a $4.75 billion loan from the federal government on top of the $5.8 billion in grants and loans it already received, Kerr said.
“Realistically, we can’t expect that things are going to be back to normal in six or even 12 months,” Kerr said. “While we can’t control the pandemic, the economy or customer demand, we can take meaningful measures to control our spending and conserve cash.”
American Airlines has over 130,000 employees, including more than 30,000 in Dallas-Fort Worth. CEO Doug Parker has said the company will “go into the fall with more team members than we have work for,” but his management team is trying hard to avoid involuntary furloughs.
So far, more than 39,000 employees have taken some kind of voluntary leave or early retirement and the company has said more employees will need to do that in the future.
Passengers are slowly coming back, but not enough to justify the industry’s nearly 750,000 employees. About 244,000 people passed through Transportation Security Administration security checkpoints at airports Monday, the agency reported.
American Airlines has also seen an increase in passengers along with a reduced number of flights. Kerr said load factor, or the percentage of seats filled, is up to 35% so far for May, compared with 15% in April.
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Analysts and unions have said furloughs, wage cuts and layoffs could come in the fall when airlines are no longer bound by no-layoff rules tied to the $50 billion for airlines in the Coronavirus Aid, Relief, and Economic Security Act.
It’s not a problem that’s unique to American among U.S. carriers. Southwest CEO Gary Kelly has also been warning furloughs could be possible if there isn’t an uptick in travel.
Even with the prospects of staffing cuts lingering over the fall months, Allied Pilots Association president Eric Ferguson said Tuesday at the same conference that American is being genuine about trying to save jobs by funding voluntary leave programs and early retirements.
“Mr. Parker has said it’s his goal to avoid involuntary furloughs and American Airlines is putting its money where its mouth is right now,” said Ferguson, who represents about 15,000 pilots at American. “I think with the continued use of those types of tools, we’ll be able to keep the airline, perhaps not idled, but at a reduced thrust level to come back when demand comes back.”
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