On Wednesday, United Airlines said that it is expecting to lay off close to 50% of its U.S. domestic workforce. United is not alone. American Airlines may have to cut 20,000 jobs, and Delta has indicated they expect to downsize their workforce. American Airlines has threatened to cancel some of its orders for Boeing’s troubled 737 MAX jets. These decisions reflect a significant decline in air travel and deepening financial stress because of the pandemic.
Sara Nelson, the president of the Association of Flight Attendants, said: “The United Airlines projected furlough numbers are a gut punch, but they are also the most honest assessment we’ve seen on the state of the industry.”
The airline industry represented $1.7 trillion in U.S. economic activity and more than 10 million U.S. jobs. Before the pandemic, the airlines transported more than 2.4 million passengers daily and more than 58,000 tons of cargo.
Given the importance of flying, the federal government is committed to keeping our airlines functioning. Earlier this year, the Trump Administration committed to give the major carriers $25 billion to prop up the industry. The funds were intended to keep employees on the payroll through the end of September.
UAL is financially hemorrhaging, losing $40 million a day. While the initial Federal money provided time for UAL to prepare for resizing its business and to secure more private sector cash, the airline does not expect a further round of government support to cover costs beyond Oct. 1.
Unfortunately, the U.S. airline industry has suffered from every 21st century crisis — the Sept. 11 terrorist attack, an oil price shock as a consequence of the OPEC embargo, and the Great Recession. As a consequence, American Airlines (AAL), United Airlines (UAL) and Delta (DAL) have filed for bankruptcy in the past.
To survive, the government approved major consolidations in the industry. The market share of domestic flights by Delta Airlines, American Airlines, Southwest Airlines and United Airlines in 2017 was approximately 80%.
Until the pandemic, the major U.S. airline carriers had been experiencing record profits and an additional 100 million new fliers a year.
Airline travelers remain nervous despite widespread efforts to ameliorate the problem.
- Airports have remodeled to improve social distancing.
- Airlines have required passengers to wear masks.
- Airlines installed in-cabin filters to prevent the spread of the virus.
For the following reasons, the airline industry has always faced challenges:
- Aircraft are very expensive. The 737-800 model had a list price of $106 million.
- The largest operating cost for airlines are ‘fuel expenses.’
- Airlines need large labor forces to run their complex operations
- Security costs have skyrocketed since 9/11
- Airlines are particularly vulnerable to exogenous events such as terrorism, political instabilities and natural disasters.
Life in the 21st century requires a viable airline industry. It increases world trade by enabling faster and easier movement of passengers, goods and jobs to millions of people.
The question that faces federal, state and local officials and airline executives is how fast the airline industry will recoup its previous scope and what is its growth prognosis.
Optimists point to a report by the Boston Consulting Group that the millennial generation, defined as those between the ages of 16 and 34, are more interested than the older generation in traveling abroad as much as possible.
The pessimists raise the role of Zoom and to what extent it undercuts the need for face-to-face meetings.
Zoom is now the business communication tool for more than 700,000 businesses globally. Zoom facilitates video conferencing, online meetings, chat and remote collaboration.
I am torn between two instincts. To survive I appreciate social distancing. However, my need for social interaction motivates a need for handshaking business associates and hugging my children and grandchildren.
