Following news that United Airlines would put up to 36,000 staff on involuntary leave, American Airlines has told its employees it will be forced to take similar action.
American domestic and global air travel is at a record low. Airports in the U.S. are seeing just a fifth of the traffic that they usually see at this time of year. Fleets are largely grounded, and the flights that are operating are below capacity.
Major airlines are bleeding money daily, and government stimulus isn’t enough to keep unnecessary staff on the payroll.
These factors have led American Airlines to a decision where it will furlough up to 25,000 employees after October 1.
Another Blow to the Aviation Industry
In a memo sent to staff on Wednesday, American Airlines CEO Doug Parker said that up to 10,000 pilots, 2,500 flight attendants, and thousands of other support and technical staff would be potentially furloughed in October.
The company is bound by federal law to keep workers on the payroll until at least October 1. This was a condition of taking a bailout earlier this year under the CARES Act.
Congress hasn’t decided whether it will extend stimulus payouts or create a new program. American Airlines, along with other aviation industry groups, is actively lobbying the government to extend the stimulus to protect jobs. Parker said on Wednesday that an extension is necessary because of a “much longer impact of the Pandemic than was anticipated when the CARES Act. was enacted.”
The airline is realistic in terms of its outlook. As of today, there is no viable Coronavirus treatment or vaccine available, and drug companies are only just getting close to Phase 3 testing. Treatments and vaccines usually take up to two years to develop.
For the foreseeable future, air travel is likely to be limited. Even if international borders reopen, travelers will be reluctant to move as freely as they once did.
American Airlines “will be smaller going forward and we must right-size all aspects of our airline to adjust to that new reality,” said Parker and company President Robert Isom this week.
How Attractive is American Airlines Stock Today?
American Airlines (NASDAQ: AAL) stock is risky today, but some investors may see an opportunity. The price has fallen more than 53% this year, and analysts believe it could go as low as $11 before a turnaround. Investors willing to wait for a bottom could find this to be a compelling bargain pick to hold long term.
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