At the peak of last year’s summer, more than 2.5 million passengers went through TSA security screening every day. This year, daily passengers are peaking at just 500,000.
To say that the airline industry is struggling would be an understatement. Countless planes are grounded, with airlines flying just as many as are needed to meet demand. While jobs have been protected so far, there could be mass layoffs after October.
United Airlines (NYSE: UAL) is the first company to offer a warning of what could come.
Mass Layoffs for America’s Airlines?
United Airlines has hinted at layoffs for months, but it has so far been able to retain staff, thanks to the CARES Act. passed by Congress in March.
Federal stimulus gave billions to the airline industry, and United Airlines was one of the companies to take advantage of the cash injection. With federal money, it was able to retain its workforce. Under the rules set out in the CARES Act., any company that accepts money cannot fire workers, reduce pay rates, or involuntary furlough their staff.
On October 1, the rules no longer apply.
With no more stimulus money to pay its staff, United Airlines will furlough 36,000 workers in total. This will include 2,250 pilots, 5,550 maintenance workers, 11,000 gate workers and customer service agents, and 15,000 flight attendants.
When looking at some key figures, the layoffs are clearly an unfortunate necessity. United Airlines is operating just 25% of the flights that it did at this time last year, and these flights are only around 50% full.
While furloughs aren’t technically layoffs, they will feel the same for employees. United Airlines will also push for voluntary retirement for some staff with financial incentives.
The Wider Industry Accepts the Decision
When a large company announces layoffs and furloughs, there’s usually condemnation from worker unions. However, in this unique case triggered by the Coronavirus Pandemic, the wider industry has taken the news with little protest.
The Association of Flight Attendants said in a statement that the announced furloughs were devastating, but that “they are the most honest assessment we’ve seen on the state of the industry.”
Be Careful With Airline Stocks This Quarter
United Airlines is reportedly losing $40 million every day. Stock in the company is down -63.07% in the year to date. Lower revenue and earnings will be a reality in 2020. While the stock might look like a bargain today, it’s still incredibly risky, because it’s difficult to predict where the upside is.
The most risk-averse investors may prefer to avoid the airline industry altogether in the short term.
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