One of the world’s biggest airlines, Atlanta based Delta Air Lines, is warning its pilots to expect mass layoffs later this year. Delta’s pool of 14,500 pilots will be nearly double what it needs in a post-pandemic flying environment. John Laughter, Senior Vice President of flight operations forewarned pilots in a memo sent to them today.
“I recognize that is an alarming number, so it’s important to know that our intent is to align staffing for what we need over the long term,” Mr Laughter wrote.
A different airline in a post-pandemic world
Delta expects to be a smaller airline when normal flying resumes. Plans to retire aircraft have been accelerated. The airline has also announced the retirement of its 18 Boeing 777-200 aircraft by the year’s end. The McDonnell Douglas MD-88s and MD-90s won’t be back either.
Before the pandemic eroded the demand for travel, Delta Air Lines flew to over 300 destinations around the globe. The 777-200s were a stalwart of their international fleet.
With 650 aircraft grounded and travel demand down by 90%, Delta needs to drive down its current daily cash burn of $50 million. Retiring aircraft is one way to do this. Becoming a smaller airline means Delta is going to end up with more pilots than it needs.
The airline predicts it will have some 7,000 excess pilots this coming autumn. About half of this number is expected to reach mandatory retirement age (65) over the next year. This leaves Delta Air Lines with about 3,500 more pilots than it will need moving forward.
CARES Act keeping jobs safe – for now
The CARES Act prevents airlines such as Delta from cutting their workforce before September 30. The multi-billion-dollar government bailout package underwrites the payroll of US carriers. But most airlines, including Delta, are looking ahead, beyond the end of September.
“October 1 is likely to emerge as one of the darkest days in history for airline labor.” JPMorgan Chase analyst Jamie Baker wrote recently.
Hopes for a fast bounceback from the travel downturn are fading worldwide. While many countries, including the USA, are optimistic about an uptick in domestic travel demand, there’s a view that international travel will take several years to get back to normal.
Today’s Delta memo accords with the view that there will be substantial layoffs, not just of pilots but across the broader airline industry, when the provisions of the CARES Act expire. Already a sizeable percentage of airline employees across the USA are furloughed on unpaid or low paid leave. Standard & Poor’s estimates the CARES Act is covering about two-thirds of overall labor costs at airlines like Delta.
“Ultimately, we will likely see 95,000 to 105,000 jobs lost in the US airline industry,” said Helane Becker, an airline financial analyst at the investment bank, Cowen.
Unions mount a counter-argument
Airline unions are calling out the increased pace of aircraft retirements. They argue downsizing an airline impedes that airline’s ability to quickly ramp up services once demand returns. For the unions, more aircraft means more pilots means fewer layoffs.
Delta Air Lines is positioning for a choppy immediate future. Airline management is unlikely to share the union’s view – all evidence to the contrary. Come October 1, the fate of several thousand Delta pilots will be the tip of the iceberg when it comes to layoffs across the wider US airline industry.