Airline employees’ dilemma: Take severance or gamble on Oct. 1 layoffs

Thousands of U.S. airline employees are being forced to play a game of chance with their careers.

Airline executives are urging employees — from flight attendants to mechanics to marketing managers — to consider voluntary separation or early retirement packages, an effort to slash expenses after air travel demand plunged this year, hitting the lowest levels since the 1950s in April. Labor is generally airlines’ biggest cost and U.S. passenger carriers’ ranks rose by 20% over the past decade to 459,000 people, according to federal data.

“I am not ready to say goodbye to my career,” said a Newark-based flight attendant at United Airlines, who said she hasn’t taken any of the voluntary options.

Airline CEOs have warned that expect to be running smaller airlines, requiring fewer employees and said they want to avoid involuntary cuts like furloughs and layoffs. The industry is losing money for the first time in years because of the pandemic.

United’s new CEO Scott Kirby, who took the reins in May, said last month that he wants to work with unions to help lower the airline’s labor costs to prevent furloughs.

“If we can keep them kind of on the sidelines a little bit while we get through the crisis then when there is a recovery, and there will be a recovery … we can snap back quickly,” he said.

Southwest, for its part, is trying to avoid its first furloughs and layoffs in its 49 years of flying, through buyouts and other voluntary measures.

The clock is ticking. The terms of a $25 billion federal aid package prohibit airlines from laying off or cutting employee pay rates before Oct. 1, and some airlines are giving rank-and-file employees until this month to decide on taking a buyout. If not, the workers will have to see if their jobs will be eliminated this fall after the terms of the aid expire.

Airlines have parked hundreds of planes and have slashed their schedules to cut costs. Travel demand has started to perk up in recent weeks as states lift shelter-in-place orders aimed to stop the spread of the virus and the peak spring and summer travel season gets underway, but it is still less than a fifth of last year’s levels.

Airline chiefs have recently said they don’t foresee a quick bounce back in demand to what they enjoyed last year, when U.S. carriers flew a record 946 million passengers, according to the Department of Transportation.

Some airline employees, speaking on the condition of anonymity because they are worried about jeopardizing their jobs, said they found voluntary separation or similar packages a tough sell.

Since the entire airline industry is hurt by the pandemic, they can’t up and leave for another carrier, and unemployment, while it improved last month, is still high in the U.S. Plus, seniority is a pillar of front-line aviation workers like pilots and flight attendants, so even if they could find another job, starting over elsewhere would mean giving up the perks of years worked, like choice destinations and schedules.

“I felt it better to be an active employee rather than to not be … and I felt I had a bit more control over my income with my company rather than with unemployment insurance,” said a more than 30-year United flight attendant who decided against taking any of the voluntary options. 

United, Delta, American and Southwest have offered these voluntary separation packages to at least some of their employees. During the winter, as the coronavirus began to spread in the U.S., airlines also offered temporary, partially paid or unpaid time off in first effort to cut costs. More than 120,000 volunteered for some form of leave, more than 30% of staff at United, Delta and American.

“This is the job I’m going to retire at,” said a Seattle-area based Alaska Airlines flight attendant. “This is just one more storm we have to weather.” She said she volunteered for an unpaid month off because she has a two-income household.

“There is the overwhelming feeling that furloughs are inevitable and maybe my one month-leave can save a job down the road,” she said. “It may even save my own job.”

A six-year Miami-based American Airlines flight attendant said he won’t take any of the voluntary options.

“I’ll be really honest, my answer is a hard no,” he said. “As much as we bitch about it, we absolutely love this job.”

The permanent separation packages vary, but airlines are offering years of continued free flights, based on availability of open seats, and health-care coverage. Southwest, for example, is offering cash severances based on years worked, a year of company-paid health care and four years of travel privileges, for those that put their hands up to leave voluntarily. 

Employees who have worked at the Dallas-based airline for a decade or more qualify for 12 months of pay, “in appreciation for their service to Southwest Airlines,” a spokeswoman said, adding that the programs “are the most generous packages ever offered in Southwest’s history and will assist with matching staffing levels to the current decline in demand due to COVID-19.”

Some employees don’t want to take their chances.

“I took it because if I’m being realistic, I don’t think many people are going to (or want to) take the voluntary leave,” said one American Airlines manager, who volunteered for a buyout. “The risk ratio is way too high.”

American is planning to reduce its management and administrative employee headcount by about 30%, a similar percentage that United is targeting, and equal to a reduction of about 5,000 jobs.

The Fort Worth-based airline is offering up to 10 years of travel benefits and a third of pay through Sept. 30, or five years of travel for a third of pay through December and warned employees last month that there would be no severance if they are laid off. Those workers will have until Wednesday to apply. The Fort Worth-based carrier recently outlined severance packages for high-level employees, according to people familiar with the matter.

Both American and United are reducing their numbers of officer-level positions and reorganizing their upper ranks.

Delta, which is the least unionized of the major airlines, has been negotiating early retirements and other options with the union that represents its more than 13,000 pilots. The union has pushed for reduced-pay leaves to save money but hadn’t been reached an agreement with the company by early June.

“We’re getting into the late innings of the ball game,” said Chris Riggins, a Delta pilot and spokesman for the Atlanta-based airline’s chapter of the Air Line Pilots Association. 

Unlike during previous downturns, companies like airlines are using a variety of measures to reduce their labor costs, instead of just layoffs, noted Tom McMullen, a senior client partner at Korn Ferry.

“Depending on where you are in your life or career, this is probably attractive to someone whose close to retirement,” he said.

“We will need to make sure that we rightsize our company accordingly,” American’s CEO Doug Parker said on May 27 investor webcast about potential cuts when the federal aid terms expire. “So we’re going to try to do that in a way that hopefully, we wouldn’t even have to furlough anyone.”

While airlines can’t furlough or lay off workers before Oct. 1, employees may get notice in the summer about the cuts.

Airlines aren’t the only companies in aviation hurting from the toll of coronavirus on travel. Boeing is cutting 10% of its 160,000-person workforce and in addition to offering buyouts and other options, announced initial layoffs of close to 7,000 people last month, as it faces a dismal market for new planes. General Electric, which makes engines for both Boeing and Airbus planes, is cutting about 25%, or about 13,000 jobs, from its aviation unit.

Some airline employees say they are adjusting their spending to prepare for the worst and are starting to think of contingency plans such as other fields of work or moving to other cities.

“My plan is to save, save, save,” said the six-year, Miami-based American Airlines flight attendant.

A four-year Delta pilot said he is forgoing a vacation to the Middle East, scrapping plans to build a deck for his house and putting off a paint job for his vintage Volkswagen camper.

A nearly three-decade United employee who works in the union that represents customer and fleet service workers looked back at other moments of turmoil in the industry: the Sept. 11, 2001 terror attacks, a wave of bankruptcies and mergers and the Great Recession.

“This is the first time I’ve really been scared about what our future will be like,” she said.

She said she is not planning to apply for a voluntary separation package but said she and her husband, another United employee, have discussed whether he would have to move if he gets a post in another base. One consideration is their junior high school-aged child.

“Do we go as a group? Split up? Do you try commuting? It’s a really big decision,” she said. This is the first time he and I have ever had to look at this.”

While the $25 billion set aside for U.S. passenger airlines in the $2.2 trillion CARES Act that Congress passed in March doesn’t allow airlines to furlough, lay off or cut the pay rates of their workers, carriers including Delta, United and JetBlue have reduced workers hours, meaning smaller pay checks, as flying and revenues declined.

The practice has drawn scrutiny from Democrat lawmakers and and at least one Republican senator who argue this violates the spirit of the law.

A group of Democrat Senators, including Sen. Elizabeth Warren, D-Mass., have asked Treasury Secretary Steven Mnuchin to clarify that they cannot do this. Warren and several other Democratic lawmakers wrote to CEOs at Delta and JetBlue, which is also mostly not unionized and therefore can more easily cut hours, to answer for the hours reduction. Delta cut most workers’ schedules by 25%. The Treasury Department declined to comment.

“Not only was there little work to be done, it was dangerous to keep Delta employees unnecessarily in large public spaces during a raging pandemic,” Delta’s CEO Ed Bastian said in a letter responding to Warren. “The lack of travel resulting from government mandates and health advisories forced a reduction in hours for our pilots and flight attendants as well. Consistent with the requirements of the CARES Act, Delta employees continue to be paid at the same rate of pay.”

Airline employees CNBC spoke with said they didn’t expect the federal aid would save their jobs if travel demand doesn’t recover.

While they were on edge about the future, each shared how much they loved their jobs, saying how each day was different and of course, the perks: free flights all over the world and the joys of jetting off at a moment’s notice for fun or enjoying a long layover in another city.

“South Africa. I love Brazil. Latvia,” said the Delta first officer, listing some of his favorite destinations he’s visited because of his job, adding that his wife would often join him on trips.

“It’s still the best gig in the world,” said the 30-year United flight attendant, adding: “my earliest and fondest layover has been Rome.

The worst of the demand crisis appears to be behind the U.S. airlines as signs of renewed appetite for travel emerge and airlines add back service for the summer.

More than 2.5 million people passed through U.S. airport checkpoints in the first seven days of June, according to the Transportation Security Administration. That’s more than 85% below the same period but more than double the number in the same period in May and more than triple the number in the first seven days in April.

The longtime United flight attendant said: “I’m hoping for the best because that’s what you do.”