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Airlines Expect Shrinkage In Operations Even After $25B Stimulus

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Airlines Expect Shrinkage In Operations Even After $25B Stimulus

Airlines are surviving the ongoing pandemic due to the $25 billion they received as a part of the CARES Act, but analysts and airline executives predict a shrinkage is coming to the industry this fall. 

What Happened

In a recent research note, cited by CNBC, analyst Helane Becker estimates that airlines would have to ground 20% of their fleet and cut pilot workforce by the same percentage. 

The trimming down will be triggered due to fewer employees, flights, and planes after October 1, as restrictions imposed on airlines due to the coronavirus stimulus expire. 

Airlines received $25 billion in economic stimulus so that they can keep employees on payrolls and mitigate the effects of lack of passengers, but the financial implications of the pandemic may be so severe that these government measures may not be enough to preserve jobs.

Why It Matters

Airline executives believe that demand snapback would take years and not months, and they have would have more employees than needed after stimulus restrictions end, reported CNBC.

Airlines can receive another $25 billion in government loans to continue operations, but those would come with more stringent conditions. Some airlines remain undecided on whether to avail of the additional funding.

Management and Administrative staff job cuts at United Airlines Holdings Inc. (NASDAQ: UAL) and American Airlines Group Inc. (NASDAQ: AAL) are expected to span 8,500 positions.

Delta Air Lines Inc. (NYSE: DAL) had planned to hire 1000 new pilots by the summer of 2020 but is now offering packages to staff that includes cash severance and travel benefits to avoid involuntary layoffs. 

“Given our planned smaller schedule and network, we are overstaffed and may continue to be overstaffed for the next several years,” wrote Gary Kelly, CEO of Southwest Airlines Co. (NYSE: LUV) in a staff memo.

 

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