American Airlines Group, Inc. (NASDAQ: AAL) said it is making plans to reduce management and support staff by 30%, a precursor to more extensive frontline cuts expected in the coming weeks as the airline tries to stop using up cash for overhead and remain solvent beyond 2020.
The moves are part of an effort to remake itself into a smaller airline for the foreseeable future with the realization that leisure and business travel will be stunted for several years. Towards that end, American plans to fly about 100 fewer aircraft – mostly widebody jets – next summer than originally planned.
"Although our pre-pandemic liquidity, the significant financial assistance provided by the government, and the cash we've raised in the capital markets provide a foundation for stability, we need to reduce our cost structure, including our most significant expense – the cost of compensation and benefits," Elise Eberweing, executive vice president of people and communications, said in a letter to employees publicly released Thursday morning in a securities filing.
The largest airline in the world measured by passengers and distance carried said other cost-saving measures include suspending merit pay and other incentives for management and support staff, requiring them to take 50% of their vacation by Sept. 30 and prohibiting rollover of vacation days to the following year.
The letter also said American will soon announce a reorganization of its leadership team and restructure the company around their new roles and responsibilities.
American said it will have to terminate middle managers and support staff if there aren't enough volunteers to leave, although all employees will remain on the payroll through Sept. 30 when federal workforce subsidies for the airline industry expire. Employees will not receive severance, but will have access to free stand-by flights and COBRA health coverage for 18 months.
After right-sizing the middle office, corporate planners will work with unions this summer on voluntary separations to reduce the number of pilots, flight attendants, ground handlers, ticket agents and other customer-facing employees because the airline will operate fewer routes and flights.
About 39,000 employees have already taken voluntary unpaid leave or early retirement to help the company make ends meet as the pandemic shut down most passenger travel.
American Airlines is trying to reduce its daily cash burn from $70 million per day to $50 million by the end of June after taking a $2.2 billion net loss in the first quarter. It has already cut $12 billion from its 2020 budget, retired 71 less-efficient aircraft, cut its flight schedule by more than 80% and raised billions of dollars in capital markets to build up its cash reserves. It also secured $5.8 billion in emergency coronavirus aid from the government to cover employee pay and benefits for six months.
The airline is generating strong revenues from its booming cargo business after it repurposed many planes for dedicated charter and scheduled cargo-only flights for organizations moving urgent medical supplies to combat the coronavirus and businesses that lost cargo access to regular passenger flights.
"There is no doubt this is going to be a painful time for all, especially for our departing colleagues, who have given American Airlines their all and are leaving through no fault of their own," Eberwein wrote. "They deserve our respect and gratitude. Most of all, they are owed our renewed commitment and our collective effort to return American to profitability and growth as quickly as possible."
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