U.S. Airlines Rush to Cut Costs While Congress Studies Bailout

Mary Schlangenstein and Justin Bachman

(Bloomberg) -- U.S. airlines are rushing to cut costs as Congress weighs a $58 billion bailout to help the industry cope with collapsing travel demand from the coronavirus pandemic.

United Airlines Holdings Inc. said it will begin laying off employees in less than two weeks unless lawmakers approve aid, while Southwest Airlines Co. is slashing more flights. Delta Air Lines Inc. suspended its dividend and share repurchase program hours after President Donald Trump said he wants a ban on stock buybacks for companies receiving federal aid.

“While many in Washington, D.C., now realize the gravity of this situation, time is running out,” United Chief Executive Officer Oscar Munoz and President Scott Kirby said Friday in a memo to employees that warned job cuts could start by March 31. The Chicago-based carrier has trimmed 60% of its typical schedule for April, and more cuts are likely in May, the executives said.

Airlines are broadening actions to prop up their battered operations, from securing billions in new loans to limiting onboard amenities to help minimize costs. The industry is adamant that federal aid is essential, but isn’t pleased that a Senate proposal offers $58 billion in loans that will have to be repaid. Airlines for America, the industry lobbying group, wants half of the amount in direct grants.

Seeking Liquidity

Delta entered into a $2.6 billion secured credit facility, enhancing liquidity amid a daily cash burn of $50 million as travel demand continues to decline at an unprecedented rate. The company is also drawing $3 billion under its existing revolving credit facilities. Several carriers have said they’re refunding more in canceled travel reservations than they’re selling in new tickets.

“Our revenue outlook continues to deteriorate in the short term with the decline in travel demand,” Delta CEO Ed Bastian said in a note to employees. “We’re now projecting our June quarter revenues will be down by $10 billion compared to a year ago – an 80% reduction.”

Given damage to the overall economy from spread of the virus, it’s clear “that demand recovery will take an extended period once the virus is contained,” he said.

While more than 13,000 Delta employees have agreed to take voluntary leaves, Bastian urged more to consider doing so.

Domestic Cuts

Southwest, which carries the most passengers in domestic markets, said it will cut 1,000 daily flights starting Sunday, ahead of a previously planned 20% capacity reduction, because of a rapid drop in near-term demand. International routes will be suspended after Sunday until at least May 4 as a growing number of nations restrict cross-border travel.

The latest cutback, affecting about a quarter of Southwest’s normal daily departures, will run through April 13. At that point, the 20% curtailment begins and lasts through June 5, the carrier said in a statement Friday. The airline will target routes that have multiple daily flights and those with the lowest bookings. International service will be dropped after Sunday until at least May 4.

The airline also had to cancel most of its daily flights Friday from Chicago’s Midway International Airport, where the air traffic control tower had to be temporarily closed after three technicians tested positive for the virus.

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