United Airlines sent out a press release this evening, a copy of a letter to employees under the signatures of outgoing CEO Oscar Munoz and soon-to-be CEO Scott Kirby in which they lay out how bad they expect the novel coronavirus to be for the business – and in the middle of the letter they reveal that it “no longer appears realistic” to “avoid [taking] steps that affect [employee] paycheck[s].”
The airline reports that this weekend they have been in discussion with its unions to reduce “payroll expense.”
The letter also outlines major capacity reductions, and that they expect few people to fly even with 50% fewer flights. However that’s more or less table stakes at this point. While reduced headcount in some form has been a safe bet it’s the first time we’ve heard it out loud from the major U.S. airlines
To our United family:
In the message we sent to you last Thursday, we promised to stay in close touch about the impact of the coronavirus on our business and the steps that we’re taking to aggressively manage it.
In just the last few days, the impact of the coronavirus has really hit home and disrupted the daily routines of hundreds of millions of people in the United States and around the world. State and local governments continue to close schools, encourage people to avoid bars and restaurants and cancel more large gatherings. This weekend, President Trump announced new travel restrictions for the United Kingdom and Ireland. Watching this unfold, you won’t be surprised to hear that the impact of the coronavirus on our business has also gotten quite a bit worse.
As the leaders of the 100,000 people of United, we feel a deep obligation to each of you to run our company in a way that protects you — and your ability to provide for your family at home. We also owe it to you, especially in a crisis, to be open with you about important decisions we face.
We want to share some numbers to help you understand just how bad the impact of the coronavirus has been on our business. As you know, March is typically our busiest month of the year. But this year, in just the first two weeks of March, we have welcomed more than one million fewer customers on board our aircraft than the same period last year. We’re also currently projecting that revenue in March will be $1.5 billion lower than last March.
The bad news is that it’s getting worse. We expect both the number of customers and revenue to decline sharply in the days and weeks ahead.
Since late January, we have taken steps to aggressively manage this crisis and to keep you informed every step of the way – sharply reducing schedules, imposing a hiring freeze, introducing a voluntary leave program, dramatically reducing discretionary spending, cutting CEO base salary 100% and deferring a salary increase. Our competitors have started to follow suit: on Friday, Delta announced a 40% schedule reduction and a 100% salary cut for their CEO and over the weekend, American said it will reduce its international capacity by 75%.
We took early, aggressive action because we have been determined to do everything possible to avoid painful steps that affect your paycheck. But, based on the severity of the situation, that no longer appears realistic.
This weekend, we began conversations with our union leadership about how to reduce our payroll expense in a way that minimizes what we know will be painful for all of us. Earlier this evening, we convened a call with Corporate Officers to update them on the severity of the situation and let them know we will be cutting their salary by 50%.
Let us be clear: these are not the only next steps. Tomorrow, we will announce an approximately 50% cut in capacity for April and May. We also now expect these deep cuts to extend into the summer travel period. Even with those cuts, we’re expecting load factors to drop into the 20-30% range — and that’s if things don’t get worse.
Together, we’re facing an unprecedented challenge. When medical experts say that our health and safety depends on people staying home and practicing social distancing, it’s nearly impossible to run a business whose shared purpose is “Connecting people. Uniting the world.”
We both hate to have to write a note like this, but we have made a commitment to be honest and transparent with you. While it’s now clear that this is going to painful for our people, we promise that you are at the very top of our priority list. We are working night and day on support and ideas to keep as much pay as we possibly can flowing to you — even if gets worse from here and demand temporarily plummets to zero.
This crisis is moving really quickly. It’s having an impact on nearly every aspect of our lives, and it may feel to you like everything is changing. But, the most important thing about our business hasn’t changed: you’ve shown us that even in these difficult times, we’re still United and focused on caring for our customers and each other together. That’s always been the essential ingredient to our success. It’s what will get us through this crisis in the near term, and it’s also what will allow us to fulfill United’s incredible potential in the long-term.
We’ll continue to communicate frequently and transparently in the days ahead.
Oscar and Scott
This is just the beginning, and not only for airlines. Restaurants are being ordered closed. Many will default, and employees there will lose their jobs. Who will be going into barber shops and beauty salons? The economy is slowing. Businesses aren’t out selling, deals aren’t getting done at trade shows, and just as importantly everyone is taking a ‘wait and see’ attitude on committing to just about any new investments across the board.
It’s not just about the airlines. We’re already in recession, though it will be some time before we officially know it. The question is how long it lasts, and how robustly the economy bounces back afterward.