Airlines Cut Work Hours in Savings Push After U.S. Payroll Aid

(Bloomberg) --

Airlines are cutting some of their employees’ work hours less than a week after the U.S. government began disbursing $25 billion in payroll support.

Delta Air Lines Inc. and JetBlue Airways Corp. have pared the work schedules of thousands of employees, drawing the ire of a machinists union. United Airlines Holdings Inc. is in talks to reduce hours, prompting the union to warn of potential violations of the CARES Act, the government’s roughly $2 trillion rescue plan that includes airline aid designed to protect workers’ incomes and jobs.

The savings efforts point to the next phase of the airlines’ fight for survival amid the worst crisis in industry history, as the coronavirus pandemic all but erases travel demand. While the U.S. bailout package restricts cuts to employment and pay rates through Sept. 30, carriers are pulling all the levers they can to lower costs in the next five months -- and signaling deeper cuts in October.

“In an environment where demand for air travel is essentially zero, we have to work really hard to make that math work and stay in business,” said Josh Earnest, a spokesman for United.

The drive to reduce work hours is roiling labor relations at companies that had been minting profits after years of industry consolidation, and which is now suddenly bracing for lean times.

Union Ire

In a letter to the chief executive officers of Delta and JetBlue, the International Association of Machinists and Aerospace Workers accused the leaders of an attempt to “greedily undermine the intent of the federal stimulus funds you requested.” Though the union doesn’t represent workers at those carriers, it’s trying to organize at both.

United has told the union that it wants to move 28,000 airport workers to part-time status with 20 to 30 hours a week, down from their full-time schedules of 40 hours, said Michael Klemm, president of IAM District 141 in suburban Chicago and one of the authors of the letter.

The aid legislation specifies that no change to pay rates is allowed, but it doesn’t contain language about minimum work hours or income levels.

Nonetheless, “We’ve told United that we are against it and we think it violates the CARES Act,” said IAM spokesman James Carlson.

No decision has been made on changing IAM workers’ hours and United continues to talk with the union about reducing costs, Earnest said. United’s 2019 labor expense was $6.5 billion for the period covered by federal aid, he said. The company is receiving $5 billion in payroll assistance, which includes $3.5 billion in grants and $1.5 billion in loans.

Airport Workers

Delta confirmed that airport ground employees are working a 25% reduced schedule through June. “Consistent with the requirements of the CARES Act, Delta employees continue to be paid at the same rate of pay,” the carrier said in a statement.

JetBlue is reducing work schedules across the company to help preserve jobs after the federal support ends on Sept. 30, spokesman Doug McGraw said. As with other carriers, JetBlue’s aid covered about three quarters of what employees were paid in the same period last year.

The New York-based airline has asked workers in salaried and administrative positions, including those working in its corporate offices and various operational managers and supervisors, to take 24 days of unpaid time off between now and Sept. 30. The request doesn’t apply to pilots or flight attendants, or airport employees like gate agents, ramp workers or baggage handlers.

The moves by JetBlue and Delta encourage other airlines to follow suit, said Klemm. At United, benefits like sick time and pensions are tied to hours worked.

Benefits Damage

“That’s a problem. When you cut hours, our benefits are affected,” he said.

More drastic measures may be taken after the worker protections expire. If travel hasn’t picked up by the end of summer, Southwest Airlines Co. would push for a “small and hopefully temporary” pay cut for employees that would have to be approved by its unions, Chief Executive Officer Gary Kelly said in a video for workers Monday.

The alternative would be seeking volunteers to retire early or take extended leaves. That could be followed, if needed, by involuntary benefit and pay cuts this fall -- and the airline’s first layoffs -- if Southwest is forced to become a “drastically smaller” carrier, Kelly said.

To date, about 90,000 employees at the three largest U.S. carriers -- American, Delta and United -- have taken voluntary leaves to help curb expenses.

©2020 Bloomberg L.P.