American Air to Cut Management, Staff 30% Amid Travel Slump

(Bloomberg) -- American Airlines Group Inc. will cut 30% of its management and support staff, or about 5,100 jobs, as it continues to shrink operations in response to the dramatic decline in travel brought on by the coronavirus pandemic.

The carrier also plans to detail a revamped officer team as the company shrinks “for the foreseeable future,” Elise Eberwein, American’s executive vice president of people and global engagement, said in a letter to employees late Wednesday. The airline said it hopes enough management and administrative staff will volunteer to leave under a new program available through June 10 to avoid forced layoffs.

The coronavirus outbreak and subsequent travel restrictions have put airlines the world over under immense pressure. United Airlines Holdings Inc. said in early May it plans to cut at least 30% of its managerial and administrative jobs, while several carriers elsewhere have collapsed or sought bankruptcy court protection, including Latin America’s biggest this week.

“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,” Eberwein wrote.

American fell 8.3% to $10.98 at the close of trading in New York. The shares have fallen 62% this year, the second worst performance in a Standard & Poor’s index of the five largest U.S. carriers. Only United Airlines Holdings Inc. has fallen more, with a decline of 67%.

Bankruptcy isn’t among the options American will consider, Chief Executive Officer Doug Parker said Wednesday, seeking to quell speculation that the airline could seek court protection. “Bankruptcy is failure,” he said. “We’re not going to do that.”

Other cost-saving steps include requiring management and support staff to take 50% of their vacation by Sept. 30, not allowing untaken days to roll into 2021 and canceling a short-term incentive pay plan.

American received $5.8 billion to support payroll under a U.S. Treasury Department program for airlines. The aid required carriers to avoid mass layoffs and reductions to pay rates through the end of September. American, which has also applied for a separate federal loan, could come under scrutiny from watchdog groups for its actions as it accepts the federal aid. Some members of Congress have criticized JetBlue Airways Corp. and Delta Air Lines Inc. for cutting pay by reducing hours for some workers.

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About 39,000 American employees already have taken voluntary leave or early retirement, and American will offer a second round of such programs next month. The carrier already has slashed flying, parked aircraft, frozen hiring and taken other steps to reduce spending as travel demand virtually disappeared in April. The airline also has permanently pulled more than 100 mostly older planes from its fleet.

Travel demand “definitely” has improved recently, with American’s load factor, or average number of aircraft seats filled, climbing to 56% over the Memorial Day holiday from 15% in April, Parker said Wednesday. The airline is flying only 20% of its schedule compared with a year ago. Other carriers also recently commented on slight improvements in travel demand as states ease restrictions and tourist attractions begin to reopen.

The global airline industry’s total debt could balloon 28% this year to $550 billion, which includes $123 billion in financial aid from governments, the International Air Transport Association said Tuesday.

“Government aid is helping to keep the industry afloat,” IATA Director General Alexandre de Juniac said in a statement. “The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating.”

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