With no signs travel will bounce back from the coronavirus fallout anytime soon, American Airlines executives are crafting a plan to significantly shrink the airline, a move that will sting passengers and employees.
"While no one has a perfect crystal ball, I think we all expect that recovery will be slow and that demand for air travel will be suppressed for quite some time,'' American CEO Doug Parker said on the airline's quarterly earnings conference call Thursday.
In response, he said, American, which posted a $2 billion loss for the quarter, has decided to become "smaller than we might like.''
It's too early for specifics, but one American executive estimated a 15% to 20% reduction in planes, which translates to 10% to 15% fewer seats, beginning next year.
American took the first step on that front Thursday when it announced plans to retire 100 mainline and regional jets earlier than planned. The airline has more than 950 planes.
One thing it doesn't plan to do: close any hubs. American has nine hubs: Dallas; Charlotte, North Carolina; Chicago; Philadelphia; Phoenix; Los Angeles; Miami; Washington, D.C.; and New York City.
"Our hubs are a massive asset to us,'' said Vasu Raja, the airline's senior vice president of network strategy.
Parker said the $50 billion in financial aid for airlines from the CARES Act – American alone is eligible for $10.6 billion – gives airlines breathing room to survive the worst of the crisis but it's not enough to survive at its current size if ticket sales don't resume.
American posted a $2 billion loss for the first quarter and that included two good months before coronavirus crushed travel demand and sent trip cancellations surging. American said it issued $900 million in refunds in the first quarter, an estimated $600 million in April, and expects to issue $400 million in May and $200 million in June.
"There’s no way to overstate the gravity of this situation for the airline industry,'' Parker said. "And difficult decisions lie ahead.''
American has 130,000 employees. Provisions in the government relief package mean American and other airlines cannot involuntarily lay off workers through Sept. 30. As it stands now, Parker said, the airline will have more employees "than we have work for'' in the fall.
He said American hopes to reduce the number of workers through voluntary measures and other steps so it doesn't have to lay off employees. Already 39,000 workers have taken voluntary leaves or early retirement.
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