American Airlines started the year with about 140,000 employees. It’s telling workers and investors to expect that to drop to 100,000 this fall if the federal government does not extend the extraordinary financial aid to airlines that is set to expire on September 30.
As part of the CARES Act, Congress made $25 billion in grants available to passenger airlines so long as they agreed not to involuntarily lay off or furlough any employees or drop service to any domestic destinations through September 30. This provision was strongly supported not just by airline executives and investors but also by airline employee unions, which expected a wave of airline bankruptcies and resulting revocations of union contracts if the airlines weren’t rescued. The hope at the time was that the aid would bridge the airline industry until it reached a new normal. Obviously, the new normal has not yet arrived: Air travel volumes are still down about 70 percent from typical levels, with the economy severely disrupted and white-collar business travel still close to nonexistent.
The layoff announcement from American is part warning and part threat. I don’t think the airline is bluffing at all about its intention to cut many, many jobs. But the airline notes in its letter to employees announcing the intended layoffs and furloughs that they can be avoided if Congress acts to extend the airline aid for a period of additional months. Besides the warning to workers, there’s also a related warning to consumers — American has announced that it will terminate service to a variety of destinations in October, once freed from the CARES Act’s restrictions on doing so. These are pain points that could push lawmakers to finally reach a bipartisan compromise on another round of coronavirus relief. Airlines have employees all over the country and consist of stakeholders that are important to both parties, and so there are lawmakers on both sides of the aisle who would much prefer to say they took action to prevent airline layoffs and service cutbacks than explain why those are happening.
I remain conflicted about the wisdom of subsidizing airlines to prevent layoffs. I think it is likely that air travel will be persistently depressed for a significant period after the COVID crisis is over — conventions and major events will be some of the last activities to become COVID-safe, and one thing businesses may be learning during the COVID crisis is that some business travel was unnecessary and cutting back is a good way to save money. So some of the subsidy is just going to delay, at great expense, job cuts that will happen sooner or later. On the other hand, a broader return much closer to normal in the economy — likely in the first half of 2021 — should greatly increase air-travel volume from where it is today, and part of the logic of economic policies to address the crisis has been to prevent businesses from shedding productive capacity they might be able to make good use of just a few months in the future. It’s possible that airlines can adjust to the return of travel demand next year without additional financial support by furloughing workers in October and hiring them back next spring. But a policy that keeps workers on payroll through that period would be both better for those workers and their families and smoother for the airlines as organizations.
On Wednesday, White House chief of staff Mark Meadows told Politico reporters Anna Palmer and Jake Sherman that “hopefully we can help out the airlines and keep some of those employees from being furloughed,” but he also raised the possibility of the president doing what he did earlier this month: issuing an executive order that purports to support the economy in the event that Congress fails to pass any relief. If past executive orders are any guide, such a move is unlikely to actually stop airline layoffs, even if the president gets to triumphantly announced that he has protected airline workers when Congress wouldn’t.