United execs warn of ‘tough decisions ahead,’ stark industry outlook due to coronavirus

United CEO Oscar Munoz and President Scott Kirby didn't mince words in an open letter to the airline's employees on Wednesday, warning of "tough decisions ahead" in the wake of the new coronavirus and its impact on the airline industry.

The company will begin a "revamped schedule" this weekend that will cut capacity to approximately 10% of what had been planned for May at the beginning of this year, and June reductions are expected soon.

This all comes as the airline industry receives government aid as a result of the new federal stimulus package — though it's not enough to completely account for the effects of diminished travel demand.

"We have now essentially redesigned our network to be down 90 percent while complying with the CARES Act and maintaining connectivity among nearly all our domestic destinations," according to the letter. "And these May and June schedule reductions will have direct consequences for our frontline employees in terms of total hours worked."

The letter says United expects to receive $5 billion from the federal government as part of the Payroll Support Program under the CARES Act, which should protect employee paychecks.

This is in line with analysts, who expected United to also be eligible for more than $5 billion.

Large airlines, through their lobbying organization, hailed the stimulus when it was signed not only because it dealt them that hefty $50 billion overall but because it was backed by Trump's repeated comments that they were a high priority.

Some of that enthusiasm dipped as the Treasury Department let it be known that any grant or loan will come with strings attached.

Airlines executives balked at a provision involving $25 billion of the $50 billion that was earmarked for paying employees' salaries and a demand they hand over stock warrants for 10% of it, The Associated Press reported.

Airlines taking federal bailout money, including United, are asking for exemptions from minimum service levels they are required to provide as a condition of their government-provided loans and grants.

The good news: The company won't be issuing involuntary furloughs or pay rate cuts for U.S. employees prior to Sept. 30, keeping an earlier promise.

Still, executives encouraged employees to look into new voluntary leave and separation offerings.

"These schedule changes reflect the stark reality of our situation – and unfortunately, it's something that even legislation as large as the CARES Act can't fix," the executives wrote. "Travel demand is essentially zero and shows no sign of improving in the near-term."

They pointed out less than 200,000 people flew with the company the first two weeks of April. More than six million did this time last year, aka a drop of 97%. It expects to fly less people the whole month of May than "than we did on a single day in May 2019." The company anticipates demand will be down the rest of this year, not to mention likely in 2021.

"The challenging economic outlook means we have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1," according to the letter.

Contributing: Chris Woodyard, USA TODAY; The Associated Press

Can they be saved?:Travel industry winners and losers of federal bailout

Heads up:Flights to these cities likely to be nixed as bailed-out airlines seek service cuts

Source: https://www.usatoday.com/story/travel/airline-news/2020/04/16/united-warns-stark-airline-industry-outlook-amid-coronavirus/5143399002/

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