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United Airlines Warns Furloughs Inevitable if Passengers Don't Return

By Lou Whiteman - Mar 27, 2020 at 3:49PM

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Company pledges no furloughs until Sept. 30 at least.

United Airlines Holdings (UAL 1.08%) on Friday pledged to hold worker wages steady and do no involuntary furloughs before Sept. 30 but said that if the COVID-19 coronavirus pandemic keeps travelers away well past the summer some job cuts are inevitable.

The airlines have been decimated by the pandemic, which has caused flight demand to collapse. Lawmakers on Friday approved a $50 billion industry bailout as part of a broader $2 trillion economic stimulus plan, providing airlines with loans and grants to try to get them through the difficult times.

In a message to employees Friday, United CEO Oscar Munoz and president Scott Kirby thanked lawmakers for their "decisive, bipartisan action," saying the "federal assistance buys us time to adapt to this new environment and assess how long it will take for our economy to begin to recover." The execs said that because of the government aid there will be no near-term salary or headcount reductions for front-line employees.

A United Airlines 737 taxing to the runway.

Image source: United Airlines.

But they stressed the situation is far from contained. Munoz and Kirby said that they are concerned travel demand could be suppressed potentially into 2021, and if it is further actions will be needed. United has already cut its April schedule by 60% year over year and is planning deeper cuts for the months that follow.

"We will continue to plan for the worst and hope for a faster recovery but no matter what happens, taking care of each of our people will remain our number one priority," the executives said. "That means being honest, fair and upfront with you: If the recovery is as slow as we fear, it means our airline and our workforce will have to be smaller than it is today."

Munoz and Kirby deserve credit for their honesty, but the message is unlikely to go over well on a day when Congress is focused on making sure the airlines don't lay off employees. Worth noting that they are talking about a worst-case scenario, and it remains far from certain whether the pandemic will throw the U.S. economy into a long recession that would eat into travel demand for an extended period of time.

If nothing else, their words should be a reminder to proceed cautiously and focus attention on top performers if investors want to take a flyer on an airline.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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