Last month, Delta Air Lines (DAL 1.77%) notified its pilots that it expected to furlough 1,941 of them this fall after the CARES Act payroll support program expires. Despite demand remaining incredibly weak, those will be the only furloughs happening at Delta, according to a recent memo from CEO Ed Bastian. Let's take a look at why the airline giant's tens of thousands of other employees don't have to worry about their jobs for the foreseeable future.
A huge response to voluntary measures
Like virtually all of its peers, Delta Air Lines has implemented a variety of voluntary programs to manage staffing levels this year. The uptake has been phenomenal.
Notably, about 20% of Delta's employees -- of which there were roughly 91,000 at the beginning of 2020 -- have taken early retirement packages. Additionally, more than 40,000 Delta staff volunteered for short- or long-term unpaid leaves of absence, usually with a continuation of travel benefits and healthcare coverage.
Thus, the company has permanently reduced its workforce by a substantial amount, with a meaningful number of temporary leaves on top of that. These moves went a long way toward addressing the overstaffing issues that could have triggered tens of thousands of furloughs.
A nonunion workforce provides flexibility
Early retirements and voluntary leaves were key in enabling Delta to avoid furloughs for most of its workgroups, but these measures didn't completely solve the airline's staffing issues. Back in the spring, Delta reduced work schedules by 25% (with a corresponding pay reduction) for all of its ground-based and merit employees, who constitute the majority of its workforce. In his recent memo, Bastian said that the airline would need to extend that 25% reduction in hours at least through year-end.
This reduction in hours has been critical to Delta's efforts to reduce cash burn over the past six months and to avoid furloughs for most workgroups going forward. However, it was only possible because virtually all of Delta's mainline employees -- with the notable exception of its pilots -- are not unionized. That makes the company an outlier in the heavily unionized airline industry. For unionized workgroups, mandatory changes to the number of hours available would need to be negotiated with each union, and airline unions haven't been very receptive to such programs.
Having a mostly nonunion workforce has other benefits. For example, Delta has shifted some job roles around and insourced certain tasks that were previously provided by vendors, providing more work for its remaining employees. It would have been much harder to implement such a strategy if Delta had a fully unionized workforce, as the company would have needed to negotiate changes in work rules with each union.
Can Delta make a deal with its pilots?
As the airline's only large unionized mainline workgroup, Delta pilots have been spared the mandatory 25% hours reductions that have impacted most of the carrier's employees. But for the same reason, nearly 2,000 of Delta's roughly 11,000 remaining mainline pilots are facing furloughs in just two weeks.
Two months ago, Delta Air Lines proposed foregoing pilot furloughs in exchange for a temporary 15% reduction to pilots' minimum guaranteed pay. In essence, it would be a similar but somewhat less drastic hours reduction compared to what Delta has implemented for the rest of its workforce.
The pilots' union rejected this proposal out of hand, arguing that the airline should offer partially paid leaves of absence instead. The union also says that it proposed other cost-saving measures earlier this year that management rejected. Yet Delta's leadership has firmly resisted the idea of partially paid leaves ever since they were first suggested this spring. With tens of thousands of (nonpilot) employees having agreed to take unpaid leaves of absence, management believes it would be unfair to offer paid leaves to its pilots.
Behind all of this posturing is a simple fact. Delta likes the fact that most of its employees are not unionized. That gives it a strong incentive to go the extra mile to avoid furloughing its nonunion workers and an equally strong incentive not to offer significantly better terms to its unionized employees (i.e., pilots). It's still possible that the two sides will set aside their differences and find a way to avoid -- or at least mitigate -- pilot furloughs next month. However, I'm skeptical it will happen.