Experts Say Most Airlines Could Go Bankrupt by May, as CEOs Take Pay Cuts and Others Make Layoffs
As demand for flights continues to plummet, airlines are taking extreme measure to keep from going under
As airlines cancel and limit flights due to low demand and travel restrictions amid the COVID-19 pandemic, the companies are dipping into their financial reserves to the point that it will be difficult for many to bounce back, Sydney-based CAPA Centre for Aviation said on Sunday.
“Emerging from the crisis will be like entering a brutal battlefield, littered with casualties,” CAPA said, warning that, “coordinated government and industry action is needed — now — if catastrophe is to be avoided.”
The major U.S. airlines will likely receive such assistance and survive, despite the massive financial hit, CAPA said.
In order to minimize fallout from the situation, some American companies are cutting staff or reducing salaries for executives.
Oscar Munoz, the CEO of United, said he would forfeit his salary until June 30, according to the Wall Street Journal. Delta CEO Ed Bastian, made a similar announcement in a release from the company. And Southwest CEO Gary Kelly will incur a 10 percent pay cut. American Airlines’ Doug Parker has been paid only in company stock since 2015, WSJ reports.
Last week, the Trump Administration indicated that it will offer some sort of assistance to industries whose business takes a hit due to coronavirus concerns. Treasury Secretary Steven Mnuchin clarified that the aid would not be in the form of a bailout.
“This is not a bailout. This is considering providing certain things for certain industries: airlines, hotels, cruise lines,” Mnuchin said on Wednesday, according to the Washington Post.
“There may be specific industries that are highly impacted by travel and have issues with lending,” Mnuchin added, suggesting, “Loan guarantees are a very effective way of making sure the government is paid back without putting the government at risk.”
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In response to these financial tests, Delta CEO Ed Bastian announced on Friday that the airline would be offering “voluntary short-term, unpaid leaves” to its employees.
“We’ll be making more critical decisions on our response in days to come. The situation is fluid and likely to be getting worse,” said Bastian in a press release. “We will get through this, and taking strong, decisive action now will ensure that we are properly positioned to recover our business when customers start to travel again.”
Norwegian Airlines, meanwhile, announced that it would be temporarily laying off 90 percent of its workforce.
“It is indeed with a heavy heart we have to temporarily lay off more than 7,300 of our colleagues, but we unfortunately have no choice,” said Norwegian CEO Jacob Schram in a press release. “However, I want to emphasize that this is temporary, because when the world returns to normalcy my goal is to keep as many of our dedicated colleagues as possible.”
All three major U.S. airlines — Delta, United and American — have dramatically reduced the number of flights and areas to which they fly as coronavirus has spread globally, first stopping flights to China, then other areas in conjunction with Centers for Disease Control, World Health Organization and State Department safety warnings. The plans that are still flying have been far from full, even on domestic flights, which have also been reduced in number and frequency across the industry in response to low demand.
The CDC has said that it “does not generally issue advisories or restrictions for travel within the United States,” but noted that airports can be high risk areas because they are typically densely populated. The agency also recommends avoiding traveling to domestic destinations with a high number of COVID-19 cases.
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