United Airlines said it plans to furlough thousands of employees if the federal government doesn't provide more funds to offset low demand as a result of the coronavirus, a move that could mean reduced office space needs in Chicago and Houston.
The Chicago-based company, one of the largest U.S. carriers, said it will have to furlough about 16,400 workers, or roughly half its domestic workforce, as the pandemic continues to cripple the airline industry.
That’s far less than the 36,000 workers United Airlines said in July it would be forced to cut once federal financial support under the CARES Act expires in October. The reduction stems from thousands of United Airlines workers who took early retirements or voluntary longer-term leave packages in recent weeks. In a similar move, beverage provider Coca-Cola is looking for an initial 4,000 workers in the United States and Canada to voluntarily take a buyout plan as it starts a global reorganization in response to lower sales during the pandemic.
For United Airlines, an extension of the CARES Act or an executive order would preclude furloughs, the company said in an internal memo obtained by CoStar News. Airline and union lobbyists have been pushing Congress for months to expand the Payroll Support Program that provided up to $25 billion to passenger and cargo carriers to cover wages, salaries and benefits between April 1 and Oct. 1. United Airlines got $5 billion.
American Airlines told its workforce it would need to furlough 17,500 employees in October without further government aid, and the Fort Worth, Texas-based company expected to have 40,000 fewer employees as of Oct. 1 than when the pandemic started, according to a filing with the Securities and Exchange Commission. Delta Airlines said it was looking at 2,000 furloughs for pilots without more aid. Like United Airlines, both carriers have seen thousands of employees take early retirement or extended leaves.
The October furloughs include 1,400 employees in management and administrative roles, which tend to be based in traditional offices, but the majority would fall on in-flight staff comprising pilots, flight attendants and technicians, according to the memo.
About 22.5% of the 16,400 furloughs will be in the Chicago and Houston markets, according to United spokeswoman Rachael Rivas. Exact locations were not provided. United Airlines is the lead tenant in Willis Tower at 233 S. Wacker Drive in downtown Chicago with more than 816,000 square feet. The iconic 110-floor skyscraper is in the final stages of a massive $500 million renovation.
In downtown Houston, United Airlines is the largest tenant at 609 Main at Texas, a high-profile 48-story tower where it moved into 224,300 square feet in 2018. The airline's space is on floors 12-19 and includes private access to the tower's rooftop gardens on floors 12 and 13. Regulatory filings and building permits show United Airlines spent between $26 million and $43 million building out the downtown Houston office.
Rivas said the company expects to keep its office footprint for now, noting its leases are long term. She did not respond to questions about plans to reduce the square footage at its major hubs in Chicago and Houston if federal help fails to materialize. Willis Tower representatives did not respond to requests for comment. United Airlines' lease expires in 2033.
Several major corporations across the country are trying to reduce or sublet some of their office space as companies re-evaluate their office space needs during the coronavirus outbreak. The amount of sublease space has surged to record highs in areas such as Santa Monica, California, and Austin, Texas.
President Trump told reporters last month he supports giving the airline industry another $25 billion in payroll support through March. Late last week, Mark Meadows, Trump's chief of staff, said at a Politico Live Event the president is toying with an executive order to fund the industry because Congress continues to be at a stalemate on further relief funds.
"If Congress is not going to work, this president is going to get to work and solve some problems," Meadows was widely reported as saying. "So hopefully we can help out the airlines and keep some of those employees from being furloughed.”
To underscore the damage to the industry during the pandemic, a look at United Airlines' second-quarter results shows what's driving the aggressive cost cutting. Andrew Nocella, chief commercial officer for United Airlines, said the second quarter was "the most difficult quarter in United's history" on the earnings call. The carrier reported a $1.63 billion loss for the quarter with sales declining 87%.
In April, United Airlines saw the "sharpest, deepest drop in demand in history, far worse than 9/11 or the Great Recession or any other stress-test scenario that anyone had modeled," CEO Scott Kirby said on the quarterly earnings call.
Even as demand started to recover as lockdowns relaxed, Kirby said the carrier was hurt again when COVID-19 cases spiked in the Sun Belt. Corporate travel plunged 96% in June, Nocella said on the call.
United Airlines' memo urged employees to lobby for more federal support. “To be clear, an extension would be the one thing that would prevent involuntary furloughs on Oct. 1 and hopefully delay any potential impact on employees until early 2021,” the memo said.
Without business travel and tourism, the airline industry suffered a 95% decline in travel between mid-March and mid-April. Since then, airlines have worked arduously to get flyers back on board, with airlines such as United focusing many of their routes out of the Midwest and Northeast into Florida and other southern states where pandemic restrictions aren’t so rigorous. Even still, United is only operating at 63% capacity this month and expects capacity will continue to suffer for some time.
“The pandemic has drawn us in deeper and lasted longer than almost any expert predicted, and in an environment where travel demand is so depressed, United cannot continue with staffing levels that significantly exceed the schedule we fly,” the memo said. “Sadly, we don’t expect demand to return to anything resembling normal until there is a widely available treatment or vaccine.”
At the same time, United and its competitors are looking at new ways of working brought on by the quarantines with tens of thousands of airline employees now working from their home offices, basements, kitchen counters and even childhood bedrooms for an undetermined timeframe.
“Unfortunately, all of our efforts so far to cut costs, raise debt and introduce voluntary options have not been enough to avoid involuntary furloughs entirely,” the memo said, citing talks with the variety of unions that represent its employees. As involuntary furloughs, it means the company can call workers back if conditions change.