Listen to leaders at United Airlines speak and you’ll literally think the sky is falling. But listen to leaders at American Airlines and you’ll walk away feeling hopeful. And yet both live in the same reality. Who is delusional…or are both delusional?
United Airlines: Pessimism Reigns
United has taken a “glass half empty” approach to COVID-19. It was the first carrier to prepare for the worst, has consistently warned employees of job cuts, and has aggressively scaled back service.
For example, all the way back in March incoming CEO Scott Kirby warned of potential job cuts:
“This weekend, we began conversations with our union leadership about how to reduce our payroll expense in a way that minimizes what we know will be painful for all of us.”
The cutbacks began on March 5th, earlier and more aggressive than at American or Delta. But even United underestimated how bad things would get. On March 10th, Kirby predicted a “worst-case scenario” of a 40% drop in revenue in June 2020. As United plans a 90% reduction of its scheduled June flights versus last year, the situation turned out far worse.
Since then, United has forced non-union employees to take a mandatory cut in hours, grounded more aircraft, deferred new purchases and other capital expenses, denied refunds, and has all but guaranteed there will be painful job cuts as soon as CARES Act funding expires at the end of September.
American Airlines: Cautious Optimism Reigns
Meanwhile, American Airlines has taken a very different approach. While schedule reductions have been aggressive, the tone coming from AA’s leaders could not be more different.
While United simply says it is in a fight for its life, American Airlines President Robert Isom told employees on March 19th, “We are in the fight of our lives, and we will win.”
That optimistic sentiment becomes a rallying cry.
And listen to American CEO Doug Parker on CNBC:
Parker says the government aid will be “more than sufficient” to get through this crisis. He also stressed that job cuts will minimal, noting that “our team will be here when the flying public is ready to return.”
While Parker notes “we’ll have more team members than we have work for,” he still hopes to avoid job cuts.
“Hopefully we can manage through that without having to do furloughs.”
American Airlines simply does not have the survivalist mentality that United has. It has quickly processed refunds, not played games with them. It has also (with one exception) not dismantled the value of its loyalty program, unlike United.
So Who Is Right? (Or Are Both Wrong?)
Looking at the figures, American Airlines is more vulnerable than United Airlines. American Airlines is burning through $70 million per day and lost $2.2 billion during the first quarter. Meanwhile, United lost $1.7 billion and is burning through $50 million per day. Both expect that number to drop by the end of the quarter, though AA’s debt servicing limits this opportunity. To that point, American Airlines is also highly leveraged. AA values its unencumbered assets at over $10 billion, a move that some analysis question. United has unencumbered assets of $20 billion plus more cash in reserve.
By those figures, you might think AA is the one who should be in panic mode. But it’s not. Watch Parker above and you’ll hear him say “I don’t know” over and over. American is taking a “wait and see” approach while United is preparing for the worst.
While only time will tell which strategy is better, I cannot imagine American employees have any more security than United employees, even if Isom and Parker are not warning of job cuts at this time. The numbers are grim. American Airlines simply cannot continue the status quo unless demand dramatically picks up, and that does not seem likely at this point.
I like what I am hearing from American Airlines and I like the way they have handled the COVID-19. As View from the Wing notes, this is a tremendous opportunity to change the culture at American Airlines. But I cannot help but to feel employees and investors will feel even more betrayed if leaderships talks down job cuts and grim cutbacks only to implement with far less notice than United.
If you work for American Airlines or United, are you happy about how leadership has communicated with you? Please leave a comment below.