United Airlines Projecting 20-30% Load Factors And Warning Unions Of Cutbacks

In a sobering letter to employees, United warned of plummeting demand, more flight reductions, and a need to reduce payroll expenses. 

The memo came from outgoing CEO Oscar Munoz and incoming CEO Scott Kirby and paints a bad and worsening situation at United. Among the key points:

• March is typically United’s busiest month of the year
• For the first two weeks of March 2020, United served over one million fewer customers than during the same period last year
• March 2020 revenue is projected to be $1.5BN lower than March 2019
• United expects “both the number of customers and revenue to decline sharply in the days and weeks ahead.”
• United will announce a 50% cut in capacity for April and May later today
• Capacity cuts expected to extend into summer
• Even with capacity cuts, load factors estimated to be 20-30%
• CEO base salary has been cut 100% and all salary increases deferred
• Conversations have began with union leadership about “reducing payroll expenses” (does not necessarily mean job cuts)

Here’s the full letter, forwarded to Live and Let’s Fly by several employees:

To our United family:

In the message we sent to you last Thursday, we promised to stay in close touch about the impact of the coronavirus on our business and the steps that we’re taking to aggressively manage it.

In just the last few days, the impact of the coronavirus has really hit home and disrupted the daily routines of hundreds of millions of people in the United States and around the world. State and local governments continue to close schools, encourage people to avoid bars and restaurants and cancel more large gatherings. This weekend, President Trump announced new travel restrictions for the United Kingdom and Ireland.Watching this unfold, you won’t be surprised to hear that the impact of the coronavirus on our business has also gotten quite a bit worse.

As the leaders of the 100,000 people of United, we feel a deep obligation to each of you to run our company in a way that protects you — and your ability to provide for your family at home. We also owe it to you, especially in a crisis, to be open with you about important decisions we face.

We want to share some numbers to help you understand just how bad the impact of the coronavirus has been on our business. As you know, March is typically our busiest month of the year. But this year, in just the first two weeks of March, we have welcomed more than one million fewer customers on board our aircraft than the same period last year. We’re also currently projecting that revenue in March will be $1.5 billion lower than last March. 

The bad news is that it’s getting worse. We expect both the number of customers and revenue to decline sharply in the days and weeks ahead.

Since late January, we have taken steps to aggressively manage this crisis and to keep you informed every step of the way – sharply reducing schedules, imposing a hiring freeze, introducing a voluntary leave program, dramatically reducing discretionary spending, cutting CEO base salary 100% and deferring a salary increase. Our competitors have started to follow suit: on Friday, Delta announced a 40% schedule reduction and a 100% salary cut for their CEO and over the weekend, American said it will reduce its international capacity by 75%.

We took early, aggressive action because we have been determined to do everything possible to avoid painful steps that affect your paycheck. But, based on the severity of the situation, that no longer appears realistic. 

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. Earlier this evening, we convened a call with Corporate Officers to update them on the severity of the situation and let them know we will be cutting their salary by 50%.

Let us be clear: these are not the only next steps. Tomorrow, we will announce an approximately 50% cut in capacity for April and May. We also now expect these deep cuts to extend into the summer travel period. Even with those cuts, we’re expecting load factors to drop into the 20-30% range — and that’s if things don’t get worse.

Together, we’re facing an unprecedented challenge. When medical experts say that our health and safety depends on people staying home and practicing social distancing, it’s nearly impossible to run a business whose shared purpose is “Connecting people. Uniting the world.”

We both hate to have to write a note like this, but we have made a commitment to be honest and transparent with you. While it’s now clear that this is going to be painful for our people, we promise that you are at the very top of our priority list. We are working night and day on support and ideas to keep as much pay as we possibly can flowing to you — even if gets worse from here and demand temporarily plummets to zero.

This crisis is moving really quickly. It’s having an impact on nearly every aspect of our lives, and it may feel to you like everything is changing. But, the most important thing about our business hasn’t changed: you’ve shown us that even in these difficult times, we’re still United and focused on caring for our customers and each other together. That’s always been the essential ingredient to our success. It’s what will get us through this crisis in the near term, and it’s also what will allow us to fulfill United’s incredible potential in the long-term.

We’ll continue to communicate frequently and transparently in the days ahead. 

With resolve,

Oscar and Scott

CONCLUSION

As demand continues to fall, it was inevitable that employees would be directly impacted. Weathering this unprecedented time will now likely require concessions from employees. Only time will tell what those are and how long they will last.

To the many wonderful United employees that I know and who read this blog, my thoughts are with you today. This was so unexpected just two weeks ago. I’m rooting for you to stay strong and pull through this.