Delta Air Lines, pilots spar over cost savings as revenues plummet
Quick summary
Delta Air Lines and its pilots union are at odds over how to achieve needed cost reductions as the number of people flying in the U.S. and around world hits record lows during the novel coronavirus pandemic.
On the one hand, the Atlanta-based carrier wants to reduce the average flying time it must provide pilots by about 20% to cut costs in May and June. Alternatively, the Air Line Pilots Association (ALPA) that represent Delta's pilots says the airline could achieve more savings by offering cockpit crews additional voluntary paid leave.
The key difference, it appears, is one offer is voluntary while the other is not. Delta's proposal would impact all pilots whereas the union's counter would allow each crew member to make their own decision.
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Airlines around the world are hurting as COVID-19 decimates demand for air travel. Global revenues are forecast to fall by more than two-thirds and losses total $39 billion during the quarter ending in June, according to the International Air Transport Association (IATA).
In the U.S., Delta is burning through roughly $60 million in cash daily as revenues have fallen by about 97% to $4 million a day. Daily revenues at United Airlines are down by $100 million.
Cutting labor costs will be essential for airlines to survive the COVID-19 downturn. Staff compensation and benefits is the largest expense item for U.S. carriers, accounting for nearly a third of operating expenses during the three months ending in September 2019, according to the latest Airlines for America (A4A) data.
Funds from the $25 billion in compensation grants from the $2 trillion CARES Act allow airlines to maintain payrolls and wage rates until the end of September. After that, the companies and their unions will have to find ways to reduce costs in the face of what will likely be a long and slow recovery.
Related: It may be years until passenger demand returns to 2019 levels for US airlines
Every carrier has offered employees voluntary unpaid leave. Some are offering early retirement packages, and asking staff to reduce hours to collectively share the burden.
"No department, no workgroup at any airline is sacred in this crisis," Henry Harteveldt, founder of travel consultancy Atmosphere Research, said in an interview. "Everyone is going to have to accept is there is shared sacrifice by all."
In an April 2 memo to pilots that was viewed by TPG, Delta senior vice president of flight operations John Laughter said the union's offer did not amount to enough savings to prevent more drastic cuts.
"The roughly $8 million in savings that [voluntary paid leave] would provide for May and June frankly isn't enough, nor do we think it's right or consistent with Delta's values to offer paid [leave] when more than 27,000 of your Delta colleagues are taking unpaid leave," he wrote.
The airline has only offered unpaid leave to other employee groups.
Related: Delta to emerge a much 'smaller' airline from coronavirus crisis
Capt. Ryan Schnitzler, chairman of ALPA's chapter at Delta, said in a March 27 letter to pilots that the union turned down the airline's request to reduce the average flying times stipulated in their contract based on feedback from members. He added that Delta had declined several previous cost-reduction offers by the union prior to the additional paid leave proposal.
"No other pilot group has been asked for concessions similar to what Delta management proposed, but virtually all other pilot groups are currently engaged in programs similar to what was offered by [the union]," the ALPA chapter at Delta told pilots in a contract negotiations update on Friday shared with TPG.
Delta and its pilots union were in talks prior to the coronavirus pandemic. They jointly filed for mediation in January after nine months of negotiations.
That Delta and its pilots, who are widely seen as having one of the more cordial relationships in the industry, does not bode well for similar discussions at other carriers. Every airline and labor group will have to reach some for of cost savings to weather the crisis — even ones with worse relations than between ALPA and Delta.
"The virus is affecting all of us and it's not the pilots or Delta's fault," said Harteveldt. "[They] have to accept that there will be some kind of compromise."
Related: Delta CEO reassures staff as it shrinks operations, cuts hours