Alaska Air Group aims to shrink its active workforce by 30% before the end of the year, and even after some employees take voluntary leave there will be layoffs this fall, executives said Thursday.
The parent company of Alaska Airlines and regional carrier Horizon Air reported a quarterly loss that without the injection of government cash from the Payroll Support Program (PSP) would have been its deepest loss ever.
Due to the huge drop in air travel during the coronavirus pandemic, in the fourth quarter of this year Alaska will need 7,000 fewer active employees than its current workforce of 23,000.
Alaska Airlines pilots learned this week a strong response to the company’s voluntary leave offer means no layoffs among that group. However, Chief Financial Officer Shane Tackett said Alaska will send some 60-day layoff notices to employees in other groups Aug. 1.
In what airlines can only hope will prove the worst quarter of the pandemic, Alaska lost $214 million in the last three months, despite the government’s infusion of $362 million in a PSP grant.
“The reality we likely face is that a recovery to 2019 levels will take at least two years,” Alaska Air CEO Brad Tilden said in a teleconference call to discuss the financial results. “We are planning for our business to be smaller for the foreseeable future.”
Though the rate at which Alaska is burning through cash has moderated, last month the outflow was still $4 million per day.
Tilden said Alaska expects to be “35% smaller than last year in October,” and then to build back up gradually so that by the summer of 2021 the company is 20% smaller.
“This means adjusting our fleet size and our employee base,” he added.
Alaska President Ben Minicucci said passenger loads reached a low point in early April of 4% of normal and have improved since then to 52% of normal levels in June.
However, progress has stalled recently as virus cases have surged nationwide. If the fourth quarter turns out worse than projected, Minicucci said, the company will adjust course.
“The future is still largely uncertain and volatile,” he said.
Last month, Minicucci said Alaska under current planning assumptions is likely to shed as many as 3,000 jobs next year.
Tackett said Thursday that by the end of this year, management believes it needs to reduce annual spending by $250 million with permanent cuts.
To pay down the debt the airline group has taken on in order to survive and to be positioned to grow again when there is a recovery, Tackett said, “we will have to be very aggressive in restructuring the company.”
Sobering financial results
The loss of $1.73 per share for the quarter compares with a net profit of $262 million, or $2.11 per share, in the same quarter of 2019.
Excluding one-time items, chiefly the PSP cash infusion, the net loss would have been $439 million.
“This is a sobering loss,” said Tilden. “This is the deepest and most uncertain downturn in aviation history.”
Total revenue for the quarter sank to $421 million, down from $2.3 billion a year ago.
Alaska’s financial results came the same day as larger competitors American and Southwest reported their earnings, two days following United’s results. All announced staggering losses.
American reported a quarterly net loss of $2.1 billion, despite receiving $1.8 billion in government financial assistance through PSP.
Southwest’s loss was $915 million, after a $1.1 billion PSP injection. United Airlines lost $1.6 billion for the quarter, after accounting for a $1.6 billion PSP grant.
In May, Tilden said the top priority to get Alaska Air through the crisis is to cut the rate at which the company is burning through cash.
Last month, Alaska consumed $120 million in cash — meaning it spent that much more than it took in.
But as Alaska took steps to conserve cash, it has cut the burn rate in successive months.
The airline parked many of its jets as air travel demand evaporated. In July, it eliminated 300 management positions effective Oct. 1, initiated early-out programs for front-line workers and offered incentives for pilots to take leave or retire.
More than 1,000 out of about 3,000 Alaska Airlines pilots took the incentives.
About 30% of Alaska employees have currently volunteered for a leave of absence and these programs will continue through the year.
As a result of the fleet capacity and personnel cuts, the cash burn figure has progressively been reduced each month: down from $170 million in May, $260 million in April and $400 million in March, when the pandemic first paralyzed the U.S. airline network. In May, Tilden set a goal of reaching zero cash burn by year’s end.
Nervous about August
Still, the cash outflow remains strong. And CFO Tackett said because of the recent national spike in COVID-19 cases and the consequent lockdown in various regions of the country, “July’s cash burn will be higher than June’s.”
Tilden conceded he, like other U.S. airline leaders, is “nervous about August and September.”
To stay afloat with such a huge cash drain requires a lot of liquidity, which Alaska has been building up through loans. At the end of June, the company had $2.8 billion in cash on hand and in July obtained nearly $1.2 billion in additional loans secured by 61 of its jets.
As of today, Tackett said, Alaska has $3.7 billion in cash on hand.
The company said Thursday it has returned to service 43 Alaska Airlines jets and all of its Horizon Air aircraft. As of Wednesday, 89 of its Airbus and Boeing jets remain temporarily parked.
To encourage passengers to return to the skies, Alaska will keep middle seats free through the end of September, require all passengers to complete a pre-travel wellness agreement at check-in, encourage social distancing at airport gates and ask all on board its flights to wear a mask.
Accounts of the mask policy not being enforced have prompted Alaska to issue warnings to passengers who refuse. That falls short of the stricter policy Southwest announced Wednesday, which is that those without masks will not be allowed to fly.
Also Thursday, Alaska announced it hopes to finalize its entry into the “oneworld” airline alliance by year end. That will allow Alaska passengers to connect seamlessly with international flights on other oneworld airlines, including American and British Airways.
Achieving that will require Alaska to fast track the integration of its complex back-end reservation systems with those of oneworld.
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