United Airlines is cutting about 90 percent of its planned capacity in May and expects to announce in the coming weeks a similar level of reduction for June, CEO Oscar Munoz and president Scott Kirby said in a letter to employees.
"Travel demand is essentially zero and shows no sign of improving in the near-term," the executives said in the letter. "To help you understand how few people are flying in this environment, less than 200,000 people flew with us during the first two weeks of April this year, compared to more than 6 million during the same time in 2019, a 97 percent drop. And we expect to fly fewer people during the entire month of May than we did on a single day in May 2019."
Like other U.S. airlines, United will get funds to cover about three-quarters of its payroll through Sept. 30 via the Coronavirus Aid, Relief and Economic Security Act. For United, that will represent a total of $5 billion, including $3.5 billion as a direct grant and $1.5 billion as a low-interest loan. The government will get warrants to buy about 4.6 million United shares as a part of the loan.
The cuts planned for May and beyond will "maintain connectivity among nearly all our domestic destinations," keeping United in compliance with the CARES Act, according to Munoz and Kirby. United also will avoid involuntary furloughs or pay cuts through Sept. 30, per the terms of the act.
However, United will continue to offer voluntary leave options and voluntary separation programs, the executives said, and 20,000 employees already have signed up for such an option. Even with payroll partially covered, that expense as a whole represents only about 30 percent of United's fixed costs, they said.
Beyond the Sept. 30 requirement, United expects to have "tough decisions" with workforce reductions that could start as early as Oct. 1, according to Munoz and Kirby, as the executives see any significant rebound in demand a long way down the road.
"Not all states and cities are expected to re-open at the same time. Some international travel restrictions will remain in place. Meeting planners and tour operators will do their best to accommodate people looking to avoid large crowds," they wrote. "So, while we have not yet finalized changes to our schedule for July and August, we expect demand to remain suppressed for the remainder of 2020 and likely into next year."