'Rotating Parts and Loading Cargo Instead of Passengers'... The Survival Instinct of the Aviation Industry

Reuse of Parts from Canceled Passenger Flights

First-Class Snacks and Other Services Also Suspended

CEOs Return Salaries, Dividends Halted

Significant Number of Employees on Unpaid Leave

▲Interior view of a passenger plane from a Chinese airline. Due to reduced passenger demand caused by COVID-19, cargo has been loaded in the passenger cabin. [Photo source = Twitter]

[Asia Economy Reporter Kwon Jaehee] American Airlines, the largest airline in the United States, has recently started recycling parts needed for passenger plane repairs. Under normal circumstances, new parts would be purchased, but due to the COVID-19 pandemic causing 40% of daily flights to be canceled, parts are being taken from grounded planes and reused. This is a measure for comprehensive cost reduction.

On the 25th (local time), local media including The New York Times reported that the airline industry, hit hard by COVID-19, has begun large-scale cost-cutting. As travel bans and entry restrictions spread worldwide, the airline industry has started responding to the sharp decline in demand.

American Airlines has also stopped providing coffee and water in employee lounges and has begun implementing an unpaid leave program for all employees. Hot towels and snacks are no longer provided to first-class customers. Additionally, for the first time in 36 years, the airline has started transporting cargo without passengers to generate revenue.

This is not unique to American Airlines. Bloomberg reported that Delta Air Lines, Japan Airlines, and Air Canada have also started operating flights carrying cargo in passenger seats. These airlines do not have separate cargo flights. However, with restrictions on human movement, passenger seats have been converted to carry cargo. Only luggage and pilots are on board the aircraft.

According to FlightAware, a flight tracking data provider, American Airlines canceled 1,452 flights in a single day on the 23rd, accounting for 44% of its total flights. Delta Air Lines also suspended 1,324 flights, or 37% of its total, on the same day. Southwest Airlines announced it would cancel 1,500 flights per day (38%) starting from the 27th. This is to prevent losses from operating flights amid declining passenger demand.

The International Air Transport Association (IATA) estimates that global airlines will suffer revenue losses of $252 billion (approximately 309 trillion KRW) due to the impact of COVID-19.

CEOs in the airline industry are returning their salaries. Edward Bastian, CEO of Delta Air Lines, has decided to forgo 100% of his salary for the next six months. Oscar Munoz, CEO of United Airlines, also announced he would give up his base salary until June. Boeing's board chairman and CEO have voluntarily decided to forgo their salaries until the end of the year and suspend dividend payments.

However, despite comprehensive belt-tightening, mass layoffs are expected to be inevitable in the industry. Delta Air Lines has already placed 10,000 employees on unpaid leave. American Airlines and United Airlines are also reported to have a significant number of employees on unpaid leave. Boeing has halted new hiring and suspended operations at its factory in Washington state.

An American Airlines spokesperson said, "Many employees are anxious," and added, "Measures such as layoffs and salary cuts are expected to be unavoidable." Delta Air Lines also stated, "If government-level bailout support is not provided quickly, mass layoffs cannot be prevented."

Global credit rating agencies are consecutively downgrading the airline industry's investment grades. Fitch downgraded Boeing two notches from 'A-' to 'BBB' with a 'negative' outlook, leaving room for further downgrades. Standard & Poor's (S&P) also downgraded Boeing's credit rating to BBB. S&P lowered Delta Air Lines two notches from 'BBB-' to 'BB,' which is considered a non-investment grade or 'junk' status.