Are job cuts the best way to save airlines in the short term?
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Are job cuts the best way to save airlines in the short term?

By Ilaria Grasso Macola 12 May 2021 (Last Updated May 12th, 2021 09:00)

As a result of the Covid-19 pandemic, airlines around the world have resorted to drastic measures, such as redundancies and job cuts, to save themselves from economic failure. With a long way still to go to get to pre-Covid levels of demand, are job cuts the best way in the short term to save carriers?

Are job cuts the best way to save airlines in the short term?
Is job cuts the best way to save airlines in the short term? Credit: Günther Simmermacher

It is common knowledge that one of Covid-19’s biggest victims was the aviation industry, with the whole sector struggling to stay afloat due to the measures implemented at a global level to avoid the spread of coronavirus.

Airlines were particularly impacted, with some carriers resorting to job cuts and restructuring plans to avoid bankruptcy.

According to Chris Horner, insolvency director at insolvency firm Business Rescue Expert, the pandemic has created an existential crisis for the airline industry.

“Thousands of jobs have been lost already as British Airways, Virgin, EasyJet and many others felt they had to make redundancies and other cutbacks just in order to survive and restart flights when conditions allowed,” he commented. “But because it’s an international industry, even if the UK, USA and others begin to gradually reopen and allow travel, many other countries will still be lagging behind which means that several routes will remain closed off.”

Horner believes that new factors – including fewer services and rising costs – will bring in new challenges for the recovery sector, forcing airlines to play catch-up to replace the losses of the last 18 months.

“Airlines will need to start making money again to replace the losses in the last 12 months, but they will also need to fund these new requirements which requires more expenditure now,” he continued. “Sadly, the easiest way to do this in the short term is to cut staffing costs before gradually rehiring and rebuilding your services if demand allows.”

As the International Air Transport Association (IATA) estimates that airlines will see pre-pandemic numbers not earlier than 2024, is cutting jobs the best way forward for the short-term?

 

Redundancy and restructuring

In the last year, many airlines were faced with the tough call of maintaining costs and expenses in the face of non-existent tourism and travel industries, forcing them to agree to restructuring plans to avoid insolvency.

In October 2020, Dutch carrier KLM agreed to submit to a restructuring plan to obtain a government loan of €3.4bn.

The plan – which involved a series of cost-cutting initiatives – demanded employees accept reduced employment conditions such as income-dependent and graduated cutbacks of up to 20% during the loan’s whole period.

The deal involves a significant downsizing of KLM’s workforce and includes cutting 4,500 jobs, divided between non-renewal of short-term jobs and voluntary redundancy schemes.

Other measures include reducing external costs by phasing out leased aircraft and deploying more efficient aircraft.

KLM is not the only airline struggling to get by that considered job cuts. In May 2020, low-cost giant easyJet announced that it had started consultations with workers unions to find a way to optimise its network, reducing staff number by 30%.

“Unfortunately, the lower demand environment means we need fewer aircraft and have less opportunity for work for our people – we are committed to working constructively with our employee representatives across the network with the aim of minimising job losses as far as possible,” easyJet CEO Johan Lundgren said at the time.

More recently, Italian carrier Alitalia has been in the news, as workers were out in the streets protesting possible layoffs.

The company, which in the last few years had been under the Italian Government’s Extraordinary Administration, is at the centre of negotiations between Italy and the European Union regarding the company’s future, which include the creation of a new state-owned carrier, ITA.

As reported by Italian financial newspaper Il Sole 24 Ore, Brussels is pushing for a strong downsizing of the new company, with only 45 aeroplanes, five of which long haul. ITA, which might start operations from July, will require 4,000 employees less, with the number of people made redundant between 7,000 and 7,500.

 

More government support needed

The industry reacted to job cuts by asking for more government intervention. In November 2020, IATA and the International Transport Workers’ Federation (ITF) called the world’s governments to prolong assistance to the industry to avoid massive job cuts.

“Airlines have cut costs to the bone but have just 8.5 months of cash left under current conditions,” said IATA director general and CEO Alexandre de Juniac in a joint statement with ITF.

“Tens of thousands of jobs have already been lost, and unless governments provide more financial relief, these are likely to increase to the hundreds of thousands.”

“By the end of the year, almost 80% of wage replacement schemes will run out; without urgent intervention from governments we will witness the biggest jobs crisis the industry has ever seen,” added ITF general secretary Stephen Cotton.

“But the catastrophic jobs crisis can be avoided with a clear a coordinated strategy built on relief, recovery and reform. […] If governments fail to act and support aviation, not only will they hurt the industry; the impacts will be hard felt by society at large.”

According to a September 2020 analysis carried out by the Air Transport Action Group (ATAG), 4.8 million aviation jobs were at stake by the beginning of 2021, a 43% reduction from pre-Covid levels.

“When you expand those effects across all the jobs aviation would normally support, 46 million jobs are at risk,” said ATAG director of cross-industry Michael Gill at the time. “These include highly-skilled aviation roles, the wider tourism jobs impacted by the lack of air travel and employment throughout the supply chain in construction, catering supplies, professional services and all the other things required to run a global transport system.”

 

The post-Covid future of airlines

Experts are considering what will happen to airlines post-pandemic. Eight months after delivering the research, ATAG feels more optimistic regarding the future of jobs in the airline industry.  “Whilst we have unfortunately lost a number of those jobs, many governments have been able to assist in supporting the employees through furlough schemes,” an ATAG spokesperson tells Airport Technology. “As traffic returns, these jobs will also come back to help connect the world again.”

On the other hand, Francesco Ragni – Buckinghamshire New University aviation management senior lecturer – believes that the drawback will be felt also once the pandemic is over.

“The drawback of job cuts, apart from the personal tragedy for the people losing their job and their family, is that this can lead to challenges once the crisis is over,” he says. “We are seeing already airlines struggling to re-hire personnel as they prepare to restart operation on a full scale.”