Airlines must lay off thousands of employees ahead of the coming economic crisis.
What’s happening: Airlines will be forced in the months ahead, and perhaps for the foreseeable future to lay off employees, starting with non-unionized ones. The airline industry is cyclical, and economic shocks are felt almost immediately, and airlines must respond. We see airlines trying to respond, with a few looking to merge to deal with the challenges, of which some may fear having to file for bankruptcy if they’re not able to find a way to deal with the challenges such as reducing cost. Here’s what we understand so far:
The airline industry is extremely sensitive to shocks, be they economic, geopolitical, or environmental. Thus, we expect airlines to respond dramatically to the coming economic crisis.
Generally, personnel costs are the largest expense for an airline – with fuel costs a very close second. Therefore, as the economic and geopolitical crisis unfolds, expect airlines to aggressively lay off employees.
Get Involved: Do you believe that airlines will lay off a massive amount of employees? Or will governments step in and prevent them from doing so? Please share your thoughts in the comments below.
The airline industry is extremely sensitive to shocks, and the mother of all economic, and geopolitical shocks may be just over the horizon.
Let’s be clear, the airline industry is not the only one suffering at this time. Tech firms such as Amazon and Google are currently on their third round of layoffs with long-standing companies like Yellow Trucking going out of business completely causing approximately 30,000 employees to lose their jobs.
As sensitive as the airline industry is, it has some wiggle room because of regulations and government support. However, that runway is running out, and the industry needs to do something. That something is, to lower operating costs immediately.
So, hard choices need to be made, and those choices seem to be pointing toward lowering personnel costs.
On Aviation™ Note: We believe that the airlines will be the lagging player here when it comes to layoffs, with tech firms, media companies, and others leading the charge. Nonetheless, the airlines must reduce their headcount to remain profitable.
Given interest rate levels and current economic conditions, airlines are forced to cut costs, and the likely place to start is personnel.
The challenges for airlines did not start in 2024, and airlines have tried their very best to resist laying off employees. This is partly because companies do everything they can to deal with economic challenges by lowering costs before laying off employees. This is also in part due to airlines being beneficiaries of government support during the pandemic lockdowns, and the government made it clear that layoffs would not be an option as a condition of getting support.
For airlines – and any company for that matter – it is important that costs are controlled to remain profitable. For public companies, the importance of this is even more acute, since public investors are watching the companies to see how they handle their finances and respond in kind with a bidding up or selling off of their stocks.
That being said, however, contrary to popular belief, companies generally do not lay off employees at the first sign of trouble. This is primarily because it costs companies money to recruit and train employees.
On Aviation™ Note: Most airlines are operating in the red. This problem can be shoved under the rug during periods of low interest rates and better economic conditions, as airlines can borrow to offset the losses on their books. However, this is not sustainable.
Airlines have tried their very best not to lay off employees during what we believe is a recession that started in 2023, and by some measure, in 2022. This reluctance is due to government support requirements, and the fact that it costs to recruit and train new employees. However, at some point, the disadvantage of having to recruit and train all over again will pale in comparison to the cost of keeping employees as airlines try to reduce their operating costs. With American Airlines laying off 8.2% of its non-unionized staff, we believe this is the beginning of mass layoffs within the airline industry.
Thank you for reading this week’s On Aviation™ full article. Do you believe that airlines will lay off a massive amount of employees? Or will governments step in and prevent them from doing so? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.
Orlando – On Aviation™