(Updated May 25, 2020, 8:10 P.M. ET, with news about Emirates.)
Air France-KLM Group (FP: AF) said it has permanently eliminated double-deck Airbus A380 aircraft from its fleet, joining other airlines that also are rationalizing fleets to contain costs amid a dramatic downturn in business caused by the coronavirus pandemic.
The current economic hardship accelerated Air France-KLM’s previous plan to retire its nine A380s by the end of 2022 — part of a five-year restructuring plan announced last November to improve profitability. The fleet renewal effort at the time was motivated by a desire to switch to more fuel-efficient aircraft, such as Airbus A350s and Boeing 787s, that produce fewer carbon emissions.
The group owns or is financing five of the massive planes, with four more under operating leases from outsourced air carriers. The company said Wednesday it will take a 500 million euro ($548 million) impairment loss for the reduced value of the aircraft in the second quarter.
Delta Air Lines (NYSE: DAL) owns 10% of Air France-KLM.
The A380 was already headed to the dustbin after Airbus last year said it would stop producing the planes after 2021. The plane never fulfilled expectations as a people mover and wasn’t ideal for cargo operations.
Bloomberg reports that Emirates wants to cancel five of its last eight A380 deliveries and is considering speeding up retirement for some of the 115 giant planes in its fleet. But Emirates President Tim Clark refuted such suggestions in an interview with the Financial Times, saying all but three planes are expected to come out of long-term storage within two years.
Other airlines, including Delta, Lufthansa and American, are also accelerating retirement plans for older aircraft because of their high operating costs and limited revenue potential in a depressed market.
Beyond having too many airplanes that can’t be adequately filled with paying customers in the next few years, airlines say they won’t need as many workers. This week, Austrian Airlines and labor unions reached agreements on how to share the pain in order to avoid layoffs.
Austrian, which has pulled all flights through the end of May, said employees have agreed to work shortened schedules and not take wage increases or inflation adjustments until 2022 in recognition that air travel demand will be slow to recover.
Austrian Airlines, part of the Lufthansa Group, employs 7,000 people.
Also, worker representatives agreed to reduce ground-staff salaries from March 20, 2022, until the end of 2023. The pay cuts range between 2% and 15%, depending on wage scales. Cockpit and cabin crews will forego between 5.9% and 12.7% of their salaries between 2022 and 2024 as well as pension fund contributions. Taken together, the labor changes are expected to save 80 million euros per year through 2024, or 20% of personnel costs.
The Austrian Airlines situation underscores the difference between European and U.S. companies in how to deal with workforces during an economic shock. European governments have programs to subsidize the wages of dislocated workers so employers can keep them on the payrolls. In the U.S., employees are often laid off and have to look for new work. A significant chunk of the U.S. emergency funding is designed to help workers who have already lost their jobs.
U.S. airlines are holding the line on involuntary furloughs at the moment thanks to tens of thousands of employees taking voluntary unpaid leave and billions in federal bailout money designed to pay workers through the end of September. Airlines claim the funds aren’t enough to cover everyone at their normal schedule because they are operating with skeleton crews, so wages are paid on reduced hours. And executives have signaled that permanent layoffs are coming in the fall unless many workers take early retirement deals.
On Thursday, several senators asked Delta and JetBlue to stop scaling back employees’ hours, saying it violates the intent of the government’s payroll assistance. United Airlines has reversed its decision to cut back hours for all employees and is allowing them to volunteer for reduced hours.
“These airlines are claiming that salaried employees are more protected under the CARES Act than hourly workers,” said Angelo Cucuzza, special assistant to the president at the Transport Workers Union of America, in a statement. “The intent of Congress is clear: Airlines that take federal subsidies must use that money to keep their workers whole — whether they’re turning a wrench, working an airport ticket counter or sitting at a desk. We’re trying to save the economy and you can’t do that when you’re pushing workers into unemployment offices.”
In related news, Air Canada on Friday announced an abridged summer schedule with 97 destinations compared to 220 last year as travel restrictions loosen and it slowly rebuilds its network.