These corona job losses will be permanent
The wave of job losses that has come crashing down in the past six weeks has had one silver lining: Many economists and investors think that a good portion of the layoffs are temporary, and people will be able to head back to work once government lockdowns start to ease.
That may be true in some sectors. But for the airline industry, which has been battered by plunging demand as people hunker down at home, changes to its workforce will be more permanent.
See here: General Electric (GE) said Monday that it is cutting as many as 13,000 jobs in its jet engine business for good. The move is designed to cope with an “unprecedented” and “deep contraction” of commercial aviation, according to the company.
GE said the job cuts will help the company save $1 billion. Orders for jet engines and parts have plunged as Boeing and Airbus have slashed production of new planes. Demand for servicing jets has also collapsed.
Meanwhile, a top executive at United Airlines (UAL) is urging employees to consider leaving the company voluntarily.
In a memo to staffers, Chief Operations Officer Greg Hart said the airline will need to “right size” its workforce. “We recognize that this is painful news, but it provides what we believe is the most accurate assessment of what lies ahead for our company,” he said.
The airline is precluded from laying off staff for the next six months under terms of a US bailout that will provide it with about $5 billion, but it’s preparing to cut staff as soon as October, according to a letter sent to staff in April by CEO Oscar Munoz and President Scott Kirby.
These announcements underscore the gravity of the crisis facing the aviation industry, which is expected to take years to recover from the coronavirus shock. Ryanair, Europe’s top budget airline, said Tuesday that traffic plunged 99.6% in April. Just 40,000 passengers flew last month compared to 13.5 million in 2019.
Investor insight: Shares of airlines reflect this turmoil. Stock in United, Delta Air Lines (DAL), Southwest Airlines (LUV) and American Airlines (AAL) all fell at least 5% on Monday after legendary investor Warren Buffett said he’d dumped his holdings, calling it a mistake to invest in the industry.
But what’s happening in the sector also casts doubt on the notion that the US unemployment rate will reach its high point in April before coming down to 10% by the end of the year.
James Knightley, chief international economist at ING, told clients Tuesday that he sees the US unemployment rate spiking as high as 22% in May, from an expected 15.8% in April, pushed up by layoffs in the services sector and the oil and gas industry.
