The travel industry has been gutted as a result of the COVID-19 pandemic and airlines in particular are carrying the worst of the burden. In response to this existential crisis many are begging their employees to leave and threatening them if they don’t.
Earlier this week, fellow blogger Gary Leff broke the news about American Airlines’ plan to terminate 30% of their management and staff. This comes on the heels of Delta Airlines announcing their own plans to shed personnel in the wake of the devastating impact COVID-19 has had on their bottom line.
Both airlines’ plans feature a key element, as Gary notes: voluntary separation.
For the unfamiliar, voluntary separation programs have long be used by companies to shed older or more-difficult-to-layoff segments of a company’s work force. Large companies like Verizon and Ford and countless others have used these methods to entice tenured employees, often with labor union protection to finally ride off into the sunset.
SHRM defines a voluntary separation program as:
“The purpose of the voluntary separation program is to allow employees to voluntarily separate employment when business needs demand a reduction in force. This program allows [Company Name] to minimize the impact of downsizing by allowing employees to volunteer to be separated in lieu of another employee who is slated to be involuntarily separated by RIF procedures.”
Many times these packages can be chock full of incentives that make it hard to refuse them. I have a good friend who’s taken advantage of such programs three times at Verizon. Each time, he scored a guaranteed salary (sometimes up to a year) only to then be hired back again later as a contractor, the converted to full time, only to be given the opportunity to rinse and repeat. He’s paid off his mortgage this way. Not a bad way to go.
What’s interesting about some of the current plans for major airlines that were recently made public is the use of the carrot and the stick as well as the creativity involved in the packages themselves.
For example, Gary notes that American Airlines is offering two packages:
- Option 1: 1/3 pay for 6 months, 6 months medical + 18 months COBRA, plus 150k frequent flyer miles, and 5 years of AA travel benefits
- Option 2: 1/3 pay for 3 months, 21 months medical, plus 350k frequent flyer miles, and 10 years of AA travel benefits
The 3rd option is an involuntary separation which earns you a pittance: 3 months severance, 1 year of travel benefits and you have to pay your own COBRA health care costs.
If medical is your priority, option 2 seems smarter and if its cash you are after, option 1 seems the way to go. And none of them are really that great. The best you can score is a full 3 months worth of salary plus some things that may or may not be valuable to you. Not great. You read fellow blogger One Mile at Time’s analysis of these packages here if you are interested.
Reminder: these packages are targeted at management or staff – not unions. In a separate action earlier this quarter, AA noted that over 13,000 flight attendants and pilots are participating in voluntary leave or retirement program.
Delta’s voluntary severance program for staff and management seeks to shed 30% of these costs. Delta has two programs:
- Enhanced Retirement Program: Lump sum severance based on years of service, 24 months medical, plus $100k retirement medical account dollars, active travel priority for 1 year, retiree travel pass, 8 positive travel spaces for future flights,
- Voluntary Opt-Out Program: Lump sum severance based on years of service, 12 months medical, active travel priority for 1 year, retiree travel pass (if you qualify), 2 positive travel spaces for future flights,
Delta and American aren’t the only ones offering voluntary separation. United, facing its own challenges, has a voluntary separation program, and as noted by One Mile at a Time, their packages are pretty unique, including offering Premier 1K status to directors and above who decide to leave.
While it’s sad it has all come to this, it is also interesting to see the creativity airlines are employing to reduce their costs. One thing is certain, if these voluntary separation programs don’t get the results they desire, less attractive involuntary measures will follow next. That looming threat is enough for any qualified employee to seriously consider taking a package.
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