Southwest Boosts Minimum Wage to $15, Sets Raises for 7,000

(Bloomberg) -- Southwest Airlines Co. will increase its minimum wage to $15 an hour and raise the pay of thousands of airport workers to ensure it retains sufficient staff and can attract new employees to support growth over the next two to four years.

The move will affect more than 7,000 employees and take effect Aug. 1, the airline told employees Friday. Southwest declined to provide the total cost of the increases, which will go to baggage and cargo handlers, workers who clean aircraft or deliver parts, reservations agents, customer-service employees and others. The airline had 56,500 full-time employees at the end of 2020.

Southwest is following companies in other industries such as McDonald’s Corp., Chipotle Mexican Grill Inc. and Under Armour Inc. that have increased pay to attract workers even though employment remains below pre-pandemic levels. A recent jobs report showed a larger-than-forecast pickup in average hourly wages for a second straight month, indicating a shortage of people ready to work at existing pay rates.

“It’s a prudent decision to make sure we don’t have labor shortages two and three years down the road as we try to execute the plan” for expansion, Russell McCrady, Southwest’s vice president of labor relations, said in an interview. Ongoing efforts at various levels of government to increase the minimum wage prompted early discussions of the change.

Union Membership

Southwest is the most heavily unionized among large U.S. carriers, with more than 80% of its employees represented by labor groups. It’s rare for a company to unilaterally raise wages or change them outside of contract negotiations, although American Airlines Group Inc. did so in 2017, when it boosted pay for pilots and flight attendants to better match rivals’ and soothe strained labor relations.

With the increase, Southwest is “acknowledging that the pay scales contained in our collective bargaining agreement are entirely too low in order to compete in today’s labor force,” Randy Barnes, president of Transport Workers Union Local 555, said in a video message to members. “I agree wholeheartedly.”

The union is in negotiations for a new contract.

Southwest was little changed at $54.68 at 3:36 p.m. in New York trading, the best performance on a Standard & Poor’s index of the five largest U.S. carriers.

Since the pandemic began, Southwest has added, or announced plans to add, 18 new cities to its network. It’s also restoring service that was scaled back now that Americans are filling flights to take delayed vacations.

Earlier this month, the airline accelerated plans to add Boeing Co.’s 737 Max 7 aircraft to its fleet, and will receive at least 94 of the planes in 2022 and 2023.

Leisure Travelers

Southwest wants to gain a bigger share of leisure passengers nationwide as demand rebounds and has a “huge opportunity” to secure more corporate travel accounts, Chief Executive Officer Gary Kelly told CNBC on Thursday.

The average wage increase at the Dallas-based carrier will be about $1.30 an hour. That equates to 7% to 11% more for new hires. For existing employees, it’s about a 3% to 10% hourly rate increase.

Southwest can unilaterally adjust pay rates under the contracts of two unions that represent affected employees, and is negotiating the change with two others.

The airline is sufficiently staffed for the summer, McCrady said. It has been calling back employees who took extended leaves during the pandemic.

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