Southwest CEO Seeks Cost Cuts With Airline ‘Living Day to Day’

(Bloomberg) -- Southwest Airlines Co. is “in intensive care,” its chief executive officer said, urging employees to keep cutting expenses wherever possible as the new coronavirus continues to erode travel.

The U.S. discounter is evaluating the $50 billion federal program that will provide loans and cash payments to help carriers meet payroll and other employee costs. It’s premature to know “how we might fit into this” until the Treasury Department provides details, CEO Gary Kelly said in messages to employees over the weekend and Monday.

“We are in intensive care,” he said. “I don’t like being in intensive care, but we just have to admit that’s where we are.”

Like the rest of the airline industry, Southwest is getting slammed by the abrupt collapse in travel demand, with airplanes in some cases flying only a handful of passengers. Cost reductions Southwest already has made would help the carrier survive about six months of such a downturn, he said.

“We’ll come out of six months kind of bruised a little bit, but I don’t think we’ll be flat on our backs where we can’t get up,” he said. “If the loads continue where they are today for 12 months, that’s just impossible. There’s no way we can do that. We would run out of cash. Or we’d be in such bad shape at the end of that, that we would really be hobbled for the future.”

The government’s rescue program could require equity or other securities in exchange for assistance. Additional restrictions would apply, such as limitations on reducing payrolls and restraints on executive pay. The aid “isn’t a bailout,” Kelly said.

“It doesn’t eliminate our need to dramatically cut our costs,” he said. “Please don’t take your foot off the gas.”

The Dallas-based airline doesn’t want to temporarily shut down to save cash, in part due to the difficulty of restarting a 750-aircraft fleet, Kelly said. It won’t join some other carriers in dedicating aircraft to hauling cargo because Kelly doesn’t believe Southwest would make money doing so.

The company has cut 1,500 of its 4,000 daily flights and will reduce flying capacity 20% next month. Southwest plans to park about 50 of its older Boeing Co. 737 aircraft, in addition to 34 newer 737 Max planes that were already idled by a worldwide grounding after two fatal crashes, Kelly said.

The airline has frozen hiring and pay raises, may add an early retirement option to a voluntary leave program, and has cut capital spending “to the bare minimum,” Kelly said. Southwest secured a $1 billion term loan and has tapped out an existing $1 billion unsecured revolving credit facility.

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