With ‘Virtually Zero’ Air Travel, Southwest Warns of Pay Risk

(Bloomberg) -- Southwest Airlines Co. has to prepare for the risk of becoming a “drastically smaller” company, and Chief Executive Officer Gary Kelly told employees he’d prefer an across-the-board pay cut to more dire scenarios -- such as the first involuntary furloughs in the carrier’s history.

Kelly outlined possible scenarios if travel doesn’t begin to pick up in the wake of the coronavirus pandemic, addressing workers in a video message Thursday that was part pep talk and part warning. While Southwest has cash reserves plus $3.2 billion in government payroll aid to survive the coming months, he encouraged workers to “fight like we’ve never fought before” to lower costs.

Southwest is contemplating the first layoffs and involuntary pay cuts in its 49-year history as the outbreak and government travel restrictions bludgeon airlines by prompting a collapse in travel. The federal airline aid curbs mass employment cuts and pay-rate reductions, but only through Sept. 30. Southwest has already joined rivals in parking planes, slashing flight schedules and offering employees voluntary leave.

“If things don’t improve dramatically over the May-June-July time period, we’ll have to prepare ourselves for a dramatically smaller airline,” Kelly said. “I am not predicting that. But life can be very humbling, and clearly this is a lesson that we are not in control of this coronavirus and how many people choose to fly.”

‘Precious Jobs’

If Southwest has to shrink, it will first seek volunteers to retire early, take extended time off or accept voluntary furloughs, Kelly said. If the airline is still burning through cash at that point, it would try to push through reductions in benefits and then in pay before resorting to involuntary furloughs, he said.

“To preserve precious jobs of our co-workers, our friends, our family, I would prefer we all take a small and hopefully temporary pay cut,” said the CEO, who pledged to work for no salary if Southwest has to ask employees for larger sacrifices.

Such changes would have to be negotiated with unions representing Southwest workers. Leaders of the Transport Workers Union and Aircraft Mechanics Fraternal Association recently said the Dallas-based carrier had sought to begin talks on contract givebacks.

Kelly said Southwest hadn’t sought concessions from labor groups and underlined that doing so would be a last resort. He called the airline’s record of avoiding pay cuts and furloughs his “greatest source of pride.”

But with the airline industry’s passenger loads down more than 95%, business “is bad and the future is uncertain,” Kelly said. And he was at pains to warn employees that more trouble may be in the offing.

“We have a problem,” he said. “Our traffic is virtually zero.”

©2020 Bloomberg L.P.