KEY POINTS

  • Salaries, wages and benefits are Southwest's largest cost
  • Southwest wants to keep layoffs as the "last resort"
  • Board of directors will take a pay cut until end of 2021

Southwest Airlines (LUV) CEO Gary Kelly said the airline will be able to avoid furloughs and job losses at least through 2021 if union workers agreed to pay cuts, after the government’s payroll protection plan for the airline industry expired Oct. 1.

In a video message to employees Monday, Kelly said the airline will have to make sacrifices to survive the crippling impact of the COVID-19 pandemic on travel demand.

Kelly assured its employees furloughs will be its "last resort" if the airline and unions fail to reach an agreement on concessions. If a common ground is not reached, the carrier may be forced to follow its rivals, United and American airlines, who began furloughing around 32,000 employees last week.

“Southwest simply cannot afford to continue with the conditions required to maintain full pay and employment,” Kelly said. Lauding his employees, he added it is “now time for us to do what must be done to save Southwest Airlines”.

The airlines have been asking the government to release emergency funds for the industry following the expiration of its payroll support plan worth $25 billion Oct. 1, which was passed by the Congress in March.

As the White House and Democratic leaders failed to reach a coronavirus stimulus deal, Kelly expressed his disappointment that there is no legislative action. He said the company would reverse pay cuts if the government releases funds, but without that, this measure is unavoidable.

Kelly appreciated the government’s plan but said it did not “go far enough or long enough”, as domestic travel dropped to the 1970s level.

“Cost and spending have been cut dramatically at Southwest but not nearly enough to offset a 70% revenue loss. Salaries, wages and benefits are our largest cost item,” Kelly noted, saying that for any hope to break even, the company would have to undergo pay cuts.

The CEO’s base salary will continue to be zero through 2021, and directors have already taken a 20% pay cut. The company aims to bring back its loyal customers and drive up traffic by adding new cities.

More than 25% of Southwest employees reportedly volunteered to take buyouts or extended leaves of absence to support the airline's effort to avoid furloughs.

Southwest Airlines only submitted its request for the stimulus money at the last minute
Southwest Airlines only submitted its request for the stimulus money at the last minute GETTY IMAGES NORTH AMERICA / DAVID MCNEW
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