Southwest Airlines Warns Of Job Cuts If Travel Demand Does Not Recover

Southwest Airlines (LUV) warned that it may have to take new steps to reduce its workforce if passenger demand doesn’t increase dramatically.

The news was relayed to employees by Southwest Chief Executive Gary Kelly as employees run up against a Wednesday deadline to decide whether to take the company’s offer for a voluntary incentive program to depart the airline, Reuters reported Monday.

“Although furloughs and layoffs remain our very last resort, we can’t rule them out as a possibility obviously in this very bad environment,” Kelly said in his notice to employees obtained by Reuters. “We need a significant recovery by the end of this year —and that’s roughly triple the number of passengers from where we are today.”

Southwest reported first-quarter losses of $94 million and operating revenues of $4.2 billion, down 17.8% year-over-year.

At the time of the earnings report, Kelly said: “ We entered this crisis prepared with the U.S. airline industry's strongest balance sheet and most successful business model. While the impact of the pandemic is unprecedented, we believe demand for air travel will rebound. And, we intend to emerge with ample liquidity and an unwavering focus on our enduring Purpose—to connect People to what is important in their lives through friendly, reliable, and low-cost air travel.”

The travel industry has been hit particularly hard by the coronavirus, as stay-at-home orders and quarantining measures forced travelers to stay home during the pandemic. The airline industry has seen travel demand increase to some extent since the first wave of the coronavirus hit, but it does expect another decline as COVID-19 cases rise across the U.S., Reuters reported.

Southwest joined several other airlines in receiving about $3.3 billion under the Payroll Support Program as part of the CARES Act. The company is unable to layoff employees until Oct. 1 as part of the loan agreement.

Southwest also signed a letter of intent to receive part of a $25 billion loan package from the federal government under the CARES Act. Alaska Airlines, Delta Air Lines, JetBlue Airways, United Airlines, American Airlines, Frontier Airlines, Hawaiian Airlines, Sky West Airlines, and Spirit Airlines also signed letters of intent.

U.S.-based airlines have until Sept. 30 to decide if they will take the federal loan.

Shares of Southwest were trading at $33.25 as of 1:37 p.m. ET, down $0.03 or 0.09%.