Southwest Airlines Targets Pay Cuts in Bid to Avert Layoffs

Southwest Airlines Co. will seek to cut employee compensation as a last-ditch effort to avoid the first involuntary layoffs in the company’s 49-year history.

The company wants to have givebacks in place by Jan. 1, Chief Executive Officer Gary Kelly told employees in a video message Monday, warning that “we all need to sacrifice more.” Kelly won’t receive a salary through the end of 2021. And 20% pay cuts for senior executives will continue next year as the company contends with a travel collapse caused by the coronavirus pandemic.

“We would have to wipe out a large swath of salaries, wages, and benefits to match the low traffic levels, to have any hope of just breaking even,” Kelly said. “Absent substantial improvements in our business, our quarterly losses could be in the billions until vaccines are available, distributed, and effectively kill the pandemic — and at best that is looking like late next year.”

Kelly delivered the warning as House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continue efforts to agree on a broad economic relief plan that would include $25 billion in payroll support for passenger carriers — a six-month extension of an earlier aid package that expired Sept. 30. Southwest would abandon efforts to cut salaries if the government provides additional help, Kelly said.

10% Cut

Employee costs often jockey with fuel as the largest expense for airlines, and Southwest has warned since April that plummeting demand might force it to seek labor concessions or end its streak of avoiding layoffs and pay cuts. About 17,000 employees already have left temporarily or permanently by accepting voluntary leave or early exits.

Company leadership groups will take a 10% pay cut next year and it would be a “logical conclusion” to assume that Southwest will seek a similar reduction for employees, Kelly said in an interview.

Southwest has received nearly $3.4 billion in federal payroll support. The Dallas-based carrier had $14.5 billion in cash and short-term investments at the end of June. It burned $17 million a day in the third quarter, Kelly said.

Domestic travel demand remains about 70% below a year earlier as the pandemic and related quarantine restrictions damp demand.

“It pains me that through no fault of any of you, we have to take these next steps,” Kelly said. “But we need to realize how much we’ve demanded of our suppliers, how much we’ve asked of our lenders, our investors, our communities, our government. We must demand no less of ourselves.”

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