Southwest Airlines CEO Gary Kelly says the Dallas-based airline’s employees will need to take 10% pay cuts in 2021 to avoid furloughs amid a financial crisis that’s expected to drag into next year.
Kelly said non-union employees will take 10% pay cuts starting Jan. 1. The company will also go to unions asking for similar sacrifices in hopes of getting a deal done before year’s end.
“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 breaking even, absent substantial improvement in our business,” Kelly said in a video message to employees released Monday.
Kelly said concessions might not be needed if Congress comes through with a second round of airline payroll support, which infused the industry with $25 billion in March to cover salaries and benefits through September. Airlines want an extension that would cover worker costs through March.
Southwest has avoided furloughs during the COVID-19 pandemic by enticing employees to take early retirement or extended time off.
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But Southwest is still burning through nearly $17 million a day in cash to keep aloft. It’s also limiting sales to leave middle seats open to allow for social distancing and discounting tickets to attract more travelers.
“Even Southwest isn’t immune to the pandemic, and it is very humbling, quite frankly,” Kelly said in an interview. “And this is all about saving jobs, it’s all about job security.”
Southwest will enact other cost-cutting measures as well.
Kelly said he is cutting his salary to zero through the end of 2021, along with reductions in the company’s board of directors' compensation. Kelly, who has run Southwest since 2008, received $8.77 million in total compensation last year, including $6.37 million in stock awards and a $750,000 base salary.
Pay for senior management will be cut 20% through the end of next year.
“Our quarterly losses could be in the billions until vaccines are available, distributed and effectively kill the pandemic,” Kelly said in the video. “At best, that’s looking like late next year.”
Southwest is perhaps the airline best equipped to deal with the COVID-19 pandemic, with less debt and more domestic flying than others. But the length and depth of the pandemic have left the airline heavily overstaffed while commercial aviation traffic sits at 1970s levels, Kelly said.
The last time the company suggested concessions, union leaders rejected the idea. They said the airline had an overstaffing problem, not a pay problem.
“We want the company to look at creative ways to avoid furloughs,” said Lyn Montgomery president of Transport Workers Union Local 556, which represents Southwest flight attendants. “Historically, concessions haven’t been able to avoid furloughs in the airline industry, and then employees are working under those conditions for much longer.”
Alternatives such as more voluntary extended leave for employees could help alleviate payroll problems, Montgomery said.
The Southwest Airlines Pilots Association told members Monday that the union wouldn’t be ready for any negotiations until it receives more information from the company.
“Concessions from employees will not materially impact our airline’s bottom line,” SWAPA President Jon Weaks said in the message. “Southwest can trim a little off cash burn with [salary, wages and benefits], but it can’t get there on the backs of labor unless everyone agrees to literally work for free.”
Weaks told The Dallas Morning News: “Everyone realizes that if there is no Southwest Airlines, there are no jobs.”
Southwest is formally asking for wage cuts for the first time, and Kelly said the airline needs a fast deal with union leaders.
“We simply don’t have time for long drawn out complex negotiations, and I’ve instructed our company’s labor team to take a simple approach,” Kelly said in the video. “Obviously, I’ll entertain any ideas that your union reps have, but again, we need to move quickly and with a goal of having cost savings in place for all employee groups by Jan. 1, 2021.”
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