In a video message to staff on Monday, CEO Gary Kelly said the "time has arrived" for Southwest to begin discussions with its labor unions regarding concessions. The cuts are needed to forestall what are expected to be "billions" of dollars in quarterly losses until a COVID-19 vaccine is widely available.
"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’s looking like late next year," said Kelly. Southwest has notably not posted an annual loss since 1972.
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In addition to any labor concessions, Kelly will forgo his salary through the end of 2021 and all senior executives will take a 20% pay cut.
The cost-cutting moves follow the failure of Congress to extend payroll assistance by the Oct. 1 deadline. Since the expiration of protections under the federal coronavirus aid package, or CARES Act, at least 40,000 airline workers have been furloughed to laid off.
The Senate has adjourned through Oct. 19, seeming to put any possible action at least two weeks off — and two weeks before the presidential election.
Southwest already has committed to not furloughing staff before Jan. 1, 2021 — a promise Kelly reiterated on Monday. Barring either retroactive action by Congress, labor concessions or a sudden recovery in air travel, furloughs may be necessary, he said.
TPG Q&A: Southwest CEO Gary Kelly chats about his legacy, new cities and change fees
"We’re going to have bad times, and going to have to sacrifice in the really bad times," said Kelly. "I’ll just remind you: this is the first time in our history this has happened. That’s a pretty darned good track record, and reason to believe, this too shall pass."
Kelly promised to roll back any concessions if Congress reaches a deal.
Southwest has historically grown out of crises. After 9/11, it resumed its full schedule and even added Norfolk (ORF) to its map less than a month later. The recession of the early 1990s allowed it to grow in California — where it is now defending its grip with new Long Beach (LGB) and Palm Springs (PSP) flights — and push American Airlines and USAir out.
Related: Southwest Airlines could cut cities without additional coronavirus aid
But the coronavirus has proven to be by far the worst crisis airlines have ever seen — even seemingly indomitable Southwest. The airline has cut flying from its schedule since the summer peak and just slashed its November schedule by about 30 points to down 38% compared to 2019, according to Cirium schedule data.
The airlines plans to add three cities — Miami (MIA), Palm Springs and Steamboat Springs, Colorado (HDN) — this winter, more an effort to diversify its revenue streams than actual expansion.
“[The] outlook has actually gotten darker — something I would not have believed possible just a few months ago," Alexandre de Juniac, director general of the trade group the International Air Transport Association (IATA), said about the outlook for air travel on Sept. 29. The organization does not expect a full recovery until at least 2024.
Related: Airlines are flying some unexpected routes during the pandemic. Will they stick around?
