In a video message to employees on October 5th, Southwest Airlines CEO Gary Kelly laid out the grim reality of the industry and what the airline will need to do to survive. The airline, despite seeing some rebound in the past few months, is still facing depressed travel levels that, according to Mr. Kelly, mimic the 1970s, with the outlook uncertain for at least the next year. However, he has offered some more pessimistic comments in the past.

Mr. Kelly made these comments only a few days after the end of the Payroll Support Program (PSP) funded by the government and a failure to see any extension of the funding, which he rallied for hard with his airline colleagues. This led to mass furloughs from most airlines, minus Southwest, which back in July announced it would not furlough any employees in 2020. However, Mr. Kelly released this video message warning employees that there is a possibility of furloughs, though the airline believes it can avoid them for at least the next year.

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Pay cuts for leadership

Mr. Kelly is trimming his base salary down to zero through the end of 2021. While that does save several hundred thousand dollars, that alone is not enough to keep the airline afloat.

Southwest Airlines has also cut the Board of Directors' cash fees by 20% already, which has been extended through next year. Also, most of the airline's Senior Executives saw a 20% cut in base pay that will continue through next year.

From January 1st, however, more pay cuts will occur. The remaining Leadership groups' base salaries will be cut by 10% for a year, at which point it will return to the current level. Southwest plans on pursuing a similar approach for other non-contract employees. With those who have received temporary pay reductions, Southwest will not be laying off non-contract employees through at least the end of next year.

What about the rest of Southwest's employees?

When it comes to union contract employees, Mr. Kelly stated the airline is approaching union representatives for concessions. While the CEO does not want to pursue a strategy forward that requires furloughs, he said it would be a last resort if the unions and airline could not agree on reasonable concessions quickly.

Mr. Kelly instructed Southwest's Labor Team to take a simple approach, and he will hear feedback from the union reps. His goal is to have cost savings in place for all employee groups by January 1st.

This could come in a variety of fashions. One option could be some groups taking cuts to minimum base pay. Another round of early out and voluntary leave programs might be an option – though the airline would risk not having enough personnel if, by summer 2021, travel rebounds more quickly than anticipated. There are plenty of other options, though some are more attractive for the airline and not for the employees, and others are vice versa, so negotiations will be critical here.

Furloughs are difficult for an airline

Southwest's CEO tackled the common misconception that furloughs only affect junior employees without seniority and do little to impact the carrier's overall business. He succinctly laid out that furloughs create problems in scheduling, crew locations, training, days, nights, moves, and more. He explicitly called the impact of furloughs "disruptive."

Furloughs would also complicate Southwest's plan of winning back old customers to winning new customers, which is one reason why the carrier is adding new destinations in both sun cities and winter getaways. If Southwest has to furlough, it will also need to cut capacity to realize adequate savings, which goes against the airline's plan to drive more traffic on its planes.

In closing, Mr. Kelly stated the following:

You all have done an heroic job in the most challenging of times. I could not be more proud of you. Don’t give up now. Don’t ever give up. You’ve worked too hard, you have persevered. We can fight our way through this. We can save every job. Fifty years from now, they will look back and say, 'Those employees of 2020, they were really something. They saved Southwest Airlines and they saved each other’s jobs. Truly, that was Southwest’s finest hour.'" 

Hopefully, Southwest Airlines and its unions can reach an agreement that minimizes pay cuts and job losses without putting the future of the robust US carrier at risk.

Do you think Southwest Airlines will need to furlough any employees? Let us know in the comments!