Current Crisis Could Cause Southwest To Become A Smaller Airline

In terms of passengers carried, Southwest Airlines is the third biggest airline in the United States and has the fourth biggest fleet in the country. It is, you might say, kind of a big deal in the industry. But in an online Q&A with Southwest employees this week, Southwest’s CEO, Gary Kelly predicted a very different future for Southwest Airlines. If the current crisis doesn’t pass soon, he said, Southwest could become a very smaller airline.

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Southwest’s CEO Gary Kelly warns employees their airline could become much smaller. Photo: Getty Images.

“If things don’t improve dramatically over the May, June, July time period, we’ll have to prepare ourselves for a drastically smaller airline,” Mr Kelly said.

A report in USA Today has flagged Mr Kelly’s warning. With some refreshing honesty, the CEO admitted he couldn’t predict where either the crisis or their airline was going.

“So what’s going to happen to us? The honest answer is, I don’t know. No one knows. That’s the only honest answer anyone can provide. We’ve never experienced anything like this in our lifetimes.” 

A high-performance airline hits turbulence

Life, in general, is probably giving Mr. Kelly some sleepless nights. Mr. Kelly has run Southwest since 2008. In that time, he has taken the Dallas based airline to giddy heights. In 2019, the carrier earned a tidy US$22.4 billion in revenue. For his efforts, Mr Kelly earned US$8.77 million last year. Granted, approximately 90% of that was in stock awards, and Southwest’s stock is cruising along now near a 52 week low, but it is a tidy little earn.

Salaries all round at Southwest are pretty good. According to the Dallas News, the median wage (including benefits) at the airline in 2019 was USD$101,302.

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Southwest’s CEO Gary Kelly. Photo: Getty Images.

Having raised funds, slashed flights, and parked planes, Southwest’s CEO is running out of ways to prop up the airline during this crisis. Salary cuts are now on the horizon – no wonder the 60,500 odd employees are worried. One employee said this to Mr Kelly in the Q&A session.

“Most of my co-workers are not processing the dark and dangerous reality. Our messages of strength have created a false sense of security. My co-workers talk about the losses at JetBlue and Delta yet somehow don’t apply those numbers to Southwest.”

Cuts to wages and benefits the last resort

Gary Kelly sees salary cuts, benefit reductions, and involuntary furloughs as a last resort. To defer this for as long as possible, Southwest recently reached an agreement with the US Government for $3.2 billion in direct payroll support and a further $1 billion in loans via the CARES Act. That money will help pay salaries until the end of September. But Mr Kelly admits the airline won’t be able to raise cash like that again.

Over April, Southwest was canceling some 1,500 flights a day. In May, more than 40% of flights will be cut. The operational day is being shortened. Departures before 07:00 and after 20:00 are being cut. At the end of March, Southwest had parked about 50 of its 750 odd jets and withdrew its profit guidance for 2020.

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About 50 of Southwest’s 750 aircraft are grounded. Photo: Bill Abbott via Flickr.

Lack of crisis timeline drives uncertainty

The problem for Southwest, Gary Kelly, his employees, and airline staff everywhere is that there is no timeline for this crisis. Nobody knows exactly when it will end and where we are in the cycle.

This, of course, makes for some sleepless nights all round. But Mr Kelly is confident and determined his airline will get through this. There may be a price to pay, but he sees his job as minimizing that price.

“Many companies will not survive this, and it may be through no fault of their own. A lot of jobs will be destroyed. Institutions will be lost that took years or decades to build. … But Southwest is too precious to lose. All of us, we are the stewards and the protectors of what’s been built over 50 years and must guard this treasure that has been entrusted to us with all our might.”

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