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Southwest CEO Says More Employee Sacrifice Needed Heading Into 2021

By Lou Whiteman – Oct 6, 2020 at 9:25AM

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Furloughs could be on the horizon if the airline is unable to work out deals with its unions.

Southwest Airlines (LUV -1.36%) told employees it can avoid layoffs in 2020, but the company will need workers to "sacrifice more" to avoid furloughs next year as the COVID-19 pandemic continues to wreak havoc on the airline industry.

Southwest, like all airlines, has seen business evaporate due to the pandemic, with revenue falling upwards of 80% year over year. The companies remain aloft thanks to a combination of cost cutting and new funds from private and government sources, but the industry is expecting it will take at least into 2022 before traffic fully recovers.

As a condition for receiving assistance under the CARES Act, airlines were prohibited from making involuntary job cuts through Sept. 30, but with that deadline now in the past, many airlines are preparing significant cuts. In a video message to workers late Monday, Southwest CEO Gary Kelly said voluntary retirements and work reductions would allow the airline to avoid furloughs through the end of the year, but the business must find additional cuts heading into 2021.

A Southwest Boeing 737 in flight.

Image source: Southwest Airlines.

"We will all need to sacrifice more," the CEO said. "This pandemic is humbling: as strong as we are at Southwest, even we are not immune."

Kelly said Southwest will work with unions to try to avoid furloughs and instead find other ways to cut costs, but refused to rule anything out.

Let me be clear. My goal has been and remains -- no furloughs. If we fail to reach agreement on reasonable concessions -- quickly -- that will be the last resort. We don't have time for long, drawn-out, complex negotiations. I've instructed the company's labor team to take a simple approach. Obviously, I'll entertain any ideas your union reps have. Again, we need to move quickly, with a goal of having cost savings in place for all employee groups by January 1, 2021.

Kelly is reducing his base salary to zero through 2021, with the airline also cutting senior executive pay and board fees by 20% and making plans to reduce non-union compensation as well.

Southwest and other airlines have joined their unions in lobbying for an extension of the payroll support, and job protections, provided as part of the CARES Act. Kelly called the lack of legislative action "frustrating," but said he is prepared to reverse course if a new round of stimulus with payroll support is provided to the industry.

"If we are so fortunate to have the federal government act and extend the [payroll support] through next March as proposed, then all these pay-cut efforts will be discontinued or reversed," the CEO said. "To repeat, if the [payroll support] is extended, we will discontinue these pay-cut efforts."

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.

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