Please ensure Javascript is enabled for purposes of website accessibility

Southwest CEO Says More Employee Sacrifice Needed Heading Into 2021

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Southwest Airlines Stock Quote
Southwest Airlines
$32.54 (-1.36%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.