Southwest Airlines is notable for being among one of the few carriers that has never involuntarily furloughed or laid off staff amid the airline industry’s many economic ups and downs.
Now, the Dallas-based discounter faces its toughest challenge yet in the novel coronavirus pandemic. The airline has slashed schedules by more than 50% through June, is parking aircraft and looking for other cost savings in an effort to keep its balance sheet in the black with nearly nobody flying.
“If things don’t improve dramatically over the May, June, July time periods, we’ll have to prepare ourselves for a drastically smaller airline,” said Gary Kelly, CEO of Southwest, responding to staff concerns in a video message Thursday. “We are not in control of this coronavirus or how many people will fly.”
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Salaries and benefits were Southwest’s single largest expense in 2019. The airline has taken steps to reduce the line item on its income statement, including voluntary unpaid leave, but has not gone as far as other carrier’s to slash labor costs.
“Our goal is, first, no involuntary furloughs; second, no cuts in pay; [and] third, no cuts in benefits,” said Kelly. “Before we ever get to that point we will see voluntary retirement and early-out programs.”
He aimed to allay concerns that Southwest would, for the first time in its history, forcibly shrink its nearly 61,000 people-strong workforce come Oct. 1. The CARES Act government aid accepted by Southwest comes with a requirement that airlines maintain staffing levels through September.
Kelly repeatedly described how he and the Southwest leadership team are responding to the crisis as a “fight.”
Related: Southwest CEO says airline hopes to avoid furloughs, dropping cities
Wall Street analysts expect airlines to slash their workforces come fall. Cowen analyst Helane Becker estimates that as many as 125,000 employees could be furlough or laid off as U.S. carriers shrink because of significantly lower demand for air travel.
Southwest could reduce it headcount by as many as 18,000 people under a worst-case scenario, she wrote in an April 13 report.
“The airlines will likely look to make those hard [staffing] decisions in September when hopefully demand starts to show improvement,” said Becker.
Kelly is striking a very different tone than that of the CEOs of Delta Air Lines and United Airlines. Both Ed Bastian at Delta and Oscar Munoz at United, while thanking employees for their hard work, have said in no uncertain terms that that the airlines will be smaller post-crisis both in terms of capacity and staffing.
Related: Southwest temporarily slashes Hawaii schedule as part of latest coronavirus cuts
However, the Southwest leader repeatedly emphasized that they will take every voluntary and concessionary step that it can first before forcibly reducing headcount.
Wall Street has not taken kindly to Southwest’s reductions so far. Several analysts have said the airline will need to cut more than half of its capacity through June. Southwest hopes to resume limited international flying on June 7, and even launch a new route between Honolulu (HNL) and San Diego (SAN) the same day.
Delta and United have both cut system capacity by up to 90% through June.
Kelly did not comment on further capacity cuts to come but said Southwest would provide guidance on the quarter ending in June shortly. The airline will hold its first quarter earnings call on April 28.
Related: US carriers signal slow recovery with United Airlines planning to cut June flying by 90%
Featured image by Michael Ciaglo/Getty Images.
