In an employee video on Monday, Southwest CEO Gary Kelly announced that the airline will have to “sacrifice more” by suffering wage cuts in an effort to avoid layoffs and permits until 2021, due to the ongoing impact of the pandemic. coronavirus on travel demand.
The announcement comes as the airline industry has called for an extension of the payroll support program awarded under the Coronavirus Aid, Relief, and Economic Security Act (CARES) that Congress passed in March after the bailout deadline. 25 billion dollars on October 1
Kelly noted that because the law’s payroll support program (PSP) has expired, the Southwest “simply cannot afford to continue with the conditions required to maintain full pay and employment,” Kelly said.
Applauding his employees, stating that “everyone has behaved beautifully” and called them “our heroes”, but the 12-year-old CEO said, “now is the time for us to do what needs to be done to save Southwest. Airlines “.
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Although Kelly said he was grateful for the previous six months of payroll support, he said it “just didn’t go far enough or long enough”, with domestic air travel dropping to “1970s levels” during the pandemic, down 70% from a year ago.
“Costs and expenses have been drastically reduced in Southwest, but not enough to compensate for a 70% loss in revenue,” Kelly noted. “Salaries, wages and benefits are by far our most important cost item, and we should eliminate a broad range of salaries, salaries and benefits to match the low traffic levels to have any hope of breaking even.”
He also warned that the airline’s quarterly losses could be in the billions until a vaccine is available, distributed and can “effectively kill” the virus, which may not be until the end of next year.
“We had hoped that the federal government would move quickly again, but they didn’t and that’s disappointing,” Kelly added. “We’ve been lobbying hard and we have tremendous support for the PSP extension, so it’s frustrating not to see legislative action yet.”
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Effective immediately, Kelly’s already reduced base salary will be zero, which will continue through the end of 2021. Meanwhile, previously announced fee reductions for Southwest’s board of directors and the airline’s senior executive base pay , which have already been reduced by 20%, will remain so until the end of next year.
In addition, the base salaries of the remaining leadership groups will be reduced by 10% starting January 1, 2021 until the following year. The reductions will also impact Southwest’s unsigned employees as they try to avoid their layoffs until at least the end of next year.
While Kelly promised union employees that his goal is to avoid permits, he warned that the option would be used as a “last resort” if Southwest and its unions “fail to reach agreement on reasonable concessions.”
“We just don’t have time for long, protracted negotiations, and I’ve instructed our company’s work team to take a simple approach,” said Kelly.
He added that if the PSP is extended until next March, the wage reduction efforts will be halted or canceled.
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Kelly pointed out that the company focuses on driving traffic, winning back old customers and acquiring new customers, noting that the company is “playing offense” by adding new cities to its program.
“If we quit, we will have to cut deep to make adequate savings and cutting our capacity deep goes against our goal of driving more traffic,” Kelly said. “We need cost savings and people, it’s that simple.”
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Southwest’s plan comes as its competitors have already started workforce layoffs.
|LUV||SOUTHWEST AIRLINES CO.||38.49||-0.27||-0.70%|
|UAL||UNITED AIRLINES HLDG.||36.20||+0.19||+ 0.53%|
|AAL||AMERICAN AIRLINES GROUP INC.||13.12||+0.12||+ 0.92%|
United Airlines said the stimulus impasse on Capitol Hill forced it to lay off 13,000 employees while American Airlines began permits for 19,000 employees.
Southwest stock closed at $ 38.49 per share at the end of Monday’s trading session and is slightly down during overtime trading.
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