By John McDermott
Southwest Airlines Will Not Furlough Workers On Oct. 1
Southwest Airlines has announced it will not furlough or lay off any workers on Oct. 1, the first day it is allowed to per its CARES Act terms. Company CEO Gary Kelly made the announcement on Friday in a letter seen by AirlineGeeks.
Kelly’s letter was cautiously optimistic, committing to keep employees working while reminding employees just how dire the airline’s situation is. Kelly wouldn’t rule out the potential for furloughs or layoffs down the line, but he did praise his employees for helping Southwest face the ongoing coronavirus crisis.
“We have no intention of seeking furloughs, layoffs, pay rate cuts or benefits cuts through at least the end of the year. We have never had any of these in our 49-year history,” Kelly said. “I can’t guarantee it will never happen, especially during these dark pandemic times. I can promise you it will be the last thing we do to keep Southwest financially healthy and viable.”
Kelly did not commit to a certain date through which employees can be guaranteed their jobs. But his statement is sharply contrasted from the airline’s previous warning that furloughs would be necessary unless passenger numbers tripled by year’s end.
“We accomplished everything we set out to do to adjust to the pandemic and air travel depression,” Kelly added in his letter. “We completed the financings we believed necessary to see us through.”
Southwest is the largest airline in the United States so far to commit to not laying off employees once CARES money runs out. United Airlines says it may need to furlough as many as 36,000 people and has been offering crews improved buyouts to try to decrease involuntary cuts. Delta Air Lines sent furlough notices to an unspecified number of employees in July, while American Airlines has issued Worker Adjustment and Retraining Notification letters to 25,000 employees.
Southwest isn’t the only airline to commit to retaining workers, however. JetBlue has committed to keeping all of its pilots on payroll, without pay cuts, until May 1, 2021, a full seven months longer than any other airline in the United States has agreed to.
Southwest’s Financial Position
Kelly’s letter reports that Southwest currently has $14 billion in the bank, which is enough to fund current losses for over two years in addition to some short-term investments. But it also warned that Southwest holds over $11 billion in debt that must be paid in addition to current operating losses, which combined could cost up to $1 billion every two months.
Southwest is especially in trouble since many of its focus cities are in states where there have been substantial increases in coronavirus infections. The Texas-based carrier has substantial presences in Florida, California and Arizona, all of which are leading a spike in coronavirus cases across the U.S.
Kelly went on to detail where Southwest stands at the midpoint of 2020. The airline has lost about $1.6 billion so far this year, most of those losses coming in the second quarter, corresponding with the substantial travel dropoff associated with the pandemic. Kelly’s letter said that the losses this year have wiped out an entire year of profits, and revenue was down 70% in June compared to June 2019.
But Kelly also highlighted the airline’s preparedness and reminded workers of some of the steps Southwest has taken to reduce financial losses. In addition to taking $3.2 billion from the U.S. Government under the CARES Act, Southwest has cut operating costs and shareholder returns, sold more stock, and borrowed billions from lenders to raise cash urgently.
Southwest has also “radically restructured” its flight schedule to cut costs. Under terms of the CARES Act, airlines had to maintain frequencies to each city it serves. Cities served at least five times per week are required to be served at least once daily for five days per week or more, while cities served less than five times per week were required to keep just one weekly flight.
Operating with a point-to-point model instead of an additional hub-and-spoke model, this proved difficult for Southwest since it couldn’t just condense multiple flights out of a hub into one.
“The last action we took [to weather the coronavirus crisis] was to begin to plan for the prospect of a prolonged pandemic and depressed air travel. We began with a renewed review of our business model and strategy. This will continue but, thus far, we simply have affirmed that the Southwest business model is not just strong, but perfectly suited for this depression: low-cost, low-fare, high service; single fleet of narrow-body aircraft; point-to-point network; open seating; and primary direct distribution,” Kelly said.
Southwest announced its second-quarter earnings on Thursday along with American Airlines. Both carriers followed Delta and United in posting drastic losses that reflect a substantial decrease in travel in response to the coronavirus, which is continuing to spread rapidly across the United States.
Southwest has put 300 aircraft back in service since the worst of the coronavirus pandemic. It now has 100 airplanes parked or in storage, compared with 400 idled planes at the peak of the coronavirus crisis earlier this spring. It mandates face coverings onboard aircraft, is capping capacity on all aircraft at 67% and is partaking in enhanced disinfecting protocols between flights.
John McDermott is a student at Northwestern University. He is also a student pilot with hopes of flying for the airlines. A self-proclaimed “avgeek,” John will rave about aviation at length to whoever will listen, and he is keen to call out any airplane he sees, whether or not anyone around him cares about flying at all. John previously worked as a Journalist and Editor-In-Chief at Aeronautics Online Aviation News and Media. In his spare time, John enjoys running, photography, and watching planes approach Chicago O’Hare from over Lake Michigan.