Southwest Looks to Pay Cuts to Navigate Pandemic

Southwest is taking a different route to navigate the coronavirus pandemic, implementing management pay cuts and seeking labor union concessions to avoid layoffs.

Southwest Airlines  (LUV) - Get Southwest Airlines Co. Report is looking to take a different route as it navigates the coronavirus pandemic and steep drop in air travel, announcing plans to implement management pay cuts and seek concessions from its labor unions to avoid furloughs and layoffs.

The Dallas-based airline said it was asking its labor unions to accept pay cuts to prevent furloughs and layoffs as federal aid expires. Airlines were barred from furloughing or laying off workers until Oct. 1, under the terms of the $25 billion in federal aid they received earlier this year.

In a video message to employees, Southwest CEO Gary Kelly warned that the airline would have to wipe out a large swath of salaries, wages, and benefits to match the low traffic levels, “to have any hope of just breaking even.”

Southwest is looking to take a different route than its rivals in navigating the ongoing pandemic and its unprecedented impact on airlines’ balance sheets, seeking to avoid the types of mass layoffs that rivals including American Airlines  (AAL) - Get American Airlines Group, Inc. Report and United Airlines  (UAL) - Get United Airlines Holdings, Inc. Report have already said they will have to implement if Congress doesn’t come up with a new industry aid package.

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Kelly said Southwest’s revenue remains 70% below where it would normally be, and that quarterly losses could be "in the billions" until an effective vaccine has been widely distributed. Kelly himself won’t receive a salary through the end of 2021, while 20% pay cuts for senior executives will continue through next year.

The union that represents Southwest's pilots said it has agreed to hold discussions with the company. However, in a letter to pilots, union leaders criticized the company's actions so far and expressed skepticism that concessions would provide much boost to the company's bottom line.

"Agreeing to discussions is very different than agreeing to concessions," they wrote. "We should not be in any rush to make shortsighted moves when we lack the clarity we need to make informed decisions."

The union that represents Southwest's flight attendants and several other groups of workers also signaled its resistance to concessions.

Shares of Southwest were up 0.73% at $38.75 in trading on Tuesday.