Skift Take

You know times are tough when a domestic airline with strong leisure roots like Southwest Airlines is in danger of breaking a half-century tradition of no layoffs or furloughs.

Optimistic news surrounding two coronavirus vaccines may have sent the stock market soaring, but that isn’t driving passengers any faster back to commercial airlines.

Southwest Airlines CEO Gary Kelly, while encouraged by the 95 percent efficacy rates in vaccines in development by Pfizer and Moderna, still thinks the airline industry is years away from a return to remotely normal operations. With his own airline bleeding around $10 million in cash each day, Kelly is looking to the U.S. government and his own employees for assistance to get to the other side of the crisis.

“None of those things individually will address the overstaffing problem just like furloughs won’t address the overall problems at Southwest,” Kelly said Thursday at Skift Aviation Forum during an interview with Airline Weekly Editor Madhu Unnikrishnan. “We’re going to have to get up and bat a lot of singles to hit our way out of this pandemic.”

Gary Kelly, CEO of Southwest Airlines

Southwest, like other companies in the travel industry, vehemently wants to see another round of federal coronavirus relief passed by the end of the year.

But while many other travel sectors expect to be lumped into a small business loan fund in the next bill, airlines like Southwest want another crack at industry-targeted relief in the form of an extension to the Payroll Support Program. That federal grant enabled major U.S. airlines to pay employees without furloughs through Sept. 30.

Southwest needs the money in order to avoid laying off or furloughing workers it doesn’t need at the moment but very well could in the event of an accelerated recovery. Given the unprecedented downturn, Southwest currently has about 20 percent more employees than it needs — costing the airline $1 billion annually, Kelly said.

Washington typically steps in and helps the airline industry above others in downturns due, in part, to the array of security clearances and trainings required to work in the field that are costly to reinstate.

“With the election results where they are today, I think that’s possible we could see [another round of relief] by the end of the year, but that’s a work in progress,” Kelly said. “That would absolutely, I think, get us through this pandemic and preserve jobs and preserve pay.”

But Washington remains gridlocked, with the Senate adjourned until after Thanksgiving and the Trump administration appearing to focus all of the executive branch’s attention on dubious claims of a rigged Joe Biden victory in the 2020 race for the White House.

Southwest appears to have an alternate plan that wouldn’t require a federal boost.

“We’ve reached out to all our union representatives to look for relief via concessions in order to address this substantial overstaffing cost,” Kelly said. “If they choose not to do that, we’ll have no choice but to address that. We can’t afford to spend an extra $1 billion in this environment.”

Southwest reached out to its various union representatives in early October to assess how many were willing to offer some form of temporary concessions in labor contracts to get to the other side of the crisis. While Kelly did not disclose specifics on those talks Thursday, the airline reportedly sought 10 percent cuts in pay to avoid furloughs through 2021.

Most said yes, but those that did not received WARN Act notices as part of the Worker Adjustment and Retraining Notification Act regarding the threat of furloughs. Southwest warned more than 400 members of the Aircraft Mechanics Fraternal Association Wednesday their jobs were in jeopardy, CNBC reported.

The notices put the airline in danger of breaking a labor accomplishment leaders repeatedly tout: Southwest has never laid off or involuntarily furloughed employees in the company’s 50-year history.

“It’s not a matter of us going out of business on March 1 if these things don’t happen. It’s a matter of trying to minimize the debt, [and] stop the bleeding on the losses,” Kelly said. “There’s just a judgment we’ll have to make on when we’ll have to commit to furloughs.”

Accelerate to the Other Side

Southwest made significant additions to its domestic U.S. route map during the pandemic, returning to markets like Jackson, Mississippi, while adding flights to Palm Springs, California, and Savannah, Georgia.

Critics also question if this famously point-to-point airline was beginning to morph into a hub-and-spoke model like some of its legacy carrier competitors, but Kelly took umbrage with the claim. Roughly 75 percent of Southwest’s passengers fly non-stop in a normal travel environment, and that figure is still around 65 percent today.

“I think it is true during this odd time with the pandemic where individual routes are so thin, we are seeing a pick-up in connecting itineraries than what we are used to normally,” Kelly said before adding, “I would expect that to get back to the 75 percent range once demand picks up.”

While Kelly expects changes in travel demand during the recovery, he also doesn’t expect Southwest to stray far from its original ideals as a point-to-point domestic airline. The airline may have added 14 international destinations in the last decade, but it also realized its strongest success came with smaller domestic destinations.

“Our issue until this year was we were short [on] airplanes,” Kelly said. “Now, when we’re long airplanes, we have the capacity to add these destinations and much more aggressively.”

A Return to Normalcy

The biggest guessing game surrounds when, or if, business travel rebounds to pre-pandemic levels of revenue and accompanying employment.

Pfizer and Moderna’s strong results from vaccine trials could lead to as many as 20 million Americans vaccinated by year’s end, but there’s still a long way to go until enough people are treated. The travel recovery could gain significant momentum next year, but Kelly doesn’t expect a full rebound until quite a while after that.

“What I’m most concerned with is business travel, and business travel in every recession I’ve been through took five years to recover to the pre-recession level,” he said. “My own opinion is that means that’s the floor in terms of what we should expect with this recession, and it could be much longer than that for all the reasons we know.”

Southwest is prepared to focus more on leisure travelers in the meantime. As for survival strategy, Kelly is about a return to business school basics.

“Don’t have too much debt. Make sure you have plenty of cash. Keep your costs low, so you have a shock absorber if revenues come under pressure,” he said. “Above everything else, make sure you have really great people in the fight with you.”


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Tags: coronavirus, coronavirus recovery, saf2020, skift aviation forum, skift aviation forum 2020, southwest airlines

Photo credit: Southwest Airlines needs help from the federal government or concessions from its own employees to make it to the other side of the pandemic. Midland Airport/Flickr / Flickr

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