Southwest Air says flier numbers need to triple to avoid layoffs

Mary Schlangenstein

Southwest Airlines Co. needs passenger numbers to triple by year-end if it’s going to avoid the carrier’s first ever involuntary job cuts, its CEO said, even as rising coronavirus infections prompt some states to restrict travel.

Southwest employees have until Wednesday to apply for voluntary separation or extended time off to help reduce spending on labor, the largest expense for airlines. Although some workers took previous shorter-term options, the carrier remains overstaffed for current operations, CEO Gary Kelly warned employees on Monday.

U.S. airlines have offered a variety of incentives for employees to leave as the companies struggle to slash spending and resize operations to match a sharp drop in travel. While demand has increased since collapsing in March, passenger numbers remain down 73% from a year ago. Airlines have warned that thousands of people could be laid off in October, when restrictions tied to federal financial aid expire.

Southwest Airlines

“The recent rise in Covid cases and increases in regional restrictions on businesses and states requiring quarantine aren’t positive developments for our business,” Kelly said in his weekly message to staff. “We’re very concerned about the impact on already weak travel demand.”

United Airlines Holdings Inc. last week warned 45% of its workforce that their jobs will be at risk after September. American Airlines Group Inc. has said that it is on track to have more than 20,000 excess employees.

Dallas-based Southwest will award as many voluntary separation and time off requests as it can before moving to possible pay and benefit cuts for remaining employees, Kelly said.

Last Resort

“Although furloughs and layoffs remain our very last resort, we can’t rule them out as a possibility in this really bad environment,” he said. “We need a significant recovery by the end of this year, and that’s roughly triple the number of passengers from where we are today.”

Southwest confirmed that it has reached an agreement with the U.S. Treasury on a possible loan of about $2.7 billion and is evaluating whether to accept the funds. The airline, which has until Sept. 30 to make a decision, has already received $3.2 billion in federal funding to support payroll costs.

Wolfe Research cut its recommendation on Southwest to peer perform from outperform while reducing its rating on the sector as a whole.

Southwest fell 0.7% to $32.98 at 11:02 a.m. in New York. The shares dropped 38% this year through July 10, the best performance in a Standard & Poor’s index of the five largest U.S. carriers.