Southwest CEO announces pay cuts to avoid layoffs and time off until 2021

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In a video to employees Monday, Southwest CEO Gary Kelly announced that the airline will have to “sacrifice more” by suffering pay cuts to avoid layoffs and time off until mid-2021. continued impact of the coronavirus pandemic on travel demand.

The announcement comes as the airline industry is pushing for an extension of the payroll support program allocated under the CARES (Coronavirus Aid, Relief, and Economic Security) law that Congress passed in March after the the $ 25 billion bailout expired on October 1. .

Kelly noted that since the Act’s Payroll Support Program (PSP) expired, this Southwest “just cannot afford to continue with the conditions required to maintain full pay and employment.” said Kelly.

Applauding his employees, declaring that they ‘all did a magnificent job’ 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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While Kelly said he remained grateful for the previous six months of payroll support, he argued that it “just hasn’t gone far enough or long enough” as domestic air travel has plummeted in the US. “1970s levels” during the pandemic, down 70% from a year ago.

“Costs and expenses have been drastically reduced at Southwest, but not enough to offset a 70% loss in revenue,” Kelly noted. “Salaries, wages and benefits are by far our biggest expense item, and we will have to eliminate a large portion of wages, salaries and benefits to deal with low levels of traffic if we are to hope to break even.

He also warned that the airline’s quarterly losses could run into the billions until a vaccine is available, distributed and can “effectively kill” the virus, which may not be until the end of the year. next year.

“We had hoped that the federal government would act quickly again, but it didn’t and that’s disappointing,” Kelly added. “We’ve been lobbying a lot and have huge support for expanding PSP, so it’s frustrating that we haven’t seen legislative action yet. ”

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As of now, Kelly’s already reduced base salary will be nil, which will continue until the end of 2021. Meanwhile, cuts to Southwest’s board fees and senior base salary Airline executives have already been cut by 20.%, will also remain so until the end of next year.

In addition, the base salaries of other management groups will be reduced by 10% from January 1, 2021 until the following year. The cuts will also impact Southwest non-contract workers in an attempt to avoid their layoffs at least until the end of next year.

Although Kelly promised union employees his goal was to avoid time off, he warned the option would be used as a “last resort” if Southwest and its unions “fail to come to an agreement on reasonable concessions.” .

“We just don’t have time for long, drawn-out negotiations, and I have asked the union team at our company to take a simple approach,” Kelly said.

He added that if the PSP is extended until next March, wage reduction efforts will be halted or canceled.

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Kelly stressed that the company is focused on driving traffic, winning back old customers and winning new customers, noting that the company is “playing the game off” by adding new cities to its schedule.

“If we leave the office we will have to cut deeply to achieve adequate savings and reducing our capacity deeply defeats our goal of generating more traffic,” Kelly said. “We need the cost and personnel savings, it’s that simple. ”

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Southwest’s plan comes as its competitors have already started layoffs.

Teleprinter security Latest Change Change%
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 standoff on Capitol Hill had forced it to lay off 13,000 employees while American Airlines began laying off 19,000 employees.

Southwest stock closed at $ 38.49 per share at the end of Monday’s trading session and is down slightly during after-hours trading.

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