Southwest Airlines warns furloughs, wage cuts still possible without more government aid

Southwest Airlines CEO Gary Kelly told employees Thursday that the Dallas-based airline may still have to furlough workers or cut wages and benefits if the aviation industry doesn’t get another round of economic aid.

Southwest, which has said it won’t furlough employees this year even as competitors began letting go of workers Thursday, is still lobbying for Congress to extend the Payroll Support Program that gave $25 billion in grants to airlines to cover worker costs and another $25 billion in loans.

“But, I need to be honest with you and remind you, if the PSP extension fails, as we have warned for months, we’ll be forced to find a way to further reduce our spending, reduce our salaries, wages and benefits specifically by seeking concessions, or as a last resort, layoffs and furloughs,” Kelly said in the video message to employees posted Thursday afternoon.

Passengers walk through a largely empty check-in area for American Airlines at Miami International Airport during the coronavirus pandemic, Wednesday, Sept. 30, 2020, in Miami. The airline industry has been decimated by the pandemic. The Payroll Support Program given to the airlines as part of the CARES Act runs out Thursday. (AP Photo/Lynne Sladky)

A similar program passed in March and expired Wednesday. The airline industry is still down about 70% from a year ago because of the COVID-19 pandemic. Despite bipartisan support in Washington, D.C., an extension is far from certain.

Southwest, which has never laid off or furloughed employees, avoided worker cuts by getting more than a quarter of its workforce to take voluntary leave and retirement, grounding planes and drastically cutting its schedule.

Nearby American Airlines, based in Fort Worth, began furloughing and laying off a combined 19,000 employees on Thursday. Without more government aid, American Airlines CEO Doug Parker said, the company needs to adjust to an airline industry that has significantly less demand.

Parker told White House officials that American could recall furloughed workers if a deal is passed soon.

Chicago-based United Airlines is furloughing 13,000 employees as well.

Southwest has been slightly better positioned because it had less debt and does less international flying than its major competitors. But the carrier has still taken out billions of dollars in loans in recent months and burned through about $20 million of cash a day in August.

Kelly and other executives have also taken 20% salary cuts. Worker unions have so far resisted wage and benefit concessions, saying Southwest has an overstaffing problem, not a compensation problem.

“But, without the extension of PSP, we know all that won’t be enough,“ Kelly said. “The payroll support that we received in the original federal aid package has allowed us to avoid those difficult actions all the way through the end of this year, but you have to know that we are not immune to this.”

Kelly has said travel demand likely won’t recover significantly until a vaccine or effective treatment for COVID-19 is developed. Until then, Southwest and other carriers may have to rely on government assistance, at least for the next six months, he said.

“We are not there yet,” Kelly said. “And, in the meantime, we await some action from Washington.”

Congressional leaders are talking with the White House about a deal for an extension of economic stimulus, which could include aid for airlines. But Democrat and Republican leaders are still far apart on the size and scope of the overall package.

Planes from American Airlines outside Terminal B at DFW International Airport.

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