LONDON – Southwest Airlines (WN) CEO Gary Kelly stated to his employees via a memo over the weekend that “the ship is taking on water,” referring to continued negative financials during the COVID-19 pandemic.
For the third quarter of this year, the airline has recorded a US$1.16bn loss, with Kelly stating that in order to prevent furloughs or lay-offs, employees will need to take a 10% pay cut.
Such a pay cut would free up around US$500m in extra funding for the airline, with the CEO going through every area of the business except salaries, wages, and benefits. Instead, he said that the airline “can no longer afford to leave that stone unturned”, meaning that they do indeed need to be touched in order to ensure the viability of the carrier.
Continued Calls for State Intervention
Airlines such as WN are calling for an extension of the payroll support program (PSP) in the CARES Act legislation that expired back at the end of September.
Such carriers are looking for a total of US$25bn investment which would pay employees for the next six months. Kelly stated that such an extension would take care of the industry through most of 2021, meaning that pay cuts could be discontinued or reversed.
With tens of thousands of staff furloughed already, Kelly said that he does not want this to become an option for the airline. “I don’t want a furlough. It’s painful for everyone. And a 10 percent pay cut is painful, too. I know that. But the reality is, we’re in a real pickle. And we have to ask for everyone to step up and do their part to help.”
“I need you all to understand we’re in a dangerous situation,” Kelly said. “The ship is taking on water, and we cannot ignore the problem.”
Kickstarting Sales Once Again
The airline has said that it has been asked about restarting alcohol sales onboard amongst other things. Kelly said himself that there are health and safety concerns with the decision due to customers taking their masks off more in flight.
On top of this, it does not produce the revenue stream that the airline would like or need in order to make a profit. Another option that was suggested was charging for bags, with Kelly showing disagreement over this.
“We have no plans to charge for bags. “We have extensive data and analysis that shows, with our brand, we would lose more passengers and more revenue than we would gain from charging bags.”
Finally, Kelly stated that in terms of the middle seats being blocked until December 1, he stated that it hasn’t affected the airline as much as it should do. This is because the demand for flights are so weak that it doesn’t make any difference as the airline isn’t filling up the seats onboard.
“But beginning this month and into the holiday season, we can see lost revenue, and the value of selling the middle seats is significant and will provide additional key revenue for us. And, most importantly, now science supports selling all seats from a safety and a health perspective and that has been widely reported.”
Running out of Options?
With the airline wanting to explore further options, it may show that initial route restarts may not have worked as much as expected.
In October alone, the airline has already announced 12 new daily flights to Miami International Airport (MIA) for a November launch, followed by new resort destinations and the addition of Chicago and Houston-based routes too.
The ideal hope for the likes of Kelly and everyone at WN is that the new services announced will produce a positive-enough return on investment, given the current climate.
WN is evidently trying to do all it can to ensure its employees stay in the business, especially with the historic union concession to avoid layoffs earlier this month.
Winter Will Be Important
The next few months will be important for carriers such as WN, especially with the Winter season tending to bite demand a little bit more than the Summer. Thanksgiving and Christmas periods will be the most important, as passengers will be trying to return to their families to celebrate the holiday period.
From the perspective of WN, it will be of utmost importance to fill up the aircraft as much as possible in order to acquire as much revenue as possible. Otherwise, the dreaded area that Kelly is reluctant to hit will have to be hit, thus creating more layoffs to an industry that has had its head kicked to the ground all year.
Featured Image: Southwest Airlines Boeing 737-700 in the new livery. Photo Credit: Luke Ayers
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