Coronavirus pandemic tests Southwest Airlines' record of no pay cuts, furloughs

Key Points
  • Southwest is seeking union concessions and other employee pay cuts to avoid job losses.
  • The carrier has never furloughed workers or cut pay in its nearly 50 years of flying.
  • Airline revenue and capacity are down sharply because of the coronavirus.
A bird flies by in the foreground as a Southwest Airlines jet comes in for a landing at McCarran International Airport on May 25, 2020 in Las Vegas, Nevada.
Ethan Miller | Getty Images

The coronavirus pandemic's toll on air travel demand is testing a point of pride at Southwest Airlines: It has never furloughed or cut worker pay in its nearly 50 years of flying.

The Dallas-based airline late Monday announced it's asking labor unions that represent some 80% of its workers to accept pay cuts to avoid involuntary furloughs through the end of 2021. Southwest will reduce nonunion workers' pay by 10%.

"It's a shared sacrifice and this is the kind of company that I think is up for that task," Southwest CEO Gary Kelly told CNBC's "Squawk Box" on Tuesday. Kelly said he is forgoing his base salary until the end of next year.

Airlines are racing to stem cash burn with air travel demand stuck at about a third of last year's levels as the pandemic keeps many potential customers from flying. In September, the Transportation Security Administration screened an average of about 716,000 people a day at U.S. airports, down from 2.2 million per day a year earlier.

Last week, United Airlines and American Airlines started furloughing more than 32,000 employees, a move they say they will reverse if carriers receive more federal aid.

U.S. airlines agreed not to cut any jobs until Oct. 1 under the terms of $25 billion in federal aid. Southwest has committed not to lay off or reduce worker pay through the end of this year, in part thanks to thousands of employees who accepted buyouts or volunteered for time off.

But with a slow recovery ahead, Southwest, its U.S. rivals and labor unions are urging Congress and the Trump administration to approve $25 billion in additional federal aid to support payrolls, generally carriers' largest expense.

The proposal has won bipartisan support, but Congress and the White House have been deadlocked for weeks on a new, national coronavirus stimulus package, which could include the airline support. An attempt in the House to advance a stand-alone bill for more airline aid failed Friday.

"Obviously, any reasonable person realizes this is a huge crisis not just for the airlines but for the country," Kelly told CNBC.

Kelly told employees late Monday that he wants to have cost-saving agreements with unions in place by Jan. 1 and if there's a failure to reach deals furloughs will be a "last resort."

If Congress passes additional airline payroll support the pay cuts at Southwest would be reversed, Kelly said.

Deals may not come easy. The union that represents Southwest's flight attendants rejected the pay cut proposal.

"TWU Local 556, the union of Southwest Airlines flight attendants, has made it clear to the company in previous conversations that our members are not interested in making concessions to a contract that took decades to obtain," said Lyn Montgomery, the union's president, in a statement.

The union urged the public to support additional federal airline aid.

Southwest CEO on asking workers to take pay cut in order to avoid furloughs