Southwest Airlines chief urges pay cuts with air travel almost at a standstill

The US carrier is contemplating the first layoffs and involuntary pay cuts in its 49-year history

Southwest Airlines Boeing 737 Max aircraft parked at Southern California Logistics Airport. AFP

The world’s largest low-cost carrier has to prepare for the risk of becoming a “drastically smaller” company.

Southwest Airlines chief executive Gary Kelly told employees he would prefer an across-the-board pay cut to more dire scenarios - such as the first involuntary furloughs in the company’s history.

Mr Kelly outlined possible scenarios if travel doesn’t begin to pick up in the wake of the coronavirus pandemic, addressing workers in a video message on Thursday.

While Southwest has cash reserves of about $3.2 billion (Dh11.74bn) in government payroll aid to survive the coming months, he encouraged workers to “fight like we have never fought before” to lower costs.

The Texas-based carrier is contemplating the first layoffs and involuntary pay cuts in its 49-year history as the coronavirus outbreak and government travel restrictions bludgeon airlines by prompting a collapse in travel.

“If things don’t improve dramatically over the May-June-July time period, we’ll have to prepare ourselves for a dramatically smaller airline,” Mr Kelly said.

“I am not predicting that. But life can be very humbling and clearly this is a lesson that we are not in control of this coronavirus and how many people choose to fly.”

If Southwest has to shrink, it will first seek volunteers to retire early, take extended time off or accept voluntary furloughs, Mr Kelly said. If the airline is still burning through cash at that point, it would try to push through reductions in benefits and then in pay before resorting to involuntary furloughs, he said.

Meanwhile, German airline Deutsche Lufthansa said it risks running low on cash within weeks. It said the global oil rout has deepened its distress and its survival now depends on talks for a multi-state bailout.

Liquidity will fall sharply if Europe’s largest carrier is unable to soon access aid from its home country, along with Austria, Belgium and Switzerland, Lufthansa said in a statement.

The coronavirus pandemic has forced the sprawling airline group to halt most flights, choking off revenue while outgoing costs for ticket refunds and financial obligations strain its reserves.

The statement “indicates a need for state aid within weeks,” Bernstein analysts Daniel Roeska and Alex Irving said in a note. “Right now, it is quite literally state aid or bust.”

The collapse in oil prices has rocked Germany’s flagship airline, already in crisis after the coronavirus outbreak brought global travel to a near halt. Lufthansa connects the country’s powerhouse economy to the far-flung markets on which its export juggernaut depends.

With a fleet of 763 jets before the coronavirus hit, the carrier dominates business travel in the wealthiest areas of Germany, Switzerland and Austria.

Lufthansa stock has been halved since the start of the year, leaving it with a market value of $4bn. It said this month that it would scale back its fleet by more than 60 jets.