The largest expert travel community:
  • 775,032 Total members
  • 4,087 Users online now
  • 1,730,278 Threads
  • 31,989,911 Posts
737 Max

Southwest Spends $1.7 Billion on Employee Separations, Predicts Depressed Demand

Southwest Spends $1.7 Billion on Employee Separations, Predicts Depressed Demand
Joe Cortez

Southwest Airlines is reassuring employees that while layoffs are not imminent, the carrier has to triple their traffic to become profitable. In an open letter to employees, airline chief executive Gary Kelly paints a hopeful outlook for the future of the Dallas-based airline

Although Southwest Airlines will not be laying off workers, over 17,000 employees will leave the company at a cost of $1.7 billion. Airline chief executive Gary Kelly announced the numbers and provided an outlook for operations during the COVID-19 pandemic in an open letter to the airline’s employees.

Southwest Predicts a “Prolonged Pandemic and Depressed Air Travel”

While some in government are calling for opening up economies, Southwest Airlines is joining the dour voices in aviation calling for a very slow recovery. In his letter, Kelly told his workforce that the airline is beginning “to plan for the prospect of a prolonged pandemic and depressed air travel.”

“After 9/11, Herb and I agreed that no airline would go out of business by being too small; we didn’t shrink, but we did suspend our growth for about a year while the air travel market recovered,” Kelly writes in his letter. “Of course, our current scenario is vastly worse, and we must not just suspend growth—we need to shrink to adjust to depressed demand.”

To become profitable again, the airline needs to vastly increase the number of passengers aboard flights. The executive said the airline is losing $20 million per day, and profitability won’t come until they can triple their current traffic load. He is quick to blame the continued downturn on the novel Coronavirus outbreak, and the purported “second wave” America may be facing.

“Experts tell me that, while our cases should plateau at 60,000-70,000 new per day, there is no evidence (based on behaviors) that the case counts will come down—until we have a vaccine,” Kelly wrote. “I’ve recently heard from CEOs of four large U.S. pharmaceutical companies racing to develop vaccines. All agree none will be available until early next year, at best. Based on that, all agree that things won’t be ‘normal’ until mid-year 2021, at best.

“That all suggests we’re living with depressed air travel for another year,” Kelly concluded.

In planning for the “worst case scenario,” the executive asked employees to consider taking an extended time off package the airline is offering to conserve cash. The 17,000 employees that are either leaving the company outright or taking extended time off will cost the airline $17 billion in exit fees.

Despite this, Kelly is hopeful that the airline will rebound. Similar to low-cost carrier Spirit Airlines, the airline leader believes their model is perfect for a post-pandemic turnaround.

“Thus far, we have simply affirmed that the Southwest business model is not just strong, but perfectly suited for this depression: low-cost, low-fare, high service; single fleet of narrow-body aircraft; point-to-point network; open seating; and primary direct distribution via southwest.com,” Kelly writes.

Southwest Still Optimistic Over the 737 MAX Airworthiness and Operations

Among the global chaos, Kelly still sees the Boeing 737 MAX as part of their long-term strategy. When citing his initial plans for 2020, the leader wrote: “We were focused on bringing the MAX back into service and continuing our Hawaii expansion.”

Southwest currently has 34 737 MAX-8 airframes in their fleet, and previously stated they hoped to fly them again by the end of the year. After the first flight tests since the fatal accidents, insiders at the Federal Aviation Administration say it could be re-certified as soon as October 2020.

View Comments (4)

4 Comments

  1. snidely

    August 1, 2020 at 4:41 am

    Why do people still consider WN (SWA) a “low cost” carrier? Their intra-state rates in Ca. are = to the highest of any carrier. By far, higher than Alaska Air. Problem is, Alaska doesn’t fly to/from many Ca. airports.
    And how can anyone equate Spirit to ANY other airline?

  2. gunsar

    August 1, 2020 at 9:01 pm

    It costs $17,000,000,000 for the exit packages for 17,000 employees. If my math is correct, so it cost $1,000,000 per employee. Really? Average one million dollar for one person. Wow.

  3. Pi7473000

    August 2, 2020 at 7:16 pm

    Southwest is hardly ever low fare anymore. Even with fees it is cheaper on United and they serve actual drinks and more snacks than Southwest. Southwest reminded me of Spirit when I was son them last week.

  4. cmd320

    August 3, 2020 at 10:17 am

    @gunsar, your math is incorrect. That’s $17 billion, not $1.7 billion. Works out more like $100,000 per employee. Though that’s still amazingly high.

You must be logged in on the FORUM to post a comment Login

Leave a Reply

737 Max

More in 737 Max

Boeing Officially Ends 747 Program, While Warning Job Cuts Are Imminent

Joe CortezJuly 29, 2020

Southwest Airlines Hopes to Fly 737 MAX by End of 2020

Joe CortezJuly 23, 2020

Boeing 737-MAX Recertification Could Come by October 2020

Joe CortezJuly 21, 2020

Copyright © 2014 Top News Theme. Theme by MVP Themes, powered by Wordpress.

SIGN UP FOR FLYERTALK TIPS & NEWS


I want emails from FlyerTalk with travel information and promotions. I can unsubscribe any time using the unsubscribe link at the end of all emails