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Southwest (LUV) Proposes Worker Pay Cuts to Avert Furloughs
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Southwest Airlines Co (LUV - Free Report) is insisting that employees accept pay cuts as air travel demand continues to be 70% below the year-ago levels amid the coronavirus pandemic. The airline is suffering significant revenue loss and cost-reduction efforts haven’t been enough to offset the declines completely.
Amid significantly reduced travel demand, airlines are burning through millions of cash per day. To stay afloat, United Airlines (UAL - Free Report) and American Airlines (AAL - Free Report) furloughed more than 32,000 employees on Oct 1. This follows the expiration of the government payroll aid on Sep 30. U.S. airlines grappling with coronavirus-induced weak air travel demand received $25 billion in payroll support under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in April. As a condition for receiving the financial aid, airlines were prohibited from laying off employees until Sep 30.
Unlike United Airlines and American Airlines, Southwest expects to be able to cut costs without having to lay off or furlough employees, at least through the end of 2021. To this end, Southwest chief executive officer Gary C. Kelly is asking employees to “sacrifice more.” Kelly stated, “Since the PSP [payroll support program] has now expired, we simply cannot afford to continue with the conditions required to maintain full pay and employment.”
Kelly is accepting a base salary of zero with immediate effect through the end of 2021. Senior executive base pays and cash fees of the board of directors have also been reduced and will continue through next year. Effective Jan 1, 2021, base salaries of the remaining leadership groups will be reduced through Jan 1, 2022. Similar measures will be taken for all other non-contract employees. For the union contract employees, Kelly is yet to approach the union representatives for concessions.
Although the airline does not expect to carry out furloughs until the end of next year, it may do so if an agreement on reasonable concessions is not reached quickly. Meanwhile, on a positive note, the carrier will discontinue pay-cut measures if the payroll-support program is extended.
Given the airlines’ struggle with continued weakness in travel demand and recovery seeming to be a distant possibility, talks are under way for additional financial assistance to protect jobs through March 2021. If a deal comes through, Southwest will reverse employee pay cuts. In a similar manner, United Airlines and American Airlines will bring back employees if a deal works out.
All the stocks mentioned above carry a Zacks Rank #4 (Sell).
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Southwest (LUV) Proposes Worker Pay Cuts to Avert Furloughs
Southwest Airlines Co (LUV - Free Report) is insisting that employees accept pay cuts as air travel demand continues to be 70% below the year-ago levels amid the coronavirus pandemic. The airline is suffering significant revenue loss and cost-reduction efforts haven’t been enough to offset the declines completely.
Amid significantly reduced travel demand, airlines are burning through millions of cash per day. To stay afloat, United Airlines (UAL - Free Report) and American Airlines (AAL - Free Report) furloughed more than 32,000 employees on Oct 1. This follows the expiration of the government payroll aid on Sep 30. U.S. airlines grappling with coronavirus-induced weak air travel demand received $25 billion in payroll support under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in April. As a condition for receiving the financial aid, airlines were prohibited from laying off employees until Sep 30.
Unlike United Airlines and American Airlines, Southwest expects to be able to cut costs without having to lay off or furlough employees, at least through the end of 2021. To this end, Southwest chief executive officer Gary C. Kelly is asking employees to “sacrifice more.” Kelly stated, “Since the PSP [payroll support program] has now expired, we simply cannot afford to continue with the conditions required to maintain full pay and employment.”
Southwest Airlines Co. Price
Southwest Airlines Co. price | Southwest Airlines Co. Quote
Kelly is accepting a base salary of zero with immediate effect through the end of 2021. Senior executive base pays and cash fees of the board of directors have also been reduced and will continue through next year. Effective Jan 1, 2021, base salaries of the remaining leadership groups will be reduced through Jan 1, 2022. Similar measures will be taken for all other non-contract employees. For the union contract employees, Kelly is yet to approach the union representatives for concessions.
Although the airline does not expect to carry out furloughs until the end of next year, it may do so if an agreement on reasonable concessions is not reached quickly. Meanwhile, on a positive note, the carrier will discontinue pay-cut measures if the payroll-support program is extended.
Given the airlines’ struggle with continued weakness in travel demand and recovery seeming to be a distant possibility, talks are under way for additional financial assistance to protect jobs through March 2021. If a deal comes through, Southwest will reverse employee pay cuts. In a similar manner, United Airlines and American Airlines will bring back employees if a deal works out.
All the stocks mentioned above carry a Zacks Rank #4 (Sell).
A Key Pick
A better-ranked stock in the broader Transportation sector is Old Dominion Freight Line Inc (ODFL - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Old Dominion have rallied more than 71% in a year’s time.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>