Take Pay Cuts Or Get Furloughed, Southwest Tells Employees

Low-cost carrier Southwest Airlines Co LUV is asking union employees to accept pay cuts for the fist time through the end of the next year to avoid furloughs and job cuts, reports the Wall Street Journal.

What Happened: Airlines had received federal aid of $25 billion earlier this year. Under the terms of the aid, they were barred from laying off or furloughing workers until Oct. 1.

Pandemic has impacted travel demand massively and it is still 70% less compared to a year ago. Airlines, which are bleeding cash, are struggling to maintain employee payrolls and avoid bankruptcy at the same time.

As the federal aid restrictions ended last week, American Airlines Group Inc AAL laid off approximately 19,000 workers and United Airlines Holdings Inc UAL laid off approximately 13,000 employees.

A fresh round of stimulus is in sight before the upcoming U.S. elections in November but an Airline Relief bill is not approved.

Southwest Airlines, which avoided layoffs or furloughs this year warned that that furloughs would be inevitable without additional federal aid, as per the Journal.

The airline can avoid job losses if terms are reached with the unions by Jan.1. "I feel like we have a moral obligation to them," added Kelly.

Southwest’s pilot union has agreed to hold discussions with the airline but criticized the company's actions in a letter. "Agreeing to discussions is very different than agreeing to concessions," the union wrote, according to the Journal.

Why It's Important: U.S. House Speaker Nancy Pelosi asked the U.S. airline executive on Monday to hold off the job cuts as relief in on the way.

Southwest CEO will forego his salary through 2021 with senior executive taking a 20% pay cut and nonunion employees taking a 10% pay cut. The relief bill could have a provision to cover airline salaries through March 2021.

Any relief measures would be temporary unless an effective vaccine has been distributed worldwide for the recovery in travel demand.

Price Action: Southwest shares closed down 0.70% to $38.49 Tuesday and are down 28.7% year-to-date.