Tuesday's Market Minute: Southwest Asks Union Employees For Pay Cuts

Southwest Airlines Co LUV is asking its employees to agree to pay cuts for the first time through the end of next year. This notion is specific to union employees, and the airline has said is the trade-off to avoiding furloughs and future job cuts. Non-union salaries will already be cut by at least 10% until the beginning of 2022. And the Southwest CEO Gary Kelly is also already foregoing his salary entirely through 2021, with several senior-level executives taking a 20% pay cut.

While it is not news that the airlines as a whole have been one of the hardest-hit sectors throughout the pandemic, it remains unclear when they will see any degree of relief. Airline travel demand remains down 70% compared to a year ago despite receiving federal aid of $25 billion dollars earlier this year. Under the terms of the government package, all airlines were banned from laying off or furloughing any employees until October 1.

As October quickly crept up and federal aid restrictions lifted, the airlines began taking necessary measures to remain afloat. American Airlines Group Inc AAL laid off roughly 19,000 employees and United Airlines laid off about 13,000 employees within the last week.

While another round of stimulus has been in talks, a formal package remains unapproved. U.S. House Speaker Nancy Pelosi even asked the U.S. airline executives on Monday to hold off on further job cuts, promising that relief is on the way. The Southwest Airlines’ CEO has confirmed the company can avoid job losses if these terms are reached within the unions by the start of 2021, also noting “I feel like we have a moral obligation to them.”

Southwest stock remains down about 28% this year, outperforming its airline peers who have on average lost about 50% of their value in the last 8 months.

Photo by Jack Harner on Unsplash