Southwest Airlines Employees Are Preparing To Make A No-Win Decision: Pay Cuts Or Layoffs?

As it prepares to enter its 50th year in business super-successful Southwest Airlines LUV -0.2% is gearing up to do two things in January that it never has done before: post a huge annual loss and lay off workers.

The Dallas-based carrier – the largest in the nation based on the number of passengers boarded annually – lost a little bit of money way back in 1971, its first year in business, but has been profitable every year since. Now, however, that remarkable streak is guaranteed to end when Southwest reports its 2020 results in January. It already has lost nearly $2.2 billion through the first nine months of this year and continues to burn through cash at a rate of about $11 million a day in the current quarter. Thus, excluding likely year end accounting adjustments, the airline is on course to lose around $3 billion for all of 2020. That represents a previously unimaginable $5 billion negative swing from the $2.3 billion profit it earned in 2019.

That, of course, is the result of the near-collapse of air travel demand this year driven by the Covid-19 pandemic. And now, one way or another, the impact of that staggering change in fortunes soon will be felt by Southwest’s employees.

And make no mistake about it, that’s the very clear message that Southwest’s management wants all of its unionized workers to comprehend. That’s because for the first time in the company’s history, it’s employees appear to have no way to escape the economic fallout of an industry-wide calamity like they’ve done so many times before.

On Friday Southwest issued so-called WARN letters to 42 members of a small group of materials handlers and inventory clerks represented by the Teamsters Union. Congress several years ago required large companies to issue Worker Adjustment and Retraining Notifications in most cases at least 60 days before they are subject to being laid off.

Recently the 322 members of that Teamsters-represented work group voted not to enter into pay concession talks with management. So, in response management sent the WARN letters telling those 42 materials handlers and inventory clerks that could be out of jobs as soon as Jan. 5 - unless their union agrees to management’s demand for 10% pay cuts for all members of their work group.

Southwest’s threat of layoff most decidedly is not about those 42 materials handlers. In fact, the savings from laying off just those 42 workers would be infinitesimal in view of the $22.5 billion in revenue Southwest raked in last year, and the nearly $3 billion operating profits it earned. But the mere threat of such seemingly modest layoffs are huge threat aimed at all 48,000 or so of the airline’s unionized workers.

Management is making it very clear now that every one of them now has a tough choice to make as to how they want to feel the impact of Covid-19 on their pocketbooks and lives. This time, management effectively is telling Southwest’s entire workforce, there will be no escape from the economic pain.

It’s an unusual position for Southwest employees to be in. Layoffs are a common thing at nearly all other airlines, and have been since carriers unionized in the post-World War II era. And we’ve seen that already this year. But there’s never been one layoff at Southwest until, possibly, this coming January.

U.S. airline employment peaked at around 460,000 jobs in March, just before the pandemic forced carriers shrink their operations dramatically in the face of a near-total collapse in air travel demand. Now, Airlines For America, the industry’s trade group, says total employment in the industry will be around 370,000 by Dec. 1. Most carriers have offered financial incentives to get some workers to retire early or quit. But once restrictions against laying workers that were tied to Congress’ first $50 billion aid package to airlines expired on Sept. 30, carriers collectively laid off more than 50,000 employees.

Southwest’s management carefully has avoided saying exactly how many jobs would be cut if layoffs do become necessary. Nor have they detailed how the layoffs would be distributed across the airline’s many different workgroups. Some groups could see a much higher percentage of their members lose their jobs than others. The assumption has been that 10% of each work group would be let go, if necessary. But management could choose to make the cuts unevenly. As a result, every union member at Southwest likely is now trying to calculate what’s best for themselves individually and collectively.

That will make reaching a consensus among them very difficult.

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