Today, CEO Gary Kelly released a video covering steps Southwest Airlines is taking in response to the continuing pandemic. The unpleasant topics of furloughs and concessions have finally been spoken aloud.
Since the start of this crisis, SWAPA has been a willing participant in the Company’s efforts to control costs and conserve cash. SWAPA fully understands that our success is tied to the Company’s success. As always, when times are tough, we have been there to assist the Company. But for three years we have offered solutions and analytics and they have been universally shunned as our Pilots’ productivity has continued to wane.
SWAPA has worked tirelessly to provide data and analytics to the Company which has led directly to the success of programs such as the Voluntary Separation Program (VSP) and Extended Emergency Time Off (ExTO). We offered solutions to correct or at least mitigate the worst aspects of Hindsight and other extra-contractual actions taken by the Company. We provided temporary relief from our sacrosanct Section 1 language with regards to cargo-only flights. We negotiated a three-way agreement between SWA, SWAPA, and MetLife that provided disability coverage for ExTO Pilots when not doing so could
have tanked the entire program. We fought to protect our Pilots from terrible decisions by middle managers, including things like not releasing Pilots from deadheads in the middle of a pandemic thereby forcing them to be exposed unnecessarily.
We have taken these actions from the outside. SWAPA knew five months ago that unless COVID abated, this day would come. As such, we repeatedly put the Company on notice that before any talks on concessions began, the Company had to perform its own due diligence on data and necessary steps it was taking before approaching SWAPA. Today, Mr. Kelly addressed the start of those steps, but there is still a long way to go. Despite each of our subject matter experts signing multiple non-disclosure agreements, Labor Relations has stonewalled our efforts to get internal data for the purpose of helping our airline navigate these difficult times. Over the last year and a half, going back to the MAX grounding/initial return to service talks, heading into the Contract 2020 opener, and now during the COVID crisis, we have documented more than a dozen SWAPA requests for data that have either been ignored, returned incomplete, or (worst of all) returned with serious flaws. For example, as we write this, the Company cannot reconcile a post-VSP Master Seniority List. SWAPA has asked for the status of 114 Pilots that we cannot account for, but the Company will only explain 10 of them. This must stop. The Company must provide us with the information we ask for in good faith if it wants our Pilots to accept management’s asks.
Carl Kuwitzky in SWA Labor Relations has requested a meeting with our negotiating team to start discussions on further cost savings in the event CARES 2.0 does not pass in Washington, D.C., and airlines are not provided a much-needed lifeline in the form of the Payroll Support Program (PSP). SWAPA has tentatively agreed to meet and discuss. However, agreeing to discussions is very different than agreeing to concessions. For talks regarding concessions to have any validity, the Company must recognize our viewpoint:
We have told SWA in no uncertain terms that we must have all of the data that we have been requesting for more than a year. Our team simply does not have the Company’s analytics, and unless we can validate their assumptions and conclusions for ourselves, we will not agree to them. Given their track record of not producing the information we’ve repeatedly requested, it is highly doubtful we will move beyond this first step any time soon.
SWAPA Pilots have already provided $48 million in savings through voluntary initiatives such as VSP and ExTO. Those savings are, of course, on top of the many millions of dollars in lost wages (aka Company savings) our Pilots have experienced since the grounding of the MAX back in March 2019. The Company’s decision to over-hire for years is the foundational cause of the problem we face today. SWAPA has flagged the rise in reserves and blank lines (contingency manning) as the single greatest problem our Pilots and our Company have faced for many years. Despite SWAPA’s reams of data and analysis that proved the net cost was higher, our senior leaders were happy to turn a blind eye as long as profits were high and shareholders were rewarded. The Company’s claim that it paid a “generous” $1.7 billion for early outs should be seen as nothing more than the final bill for years of inefficient mismanagement. And we must also remember that it was offset by $2.3 billion in PSP monies.
Last week, Jon touched on Pilot manning versus the schedule. It’s true that the Company has drawn the schedule down significantly month after month, but there’s a reason why we continue to post full schedules 3-4 months out. This pandemic will end someday. And when it does, Southwest will be predatory. We will be aggressive about taking market share from our weaker competitors and Gary Kelly will want the flexibility to surge at the exact right moment. Furloughing will be his last option because it takes away strategic agility from our airline when we will benefit from it the most.
We are the “best house in the worst neighborhood.” We won’t try to convince you things aren’t tough, but they are a lot tougher at our competitors. The longer this goes on, the more likely it becomes that one or more of our competitors fail, which would immediately help the surviving carriers. While we don’t wish for any airline to go out of business, ours would be one of the last to go and would only get stronger as others shut down.
Southwest has a revenue problem, not a cost problem. We are the low-cost airline, but revenues are down 65% to 70%. Until passenger demand returns, raising additional capital (bonds or stock issuances) or government assistance are the only meaningful ways to address the shortfall.
Concessions from employees will not materially impact our airline’s bottom line. Salaries, wages, and benefits (SWB) account for about 42% of our Company’s total expenses (about $8.2 billion annually). Our current $17 million daily cash burn works out to about $6.2 billion for the year. Southwest can trim a little off cash burn with SWB, but it can't get there on the backs of labor unless everyone agrees to literally work for free.
Losing $17 million a day is a lot of money, but our fortress balance sheet has allowed us to build up more than $14.8 billion in cash — enough for more than two years at the current burn rate. The good news is that that number has trended down since the start of the pandemic. As Pilots, we recognize that our airline is simply performing a driftdown maneuver. We know cash is going down, but at a lessening rate. Eventually, we will level out and slowly climb out of this crisis.
The fact is that Southwest has the solution to improving costs. Contract 2020 has been sitting on their desks since January, and it contains a multitude of ways Southwest can return to a lean, productive, efficient operation. SWAPA is ready, willing, and able to discuss those opportunities at any time whenever they have the bandwidth to do so.
We still have a serious trust gap to bridge. After working tirelessly to help the Company produce the best possible outcome for VSP and ExTO, SWAPA has fought for an MOU to codify the terms of ExTO as it is still extra-contractual. Labor Relations has so far rejected our proposals that lock the terms of the program to their very own FAQs. If the Company will not commit to their own terms for ExTO, how can our Pilots trust them to “do the right thing” should we start down a concessionary path? Of course, these talks will take place in front of a background that includes more than 140 unresolved grievances that are awaiting arbitration already.
With our cash hoard, Southwest is uniquely positioned to wait out this pandemic and come out the other side stronger than our competitors. We should not be in any rush to make shortsighted moves when we lack the clarity we need to make informed decisions. Take a breath; wind your watch — all good advice.
SWAPA recognizes the seriousness of the situation we are in today. But for discussions to have any validity, the Company must provide the data we require. If the threat of furloughs comes, we will fight to prevent them. But we are not there yet, and many things must transpire before we are. In the end, no matter the path, we will travel it together as SWAPA Pilots.
Leading Forward — Together,
JON WEAKS PRESIDENT
CASEY MURRAY NEGOTIATING COMMITTEE CHAIR