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Nearly 17,000 Southwest employees sign up for buyouts, voluntary leave as furlough threat looms – CNBC

A Southwest Airlines jet leaves Midway Airport on January 25, 2018 in Chicago, Illinois.

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More airline employees are signing up for buyouts, leaves of absence and early retirements as the threat of furloughs looms this summer amid the Covid-19 crisis.

Close to 17,000 employees or about 28% of Southwest Airlines‘ workforce has signed up for partially paid extended leaves of absence or outright buyouts, the company’s CEO, Gary Kelly, told employees Monday. Nearly 4,400 put their hands up for buyouts while close to 12,500 expressed interest in extended time off, Kelly said in a staff memo seen by CNBC.

Airline executives have urged employees to take unpaid or partially paid time off. Companies are offering a host of buyout and early retirement programs as well as unpaid or partially paid temporary time off that provide health-care benefits but reduce carriers’ labor expense. The results of the programs comes as demand for air travel eases during the all-important summer travel season.

“Overall, I’m very pleased with the response to these programs,” Kelly said in the memo, which was reported earlier by the Dallas Morning News. “I’m incredibly grateful to those of you who answered the call. I know there are stories behind every one of those 16,895 decisions — from your incredible history at Southwest Airlines, to stories of what’s ahead in your next phase.”

Southwest, which reports quarterly results before the market opens on Thursday, didn’t immediately comment.

At Delta Air Lines, the deadlines for pilots to apply for early retirement packages closed Sunday and 2,235 of them signed up, according to their union.

“The voluntary early-out program participation exceeded our expectations, which is positive,” said Air Line Pilots Association spokesman and Delta pilot Christopher Riggins.

Delta last month said close to 2,600 pilots would be warned about potential furloughs when the terms of federal aid expire this fall. The carrier said more than half of its more than 14,000 pilots would be eligible. When settling on the number of jobs at risk, Delta had already factored in routine retirements as pilots approach the federally mandated retirement age of 65.

“This is meaningful progress as we look to mitigate furloughs and our teams are hard at work to determine next steps and evaluate how the pilot early retirement may affect Delta’s overall pilot staffing outlook,” the airline said in a statement.

Delta’s early retirement program provides pilots partial pay for up to three years and extended health insurance coverage.

Delta last week asked pilots to reduce their minimum hours by 15%, a plan that the airline says would avoid involuntary furloughs for a year, CNBC first reported.

Shares of Southwest and Delta were each down more than 3% in afternoon trading. United and American were each down more than 4%.

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Southwest Airlines Will Fly Again – Motley Fool

Why it’s a matter of when, not if, the airline industry rebounds.

Neil Patel

A history of bankruptcies in the airline industry has usually kept quality-focused investors away. It’s no surprise that the capital-intensive, cyclical nature of the business lends itself to wild swings in stock prices during unexpected economic shocks. Southwest Airlines (NYSE:LUV), currently the most valuable U.S. carrier by market capitalization, has seen its stock fall 49% during the last three months as the coronavirus pandemic has essentially halted passenger air travel worldwide.

According to the TSA, air travel demand was down 92% in the first 18 days of May compared to the same time period last year. This broad-based drop has caused Southwest to post a $94 million loss in the quarter ended March 31st, the company’s first quarterly loss since Q3 2011. The uncertainty of when things will return to any level of normalcy is seriously jeopardizing Southwest’s impressive streak of annual profitability, which reached 47 consecutive years last year. Fiscal year 2020 could very well be the end of that. To make matters worse, CEO Gary Kelly warned of the possibility of “a dramatically smaller airline” if things do not improve. Southwest has never laid off an employee in its entire history. These are truly unprecedented times.

Airplane flying over cloud cover.

Image Source: Getty Images

Government support

In March, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to save the struggling economy. As part of this package, the U.S. airline industry was authorized to receive $25 billion in grants and $25 billion in loans and loan guarantees. Time will tell if the seemingly astronomical dollar amounts will help smooth the recovery. Delta Air Lines (NYSE:DAL) CEO Ed Bastian thinks it will be two or three years until business gets back to pre-coronavirus levels.

During adverse economic scenarios like the one we are currently facing, the issue that always presents itself is whether or not certain industries and companies deserve any government assistance. Known for having massive fixed costs and needing continuous reinvestment to grow, the airline business was characterized best when Warren Buffett once called it a “disaster for capital.” Although an investor in airlines since 2016, the Oracle of Omaha has since reversed course after exiting his entire positions in Southwest, Delta, American Airlines (NASDAQ:AAL), and United Airlines (NASDAQ:UAL).

As long-term investors, we are focused on owning those rare high-quality businesses. But high-quality can mean something different for everyone. In my view, it’s a company that can not only survive tough economic circumstances, but that can actually thrive and come out stronger on the other side. Therefore, it was really a head-scratcher to see Buffett buy airline stocks after years of disowning the industry. Sure, in good times everyone is happy and returns can be favorable. It’s times like now that force astute analysts to reassess their investment philosophies and redefine what quality means to them.

Fasten your seatbelt

After the horrific September 11th, 2001 terrorist attacks, it was unfathomable to think that air travel would ever get back to the way it was before. It wasn’t until 2004 that U.S. passenger miles had surpassed levels reached in 2000. As this article suggests, the airline industry will certainly bounce back. It may not even happen when a successful vaccine for the coronavirus is created, but it will happen eventually. As unattractive as they may be from an investing perspective, airlines have done a wonderful job at bringing the world closer together. I have no doubt that this will be the case again.

On Tuesday, Southwest said that new bookings are beginning to outpace cancellations, which could signal a turning point for the company and industry. Reduced capacity, significantly lowered revenue forecasts, and an unknown resolution to the current situation will lead to a turbulent ride for the stock, regardless of how enticing the valuation looks today. Southwest Airlines has had a stellar operating history, but there’s just too much uncertainty in the near-term to add the stock to your portfolio.


Neil Patel has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.

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