Southwest Urges Workers To Take Pay Cuts To Avoid Layoffs


Southwest Airlines said on Monday that management is approaching unions to agree to pay cuts to avoid furloughs and layoffs at least through 2021 as the aviation industry continues to struggle amid the COVID-19 pandemic.

In a video message, Southwest Airlines (LUV) CEO Gary Kelly noted that air travel is down nearly 70% from the year-ago level. Kelly said that the company would have to sharply cut its spending to avoid losing billions of dollars every quarter.

Kelly disclosed that his base salary has been reduced to zero until 2021-end and a 20% pay cut in senior executives will continue through next year. According to Southwest’s plan, non-union staff salaries will be cut by 10% until Jan 1, 2022. Pay cut decisions would be reversed if the US government passes a financial aid package for the industry, the company said. (See LUV stock analysis on TipRanks)

On Sept 30, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on the stock. In a note to investors, Feinseth said that Southwest Airlines’ “strong balance sheet and exceptional operating history enable it to overcome near term COVID-19 pandemic-driven headwinds and drive a rapid recovery once the pandemic is overcome.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 9 Buys and 5 Holds. With shares down nearly 29% year-to-date, the average price target of $43.80 implies upside potential of about 13.8% to current levels.

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