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Southwest CEO Gary Kelly: We’re Not Downsizing The Airline

a man standing at a podium
Courtesy: Southwest Airlines

Southwest CEO Gary Kelly: We’re Not Downsizing The Airline

United Airlines and Delta are discussing layoffs despite taking U.S. government stimulus money.  Meanwhile, Southwest CEO Gary Kelly is trying to comfort his airline’s employees, but there is a caveat?

In a message on YouTube earlier this week, Kelly said, “We’re not downsizing the airline.”  Kelly elaborated further on that saying, “We will probably retire some of our older aircraft as we had planned to do this year anyway.  But we don’t want to furlough employees.  We don’t want to ground airplanes.  We don’t want to close cities.”

However, Kelly also warned about the possibility of a prolonged period of time where the economy and travel markets are sluggish.  He said, “We’re just going to have to learn patience if that turns out to be the case.”  He also said that being able to not downsize is based on passengers returning to the market.

How Can He Make That Promise?

The remarks are substantial for his employees, but how can he guarantee that?  Well for starters, he’s saying that it’s reliant on airline passengers returning.

Southwest is in a much better position than its competitors.  That’s because it has a largely domestic market and only flies one kind of aircraft, keeping maintenance costs lower.  Those two factors make it easier for the airline to promise that there will be no downsizing.

It’s very likely that domestic markets will open up quicker than international markets.  In fact, President Donald Trump’s remarks earlier this week seem to suggest that international travel restrictions are here to stay for awhile.  Meanwhile, there are very few domestic travel restrictions within the U.S., despite the current outbreak.

That leaves Southwest Airlines in a position where the storm they have to weather is relatively shorter than their competitors. American, Delta, and United have to deal with both domestic and international slumps in the market.  Meanwhile, Southwest mainly has to deal only with impacts to the domestic market.  That’s a pretty significant comparative advantage the airline has over its competitors.

Gary Kelly’s Comments

Kelly’s comments are still a rather stark contrast to United CEO Oscar Munoz’s remarks, even though it is slightly easier for him to make that promise.  Airline employees are likely uncertain of their future as flights around the world are grounded and schedules are limiting.  While United CEO Oscar Munoz is warning of layoffs, Kelly is trying to give his employees peace of mind.  That’s  pretty significant gift to give to people during a time of such uncertainty and fear.

But There Are Downsides

Of course, there is still a limit to what Kelly can do and how long he can hold on without downsizing.  It is virtually impossible to know how long the impacts of the pandemic will last, and the economic impacts might last years.  Kelly even acknowledged that fact later in the video when he noted, “If this is a real recession and a bad recession, it could take four or five years,” in reference to when Americans might start flying again.

There’s also the prospect that there is a second wave of coronavirus that would only further hinder the economy.  That’s a real possibility, and it’s hard to see how an airline could not downsize at all after months of diminished travel and economic impact.

Kelly notes that the airline is in a better and that’s “…where having plenty of cash, low debt, a low cost structure, a low-fare brand becomes so important.”  But there’s likely still a limit to how far those advantages can take the airline.  Such limits may just be what Kelly meant when he said “We’re just going to have to learn patience…”

Bottom Line

Let’s hope that Gary Kelly is right about this and the airline doesn’t have to downsize.

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  1. Yea, i’m sure AA, United and delta will be competitive on all the domestic routes with bigger airplanes.

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