March was a particularly bad month for Southwest Airlines. In its final days, with almost all of the country under stay-at-home orders, the airline’s “load factor”—the percentage of available seating capacity that is filled with passengers—bottomed-out at 2 percent. Typically, for Southwest it hovers between 81 and 85 percent, one of the industry’s highest. “Our business evaporated,” says chairman of the board and chief executive officer Gary Kelly, who told employees last week in a company-wide message that the company was “in intensive care.”
“The pandemic has been the catastrophe of catastrophes for the airline industry,” says Kelly. “If you would’ve asked me three months ago if I could imagine having the losses that we’re now incurring? I would’ve told you no way that would happen. But in fact, here we are. When things are normal, you’re thinking about the future and investing for the future. When you get in a situation like this, we’re not so much worried about next month. We’re worried about getting through today.”
This week, the company announced plans to extend buyout packages and temporary paid leave to employees, but Kelly says it’s an almost singular priority that, when this is over, he’ll still get to say Southwest has not imposed any layoffs or furloughs in its 49-year history. On a special edition of the National Podcast of Texas, recorded Wednesday afternoon by phone, Kelly laid out all the ways he believes Southwest has positioned itself to keep its employees, stay solvent, and survive the pandemic—from bulking up its cash reserves to trying to instill consumer confidence with a suite of safety initiatives they call the “Southwest Promise.”
Three takeaways from our conversation:
Southwest customers are required to wear a face mask while checking in, boarding, while inflight, while deplaning, while retrieving baggage, and any other time they may engage with a Southwest employee or another customer. Kelly says that despite the politicization of masks, they’re holding firm on the policy.
“To me, it’s just common sense. And it’s a common courtesy. The other thing that I think is important to know about air travel is it is a layered approach. So it’s not just one thing that we’re doing. We have deep-cleaning protocols at the airport as well as on the airplane. We’ve got hospital-quality HEPA filters onboard the aircraft that recirculate the air in the cabin every couple of minutes. And we are doing physical distancing that makes sense on the airplane. We’re not taking bookings that are more than about two-thirds of the capacity, therefore that allows for all the middle seeds to remain open. And so adding a mask into that environment makes perfect sense. If you’ve got two individuals that are 50 yards apart, maybe who needs a mask? But when you’re within six feet of one another and queuing up in lines, interacting with a number of people, it just makes perfect sense. And the compliance is near 100 percent. We have very, very few issues. We required them for our employees. And of course, we’re requiring it of our customers as well.”
Kelly believes that that airline industry’s pandemic-related woes won’t necessarily mean carriers will try to make up for their losses with ticket price hikes.
“I can try to charge you right now twice as much for a ticket, but you won’t pay it. You’re already a little nervous about traveling. I’ve told all of our people, look, we’re in a low-fare world. Every airline is in a low-fare world, and that’s where our low cost will really be to our benefit in this environment. We’re in a recession and we’ve got a ton of experience operating through recessions. Business travel in particular is cut very sharply in a recession and will not come back overnight. It may be five years before we see the same level of business travelers that we were seeing in 2019. What we will see is the consumer. People will travel, but they will watch their money more carefully. Unemployment’s up. People are worried about their own finances. They do want to travel. They need to travel. And maybe instead of taking a big annual trip, they take a more modest one. And again, we want to be there for them. So we’ve got to get our costs in line with that kind of an environment, as opposed to you worrying about us doubling our prices. And it’s up to us to figure out how to get our costs under control. It’s a very heavy fixed cost business. We’ve got 400 airplanes that we have bought that are idled. I do worry about how we’re going to pay for those, but eventually, I have every reason to hope that we will get back to full utilization of our aircraft. We just need to have the staying power to get through this pandemic. And I feel like we do.”
Kelly has been careful not to predict a timeframe to employees or the company’s investors for when air travel might return to normal.
“I am emphatic that things will get back to normal. This too shall pass. We got past the Spanish Flu a century ago and that was followed by the roaring twenties. So we will get back to normal, but I’m not smart enough to know whether that is in a year or three years or five years. And that’s why we’ve got to prepare ourselves accordingly for massive uncertainty. What I’m unwilling to do is say, ‘Okay, in six months, I am very confident that we’re going to be back to a certain point.’ I just think that’s foolish. And I think we’ll begin to get back to normal when people are calm and more comfortable that we are on the road to defeating this pandemic. And I think the first thing is a confidence that if you get sick, there is a treatment that is far greater than what we have today. So the therapeutics are absolutely critical. I think that’s more important than the vaccine. And ultimately, whether you want to call it a cure or call it a vaccine, and there’s all kinds of efforts under way to attack this. It’ll happen. In the meantime, we’ve got to continue to be very cautious about thinking normal is just around the corner.”