Continue Reading Below
The airline industry agreed not to lay off or furlough workers until Oct. 1 as part of a $25 billion aid package from the federal government due to the coronavirus pandemic.
"I want you all to know we will not furlough or layoff any Southwest employees on October 1, unlike our major competitors," Kelly wrote. "Further, we have no intentions of seeking furloughs, layoffs, pay rate cuts, or benefits cuts through at least the end of this year."
Kelly acknowledged that while he "can't guarantee it will never happen," he promised it will be "the last thing we do to keep Southwest financially healthy and viable."
"You all have helped to build the greatest airline in history, and I value and appreciate every single one of you," Kelly added. "You are the reason we are prepared for the siege ahead, and you are the ones who can dig us out of this crisis. I can never thank you enough."
The announcement comes as two of its competitors, American Airlines and United Airlines, both warned earlier this month that their employees could be furloughed on Oct. 1. United reported a $1.6 billion loss on Tuesday and said that more than 6,000 employees have voluntarily taken severance packages.
According to the letter, Southwest has lost almost $1.6 billion year to date as a result of the coronavirus pandemic, 95 percent of which occurred in the second quarter.
"That amount of losses for only one quarter almost wipes out our profits for an entire year," Kelly added.
Kelly said second-quarter trips for the airline are down 56 percent compared to a year ago as the pandemic has forced the airline to restructure its flight schedule, with roughly 100 aircrafts parked or in storage compared to 400 at the peak of the pandemic in April.
He added that even with increased capacity that has come with lifting coronavirus restrictions across the country, the company's revenue is still down roughly 70 percent for June compared to a year ago.
|LUV||SOUTHWEST AIRLINES CO.||37.10||+0.24||+0.65%|
As a result, the company has cut spending and raised cash by cutting capital projects, shareholder returns and operating costs, accounting to $7 billion for 2020. Southwest also secured $3.2 billion in cash under the CARES Act, sold common stock to investors for $2.2 billion in cash, and borrowed $12.2 billion in cash from lenders via aircraft sales and leasebacks.
"Our company is in intensive care," Kelly said. "We're losing roughly $20 million a day and this massive and unprecedented amount of fresh cash is crucial to fund these losses. Without it, we run out of cash, and literally, shut down."
Almost 17,000 Southwest employees have also applied for the airline's Voluntary Separation Program and COVID-19 Extended Emergency Time Off, allowing the company to reduce capacity in the fourth quarter by roughly 25 percent.
"We've implemented the VSP/ExTO programs to avoid the pain of involuntary furloughs and layoffs, and at a cost of $1.7 billion," Kelly said. "It was the right thing to do, and I'm grateful we had the resources to be able to be generous with our people, even in the most difficult of times. Hopefully, traffic demand will recover and match that capacity."
Kelly noted that Southwest needs to double traffic to break even and close to triple to be profitable.
Southwest has $14 billion in savings, which will fund the losses for more than two years as well as short-term investments and another $1 billion in easily accessible credit. However, the company has more than $11 billion in debt in addition to its $20 million daily losses.