Southwest CEO takes pay cut as coronavirus drags airline sales down
American, Delta paring flight schedules
Airlines on Tuesday detailed the growing impact of the coronavirus by cutting more flights in domestic and international markets, parking planes, freezing hiring and reducing executive pay.
American Airlines Group and Delta Air Lines both said they planned to reduce the number of flights across their networks, and Southwest Airlines CEO Gary Kelly told employees that he will take a 10% pay cut as the airline faces the most severe downturn in decades because of the spread of the coronavirus.
The moves come as bookings have dropped off amid growing passenger fears about traveling, and concerns that recovery could take months, rather than the quick bounceback many had initially anticipated when the virus first started to affect travel early this year.
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American said it plans to cut domestic flying by 7.5% by decreasing frequencies in markets where it operates many flights. It will reduce international flying by 10% for the summer peak travel season.
Delta said Tuesday that it will park some planes and reduce capacity across its network, cutting international capacity as much as 25%, and domestic capacity as much as 15%. Delta also said it would freeze hiring and offer voluntary leave options, in addition to deferring $500 million in capital expenditures and suspending share buybacks. The carrier said it would consider retiring some planes early.
“We have made the difficult but necessary decision to immediately reduce capacity and are implementing cost reductions and cash-flow initiatives across the organization,” CEO Ed Bastian said.
Overseas, the European Commission is close to approving a suspension of airport-slot rules that will allow airlines to cut back capacity without risking the loss of lucrative takeoff and landing rights, according to people familiar with the matter.
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The move, which could be finalized s early as Tuesday afternoon, would provide significant relief for domestic and international carriers operating in Europe. Some have been operating near-empty flights in and out of congested hubs, like London’s Heathrow, to retain the slots.
Under the so-called “use-it-or-lose-it” airport slot rules, airlines must use a takeoff or landing slot at a level of at least 80%, to keep the flying rights for the next season.
Southwest’s Mr. Kelly told employees that the virus has created a challenge more serious than any the industry has faced since 9/11, “and it may be worse.”
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“The velocity and the severity of the decline is breathtaking,” Mr. Kelly said in a video message Monday that was viewed by The Wall Street Journal. Southwest had previously said the reduced bookings could result in as much as $300 million in lost revenue in March alone.
The virus is testing airlines’ ability to weather the kind of economic crisis they have promised investors they could withstand following a decadelong run of industry profits. While a sharp drop in fuel prices is likely to relieve some pressure, carriers are facing a global-demand shock that looks to be more severe than anything they have encountered since 2001.
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American’s reduction in domestic flights will include cancellation of routes where customers can be easily rerouted. Some domestic routes will get a boost, though, with bigger planes that would have been used for international flying. Internationally, it will trim service to destinations including Paris and Madrid. Latin America, which had been the one relative haven for U.S. airlines’ international operations, will also see cuts, including American’s flights to Chile and Uruguay.
Top airline executives, including United President Scott Kirby, American CEO Doug Parker, and Southwest’s Mr. Kelly, are slated to speak at JPMorgan’s Aviation, Transportation, & Industrials Conference Tuesday. The event, usually held in New York, will now be held via teleconference.
All three airlines said fuel savings could be a silver lining because of the oil price rout. American pegged the cost reduction at as much as $3 billion in a presentation prepared for the conference.