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Southwest Airlines offers ‘most generous buyout package in our history’ in effort to trim workforce

Airline leaders have said air passenger traffic will be down by as much as 30% this fall.

Dallas-based Southwest Airlines is offering what it describes as the “most generous buyout package in our history” in an effort to avoid layoffs or furloughs this fall.

In a document shared with employees Monday, Southwest detailed early retirement and extended time off packages designed to “ensure the long-term success” of the airline.

Most Southwest employees with more than 10 years at the company would get a year’s pay and four years of flight privileges if they opt for early retirement. Pilots would get paid about two-thirds of their average salary for five years or until they hit 65, whichever comes first. Early retirees would also get a year of company-paid health insurance.

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Southwest and other airlines are in a race to cut costs before Sept. 30, when obligations under payroll protections grants from the stimulus package end. Until then, airlines that took grants and loans can’t lay off employees, cut salaries or furlough workers. But airline executives don’t expect traffic to rebound for at least a year. Airlines have also agreed to suspend dividends, share buybacks and limit executive pay.

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“Even with these offerings, we can’t guarantee that we won’t have to lay off or furlough employees in the future,” the Southwest document said. “We are offering this program to take voluntary steps first.”

Employees have until July 15 to apply for the programs.

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Other airlines, including Fort Worth-based American, are making similar pleas to employees to take voluntary time off and early retirement. Last week, American said it would reduce its management and support staff by 30%.

Eligibility for Southwest’s leave and retirement programs will depend on how many workers the company needs in each workforce group. Southwest Airlines CEO Gary Kelly has said air traffic will probably be down 30%.

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“Heading into the fall, we have planned to reduce our capacity by about 30%,” the document said, echoing comments by Kelly. “While this number may change, that is our current plan. While overstaffing isn’t tied 100% to capacity levels, it would be fair to assume that we are overstaffed in many areas at a similar percentage.”

Air carriers have taken a brutal hit from the COVID-19 pandemic. Traffic is down about 80% year-over-year since the beginning of March and fell by as much as 96% in early April, according to the Transportation Security Administration. Even with a recovery in the last few weeks, passenger traffic was still down about 88% last weekend compared to the same weekend last year.

“It’s a very dynamic situation,” said Jon Weaks, head of the Southwest Airlines Pilots Association. “Hopefully, this gives them some flexibility going into the new normal.”

Weaks said the union is still evaluating the deal, but many pilots are showing interest and working through calculations to see if it’s beneficial for them. SWAPA hasn’t been told exactly how many pilots the company needs to take the deal.

Southwest, which has about 60,000 employees, is also offering an extended time away plan for 6, 12 and 18 months that would give employees 50% pay along with health and flight benefits. The plan for pilots would pay about 60% of their regular pay during the extended leave program.

Workers with less experience would get a smaller payout for both the early retirement and extended time off program.

Southwest has parked more than 400 of its 750 airplanes due to the COVID-19 pandemic, and is reducing capacity on planes by a third in order to give passengers more room for social distancing. Still, Southwest is planning an aggressive schedule for November and December to try to capture market share from competitors.

“Given our current situation, my No. 1 goal is to protect the future of Southwest Airlines and do my best to provide job security for our employees,” Kelly said in a letter in the early retirement and leave document. “It is clear that for the near future we are currently overstaffed. It’s imperative that we bring our employee numbers down, voluntarily.”

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Kelly wrote that the airline can’t control the duration of the pandemic, the speed of economic recovery or the return of customer demand.

"We can take meaningful measures to cut our spending and conserve cash as much and as quickly as possible,” he said.