Southwest Airlines CEO Gary Kelly, BBA ’77, on navigating the company through the pandemic
Texas McCombs and The Texas Tribune sat down for a virtual conversation with Kelly to talk about the coronavirus outbreak’s impact on air travel, the state of the airline industry, and the company’s future.
Gary Kelly, CEO and chair of the board for Southwest Airlines, says the hits the company has taken during the pandemic are the most brutal he’s seen in his 34-year career with the carrier.
Kelly, who started at Southwest in 1986 as a controller, later became CFO and vice president of finance. Previously, he worked as a CPA for Arthur Young & Company in Dallas and as controller for Systems Center Inc. He is a graduate of the McCombs School of Business at the University of Texas at Austin and serves on the McCombs School Advisory Council.
See full video below.
In a Texas McCombs Presents event on Aug. 12, Kelly sat down with The Texas Tribune’s CEO Evan Smith to discuss the short- and long-term prospects for Southwest, the world’s largest low-cost carrier, and for the airline industry as a whole. Here are the highlights of the conversation.
What’s it like to fly now?
Kelly said the first challenge the airline faced in March was acquiring enough personal protective equipment. They then began working with the Centers for Disease Control and Prevention to figure out the protocols that would help keep people safe.
Kelly, who says he has flown a lot recently, said the airline has tried to make people’s experience “as much of a touchless experience as possible.” Boarding groups are now being limited to 10 instead of the previous 30, and the airline is not filling middle seats. Before the pandemic, airplanes already had hospital-quality air filters that, according to Kelly, will catch 99.97% of particles and pathogens. There is no evidence the coronavirus has been transmitted onboard an airplane, he said.
Following the CDC’s recommendation, the airline requires everyone to wear a mask at all times.
“This is a scenario that our country arguably hasn’t seen in a century,” Kelly said. “So it comes as quite a shock to all of us.”
Are you worried about the politics surrounding the CDC at the moment?
“I think we have to trust that the CDC is doing what they believe is best,” Kelly said. “I like the transparency … Politics is inevitable and that’s the world that we live in, but overall, we have faith in the CDC guidelines and that is our guidepost.”
How has the pandemic affected Southwest Airlines?
“As long as the case counts are high, I think that we have to expect that travel will be relatively modest, so we’re continuing to see traffic and revenues down 75% versus a year ago today,” Kelly said, adding that out of the airline’s $20 billion in expenses, it has cut $7 billion.
About 17,000 employees — 28% of Southwest Airline’s workforce — chose to accept a voluntary separation or extended leave.
“Almost 30% of our employees will be separating for the company, either permanently or temporarily, and certainly that provides some cushion for us,” Kelly said. “We don’t want to downsize our company so radically that we can’t then recover.”
The number of flights has decreased by 35% to 40%, he said.
“We’re still definitely losing cash every single day,” Kelly said. “And working as hard as we can to figure out how we can stop that bleeding.”
However, Kelly said the company is in a healthy position financially.
“One of the greatest strengths of Southwest over a long period of time has been our preparedness,” Kelly said. “It’s for the unexpected, whether it was 9/11 or the Great Recession or the Gulf War going back into the ’90s or now. This is by far the worst.”
Has the government done enough to require masks and mandate the kind of behavior that puts us back, according to the public health authorities, on track?
Although he believes the federal government has been doing a lot, Kelly still thinks masks should be mandated to stop the spread of the virus.
“I just don’t think it should be only for air travel. Let’s mandate masks. You have to wear pants,” Kelly said in a July interview with CNBC. “Why can’t we mandate that you have to wear a mask in a pandemic?”
He added on Wednesday that until people do everything they can to “crush the pandemic … we’re all going to suffer.”
How are you approaching strategic planning for the long term given the current environment?
“We need a short- to medium-term strategy; we need to lose the least amount of money possible,” Kelly said. “Some airlines around the world literally stopped flying because it costs you money, obviously to burn fuel and pay people every time you take off with an empty airplane.”
The airline is still looking at the number of flights it should have and how many customers it can expect, all while considering the optimization of its resources. Since business travel has been greatly reduced and, Kelly expects, will continue to be low for a long time, Southwest Airlines will be depending more on consumers.
During the terrorist attacks on the twin towers on Sept. 11, 2001, Kelly was the company’s chief financial officer. He said the airline was shut down for three days, but it did not take long for it to return to normal because “people wanted to fly.”
However, he said the situation is different this time.
“It’s a very gradual recovery over a long period of time,” Kelly said. “So I think we’d be foolish to expect that it’s going to snap right back. I think it’s going to take years.”
Story by Valeria Olivares appeared originally in The Texas Tribune.
