Southwest Offers Buyout Packages & Temporary Paid Leaves

Zacks Equity Research

Per Reuters, Southwest Airlines Co LUV is offering buyout packages and temporary paid leaves to employees as it tries to weather the coronavirus crisis, which has crippled air travel demand.

"While overstaffing isn't tied 100% to capacity levels, it would be fair to assume that we are overstaffed in many areas by a similar percentage," per documents providing details of the packages. Southwest’s capacity is expected to be down approximately 30% in the fall.

The temporary leaves will be offered for a minimum period of six months. Those who avail of these leaves will receive some benefits as well as 50% pay, except for pilots who would receive around 61% of their pays. Maximum period of leaves is not fixed. The carrier might also ask employees to return to work before their leave period lapses, in case of operational needs. 

Southwest Airlines Co. Price


Southwest Airlines Co. Price

Southwest Airlines Co. price | Southwest Airlines Co. Quote

Meanwhile, the carrier is offering buyouts to employees depending on their period of service. Employees who have been attached with the company for more than 10 years are liable to receive a year's pay, health benefits and four years of flight privileges. Pilots, on the other hand, would receive approximately two-thirds of their average salary for five years or until the age of 65.

Employees can volunteer for the packages through Jul 15. Per Jon Weaks, the head of Southwest Airlines Pilots Association (“SWAPA”), the packages have been well received.

Southwest Receives Second Installment of Payroll Support

Southwest recently disclosed that it received $651.84 million as the second disbursement of the U.S. Department of Treasury’s Payroll Support Program. Consequently, the company increased the note to the Treasury by $195.55 million and provided a warrant to purchase up to 536,197 shares. So far, Southwest has received $2.28 billion, i.e, 70% of the total amount expected from Payroll Support. Consequently, the company provided Treasury with a note of $654.43 million and warrants to buy up to 1,794,429 shares.

Zacks Rank & Key Picks

Southwest carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Scorpio Tankers Inc. STNG, Teekay Tankers Ltd. TNK and Nordic American Tankers Limited NAT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.

The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised 35.6% upward in the past 60 days.

The Zacks Consensus Estimate for Nordic American Tankers’ current-year earnings has moved 14.1% north in the past 60 days.

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