Southwest Airlines (LUV) is about to implement its first-ever major job cut in 53 years, reducing 15% of its corporate staff. The layoffs are aimed at cutting costs and streamlining operations. The job cuts will affect roughly 1,750 jobs at the American air carrier, with 11 senior leadership roles being slashed. The front-line workers, including pilots and flight attendants, will not be affected.
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Remarkably, the job cuts will help Southwest save $210 million in expenses this year and another $300 million next year. The employees will continue to receive salaries, bonuses, and benefits until April 2025. Hammered by investor pressure, Southwest is forced to take up these drastic restructuring initiatives.
Southwest Airlines’ First Massive Layoff
Southwest has never undertaken a massive layoff in its history. The airline has avoided layoffs even during challenging times, such as the COVID-19 pandemic. In fact, Southwest has been hiring more workforce in recent years to keep up with the growing travel demand. The low-cost carrier has been under pressure from activist investor Elliot Investment Management to improve its performance and boost its stock price.
While announcing the layoffs, CEO Bob Jordan said that LUV’s corporate overhead has been growing faster than the rest of the carrier’s operations. With this effort, the airline is poised to become a leaner organization with efficient workforce management in place. Post the pandemic, airlines worldwide have witnessed a significant surge in travel demand. However, persistent inflation has caused labor and fuel costs to remain elevated, impacting the air carrier’s margins and bottom lines.
Southwest has also announced other transformation initiatives recently such as pausing hiring, promotions, and summer internships. Additionally, LUV started its first red-eye flights to lessen the ground time between flights and bolster sales. It also began offering paid seating options and more legroom. Lower supplies from aircraft manufacturer Boeing (BA) have impacted Southwest’s flight plans, leading to overstaffing issues. Another initiative undertaken by the carrier is the aircraft sale-and-leaseback arrangement with other companies to make money.
Is LUV a Good Stock to Buy Now?
Wall Street prefers to remain on the sidelines on Southwest Airlines stock currently owing to the challenges discussed above. On TipRanks, LUV stock has a Hold consensus rating based on four Buys, seven Holds, and four Sell ratings. Also, the average Southwest Airlines price target of $32.97 implies 8.9% upside potential from current levels. Year to date, LUV stock has lost 9.9%.
