Southwest Airlines Board Tells Unions CEO Not Going Anywhere

(Bloomberg) —

Southwest Airlines Co.’s board made no bones about its response to the labor groups that called for the ouster of two top executives: They’re not going anywhere.

After the carrier’s four largest unions last week called for Chief Executive Officer Gary Kelly and Chief Operating Officer Mike Van de Ven to step down, directors fired back in a letter Friday saying they have “no intention” of removing either executive from his position.

The unions said Kelly and Van de Ven should go because of flight disruptions caused by aging computer systems and a too-narrow focus on cutting costs and stock buybacks rather than upgrading the reservation system. The board said Southwest has “never been stronger” in its 45-year history, citing increases in salaries, wages and benefits, service expansion and other accomplishments.

“This all took place against the backdrop of years of economic turmoil, including one of the greatest recessions in our country’s history,” the board said in the letter. During the same period, several other airlines went bankrupt or closed down, while Southwest remained profitable and laid off no employees, the board said.

The directors said in the letter that the unions’ vote of no confidence in management is “without merit” and “reckless”, and fails to consider the potential consequences, such as a “grinding halt” in labor negotiations.

Southwest spent $700 million to buy back stock in the second quarter to complete a $1.5 billion repurchase program, and the board authorized another $2 billion plan in May. The airline is investing about $500 million in a new domestic reservation system that will come online in phases over the next three years.

The labor groups cited technical breakdowns that affected flight operations during the busy summer and holiday travel seasons over the past several years, including a computer failure last month that forced flights to be canceled or delayed for several days as the company tried to get crews and planes in the right locations. Kelly earlier this week called the no-confidence vote a negotiating ploy.

The unions representing pilots, mechanics and flight attendants are in the midst of the longest contract negotiations in their history, said Audrey Stone, president of Transport Workers Union Local 556, which advocates for more than 14,000 attendants. The group that represents ground operations crews and cargo agents approved an agreement in February that ended more than four years of talks.

“The culture has continued to deteriorate and the focus is on the facts and the figures,” Stone said Saturday in a telephone interview. “It’s no longer about employees and employee morale. I believe the protracted negotiations are a reflection of that.”

While Southwest’s stock fell 12 percent this year through Friday, the Dallas-based carrier is the best performer among its large peers. The Bloomberg U.S. Airlines Index slumped 18 percent during the same period.

The no-confidence push was started by the Southwest Airlines Pilot Association, which was later joined by unions for flight attendants, mechanics, and baggage handlers and other airport ground workers. The four groups represent about 36,000 of more than 52,000 employees. The pilots, mechanics and baggage handlers unions didn’t respond to requests for comment on Saturday.

The unions’ effort is the largest assault on Kelly’s tenure since he became chief executive in 2004, and comes after three years of record earnings. Kelly, 61, replaced James Parker, who retired after talks with flight attendants became contentious and forced him to step aside as lead negotiator. Parker had taken over for company co-founder Herb Kelleher in June 2001.

Van de Ven, 54, became COO in 2008 after holding other operations and financial posts at Southwest.

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