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Southwest CEO Gary Kelly is Interviewed on Coronavirus Prevention; Cruise Industry Hammered by Crisis; Stores and Restaurants Hit by Meat Shortages; Community Banks Rescue Small Businesses. Aired 9:30-10a ET

Aired May 06, 2020 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[09:30:00]

GARY KELLY, CHAIRMAN AND CEO, SOUTHWEST AIRLINES: Environment, first of all, for our employees and we have a duty to them. And then, second of all, you know, for our customers. So we'll -- we're urging the TSA, as an example, to begin temperature scans at the checkpoint. And then once you get into the airport, we do a deep clean of the airport every night. We do a couple of cleans during the day. We're putting up Plexiglas shields with -- in front of customer facing employees. We're enforcing physical distancing in the airport, including during the boarding process.

POPPY HARLOW, CNN ANCHOR: Yes. I think we -- I -- I think we have some -- we have some video we can show people, if the control room can pull it up, about that misting that you guys are doing. It's a lot of precautions.

Let me ask you about this, though, if we can show this animation. This is from Perdue University School of Mechanical Engineering. And what it just shows, Gary, I'm sure you've seen this, a cough, right, and the cough spreading 12 feet. And I know that you're mandating masks starting May 11th. But, you know, you've got people confined in the air for hours at a time, sharing a bathroom. You know, for so many people out there wondering, is that really the safest environment, what do you say when you see that?

KELLY: Well, the federal government has asked us to remain open and they deem air travel essential. And people need to travel.

Right now very few people are traveling. So I think people are going to have to make their own judgments about, you know, their health.

HARLOW: Yes.

KELLY: But we're doing everything we can with a layered approach. And when you get on the airplane, we've got hospital quality HEPA filters that circulate the air or filter the air, get 99.97 percent of particles. So is there a guarantee? No, there's no guarantees in life, as we all know.

HARLOW: Right.

KELLY: But we're doing everything that we can to make sure it's a very safe experience.

HARLOW: All right, Gary, let's talk about the state of the business.

Of course you and I and I think the world heard loudly the comments from Warren Buffett, who, you know, up until recently was one of the biggest shareholders through Berkshire Hathaway and Southwest Airlines and he sold his entire stake in all the airlines and he said, quote, I don't know if two or three years from now that as many people will fly as many passenger miles as they did last year. You've got too many planes.

Do you think he's right?

KELLY: I don't think anybody knows. And certainly that's not an unreasonable view to take. It's a pessimistic one. I, for one, am far more optimistic.

But I think the other thing to remember is that there's more than one airline. And this is a competition.

We've been in these scenarios before. So it is a low fare environment. I think the business travel will be very slow to recover. I think international travel will be hampered. So we've got low costs. We've got a strong balance sheet. We've got plenty of cash. And we survived 9/11. We survived the Great Recession. So I think we'll be very well prepared to compete in this kind of a scenario.

HARLOW: It sounds like you think that this crisis is actually going to eliminate some of your competitors. Do you think we emerged from this without some of the biggest carriers in the country?

KELLY: Well, it's really a reaction to Mr. Buffett's point, which is, if the world turns out to be as pessimistic as he said, I think you are going to see a shrinkage in travel and tourism. Again, I'm not sure that I subscribe to that view.

HARLOW: Right.

KELLY: I, for one, believe that this too shall pass and that -- I mean you go back to the Spanish flu in 1918. It was followed by the roaring 20s. So this too shall pass and life will get back to normal. It's just a question of how long that's going to take.

HARLOW: Yes. Let's hope.

So one thing that's notable, that people might not know, is that Southwest has literally never had layoffs, never had to furlough employees, never had to make involuntary pay cuts, even after 9/11. But it might be different this time. You guys have gotten this 3.2 billion in government loans and grants and you can't lay off anyone until September because of the, you know, the guidelines of that.

KELLY: Correct.

HARLOW: But you said, if things don't improve dramatically in May, June and July, we will have to prepare ourselves for a drastically smaller airline. So if demand does not pick up significantly for you this summer, how many layoffs is Southwest potentially looking at?

KELLY: Well, it's all speculation, Poppy, at this point. But, you know, we've got to have multiple planning scenarios. So if you plan for the worst and simply extrapolate current trends, like you said, traffic is down 90 percent, that that's what it would be. You know, you'd have a fraction of the airline industry and many, many others. I just don't think that that's the future.

[09:35:02]

But we're going to do everything that we can to preserve jobs.

HARLOW: Yes.

KELLY: You mentioned the grant. All of that money goes straight to our employees. In fact, doesn't cover all the payroll between now and September the 30th. But it's premature to make that judgement.

HARLOW: But thousands? I mean you have -- I hear you, but I know you guys also model for this stuff. You've got 60,000 employees. Could be talking about tens of thousands of potential job losses if this thing doesn't turn?

KELLY: Oh, yes. I mean if it doesn't improve from here, we have -- we would have to dramatically downsize. There just wouldn't -- there -- we will -- we have a lot of cash today, but we burn through about almost a billion dollars in the month of April as an example.

HARLOW: Wow.

KELLY: So you do the math in your head and you just can't --

HARLOW: Yes.

KELLY: You can't survive that way.

HARLOW: No.

KELLY: So I don't think that that's the future. We're obviously working hard to make sure that that doesn't happen. But we'll have to have a planning -- you know, a scenario that covers that and if we will do what we have to do here to make sure that we -- that Southwest survives.

HARLOW: Sure.

Thinking about all the employees, I know you take their questions every week on this ask Gary channel. I'm sure they have a lot of those questions for you.

We wish you guys luck, the entire industry. Thank you, Gary.

KELLY: Thanks, Poppy. Great being with you.

HARLOW: Sure.

Jim.

JIM SCIUTTO, CNN ANCHOR: Just remarkable changes to come for the airline industry.

HARLOW: Yes.

SCIUTTO: From the air to the sea, as well, where cruise lines are getting just hammered by this pandemic. And it's not just in the short-term. One booking website says that cruise bookings are already down 25 percent for next year, 2021.

CNN correspondent Rosa Flores is live this Miami this morning.

Rosa, what are some of the big questions facing cruise lines because they've really been at the center of this and, you know, there have been outbreaks on ships. How soon do passengers come back? Do they?

ROSA FLORES, CNN CORRESPONDENT: You know, that's the big question, Jim, do the cruise line industry -- does the cruise line industry survive in this pandemic?

I talked to one expert who says, yes, definitely so. I'll get to that in just a moment.

But first, Norwegians Cruise Lines warning its investors that it could be forced to go out of business. We've reached out to the company and have not heard back. But all this at a time when the cruise line industry is getting hammered by the Covid-19 pandemic. You've seen it on the news, passengers, crew members that have contracted the disease, they have been stuck on ships. Some of them have died. The CDC has issued a no sail order back in March that could go through June.

Meanwhile, these companies have been scrambling to stay in business. They have been furloughing employees, some of them cutting back costs, borrowing money. But if you look at the bookings, the future looks uncertain, but not bleak, according to the CEO of cruisecompete.com. This is a website that has about 500 travel agency members and the CEO, Bob Levinstein, says that bookings for next year are down 25.1 percent, Jim, but he says there's a lot of fanatical passengers out there and that's what could save this industry.

Jim.

SCIUTTO: So many industries deeply challenged.

Rosa Flores, thanks very much.

A lot of shoppers having a hard time finding meat now in their grocery stores. And those that do may not be able to buy as much as they want. Limitations. How widespread is this? We'll talk about it coming up.

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[09:42:44]

HARLOW: Welcome back.

The head of the Food Workers Union says there is not a meat shortage in the United States. But for a lot of you going to the grocery store or some fast food chains, it probably doesn't feel like that, right? Costco, Kroger, Publics among the grocery chains to begin to limit the amount of meat you can buy at one time.

SCIUTTO: Plus, depending on where you live, the fast food chain Wendy's has run out of beef due to those meat plant closures.

CNN correspondent Dianne Gallagher is in Atlanta with more.

Some of us familiar with other limitations, for instance, at our grocery store, limits on how much milk you can buy. I mean how soon and how many Americans will see some limitations like this at their stores?

DIANNE GALLAGHER, CNN CORRESPONDENT: well, look, everyone's probably going to see some kind of limitation, Jim, basically due to the fact we have this bottleneck effect happening in our meat supply chain. The key word there though is limitations. And a lot of these grocery stores that have come out and said that they're doing this proactively to prevent what we saw with, let's say, toilet paper, or hand sanitizer, at the beginning of this pandemic, to stop this sort of natural inclination to try and hoard products because you're afraid that you may not be able to get them.

And so like the Kroger here behind me, we went inside, and limit on three items of poultry, three items of fresh pork. There's no limitation on beef. In other stores across the city, you may see a limitation on beef.

And so it's really going to depend on where you live, on what kind of limit you're seeing. And, in part, that is because of this breakdown that we're seeing with the processing plants. You're just not getting as much meat right now to the stores.

HARLOW: Dianne, you know, the farmers were supposed to get a lot of aid through, you know, all of these stimulus packages. But what we've learned is that there -- it could be weeks before most or all of that money that Congress appropriated for them actually gets to them and every day is dire for so many of them.

Why the hang-up?

GALLAGHER: Yes, every day is dire. That might be an understatement there. As some of these farmers, at this point, are talking about dumping crops and euthanizing their livestock here. This signup portion is not even expected for that $16 billion USDA federal payments there to them to open up until later this month, Poppy.

[09:45:00]

And according to some reporting from our colleague, Katie Lavasco (ph) today, she said that right now they could be looking more -- they were kind of afraid to apply for the initial PPP loan. So this might be all those farmers have. So they need that money quickly.

SCIUTTO: Dianne Gallagher, good to have you on top of it. So many folks being affected hard by this.

A North Dakota restaurant owner, he was days away from closing his doors for good because of the coronavirus outbreak. You'll be surprised to learn who reached out to him to lend a helping hand with a way to keep the kitchen going.

(COMMERCIAL BREAK)

[09:50:00]

SCIUTTO: The Small Business Administration has now loaned more than $181 billion to small businesses in the second round of government stimulus aid. Many small business owners say that big banks had favored certain companies over them during the first round, but now community banks saw that as an opportunity to create new accounts for the businesses that were left out.

A North Dakota restaurant was days away from closing when it got a loan from its community bank. And the owner of Beavers Cafe is here with us now, Steve Novak, as well as the vice president of business and agricultural banking at Choice Bank, Andrew Peterson.

Great to have you both on this morning.

STEVE NOVAK, OWNER, BEAVER'S CAFE: Good morning.

SCIUTTO: Steve, I wonder if I could begin with you.

NOVAK: Sure.

SCIUTTO: You said that normally you've got to fight tooth and nail with a banker to get any money. But, in this case, the bank came to you. In the simplest terms, did that save your business?

NOVAK: It did. For us, we got a population of basically 700 people. And you've got to roughly take in let's say $600, $700 a day to break even. And when this coronavirus hit, our business basically dropped to $200, $300 a day. And I was -- and, myself, having a pandemic attack because I didn't know what to do. And I was at a loss for words and heard about this PPP, but I'm the type of guy, for the restaurant business, and always been in business my whole life is, I never asked for any help. And I was kind of on my pity pod. I didn't know what to do.

And all of a sudden, Andrew Peterson from Choice Financial Bank in Grafton calls me up. He says, you know, Steve, he says, rumor has it that this PPP is going to be coming out. And you've done business with us for, what, six years. You've been very good to us. Would you be interested in doing this PPP? I said, well, I don't really know how to do it. He says, I'll walk you through it. I'll help you through this. And all we need is your payroll reports for the last two years and we'll see what we can do.

SCIUTTO: Well, it's good to hear --

NOVAK: So then we started working on that. Right.

SCIUTTO: Sorry, go ahead.

NOVAK: So then after that we started working on that. And first day when we got the papers, Andrew calls me up, he says, well, hold -- hold off on those papers because they've changed it. There's going to be new papers coming out tomorrow.

So the next day they came out and he said, well, hold off on that too because the next day they've changed it around again. So you've got to wait.

So then finally we got everything in order and he was working on his end for the papers and stuff. And we applied for a $10,400 loan, which isn't a lot of money, but it was enough to keep me going for the three to four months with my employees.

SCIUTTO: Good.

NOVAK: To keep and stay in business. And all of a sudden --

SCIUTTO: Well --

NOVAK: Go ahead.

SCIUTTO: Well, no, I was just saying, it's a relief to hear -- to hear it working.

And, Andrew, I wonder if I could ask you, because one of the criticisms of the first round of this PPP, Paycheck Protection Program, was a lack of provisions to get funding to small businesses like Steve's, you know, favoring big banks with existing relationships.

What changed in the second time around to make it easier for a bank like yours to give the help that Steve needed here?

ANDREW PETERSON, VICE PRESIDENT OF BUSINESS AND AGRICULTURE BANKING, CHOICE BANK: With the second round, we were allowed to be a little bit more prepared with it. We knew some of the rules. The first round came at us really fast. Funding was going to start. We didn't have time to implement systems like the big banks technically -- they're -- typically have in place. So we were able to be quick, reactive with it. As good as we can get through the first round of funding. But we're able to get things in place for the second round to be a little bit quicker to help our customers out this round.

SCIUTTO: Steve, I wonder, you know, $10,000, it's not -- it's a lot of money, but as you say, it's a lifeline for a few weeks here. How long does it keep you in business? And after that, what happens?

NOVAK: Well, what happened is, it should keep me going for three to four months. And if it gets a little tougher, then we've got to start cutting back on what we order, maybe downsizing our menu a little bit, maybe cutting a little bit instead of 50 hours a week for the employees, we may have to go down to 40, 35 hours a week.

But, you know, I pay my help well. And for a small town, you know, if you don't have the good help, you will never survive in any business.

SCIUTTO: Yes.

NOVAK: And my philosophy is, you pay the help what they deserve, and they're going to stay with you. And I cannot take a chance of losing them. And maybe you're right, this may be a lifeline for now, but I have a lot of faith in the good Lord. He don't give us any more than we can handle.

SCIUTTO: Yes.

NOVAK: And I know they're going to get a cure for this virus. And within three or four months, things are going to be good again.

[09:55:01]

SCIUTTO: Well, Steve, you sound like a good boss.

Just quickly, Andrew, before we go, do you find that there are a lot more small businesses out there that need your help?

PETERSON: Absolutely. And we've added a couple of tools to our tool belt here in this quick time that this pandemic's been going on. Just working with our customers, knowing their relationship, what they need from us, whether it's a PPP loan, setting them up with idol through SBA or simple extensions on their loan. Whatever they need, we just work with them on their relationship and do whatever we can to be there when they need us the most.

SCIUTTO: Well, please keep at it. We need you both out there.

Steve Novak, Andrew Peterson, thanks to both of you.

NOVAK: Thank you very much.

PETERSON: Thank you.

HARLOW: I think we should all go to Beaver's, Jim, when this all passes.

SCIUTTO: Yes. Yes, let's do it.

HARLOW: And help support them. So nice to have a good news story in the middle of all of this.

All right, so, ahead, we're getting a new understanding about just how complex coronavirus is in its essence. Could it have been around a lot longer than originally thought?

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