Wednesday, October 5, 2016

Southwest Airlines Pilots Seek Amended Contract

Delta Air Lines pilots last week secured a labor agreement that would increase their pay by 30.2% over four years. In response, pilots at Southwest Airlines have teased the possibility of reopening talks on their contract.

Why change things now? The Dallas Morning News quotes an email to members from Jon Weaks, president of the Southwest Airlines Pilots Association (SWAPA), in which he writes that a revised deal is needed to address "changing industry dynamics" and "the needs of both parties."

As matters stand now, Southwest pilots would see their pay increase by 29.4% over the same period as the Delta deal. The paper also says that SWAPA wants to resolve a question regarding pay rates for flying Boeing's new 737 MAX aircraft, which for now remain unspecified. The tentative deal reached on Aug. 29 tables that concern, for now, but it could resurface if management agrees to reopen talks in the wake of Delta's agreement with its pilots.

So far, the airline has resisted calls to return to the bargaining table. In comments emailed to The Dallas Morning News, a Southwest spokesperson said that pilots would be voting on "the best contract in the industry" during polling set to run from Oct. 8 to Nov. 7. Last month, SWAPA board members voted 21-2 in favor of presenting the deal to members for ratification.

Should Southwest investors be concerned? Not necessarily. Back-and-forth between management and labor is common in the airline industry. Also, the carrier's fundamental metrics are improving at a steady clip. Gross margin hit a new high of 40% over the past 12 months, while returns on capital sit at a very healthy 27.7%, S&P Global Market Intelligence reports. Despite this, at 11.14 times projected earnings, the stock trades about in line with the growth rates Wall Street expects. Premium performance usually demands at least a small premium in terms of valuation.

So long as pilots don't execute a slowdown or a walkout, Southwest stock should eventually find its way to higher altitudes from here.

(Tim Beyers - Investopedia)

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