Southwest Airlines Co.’s (LUV) shares gained on Dec 4, following the prior-day announcement of a four-year employee-friendly deal with its customer service agents and customer representatives. Overall, shares of the low cost carrier have gained marginally (0.2%) since the announcement. The customer service agents and customer representatives are represented by the International Association of Machinists and Aerospace Workers (IAM).
The new agreement is aimed to improve employee welfare by including provisions for pay raise and performance-related bonus payments. Southwest Airlines, which is highly unionized, has more than 80% of its employees represented by labor unions. It is thus no stranger to labor related problems.
The carrier is currently in talks with 50% of its 12 unions. The IAM members’ decision to vote in favor of the four-year deal removes at least one overhang on the shares. We believe investors will remain glued to updates on the progress made by Southwest Airlines in its talks with the other unions.
The relation between airline companies and labor unions are governed by the Railway Labor Act, which states that a collective bargaining agreement between an airline and a labor union does not expire; it instead becomes amendable as of a stated date. Failure to amend terms and conditions suitably may lead to work stoppages or strikes and thereby hamper operations.
On the bright side, Southwest Airlines, like most of its peers in the airline industry, is benefiting substantially reduced operating expenses owing to weak oil prices.
Zacks Rank
Southwest Airlines currently carries a Zacks Rank # 1 (Strong Buy). Equally well ranked stocks in the airline space include Alaska Air Group, Inc. (ALK), American Airlines Group Inc. (AAL) and Spirit Airlines, Inc. (SAVE).
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