Shares of United Continental Holdings UAL, the parent company of United Airlines, gained 2.45% to close the Dec 24 trading session at $59.78, following an encouraging development on the labor front. More than 12,000 pilots of the Chicago-based company will now decide on extending the pay-related contract by two years. This is a direct result of the favorable (13-7) vote received on the issue from the leadership of the carrier’s pilots’ union (Air Line Pilots Association International or ALPA).
We note that the carrier had reached a tentative agreement with the union last month. Following the leadership’s decision to accept the tentative deal, the ball is now entirely in the pilots’ court. The members of the pilots’ union would vote on the tentative contract from Jan 6 through Jan 22, according to a Flightglobal article. In the event of the provisional deal finding favor with the pilots, it would run through early 2019. According to a report appearing in the Wall Street Journal, acceptance of the deal would guarantee a 13% pay raise for the carrier’s pilots in 2016 followed by annual hikes of 3% and 2% respectively in 2017 and 2018.
We expect the deal to win the favor of the pilots at United Continental as its materialization would guarantee them substantial financial and other benefits. The deal, once in place, would also highlight the labor friendly approach of the new management. We note that in Sep 2015, Jeff Smisek was replaced by Oscar Munoz as the company’s chief executive officer (CEO). Munoz is currently on medical leave, with Brett Hart temporarily in charge. The labor friendly approach is a welcome change as Smisek’s tenure had been characterized by frequent problems on the labor front.
We note that United Continental is not the only carrier in news owing to labor related updates. Similar updates have emanated this year from carriers like Republic Airways Holdings Inc. RJET and Southwest Airlines Co. LUV as well. With most airline companies enjoying solid financial health, courtesy low oil prices, employees are naturally looking for higher pay and benefits. We expect investor focus to remain on updates pertaining to the pilots’ voting outcome at United Continental.
Zacks Rank
United Continental currently carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider SkyWest Inc. SKYW which sports a Zacks Rank #1 (Strong Buy).
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