Back to top

Image: Bigstock

Delta Air Lines (DAL) Pilots Approve Pay-Related Contract

Read MoreHide Full Article

Shares of Delta Air Lines (DAL - Free Report) have been on an uptrend in recent times. The stock comfortably outperformed the Zacks-categorized Transportation-Airline industry over the last three months. The stock has gained over 28% compared with the industry, which has advanced just 17.1% over the same period.

Ushering in more good news for the Atlanta, GA-based airline behemoth, its pilots approved a four-year pay-related contract. This is undoubtedly encouraging for the carrier as its pilots had rejected the contract last year.

Following the rejection, talks commenced between the company and the union (Air Line Pilots Association or ALPA) representing its 13,000 pilots. Following the talks an “agreement in principle” was inked in this September. The ratification of the tentative deal concludes the negotiations that were initiated quite some time ago.

Details of the Deal

The ratification of the contract will result in an immediate 18% percent pay hike (retroactive to Jan 2016) for the pilots covered under the deal. Moreover, the approval of the deal through Dec 31, 2019, will apparently allow a 3% raise to pilots, each in 2017 and 2018, followed by a 4% hike in 2019. Furthermore, they will continue to receive lucrative profit sharing payments. As expected, the new contract does not allow big planes to be flown on regional routes.

No doubt the terms of the new deal have found favor with pilots, as evidenced by the large voter turnout (95%). In fact, an overwhelming 82% voted in support of the contract.

Labor Costs Surge

With labor deals in vogue in the aviation space, we note that many carriers are seeing a spike in the associated costs. Southwest Airlines (LUV - Free Report) expects cost per available seat mile (CASM) – excluding special items and profit sharing – to increase in the band of 4–5% in the final quarter of 2016. This is substantially higher than the 2.6% increase in the third quarter.

The total operating expense of American Airlines Group (AAL - Free Report) rose 5.2% in the third quarter to $9.2 billion, mainly because of the 15.3% increase in salaries and benefits expenses. The recent labor deals inked by the company were the primary reason for the increase in costs. The same factors hurt JetBlue Airways’ (JBLU - Free Report) third-quarter results. Moreover, CASM, excluding special charges, third-party business expenses, fuel and profit sharing, increased 3.4% at United Continental Holdings (UAL - Free Report) in the third quarter, mainly due to the ratified labor deals.

Zacks Rank

Delta Air Lines currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks’ Best Private Investment Ideas

In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?

Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>

Published in