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Will Southwest Airlines' (LUV) Pilots Get Higher Pay?

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Pilots of the Dallas, TX-based low-cost carrier Southwest Airlines Co. (LUV - Free Report) will now decide on their pay structure following a decision by the 23-member board of directors of the Southwest Airlines Pilots’ Association (“SWAPA”). The company inked an “agreement in principle” with the union earlier in the month, per an Associated Press report.

The leaders of the SWAPA, which boasts more than 8,000 pilots, subsequently reviewed the agreement, following which they decided to leave the ball in the pilots’ court. The ratification voting procedure is scheduled to commence in October this year and close a month later. The tentative deal offers higher pay for pilots over the next four years.

A positive vote from the pilots would mean a happy ending to the negotiations which started more than three years ago. Moreover, the contract, if accepted by the pilots, will be amendable Apr 1, 2019, and ensure that their wage is in line with that of pilots at other major carriers.

Apart from the pay raise, the deal also contains clauses on retirement benefits as well as provisions to improve the working conditions for pilots. We expect investor focus to remain on the stance taken by the pilots on this issue. Also, we would like to remind investors that flight attendants at the carrier had rejected a contract earlier this year.

We note that labor issues are not unique to Southwest Airlines. Pilots at Delta Air Lines (DAL - Free Report) had turned down a contract in July this year. Republic Airways Holdings Inc. , the parent company of Republic Airlines and Shuttle America, is also engulfed in a dispute with its pilots.

With most airline companies enjoying solid financial health, courtesy low oil prices, their employees are looking for higher pay.

Zacks Rank

Southwest Airlines currently carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Virgin America , which sports a Zacks Rank #1 (Strong Buy).

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