Furloughs at U.S. legacy airlines could help low-cost carriers like Southwest
Tracy Rucinski
July 8, 2020 / 4:16 PM / Updated 2 hours ago
full article at reuters.com
excerpt:
CHICAGO (Reuters) - U.S. legacy airlines with lackluster employee demand for early exit packages face large furloughs in the fall, signaling higher post-pandemic labor costs because union contracts require airlines to furlough in reverse order of seniority.
This could create a competitive boost for budget carriers including Southwest Airlines ( LUV.N), whose lower cost structure could help it win market share with cheaper fares, experts said.
Labor will be the biggest single cost for airlines struggling to weather the coronavirus crisis that has crushed air travel demand.
With no quick recovery in sight, United Airlines ( UAL.O) said Wednesday it was sending 36,000 furlough warnings to union workers, nearly half its staff, after having received only 3,700 volunteers for early exit deals. Flight attendants are among the hardest hit.
The union contract requirement to furlough lower-salaried union workers first creates a higher per-seat-mile labor cost and a larger cost gap against low-cost carriers.
“And I imagine ticket prices will flow more or less in line with that,” said Blake Haxton of Diamond Hill Capital Management analyst, which owns airline shares.
United flight attendants earn under $30 an hour at the lower end of the pay scale versus nearly $70 an hour at the top end, according to 2016-2021 contractual pay charts reviewed by Reuters.
Low-cost carriers like Southwest have another advantage: Their networks are more focused on domestic leisure travel, where demand is seen recovering first. Legacy carriers, on the other hand, generate more profit from business travel, which remains anemic.
“It’s a perfect storm for the legacy carriers,” Haxton said.
continues at reuters.com |
