5 Min Read
MONTREAL/NEW YORK (Reuters) - Delta Air Lines Inc (DAL.N) pilots on Thursday agreed to a new contract that delivers a 30 percent pay raise by 2019, as the aviation industry deals with mounting demand for higher wages to fly planes at a time of big profits.
Delta's pilots last year rejected a tentative contract deal that would have increased wages but cut profit sharing in certain cases. The new contract, backed by 82 percent of pilots at the No. 2 U.S. airline by traffic who voted on ratification, keeps existing gains on profit sharing, according to Delta's unit of the Air Line Pilots Association, International (ALPA).
The Delta contract, a four-year deal retroactive to the beginning of this year, could have a snowball effect for higher pay in the industry when the next round of bargaining between pilots and top U.S. airlines gets underway in 2019.
United Continental Holdings Inc (UAL.N) pilots, who approved a 19 percent raise in a deal reached earlier this year, will get an extra bump to match Delta's gains thanks to a clause in their current contract.
The deal with Delta's 13,000 pilots raises their pay by 18 percent immediately and a cumulative 30 percent by Jan. 1, 2019. For instance, a Boeing Co (BA.N) 737 captain of 12 years would see wages rise to $284.01 per hour in 2019 from $218.15 in 2015.
"The new pilot agreement contains an industry-leading package of pay, benefits and work rules," Delta said in a statement.
Delta and United shares were down slightly in afternoon trading.
"Higher labor costs are going to pressure earnings next year, so the best way the airlines can counteract that is raising airfares," said Adam Hackel, an airline analyst at Imperial Capital LLC in New York.
However, investors seem to have accepted this as the "price of doing business," Hackel said.
U.S. and European commercial pilots are demanding their share of recent gains made by airlines. Top carriers posted record profits in 2015 after years of mergers and slashing costs to survive higher oil prices and the negative effect that the Sept. 11, 2001, hijacked airliner attacks had on air travel.
The International Air Transport Association, an airline trade association, has forecast higher-than-expected profits of $39.4 billion for the airline industry this year, with more than half coming from North American carriers.
Pilots at multiple airlines say their compensation and benefits are worse now than they were before the 2001 attacks, and they will keep pushing for more.
At American Airlines Group Inc (AAL.O), the world's largest carrier, 737 captains would earn $82,000 less than those at Delta in 2017, under a five-year contract American pilots approved last year, according to figures from the Allied Pilots Association (APA).
"This is a pattern bargaining industry. The next contract is always the most generous contract," industry consultant Robert Mann said.
APA, which represents only American's pilots, said management has refused its requests for a mid-contract adjustment to boost salaries, a source of tension.
APA President Dan Carey has said he supports closer ties to its larger peer ALPA, with the goal of negotiating similar working conditions at the country's top carriers.
Improved conditions at Delta could also influence current ALPA-led negotiations for pilots at Spirit Airlines Inc (SAVE.O), JetBlue Airways Corp (JBLU.O) and Frontier Airlines, though these low-cost carriers are unlikely to offer matching salaries.
"We’re asking for the industry standard. And that standard, by virtue of the Delta deal, has increased," said Paul Slotten, negotiating committee spokesman for the union representing Spirit pilots.
While work stoppages over low pay rarely take place in the U.S. industry because of hurdles set up by the Railway Labor Act, that is not the case in Europe.
Deutsche Lufthansa AG (LHAG.DE) canceled nearly 4,500 flights over the past week due to six days of strike action by its German pilots as part of a salary dispute that has cost the German airline hundreds of millions of euros and grounded thousands of flights since early 2014.
"Airlines are making a lot of money, and pilots want a piece of it," aviation consultant Mike Boyd said.
Reporting by Allison Lampert in Montreal and Jeffrey Dastin in New York; Additional reporting by Victoria Bryan and Alana Wise; Editing by Bill Trott and Will Dunham