Southwest Airlines pilots approve new contract

(Reuters) - Pilots at Southwest Airlines Co LUV.N voted to ratify a new contract that hikes wages and alters retirement benefits, their union said on Monday, following more than four years of talks.

Southwest Airlines planes are seen in front of the Las Vegas strip, Nevada, United States in this April 23, 2015, file photo. REUTERS/Lucy Nicholson/Files -

The approval marks a step toward better labor relations at the U.S. budget airline after recent picketing by workers and calls by union leaders for two executives to resign.

Shares were up 3 percent at the market’s close.

The new contract raises pay by 15 percent upon ratification, followed by increases of 3 percent annually through 2020, the Southwest Airlines Pilots’ Association said in a news release.

The deal, reached with the help of U.S. mediators, moves pilots from a company-matching pension plan to one where they are not required to contribute to receive benefits, the union said. It also protects pilots’ work in case Southwest chooses to market flights on non-U.S. airlines.

More than 84 percent of voting pilots approved the deal, with turnout at 96 percent, the union said.

Southwest is “starting to put behind some of the rancor that has punctuated the place for the past couple years,” industry consultant Robert Mann said.

A July computer outage that forced Southwest to cancel more than 2,000 flights added to workers’ discontent. Weeks afterward, leaders from four unions submitted a vote of “no confidence” for Southwest’s chief executive officer and chief operating officer.

“Even the most ardent labor supporters start to ask questions when you can’t run a clean operation,” said Mann. “It is absolutely no fun apologizing to people all day long” for flight cancellations.

A week ago, flight attendants at Southwest voted to ratify a new contract.

The Dallas-based airline has said it expects new labor deals will raise its unit costs, excluding fuel and other items, by about 3.5 percent in the fourth quarter from a year ago.

Under the new contract, the pilots’ union said a captain in his or her first year with Southwest will now make $221.01 per hour, up from $192.18.

Southwest recently raised U.S. domestic fares by $5 - an effort welcomed by JPMorgan analyst Jamie Baker, who said rising prices were needed to offset a $600 million to $800 million increase in labor costs.

The company also hopes new international flights will boost revenue.

The contract “delivers the operational flexibility needed to grow our network and ensures that Southwest will remain well-positioned for long-term success in our intensely-competitive industry,” said Alan Kasher, Southwest’s vice president of flight operations, in a news release.

The contract will be up for amendment again in November 2020.

Reporting by Jeffrey Dastin in New York; Editing by Jeffrey Benkoe and Tom Brown