Southwest Inks $12B Contract As Pilots Take Flight With 50% Pay Rise Over 5 Years

In a recent development, the pilots of Southwest Airlines Co (NYSE:LUV) have agreed to a new labor deal that will see their pay increase by approximately 50% over the next five years.

What Happened: The Southwest Airlines Pilots Association, representing some 11,000 pilots, has been in negotiations with the airline for improved pay, retirement benefits, disability insurance, and a revised scheduling process since the previous contract expired in September 2020, Reuters reported on Tuesday.

The new $12 billion contract, which received a 93% approval from the pilots, will see an immediate pay raise of 29.15% for the Dallas-based carrier’s pilots. This will be followed by 4% raises in 2025, 2026, and 2027 and a 3.25% wage increase in 2028.

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With the aviation industry recovering from the pandemic, airlines are offering lucrative contracts to attract and retain pilots. Last year, pilots at United Airlines ratified a contract with wage increases ranging from 34.5% to 46% over four years. Similar deals were struck at American Airlines and Delta Air Lines.

Why It Matters: The new labor agreement comes on the heels of a tentative agreement reached by Southwest Airlines and its pilots’ association in December. The pilots association reached an Agreement in Principle (AIP) with the company for the new five-year contract.

However, analysts remained cautious about the airline’s future, with Bernstein’s David Vernon downgrading the rating for Southwest Airlines from Market Perform to Underperform while raising the price target from $77 to $90.

Furthermore, the aviation industry has been grappling with various challenges, including severe weather disruptions that led to the cancellation of over 1,600 flights across the U.S., with Southwest among those hit hardest.

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