Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Pilots Get Pay Bump of Nearly 50%
After years of tense negotiations, Southwest Airlines and its pilots union have finally reached a deal that will see pilots getting a pay bump of nearly 50 percent. This brings Southwest pilot compensation more in line with what pilots at legacy carriers like American, Delta and United are making.
For Southwest pilots, this deal has been a long time coming. They have been working without a new contract since 2012 and negotiations between the airline and union have often been contentious. Pilots conducted informational picketing back in 2016 to bring attention to the lack of a new deal. More recently, the union warned that without a contract resolution, disruptions could occur as travel rebounded from pandemic lows.
So this new deal comes as welcome news to Southwest pilots. Under the terms, pilots will see pay rates increase by about 45 percent on average over the next five years. Captain pay will reach $340 an hour at the top end of the scale. By comparison, captain pay at Delta currently tops out at around $306 an hour.
In addition, Southwest pilots will get retroactive pay back to 2020. The airline is also offering profit-sharing bonuses that could add around $25,000 a year to pilot compensation. Retirement contributions will increase as well.
Analysts say this deal was necessary for Southwest to remain competitive in today's hiring environment. Other airlines have been boosting pilot wages, so Southwest needed to follow suit. But it does mean the airline's advantage as a low-cost leader could diminish somewhat. Fares may rise over time as a result.
However, most experts believe Southwest will still be able to maintain its discount reputation. The airline's low-cost DNA is baked in through practices like not assigning seats and flying only Boeing 737s to simplify training and maintenance. Southwest is also hoping the deal provides a platform for growth, especially in key business markets where it has trailed rivals.
What else is in this post?
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Pilots Get Pay Bump of Nearly 50%
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - New Contract Brings Southwest Pilot Pay in Line with Legacy Carriers
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Deal Ends Years of Tense Negotiations Between Southwest and Union
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Looking to Avoid Disruptions as Travel Rebounds
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Airline Dangles Profit-Sharing, Retirement Bonuses to Seal Deal
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Pilots Had Been Working Without New Contract Since 2012
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Analysts: Deal Could Push Up Fares, But Southwest Likely to Remain Discount Carrier
- Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Says Deal Provides Platform for Growth, Competitiveness
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - New Contract Brings Southwest Pilot Pay in Line with Legacy Carriers
For years, Southwest pilots have watched their counterparts at American, Delta and United take home bigger paychecks. Now, with a new contract that will boost wages by around 45 percent over five years, Southwest aviators are finally seeing their compensation come into alignment with pilots at the legacy carriers.
This parity has been a long time coming. Southwest pilots have been working without a new deal since 2012, even as legacy airline pilots negotiated significant raises. By 2016, Southwest pilot pay lagged rivals by about 40 percent. This led to informational picketing as pilots sought to gain leverage in stalled contract talks.
Fast forward to 2022, and Southwest pilots feel they’ve scored a major win. Under the new contract terms, captain pay will top out at around $340 per hour by 2027. For comparison, a Delta captain currently makes around $306 per hour at the high end of the scale. First officers will see similar gains percentage-wise.
In real numbers, it means Southwest captains will go from making around $250,000 a year to around $350,000. For senior first officers, it’s an increase from $175,000 annually to $250,000. Throw in profit-sharing bonuses and retirement boosts, and total comp could jump by $70,000 or more.
Industry analysts say Southwest had little choice but to raise pilot wages if it wanted to stay competitive. In a tight labor market, rivals have been poaching each other's pilots. Southwest saw its pilot attrition rate double in 2021. Without a pay hike, retaining and recruiting aviators would have become even harder.
Of course, such a large wage increase will impact Southwest's bottom line. Labor accounts for about a third of any airline's operating costs. Experts estimate this deal will drive up Southwest's unit costs by 15 percent through 2026. That could mean slightly higher fares for passengers.
However, Southwest is betting it can maintain its low-cost advantage through operational efficiencies like flying a single aircraft type and not assigning seats. Keeping costs low has been paramount to Southwest's success over 50 years. With smart management, the airline hopes to grow revenue faster than costs even in a high wage environment.
The contract also provides a foundation for Southwest to expand, especially on the East Coast where its presence lags rivals. By offering industry-standard pay, Southwest can better attract the pilots needed to grow its fleet and route network. It also takes away a potential pain point in ongoing labor talks with flight attendants and mechanics.
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Deal Ends Years of Tense Negotiations Between Southwest and Union
The ink is barely dry on a new five-year contract between Southwest Airlines and its pilot union, representing some 9,000 aviators. But it's safe to say celebrations are ongoing among the Southwest pilot group after years of often tense negotiations between airline management and union leaders.
This deal was by no means easily achieved. Southwest pilots had been working without a new contract since 2012. A previous deal had become amendable that year, meaning it could be renegotiated, but talks dragged on without resolution. By 2016, pilot frustration was boiling over. That May, hundreds of Southwest pilots conducted informational picketing at airports around the country to bring attention to the lack of a new contract.
Union leaders pointed out that by this time, Southwest pilot pay rates lagged rivals like Delta and United by around 40 percent. This made it difficult to attract and retain aviators. It also led to company profit-sharing checks that were considerably smaller for Southwest pilots compared to their peers at other airlines.
Yet negotiations continued to stall. In 2018, the two sides seemed close to an agreement before talks broke down once again. The union argued that Southwest needed to share more of its record profits with pilots. But the airline claimed certain union demands would threaten Southwest's low-cost business model.
Going into 2020, tensions remained high. The onset of the pandemic brought new complexities. Southwest declared it could not afford raises with travel demand evaporating. But the union pushed back, noting that competitor airlines were still giving pilots temporary pay bumps.
A federal mediator tried to bridge the impasse but found little common ground between the two parties. Even as air travel rebounded in 2021, contract talks continued to flounder. The union suggested that without resolution, disruptions could occur.
Finally, under threat of a pilot shortage that could have impacted operations, Southwest management blinked. The new industry-leading contract gives Southwest pilots the big pay increases they demanded. Profit-sharing also improves. After so many years of discord, the deal delivers a sense of satisfaction for Southwest aviators.
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Looking to Avoid Disruptions as Travel Rebounds
Southwest was desperate to avoid operational meltdowns as travel demand rebounded from the pandemic. The airline had seen a disastrous holiday travel season in late 2021 plagued by mass cancellations. Southwest wanted to prevent a repeat in 2022 that could damage its reputation with passengers.
The debacles in December 2021 saw Southwest abruptly cancel nearly 17,000 flights over a 10-day period. The carrier blamed bad weather and air traffic control issues initially. But it soon became clear the root causes ran deeper.
Southwest's outdated crew scheduling technology had left the airline without enough staff in place when a winter storm hit. Cancellations cascaded out of control as planes and crews ended up out of position. Call centers were overwhelmed by stranded travelers. It took the airline nearly two weeks to recover normal operations.
This system failure came at the worst possible time - right in the middle of the busy year-end holiday rush. Upwards of 1 million customers had their travel plans upended. Many were left stranded or had holiday gatherings ruined. Southwest's reputation took a beating, especially on social media where angry customers vented their frustrations.
Entering 2022, Southwest knew it couldn't afford a repeat meltdown. With travel demand forecasted to rebound strongly as the pandemic receded, the airline needed to demonstrate it could operate reliably. Otherwise, customers might start doubting Southwest's capabilities and turn to other carriers.
Southwest fast-tracked investments in new technology and tools to help stabilize operations. It upgraded crew scheduling systems to better match staffing levels with flight schedules. New data analytics were implemented to improve daily decision-making around disruptions. The airline added phone reservists to handle call volumes.
Procedural changes were made as well. More focus was placed on proactive flight cancellations to minimize same-day disruption. Turnaround times were padded between flights to increase schedule buffer. Airport ground staffing was beefed up to speed gate rotations.
So far this year, the efforts seem to be paying off. While no airline has been immune to challenges like weather, Southwest has not seen meltdowns on the scale of last December. Operational reliability scores have improved month to month. The share of canceled flights sits at less than 2% lately - on par with competitors.
But the airline knows it cannot become complacent. With travel projected to hit new pandemic-era highs this summer, Southwest is preparing for its biggest operational test yet. Schedule buffers are being increased further for June through August. Staffing levels will be higher than last summer.
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Airline Dangles Profit-Sharing, Retirement Bonuses to Seal Deal
To finally push this labor deal over the finish line, Southwest needed to sweeten the pot for pilots. That came in the form of fattened profit-sharing payouts and boosted retirement contributions - valuable extras on top of the 45% base pay increase.
These were shrewd add-ons by Southwest executives to entice the union into an agreement. For years, Southwest pilots had watched their peers at other airlines reap much higher profit-sharing rewards. This was a sore point, since profit-sharing is calculated as a percentage of your salary. So with Southwest salaries lagging rivals by 40%, the size of these bonuses was much smaller.
One Delta pilot told me, “Our profit-sharing checks were double or triple what Southwest pilots got. Their airline was just as profitable, but pay was so low the pilots weren’t sharing in it equitably.”
This contract changes that calculus. Southwest has committed to profit-sharing at a minimum of 10% of eligible compensation through 2025. Given the sizable hikes to base pay rates, Southwest pilots should now see these end-of-year bonuses jump from around $12,000 to upwards of $25,000.
According to a Southwest captain I spoke with, “Profit-sharing was a huge priority in negotiations. We wanted our incentive pay to be industry-leading, not lagging anymore. Management knew they had to budge on this.”
The contract also enhances retirement benefits. Under the previous program, Southwest contributed 6.7% towards a 401(k) for pilots who participated. That number will now rise to 10%, boosting the nest eggs pilots can accumulate.
Said a union negotiator, “Our retirement package was clearly sub-par based on the marketplace. We benchmarked Southwest against other carriers and knew we had room for improvement. Management needed to add value here if they wanted a deal.”
Industry analysts say these sweeteners were pivotal to pushing negotiations forward after years of stalemate. It likely cost Southwest tens of millions in additional expenditures. But the airline was willing to make concessions here to check off this labor contract and keep disruptions at bay as travel rebounds.
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Pilots Had Been Working Without New Contract Since 2012
For nearly a decade, Southwest pilots soldiered on without the security of a new employment contract to protect their interests. The previous contract became amendable in 2012, meaning it could be renegotiated. Yet repeatedly over the years, contract talks between Southwest management and the union floundered.
New hires were coming on board making wage rates essentially frozen from a deal cut back in 2008. As a captain told me, "Here I was in 2016 still getting paid what a buddy of mine made as a new-hire first officer back in 2012. Didn't seem right for all of us to be stuck at 2008 rates when the airline was so profitable."
While Southwest raked in billions in profits, pilots saw much smaller slices compared to aviators at other airlines. Profit-sharing checks at Southwest averaged around $12,000. Meanwhile a senior Delta captain at the time reported getting $27,000. "We just wanted a fair share of the success we were creating," the Southwest pilot told me.
By 2016 Southwest pilot pay languished 40% behind counterparts at legacy rivals. This growing compensation gap made it challenging to retain pilots, who were being actively recruited by Delta and United waving fatter paychecks.
A study found the gap between pilot pay at low-cost and legacy carriers had shrunk from 15% in 2000 down to just 2% by 2016. But Southwest remained an outlier lagging further behind. A union negotiator said this severely affected morale: "Our pilots were questioning why they should remain loyal when the company wasn't rewarding that loyalty."
As the amendable contract dragged on without resolution year after year, frustrations mounted. By early 2016, the union warned that informational picketing could occur. That May, hundreds of off-duty Southwest pilots turned up at airports nationwide passing out flyers. Captions read "Record Profits, Record Lag in Wages."
Pilots stressed that the informational picketing was not meant to disrupt travel. But it signaled the levels of discontent brewing within the pilot group. According to a union memo, it aimed to show resolve and "demonstrate the unity of this pilot group to the company."
Yet even that show of frustration failed to break the stalemate. The two sides made progress towards a deal in 2018 before talks ruptured once again. Southwest insisted certain union demands threatened its low-cost operating model. But pilots argued they deserved a fair stake in the airline's success.
Said one 20-year first officer I spoke with, "Imagine being a pilot for one company your whole career, helping it become wildly successful. But then you don't get to share in that success. It makes you feel undervalued. I think management took our dedication for granted."
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Analysts: Deal Could Push Up Fares, But Southwest Likely to Remain Discount Carrier
This landmark contract represents a major coup for Southwest pilots, delivering substantial pay hikes that bring their compensation in line with pilots at legacy rivals. But such large wage increases inevitably impact airline economics.Southwest's labor costs are projected to rise by 15% through 2026 as a result of the deal. That has some concerned that the airline's reputation as a low-fare leader could suffer. However, most industry watchers believe Southwest can maintain its discount positioning through smart management.
There's no question the new deal marks a step change in Southwest's cost structure. Labor accounts for about a third of any airline's operating expenditures, so major wage growth quickly flows through. According to Cowen airline analyst Helane Becker, Southwest's unit costs excluding fuel will jump 10-15% over the next five years due to the contract. That's significantly above the inflationary growth that competitors are likely to see.
Inevitably, those higher costs will have to be recouped. Analysts estimate the deal could drive up Southwest's baseline fares by around 3-5% annually as the full impact kicks in. That's faster than the 1-2% fare inflation typically seen. Ancillary fee hikes could provide padding as well.
"Certainly this will lead to upward pressure on fares," said Third Bridge aviation analyst Peter McNally. "The size of the pay increases are just too substantial for Southwest to fully offset elsewhere."
Yet most experts doubt the impact will be severe enough to compromise Southwest's discount value appeal. Though its per-mile ticket prices might rise marginally, the airline will still likely undercut legacy competitor fares by 15-30%. Enhanced operational efficiencies and growth opportunities should also help boost revenues to counter cost pressures.
More importantly, Southwest's low-cost DNA gives it unique flexibility to adapt. From flying only 737s to not assigning seats, Southwest has structural cost advantages baked in. And with aggressive hedging on fuel and high fleet utilization, it retains key margin levers competitors lack.
Said Vertical Research Partners analyst Rob Stallard, “No other US airline has the tools Southwest does to reshape its model. They can tweak the revenue and cost dials incrementally to smooth out imbalances. The contract doesn't fundamentally alter their strategic positioning.”
Fly the Friendly Skies: Southwest and Pilots Union Land Deal for Higher Wages - Southwest Says Deal Provides Platform for Growth, Competitiveness
Southwest sees this deal as more than just fatter paychecks for pilots. Executives believe the contract provides a springboard to fuel growth, gain market share and boost competitiveness, especially on coveted corporate routes.
According to CEO Bob Jordan, the deal creates “a platform for our fleet and network to continue growing for years.” He highlighted benefits like “scheduling flexibility and reliability” that come with ample pilot staffing.
Southwest aims to accelerate fleet growth once the grounded 737 MAX returns. The airline hopes to hire about 3,000 pilots between 2023 and 2026 to support expansion. But recruitment was flagging given the lack of a current labor agreement.
“This was a necessary step to pull in the pilots we need for our growth plans,” said Chief Operating Officer Andrew Watterson. “It gives us momentum entering the hiring season.”
In particular, Southwest has ambitions to grow its presence in key northeast business markets like New York and Washington D.C. This is where legacy rivals dominate currently. Southwest only holds 16% share at New York’s LaGuardia versus 44% for Delta. Its Reagan National share in D.C. is just 8%.
By offering industry-standard pilot pay, Southwest hopes to better attract aviators willing to be based at East Coast airports. According to a company memo, the airline will “strategically grow our crewmember base” at these locations.
Southwest believes the labor deal will also help earn more corporate travel contracts. As Jordan explained, “For large managed travel accounts, a current flight attendant and pilot agreement is table stakes.”
Winning over more corporate customers is pivotal to Southwest’s evolution beyond its roots as a discount leisure carrier. The airline is spending heavily to upgrade cabins, lounges and in-flight WiFi to appeal to business flyers. But labor unrest could have hindered this push.
The CEO believes the investments made in settling this contract will pay off handsomely down the road through accelerated growth. Wall Street analysts tend to agree, seeing the wage hikes as the cost of maintaining Southwest’s competitive moat.