Southwest shares drop as mechanics labor dispute escalates
Reuters
Published Feb 20, 2019 01:23PM ET
Southwest shares drop as mechanics labor dispute escalates
By Tracy Rucinski and Ankit Ajmera
(Reuters) - Southwest Airlines (NYSE:LUV) Co's shares fell as much as 6 percent on Wednesday after the low-cost carrier said it was investigating whether a conflict with its mechanics union was leading to a spike in flight cancellations.
The escalating labor dispute comes as the airline on Wednesday cut its first-quarter growth forecast for revenue per seat mile due to a higher-than-expected impact from the recent U.S. government shutdown and weak passenger bookings.
Dallas-based Southwest has canceled hundreds of flights since Feb. 15, due to a mixture of weather and unscheduled maintenance issues that have put an unprecedented number of aircraft out of service.
Southwest said there was no common theme among the maintenance issues, which followed the latest round of negotiations with the Aircraft Mechanics Fraternal Association (AMFA). AMFA represents about 2,400 Southwest mechanics and has been in contract talks with management since 2012.
On Tuesday, Southwest Chief Operating Officer Mike Van de Ven said the low-cost carrier would investigate why the number of aircraft unable to fly due to mechanical issues had doubled.
In a response posted on its website, AMFA said that Southwest's linking of aircraft disruption to collective bargaining negotiations "is simply an attempt to divert attention away from the airline's safety issues."
Shares of Southwest were down more than 5 percent at $54.70 on Wednesday afternoon, off an earlier low at $54.19.
Earlier on Wednesday, Southwest said it expected a $60 million sales hit from the recent U.S. government partial shutdown, four times its previous estimate.
While the 35-day U.S. shutdown ended on Jan. 25, Southwest spokeswoman Brandy King said passenger demand and bookings continued to suffer due to uncertainty over a potential second shutdown before a government deal was reached on Feb. 14.
As a result, Southwest trimmed its first-quarter growth forecast for revenue per available seat mile to a range of 3 to 4 percent from a previous range of 4 to 5 percent.
Southwest, which flies more domestic flights than legacy peers like American Airlines Group and Delta Air Lines (NYSE:DAL), said it is hopeful that first-quarter demand softness is temporary.
However, the more than month-long hiatus in U.S. government decision-making has delayed the federal authorization process for Southwest's plans to launch service to Hawaii, which it had hoped to begin early this year.
That process is currently under way, though the carrier has as yet been unable to announce a launch date.
Goldman Sachs (NYSE:GS) said this means the airline will have a shorter window to sell tickets to Hawaii, forcing it to discount heavily at a time when most rivals expect an improvement in ticket prices. It issued a "sell" recommendation on the stock.
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Meanwhile, flight cancellations by Southwest continued on Wednesday, accounting for about 22 percent of total cancellations across the United States, according to flight-tracking service FlightAware.com.
King said the next round of contract talks with the mechanics union is scheduled for March 12.
Written By: Reuters
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