What's In Store For Alaska Air Group (ALK) Pilots' Contract?

One of the most notable events in the airline space in 2016 was the acquisition of Virgin America by Alaska Air Group (NYSE:ALK) . This buyout, which was completed on Dec 14, resulted in the creation of the fifth-largest airline in the U.S. in terms of passenger traffic.

The integration process is now on. Notably, in Mar 2017, Alaska Air Group announced its intention to terminate the Virgin America brand in 2019 in a bid to maintain uniformity and operate under one brand.

Even though Alaska Air Group had said on the first-quarter conference call that the integration process was making good progress, talks of a joint contract for pilots at Alaska Air and Virgin America have run into rough weather. We note that pilots of both parties are represented by the Air Line Pilots Association (ALPA).

Arbitration- The Way Forward

The mediated talks on the joint contract, which were in progress since the beginning of May, ended recently without reaching any conclusion on key issues like compensation, retirement benefits and more. The failure to arrive at a joint pilot contract is a huge setback to the process of integrating the two pilot groups.

In fact, with no agreement possible between pilots and management, arbitration is the way forward. The arbitration process will reportedly begin on Aug 28, 2017. Particularly, since a joint contract is essential for the pilot combination process, focus will undoubtedly remain on the arbitration proceedings. Additionally, we expect a detailed commentary on the pilots’ issue on the second quarter conference call at Alaska Air Group on Jul 26.

Apart from the above issue, Alaska Air Group was also in the news when pilots at one of its subsidiaries, Horizon Air, approved an amendment for the existing eight-year pay-related contract. Following the ratification, Alaska Air Group lifted its forecast for cost per available seat mile (CASM) for the second quarter as well as full-year 2017.

Alaska Air Group, Inc. Price

Alaska Air Group, Inc. Price | Alaska Air Group, Inc. Quote

Zacks Rank & Key Picks

Alaska Air Group holds a Zacks Rank #2 (Buy). Investors in the airline space may also consider American Airlines Group (NASDAQ:AAL) , Delta Air Lines (NYSE:DAL) and United Continental Holdings (NYSE:UAL) . All three stocks sport a Zacks Rank#1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of American Airlines, Delta and United Continental have rallied over 25%, 23% and 10% respectively, in the last three months.

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