Labor troubles could undermine Southwest profits
Associated Press
DALLAS — By just about any measure, Southwest Airlines defied the headwind that battered the airline industry after Sept. 11.
Bloomberg News Service
It was the first major carrier to resume advertising eight days later, it launched the first fare sale two weeks after the terror attacks, and it didn't cut flights or lay off workers.
Passengers line up at the Southwest Airlines ticket counter at a Florida airport. Although it has weathered the recent travel slump, the airline may still face tough times.
While the other six largest carriers lost $7.3 billion last year, and another $2.8 billion so far this year, Southwest has continued to post profits, although they are much smaller than previous years.
But Southwest could still hit rough weather. It faces serious challenges to controlling costs, especially from its heavily unionized work force.
As it did in the early 1990s, Southwest has eked out profits during an industrywide slump by charging lower fares for basic service and cutting costs to the bone.
Southwest's profit margin is so thin — 4.5 percent of revenue this year, down from 9.2 percent last year and 10.7 percent in 2000 — that significantly high labor costs could throw it into the red.
Southwest prides itself for never having layoffs and facing only one brief strike in its 31-year history. Days after Sept. 11, when the outlook for travel was still doubtful, the airline went ahead with a payment to the employee profit-sharing plan.
But if chief executive James Parker hoped the payment and the absence of layoffs would appease his employees, he may have miscalculated.
Southwest is locked in difficult negotiations with its 4,100 pilots, who last week ratified a contract extension that would give them a 35 percent raise over four years.
Southwest's 1,300 mechanics, represented by the Teamsters union, have asked for federal mediators to resolve a stalemate in contract talks. Workers voted 98 percent to reject the airline's last offer.
Flight attendants are also at the negotiating table. Union president Thom McDaniel said the sides haven't discussed money yet but flight attendants want a "significant" raise.
"We are among the lowest-paid flight attendants in comparison to other major airlines," McDaniel said. "We've been one of the keys to Southwest for a long time, and we should be in an industry-leading position" in pay.
