Southwest losing millions each week from mechanics dispute, CEO says
Money Map Press chief strategist Keith Fitz-Gerald, CLS Investments President Rusty Vanneman and Shaffer Asset Management President Dan Shaffer on the state of the stock market and how Southwest shares jumped after rumors were started that Berkshire Hathaway was considering a takeover bid.
Southwest Airlines is losing millions of dollars each week amid an escalating dispute with its mechanics that has led to hundreds of canceled flights, according to the carrier’s top executive.
Earlier this month, the company declared an “operational emergency” after what Southwest said was an increasing number of write-ups from mechanics detailing safety issues with the existing fleet, resulting in double the amount of out-of-service aircraft.
The dispute – which intensified last week when the Dallas-based carrier filed a lawsuit against the Aircraft Mechanics Fraternal Association (AMFA) – is weighing on earnings in the first quarter of 2019, which are already under pressure due to the record 35-day government shutdown.
“The damage to the company runs in the millions of dollars weekly in lost revenue due to canceled flights and millions of dollars weekly in terms of additional costs caused by delays and cancellations,” CEO Gary Kelly said at a J.P. Morgan investor conference on Tuesday.
The combination of the two events, Kelly noted, is slowing “the revenue momentum that we had started the year with.”
Southwest has been in negotiations with the AMFA for over six years. The union rejected an offer last year that included a 16.3 percent pay raise and the two sides remain engaged in federally mediated negotiating sessions.
“We have expressed an ability to negotiate additional pay in exchange for some value, supplier flexibility and work rule efficiencies,” Kelly said.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| LUV | SOUTHWEST AIRLINES CO. | 32.59 | +0.17 | +0.54% |
In its lawsuit, Southwest alleged that its mechanics are flagging “cosmetic” issues that have no impact on the performance of their jets, creating an artificial safety crisis to extract more concessions from the company – a claim the union denies but has warned its members about.
It came amid speculation that famed investor Warren Buffett, currently the carrier's second-largest shareholder, could seek to become its largest investor. Southwest previously declined to comment on the rumors.
"I've never worked for a sole shareholder," Kelly said on Monday. "It's nothing that we spend a lot of time worrying about or thinking about."
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On top of the ongoing feud, Southwest is under investigation by the Federal Aviation Administration over how it calculates the weight of checked bags on flights. This week, the carrier also listed its first flights to Hawaii after obtaining federal approval for the routes.