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Southwest Strikes New Labor Deal

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One of the leading discounted carriers in the US, Southwest Airlines (NYSE:LUV - News) reported that the company’s union of flight attendants has entered into a tentative Seniority Integration Agreement with the union of flight attendants of AirTran Airways.

The agreement has already been approved by the executive boards of the Transport Workers Union 556, representing the union of Southwest Airlines Flight Attendants as well as the Association of Flight Attendants Council 57, representing the union of the Flight Attendants of AirTran Airways.

Subject to the approval of the union members through voting, the new agreement would represent a common contract for the flight attendants in both the airlines following Southwest’s acquisition of AirTran in May this year.

Unlike its peer, United Continental Holdings Inc. (NYSE:UAL - News), Southwest Airlines has so far been successful in integrating its labor unions. As of December 31, 2010, approximately 82% of Southwest’s employees were represented by labor unions.

Subsequent to the acquisition of AirTran, the company remains keen on establishing a joint contract for all flight attendants including those of AirTran. A single contract would be highly beneficial not only in terms of preventing union disputes, employee strikes and other labor related disruptions, but also providing significant synergies through curtailing cost arising from labor disputes and compensation issues .

Apart from establishing an integrated workforce structure, Southwest Airlines is also slated to receive the single operating certificate in the first quarter of 2012. The regulatory fulfillment is expected to generate healthy returns based on accretive synergies and benefits relating to the conversion of AirTran Airways aircraft into the Southwest livery.

We maintain our long-term Neutral recommendation on Southwest Airlines, supported by the Zacks #3 Rank (Hold).

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