Southwest Airlines avoided a highly public confrontation with labour by reaching a new flight attendant contract - but at a price that includes pay raises of 31% and the unexpected resignation of the airline's chief executive, Jim Parker.

The flight-attendant pact, a six-year contract retroactive to June 2002, highlights the increasing labour pressure the low-fare carrier will face as it fights to keep costs down. In 2003, its labour costs were up 11.6% year over year. Pilots won a contract in 2002, lasting until September 2006, that entails pay rises of 40% over the five years.

The flight attendants, members of the Transport Workers Union, had publicly demonstrated during Southwest's recent expansion into Philadelphia. The talks had dragged on for two years, and the airline's founder Herb Kelleher intervened to jumpstart negotiations. Kelleher had retained the chairman's spot after giving up the chief executive role, but had taken a hands-off stance when it came to the running of the carrier he helped shape, leaving everyday management to the duo designated in 2001 to succeed him, chief executive Parker and Colleen Barrett, the airline's number-two executive and long-time chief motivator.

But industry insiders place great weight on the fact that Parker had made little progress in negotiating a new labour contract with the attendants, while public attention to the attendants' dissatisfaction grew. Southwest has long held a unique role in US business, winning media praise as a happy workplace and constant press attention as the exception to the rule that airline labour is rarely content with its lot. Parker would not detail his reasons for his early retirement, which he announced suddenly just days after the contract was agreed.

The new pact includes stock options, a first for the flight attendants, although options have been won recently by other Southwest workers. Raymond James & Associates airlines analyst Jim Parker remains upbeat about Southwest, saying the cost increase for flight attendants will be partially offset by a reduction in the number of employees per aircraft from 85 at the end of 2003 to below 80 this spring. Recent buyouts of older workers helped lower labour costs, he adds.

Parker says that Southwest unit revenue "appears to be strengthening ahead of the rest of the industry since it became more aggressive with fares in February 2004". Some other analysts are less sanguine, with Jamie Baker of JP Morgan worrying that Southwest is accelerating its growth as an effort "to contain a fast-deteriorating labour cost structure".

Southwest's unit costs are among the lowest, at about ¢7.5 a seat-mile (¢4.5 per km), while JetBlue's costs have stayed lower at about ¢6.1 a seat-mile. But costs at mainline rivals American, at ¢10.1, and Delta, at ¢10.6 a seat-mile, are higher despite intensive cost cuts.



Source: Airline Business