We took a quick look at at client's question "How does the United Airlines (UAL) Flight Attendant Union contract affect company earnings going forward?"
Let's commence with a comprehensive analysis of the typical operating expenses within the airline industry. This is for an international flight, and it will soon become evident that the expenditures associated with the cabin crew constitute a relatively minor portion of the overall costs.
Let's review this critical piece of information:
The three largest expenses for an airline typically include (often roughly breaking down into equal thirds of their total operating budget):
Fuel Costs: This is often the single largest operational expense for an airline. Fuel prices can be highly volatile, fluctuating based on global oil prices, geopolitical events, and changes in regulations. Airlines may engage in fuel hedging to manage this volatility.
Labor Costs: Salaries and benefits for pilots, cabin crew, ground staff, and management constitute the second-largest expense for most airlines. Labor costs are affected by union negotiations, regional wage standards, and the level of expertise required for various roles within the airline.
Aircraft Purchase/Lease Costs (Maintenance and and other/misc.): Maintaining an airline's fleet involves regular checks, repairs, and overhauls, which can be costly. Additionally, acquiring new aircraft either through direct purchase or leasing represents a significant capital outlay. The decision between buying or leasing affects financial planning and operational strategies.
These expenses can vary somewhat based on the airline's business model (e.g., low-cost vs. full-service), route structure (e.g., long-haul international vs. short domestic flights), and the regulatory environment. However, fuel, labor, and aircraft costs typically dominate the expense sheets across the industry.
We can simplify to this chart to get a general feeling for the largest airlines expenses.
The number of employees at United Airlines (UAL) today is 106,000.
We created this chart with US DOT BTS Form 41 data, and it matches what UAL is reporting in Q2.
There are 27,000 flight attendants (FAs), so they make up 25.47% of the airline's workforce.
United reports Employee salaries and related costs here:
In 2023, the total labor cost amounted to $14.787 billion. Of this, 25.5%—equivalent to $3.766 billion—was attributed to flight attendants' compensation.
With a proposed 25% increase under the first year of the new contract, flight attendant costs would rise by $942 million, reaching a total of $4.708 billion. Should the contract be finalized in the fourth quarter, this increase is unlikely to have a material impact on the financials for 2024.
For the year ending 2023, operating revenues were reported at $53,716,853,991, with an operating profit of $4,214,151,192. The total operating expenses were recorded at $49,502,702,797, approximately $49.5 billion.
Should flight attendant costs increase as projected, the total operating expenses would rise to $50,444,702,797, representing a 1.9% increase, assuming all other variables remain constant. United Airlines Holdings Inc. (UAL) has 328.83 million shares outstanding.
With the consolidation of the industry to just four major carriers, United and its peers have successfully transferred increased costs to consumers over the past decade. Analysts anticipate this trend of robust price control to persist, suggesting that the new flight attendant contract is unlikely to materially impact profitability or earnings per share.
Here is one good summary - MarketBeat, August 9, 2024.
Given the current information, these estimates are considered reasonable and indicate that the new flight attendant contract will have minimal or no significant impact on the financials.
Additional info:
UAL enjoys a small cost advantage for FAs over Delta Airlines.
Forbes, Jul 3, 2024
The Alaska deal includes average pay raises of 32% over three years
In July 2024, American Airlines' 28,000 flight attendants reached a tentative labor agreement with the company.
Last month (June), the airline offered flight attendants a new contract with an immediate 17% wage increase and higher profit sharing in 2024, which the union rejected. American’s flight attendants had authorized their union to call a strike if there wasn’t a deal. The union had proposed an immediate raise of about 33%, saying the flight attendants had not had a pay raise in over five years and endured a lot since the pandemic, notably unruly passengers.
Alaska Airlines Flight Attendants A Bellwether
By Ernest Arvai, AirInsight. “Alaska Airlines flight attendants have voted down a contract negotiated by their union that offered a 32% raise over three years and an innovation in enabling boarding pay, as flight attendants today aren’t paid for their time while helping passengers board an aircraft and readying the cabin for departure. While the union leadership felt the offer was reasonable, the rank and file voted 64% against, with 94% of eligible employees voting.”
Overall, the impact of the new flight attendant contract on the entire operation appears to be minimal.
If there's one key insight to share, it's this: We anticipate the negotiation of a new flight attendant contract by the third or fourth quarter of 2024, and it would be unexpected for this issue to extend into 2025.
Furthermore, it is highly unlikely that United Airlines would face a strike over this contract. The Railway Labor Act, which has already extended management leverage for three years under an amendable (expired) contract, significantly favors their position.
Take a look at our new interactive airline charts - Airline Profitability with RASM vs CASM and Total Debt
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