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Southwest Airlines Co.’s growth plans may be jeopardized by a lawsuit filed by its pilots union over flying Boeing Co.’s newest 737 jetliner, Chief Executive Officer Gary Kelly said.
The Southwest Airlines Pilots Association, representing 8,300 aviators, on Monday asked a federal court to block the carrier from flying the 737 Max until the plane is listed in a new contract. The two sides have been negotiating a labor pact for more than four years.
Development of the new Boeing aircraft is months ahead of schedule and its early arrival — as soon as March — could give pilots added leverage in contract negotiations. If an agreement isn’t reached and approved first, the world’s largest 737 operator risks seeing the plane sit idle or having another carrier replace it as the Max’s initial operator.
“It will harm Southwest if we cannot receive future aircraft deliveries,” Kelly told reporters after the company’s annual shareholder meeting in Chicago on Wednesday. “It won’t put us in jeopardy of shrinking the airline, but we won’t be able to grow.”
Pilots are dependent on an expanding fleet so first officers can be promoted to captain positions, Kelly said. About 400 pilots, joined by flight attendants and mechanics, picketed outside the meeting.
“This all becomes a nonissue with a contract,” said Jon Weaks, the union’s president. “Not being able to attract and retain quality pilots will constrain his growth.”
The lawsuit was wrongly filed in federal court because the existing contract and the Railway Labor Act, which governs airline union negotiations, provide ways to deal with the conflict, Kelly said. The CEO has said he’s confident that a contract can be reached before the plane arrives.
The carrier, which has remained profitable and able to offer lower fares by holding down operating expenses, is being squeezed by stepped-up competition from expanding ultra-low-fare rivals and bigger airlines that reorganized and cut costs in bankruptcy court, Kelly said. The Dallas-based airline, which has never laid off workers or cut pay, must be able to increase efficiency in exchange for raising employee compensation, he said.
“We’re very proud of the fact that virtually all of our people are the best paid in the industry but we are also facing the most serious competitive threat we’ve seen in 20 years,” he said
Lengthy security lines at airports are “very frustrating,” said Kelly. The U.S. Transportation Security Administration cut staffing even though more people are traveling and the productivity of the agency’s workers has declined, he said. The carrier is trying to find ways to help reduce wait times, including by helping monitor passenger lines, and is considering how it could reduce the cost of precheck security clearance to encourage more travelers to enroll in the program.
“Everybody is putting a lot of pressure” on the TSA to resolve the situation, “and it is warranted,” Kelly said. “It absolutely needs to be addressed short term and we need to have a better long-term perspective.”
The Max is moving smoothly through flight testing, with its larger engines and more aerodynamic wings providing promised fuel savings, said Mike Van de Ven, Southwest’s chief operating officer.
“We have not heard anything from Boeing that would cause us any concern,” he said in an interview.
Southwest also is keeping an eye on a new middle-of-the-market jetliner that is on Boeing’s drawing board, Van De Ven said.
Boeing has said that if it decides to build the all-new model, work wouldn’t begin in earnest until after the revamped 777X wide-body plane debuts in 2020. The new aircraft would begin commercial flight four or five years later. Both single- and twin-aisle models are under consideration, and analysts have theorized a new narrow-body frame could be used as an eventual successor to the 737.
“Would we really look at it? I don’t know,” Van De Ven said of the so-called MOM model. “2024 is another lifetime.”
Southwest’s board authorized a new $2 billion share repurchase program and increased the quarterly dividend to 10 cents a share from 7.5 cents, the airline said in a statement.
©2016 Bloomberg L.P.
This article was written by Julie Johnsson and Mary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network.