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Back in February, a labor dispute caused major operational disruptions at Southwest Airlines (NYSE: LUV). Southwest's aggressive response to what it alleged was an illegal work slowdown by its mechanics initially caused tensions to rise even further. However, the two sides have resolved their differences, recently agreeing to (and ratifying) a new long-term contract.
While labor tensions have cooled at Southwest, similar issues are now cropping up at American Airlines (NASDAQ: AAL). In all likelihood, American will have a much tougher time achieving labor peace than its rival.
Southwest makes peace with its mechanics
In mid-February, Southwest saw an unusual surge in maintenance issues, leading to hundreds of flight cancellations each day. The carrier quickly concluded that mechanics in certain cities were engaging in a deliberate work slowdown to gain leverage in ongoing contract negotiations.
Southwest suffered a spike in maintenance-related cancellations in February. Image source: Southwest Airlines.
Southwest responded by declaring an "operational emergency" and threatened to fire mechanics who called in sick without a valid doctor's note. It then sued the mechanics' union on Feb. 28, demanding that the union take action to end what the airline described as an illegal slowdown.
However, at the same time as it was taking these actions, Southwest continued to negotiate with the mechanics' union. These talks led to a tentative contract agreement by mid-March. The airline offered an immediate 20% pay raise and $160 million in retroactive pay in exchange for work-rule changes.
Southwest's mechanics previously had rejected the last tentative agreement that came up for ratification. Fortunately, the new agreement passed muster. Southwest announced on May 21 that the new contract would go into effect immediately and continue until April 2024.
An eerily similar situation
Recent developments at American Airlines have been remarkably similar to what transpired at Southwest earlier this year. The airline says that it had to cancel 644 flights and delay 270 others by at least two hours between Feb. 4 and May 13 due to a spike in maintenance write-ups.
Image source: American Airlines.
Like Southwest, American claims that the only reasonable explanation is a deliberate work action by its mechanics, who are several years into contract negotiations. In another parallel, the spike in maintenance-related cancellations seems to be concentrated in a few cities -- in this case, Charlotte, Philadelphia, and Phoenix. American also noted that mechanics have suddenly started refusing overtime, making it hard to address maintenance issues.