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Alaska Air (ALK) Arm & IAM Ink Tentative Deal for 5.300 Workers

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Labor trouble has emerged as a major pain point for the U.S. Airline industry of late. Amid this problem, Alaska Airlines, the wholly-owned subsidiary of Alaska Air Group ALK, received some encouraging tidings when it reached a provisional pay-related agreement with the International Association of Machinists and Aerospace Workers (IAM).

The tentative deal covers 5,300 employees of Alaska Airlines. It includes those who work at the ramp, stores, clerical, office and passenger service for the Seattle, WA-based airline. However, the deal does not cover roughly 2,000 ramp workers, also represented by IAM, who work for the McGee Air Services subsidiary and handle baggage on passenger flights.

The four-year deal, on materialization, will make the 5,300 employees eligible for a substantial pay raise. Salient features of the contract include higher base wage rates for all classifications in the 8.9-17.4% band, effective Aug 10, 2022. The employees will be eligible for a further 2.5% hike in all base wages rates for all classifications from the same date of 2023. Base wage rate will also increase at least 2.5% for the following two years. The existing job security clause (amendable on Sep 27, 2026) is extended to Sep 27, 2028.

We note that tentative agreements do not necessarily mean that the deal will be operational. The provisional deal inked by Alaska Air will now be voted upon by union members in the coming weeks. Moreover, representatives of IAM will hold various contract educational meetings across the United States. The provisional deal will be effective only if the voting result is favorable.

Shares of ALK have declined 23.8% over the past six months due to headwinds like high fuel costs and labor woes. Notably, the dispute with its pilots is still unresolved.

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Zacks Investment Research

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However, successful ratification of the above deal may boost the stock. We expect investors to await further updates on this issue.

Zacks Rank & Key Picks

ALK currently carries a Zacks Rank #3 (Hold). Investors interested in the Zacks Transportation  sector may consider some better-ranked stocks like Southwest Airlines LUV and Star Bulk Carriers SBLK, currently sporting a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Continued recovery in air-travel demand bodes well for Southwest Airlines. Anticipating a steady improvement in its bookings, the carrier expects to reap profits in the remaining three quarters of 2022 as well as during the full year. LUV's management predicts operating revenues to increase 12-15% in the second quarter of 2022 from the comparable period’s level in 2019. LUV is seeing strong bookings for the spring and summer trips.

The positivity surrounding the Southwest Airlines stock is evident from the Zacks Consensus Estimate for current-year earnings being revised above 100% upward over the past 60 days. LUV has a Growth Style Score of B.

Star Bulk Carriers’ earnings surpassed the Zacks Consensus Estimate in three of the preceding four quarters and missed the mark once, the average surprise being 7.1%.

Shares of Star Bulk have gained more than 14% over the past six months. Improvement in economic activities is aiding the SBLK stock.

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