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Horizon Air’s Pilots Ratify Change in Agreement

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Jul. 11 2017, Updated 11:36 a.m. ET

Pilot agreement

Horizon Air pilots have ratified a change in their existing eight-year pilot contract. According to the change, both existing and new pilots will receive significant pay raises. According to Alaska Air (ALK), their pay will now be at the top of regional airlines. Horizon Air is Alaska’s regional airline and operates short routes in the Pacific Northwest and beyond.

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Pilot shortage

Despite the pay hike, Horizon Air faces a severe pilot shortage, which had led to many flight cancellations. Last month, the airline was forced to cancel more than 318 flights. As the pilot issue is not expected to resolve soon, the airline has canceled another 6.2% flights scheduled in August. The pilot shortage was caused by high attrition and Horizon’s inability to keep up with parent Alaska Air’s high growth.

To address the issue, the airline is offering a 200% premium pay to existing pilots for flying extra flights. This is higher than the agreed 150% pay. The airline is also looking to hire almost 300 new pilots in 2017. It’s also offering a joining bonus of $20,000 to pilots of the Bombardier Q400 aircraft and $15,000 to pilots of the Embraer E135 aircraft. The starting pay rate for new pilots has also been increased from $30 per hour to $40 per hour.

More labor cost pains ahead

Pilots from the combined entity of Alaska and Virgin America have not yet reached an agreement with ALK’s management, as these pilots are demanding higher hikes than the management has agreed to pay. This only means that Alaska’s labor costs are likely to increase in the future.

Investors can gain exposure to airlines through the iShares Transportation Average ETF (IYT). IYT has 5.8% in Alaska Air (ALK), 4.65% in United Continental (UAL), 4.3% in Delta Air Lines (DAL), 3.9% in Southwest Airlines (LUV), 3.6% in American Airlines (AAL), and 1.9% in JetBlue Airways (JBLU).

Continue to the next part of this series for a look at how all this will this impact Alaska Air’s profit margins.

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