United Continental Holdings Inc. (UAL) entered into a labor agreement with representatives of approximately 7,200 non-union employees, working as reservation agents and in other passenger-service roles.
The agreement deals with factors like compensation benefits and work rules. However, the terms and conditions of the agreement were not disclosed.
Earlier this month, United Airlines, a wholly-owned subsidiary of United Continental signed a labor contract with the International Brotherhood of Teamsters (IBT) for 5,500 airplane mechanics of United Airlines.
In October 2010, United and Continental merged to form United Continental Holdings. However, labor unions of both the companies remain disintegrated, causing union disputes.
Going forward, United Continental expects to reach a single contract involving employees of both United Airlines and Continental Airlines. It believes that a single contract is highly beneficial as the merged airline company focuses on curtailing costs, thus contributing to annual savings of approximately $1.2 billion by 2013.
United and Continental are both highly unionized companies like its peer SouthwestAirlines (LUV). As of December 31, 2010, United Continental had approximately 86,000 employees, of whom approximately 72% were represented by various U.S. labor organizations. Thus, union disputes, employee strikes or slowdowns, and other labor related disruptions, as well as the integration of United and Continental workforces in connection with the merger may delay expected merger synergies, increase labor costs or labor disputes, which in turn, would hurt the profitability of the company going forward.
Currently, we maintain our long-term Neutral recommendation on United Continental. The company retains a Zacks #3 Rank, which implies a short-term (1-3 months) Hold rating.
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