Following the labor agreement with International Brotherhood of
United Continental Holdings
) has reached another milestone in integrating its workforce by
ratifying a new labor agreement involving 15,000 United Airlines
flight attendants represented by the Association of Flight
According to the deal, United's employees will receive a 10%
compensation hike and a signing bonus of $5,000. Additionally, this
new contract will expedite the process of negotiating a single
contract covering flight attendants of both the airlines, United
United and Continental merged in 2010 to form United Continental
Holdings. Currently, AFA-CWA represents both groups of flight
attendants, though AFA-CWA administers the contract negotiated and
ratified by the Continental Flight Attendants and the International
Association of Machinists and Aerospace Workers (IAMAW) previously.
In February last year, the company signed a contract with the
flight attendants of Continental Airlines. We believe that the
company's effort to integrate its workforce will have positive
implications for its operational efficiency and also save costs for
the combined entity.
Apart from integrating employee groups, the carrier is also
contemplating combining passenger services of both the airlines.
The integration process remains on track with United Continental
Holdings receiving a single operating certificate from the Federal
Aviation Administration (
) on November 30, 2011.The company expects to operate a single
passenger service system by March this year through the
consolidation of its information systems, fleet reallocations,
carrier codes, flight schedules, inventory and departure control
The merger is expected to generate net annual synergies of $1
billion to $1.2 billion by 2013, with $800 million to $900 million
in additional revenue and $200 million to $300 million in cost
savings. Approximately 25% of total synergies were realized last
year. With the company's sound cash position, industry-leading
revenues and competitive cost structure, the merger provides
improved access from Continental hubs to United's strong Asia
network and from United's hubs to Continental's international
network in Latin America and Europe.
However, United and Continental are both highly unionized companies
like its peer
). As of December 31, 2011, United Continental had approximately
87,000 employees (United had approximately 47,000 employees and
Continental approximately 40,000), of which approximately 72% were
represented by various U.S. labor organizations. Thus, union
disputes, employee strikes or slowdowns, and other labor related
disruptions, along with the integration of United and Continental
workforces in connection with the merger may delay expected merger
synergies and increase labor costs or labor disputes, which in
turn, would hurt the profitability of the company.
Currently, we maintain our long-term Neutral recommendation on
United Continental Holdings. For the short term (1-3 months), the
stock retains a Zacks #3 Rank (Hold).
(We are reissuing this article to correct a mistake. Two
previous articles issued March 1, 2012, should no longer be relied
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