Best stocks to invest in – United Continental Gains on Tentative Labor Deal with AFA

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Low oil prices have been a boon for airlines, helping the carriers rake in high profits.  Employees are eager to get a share of the pie which has given rise to new labor deals and related issues across the industry.

The latest news pertaining to labor deals came from Chicago-based United Continental Holdings UAL. Shares of the carrier have gained over 5% ever since the company inked a tentative pay-related deal with the labor union (Association of Flight Attendants or AFA), representing its 25,000+ flight attendants. The agreement aims to bring the carrier’s flight attendants under a single work group.

Apparently, this is the first contract pertaining to the cabin crew members since 2010 when United Airlines and Continental Airlines merged resulting in the formation of United Continental Holdings.

Ratification to Guarantee Significant Pay Hike

Although a positive development, there is still some way to go before the deal becomes operational. Following the provisional deal, it will now have to be ratified. Results of the ratification vote are expected by Aug 31. In the event of it being ratified, the agreement, which will guarantee a significant increase in the pay of the carrier’s flight attendants apart from other benefits, will be valid for five years. The increase in pay is expected to result in the flight attendants of the carrier being paid more than their counterparts at American Airlines Group AAL.

United Continental is hoping that it does not meet the same fate as Southwest Airlines LUV where the pilots turned down the tentative contract last year on two major grounds, per media reports. Apparently, the issues were related to code share agreements and “retro pay.”

We expect investor focus to remain on further labor-related updates at United Continental. Whatever be the outcome, it cannot be denied that United Continental has adopted a more labor-friendly approach under CEO Oscar Munoz compared to his predecessor Jeff Smisek.

Zacks Rank & A Key Pick

United Continental currently carries a Zacks Rank #5 (Strong Sell). The carrier’s bearish rank can be attributed to fears of reduced travel demand following the Brexit vote and the surge in terror attacks.

A better-ranked stock in the airline space is SkyWest, Inc. SKYW which sports a Zacks Rank #1 (Strong Buy).

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