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Latest News - April 2015

April 9, 2015
Allegiant Air Investors Go on Strike -- Are Pilots Next?
Source: THE STREET.COM
By: TED REED

A nasty fight between Allegiant and the International Brotherhood of Teamsters hasn't been a good thing for the airline's stock.

Last week, shares declined 16% after the airline's 500 Teamsters-represented pilots said they were about to strike April 2, an action that was halted by a temporary restraining order issued the previous day in U.S. District Court in Las Vegas. Shares climbed $2.25 on Wednesday to $169.45.

Allegiant opened March 31 at $194.60. By the end of the day on April 2, they stood at $161.90 before a slow rebound. Now, some analysts see the dip as a buying opportunity, although Cowen & Co.'s Helane Becker wrote Wednesday, "We do not expect much in the way of outperformance in the near term until labor tensions subside."    On April 1, U.S. District Court Judge Gloria Navarro issued the temporary restraining order that prevented the planned strike. On Friday, U.S. District Court Judge Andrew Gordon will decide whether to lift it. 

In June 2014, Gordon ruled that Allegiant illegally altered a pre-existing contract with an in-house union after the Teamsters became the representative of the 500 allegiant pilots in 2012. Labor law requires honoring the "status quo" contract in such a case. Allegiant has appealed the ruling. 

Needless to say, the two sides expressed different expectations for Friday's outcome.

In a court filing on Monday, Teamsters attorneys charge that Allegiant misled the court in June when a company official said the carrier was using a Merlot software system to schedule pilots. In a November filing, "Allegiant admitted that it had misled the court, conceding that indeed it had not used the Merlot PBS system to construct pilots' schedules since March 14," according to the filing.

"When Judge Gordon reads through the testimony and sees that the company willfully misled him in the first case, he might not think favorably of that," said Dan Wells, an Atlas Air captain who is president of Teamsters Local 1224, which represents the roughly 500 allegiant pilots.

Moreover, Gordon "is the guy who already said they ignored the status quo," Wells said.

Allegiant, however "is confident the court will safeguard our passengers from further disruption by granting the injunction," said spokeswoman Jessica Wheeler, in a prepared statement. "Allegiant is looking forward to focusing on and making progress in the next federally mediated negotiating session, scheduled for late April."

Teamsters contend that the Railway Labor Act negotiating process overseen by the National Mediation Board is proceeding on a separate track and that Allegiant's failure to honor a status quo labor contract, already recognized by Gordon, is sufficient grounds for a strike.

Ironically, on Tuesday Allegiant offered positive news as it reported March traffic numbers and updated current quarter guidance. Unit revenue growth was revised to the high end of guidance while operating cost was less than expected.

In response, Becker raised her current quarter estimate to $3.57 and her full-year estimate to $11.55. Analysts surveyed by Thomson Reuters estimate $4.41 for the quarter and $11.67 for the year.

"We believe that better than expected unit costs are mostly driven by capacity grown in 1Q15 coming at the high end of the range," Becker wrote. "Overall the guidance was clearly better than street expectations and will likely result in upward estimate revisions in the near term.

"Our estimate assumes there will be no strike," Becker added. "If a strike were to occur there would be a significant financial impact to the company as access to available pilots is limited."

In a report issued April 2, CRT Capital analyst Mike Derchin said he sees nothing to worry about.  "A mediated settlement this year of the current dispute is the most likely outcome," Derchin wrote. "Negotiations have been going on for roughly two years, which is typical in the airline industry." He has a buy rating and a $220 price target.

In another April 2 report, Stifel analyst Joseph DeNardi said he views Allegiant "as having the best business model in the industry and best positioned to benefit from lower fuel prices given a relative lack of competitive pricing risk.

"We view the selloff yesterday as a good opportunity for longer-term investors though we expect volatility to continue ... ahead of the Friday court ruling," DeNardi wrote.

 

 


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