Implications of New American Airlines Pilots Contract on Travel Costs

The new contract between American Airlines and its pilots could be costly – for the consumer. The carrier is warning that costs could go up in the third quarter because of the price of the contract.

It’s called the price of doing business.

Other airlines who were in the same predicament and had to settle with their pilots, set the precedent for which American is now paying.

It was not an earnings call, but American made the revelations during a press conference to announce the deal with its pilot’s union. It was a four-year deal worth almost $10 billion in salary and benefits loan over four years.

Almost $230 million alone in back pay will be added to third-quarter expenses, American said.

Most of the increased costs are expected to be reflected in airfares. The airline said its cost for available seat miles, a key metric for airlines, is likely to grow four to six percent from an estimated two to four percent.

The change in the balance sheet includes $1.1 billion in one-time payout and bonuses.

Earlier this week, pilots working for American ratified a new contract with the carrier valued at $9.6 billion. Officials from the Allied Pilots Association (APA) said the new deal includes pay raises of more than 40 percent over four years and higher company contributions to retirement plans.

American CEO Robert Isom said the agreement with the carrier’s around 15,000 pilots will help “immediately expand its pilot training and provide pilots with more opportunities for career advancement.”