Airlines are facing a severe shortage of pilots as the summer travel season approaches

Carolina Larson was in her mid-30s working at an investment bank in New York City when she overheard a co-worker talking about flying lessons. Soon she was taking lessons at the same flight school and planning to change her profession.

“I emptied my 401(k) and maxed out my credit card and borrowed money from friends,” she said of taking the first steps toward becoming an airline pilot, estimating it cost her about $100,000 over several years. “It’s all gone. I was just hoping it would pay off.”

Ten years later, Larson has become a first officer for a regional airline on the East Coast, contemplating her next career path, a move made a bit more complicated by her recent marriage to another pilot. But there is a strong chance the newlyweds will have plenty of career options in the coming months.

That’s because the pandemic has heated the pilot shortage to a boil, leaving US airlines scrambling to hire enough pilots to bring flight schedules back to full capacity. The shortage is expected to limit capacity growth, and be a factor in higher ticket prices.

Not a ‘temporary problem’

US airlines received billions of dollars in government loans in 2020 to provide payroll, as travel restrictions, put in place around the world to curb the spread of the novel coronavirus, caused a sharp drop in bookings.

The airlines got into cash-keeping mode, especially when they were between two tranches of government loans. Carriers have reduced capacity and implemented hiring freezes and cost-cutting measures. Crucially, they also offered their pilots, among their highest paid employees, incentives to retire early.

Airlines pilots must retire by age 65, a limit that was raised in 2007 from age 60, and the industry has been preparing for waves of retirement as baby-boom pilots approach that threshold.

Those waves would have spanned two to three years, Savanthi Seth, an analyst at Raymond James told MarketWatch. “They all happened at once,” Seth said with the pandemic.

Flight schools were also hit, and fewer pilots graduated. Many schools have had to close doors under public health orders, providing aviation students with fewer opportunities to build the flying hours they need to qualify and slowing graduation rates.

After the demand for air travel began to rise, flight school instructors began leaving to become pilots themselves, which led to other training bottlenecks. Moreover, a pilot assigned today may get a better offer than another airline tomorrow.

“There’s a lot of movement,” Seth said. “Today as a pilot you are in a very beautiful place, you can become a pilot of an old carrier faster than ever before.”

Flight training company CAE Inc. CAE,
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CAE,
+ 1.03%
They predicted that more than 264,000 new pilots would be needed globally over the next 10 years, in addition to about 45,000 pilots required to fly corporate aircraft.

A CAE spokesperson told MarketWatch that this includes about 219,000 pilots, with 65,000 in North America alone.

On a longer time horizon, Boeing Co. BA,
+ 4.67%
It was estimated last year that demand for newly qualified aviation personnel remained strong, with 612,000 new pilots, 626,000 new maintenance technicians and 886,000 new cabin crew members needed to fly and maintain the global commercial fleet over the next 20 years.

The pilot recruitment and advisory service FAPAaero estimated that major US airlines hired a record 5,426 pilots last year, and are expected to employ about 9,540 this year.

On a call after UAL for United Airlines Holdings Inc. ,
+ 6.55%
Second-quarter earnings In April, United CEO Scott Kirby said United was “stepping up” to hire about 200 pilots this year, but the shortage is a major growth roadblock for smaller airlines, including regional carriers that fly to United. “This is not a temporary issue,” he said.

Flight training is also fragmented. CAE graduates about 1,500 new pilots annually, but there are dozens of smaller schools graduating only a handful of pilots each year.

Finally, the industry creates an estimated 5,000 to 7,000 pilots annually, and should employ about 13,000 pilots this year with figures similar to slightly higher for 2023.

Once hired, a newly minted cargo airline passenger or pilot will need four to five months of training, typically, within their chosen air carrier.

Seth said airlines have also been surprised by how quickly demand for air travel has returned, starting in the spring of last year. “It went from zero to 60 very quickly,” and the airlines were doing the most hiring they had ever seen.

There are patterns for hiring new pilots: Regional airlines – which fly in small markets and short-haul routes for different airlines – are usually seen as a stepping stone towards becoming a pilot for larger airlines.

After six to nine years in a regional airline, the pilot then transfers to an older airline. Low-cost carriers have changed this equation a bit, hiring from regional airlines and giving pilots more options for home bases. The profession is undergoing a generational change, but it still attracts young people and still has a lot of charisma.

“People are excited about it,” Seth said.

The ability to “squeak” and fewer flights

The median annual wage for airline pilots, co-pilots and flight engineers was $202,180 in May 2021, according to the Department of Labor.

The division forecasts 13% growth in employment for airlines and commercial pilots through 2030, faster than the 8% average growth for all occupations.

U.S. airlines need to hire roughly 10,000 to 15,000 pilots a year, and they’re hiring about 13,000 pilots this year, so they’re making ends meet, but it’s getting harder and it’s going to get tight for another two years, Seth said.

High fuel prices and insufficient pilots are major constraints on airlines’ capacity, and consumers see them playing a role in fare prices.

The latest CPI report showed that airfares “continued to rise sharply,” rising nearly 19% in April and the largest increase in a single month since data began in 1963.

Cancellations, which hit about 6% of US flights in January amid an increase in COVID cases that sidelined airline employees, hovered around 1% in May.

Travel website Huber recently estimated that airfares around Memorial Day, which begins summer travel, are about 30% more expensive than in 2019, with an average domestic airfare of about $394 per round trip.

“The pilot shortage will manifest itself through reduced service, reduced frequencies,” said Jeff Murray, partner at consulting firm Oliver Wyman, to make up for it.

“Supply in North America is not going to be able to meet demand,” he said, especially in mid-sized cities. Murray said a city that might have had two daily flights to a larger city on a 50-seat plane, for example, might be left on one trip on a 70-seat plane.

Airlines need to keep their most profitable slots, like flights to popular vacation spots and transatlantic wide flights with tiered cabin services. So it is likely that the “top of the pyramid”, wide-body flights and destinations, will likely remain unchanged, Murray said.

In terms of how long the shortage might take to fix the problem, Murray estimated “at least five years, if not longer, and the clock started in 2022.”

Murray predicted that the most likely scenario is a global gap of 34,000 pilots by 2025, which could reach 50,000.

It’s hard to see our way through it,” said Peter McNally, an analyst at Third Bridge. He said airlines are concerned about the three elements: costs, capacity and standardization.

“Costs are still going up, capacity is slow to add, and consolidation is still a big question mark,” McNally said. The shortage is a structural issue, fares are the number one cost to airlines, and this has been evidenced by the “slow squeak of power we get”.

McNally expects United and other big companies “will be fine” mostly, but we will see reduced schedules, perhaps even for the big companies, though 2022, which will “limit capacity and hurt consumers”.

– ‘No regrets’

For Larsson, she learned to fly a plane that attracted her adventurous side and fascinated her with the plane from her childhood spent divided between Spain and Sweden.

Living in New York as an adult and working for the Scandinavian investment bank Carnegie, she felt that most people in the industry were working in it to make money. I left investment banking 10 years ago.

“Very few people say, ‘I love this job,'” Larson said. “You start to enjoy it because it’s your job, but in general I felt that people weren’t really happy in the financial industry, and that was something that I felt coming into this industry: people were happy.”

“You can’t fly by chance. Most people travel by plane because they love what they do,” she said.

Larson was in line to become a captain for her regional airline before the COVID hit, and hopefully that’s back on the horizon now. Ideally, she and her partner want to reside in the same city.

She’s dealt with a few rebellious passengers in the past few months, most of whom don’t want to follow mask mandates, but she admits that the flight attendants bore the brunt of the problems that have arisen, with pilots like her relatively isolated.

“I have no regrets, nothing. Amazing thing. I am still living my dream.”

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