The Insanity of Concessions in 2014
01-22-2014, 06:15 PM
#1
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Joined APC: Sep 2007
Position: B737 CA
Posts: 1,518
The Insanity of Concessions in 2014
Some of you may know that I wrote an article on the regional airline industry for Flying Magazine in June 2013 and that I began writing a monthly column for Flying starting last November. The column is a mixture of flying stories from my career, current GA flying, and advice for new pilots starting their own careers. My next article (March 2014) delves into the forthcoming pilot shortage, which I think is rather germane to the current discussion on concessionary contracts. However, it won’t be coming out for about a month, and is written for a non-airline audience, so I wrote a separate essay just for APC. Enjoy and discuss.
The Insanity of Concessions in 2014
It’s just about all that pilots are talking about these days: in classrooms, at flight schools, in cockpits of airplanes big and small, the pilot shortage is on everyone’s mind and everyone’s lips. Mind you, not everyone is a true believer: many of us have been hearing about the pilot shortage our entire careers, even as we were furloughed, stuck on stagnant seniority lists, and forced to start over at poverty-level wages. Much of the loudest hype comes from the flight training industry and others with something to gain. Every time the shortage seems to be gaining steam, something unforeseen comes along and pushes it back another five years. It’s not surprising that so many pilots – regional pilots especially – are so cynical about the current shortage talk.
And yet, the numbers are incontrovertible. The three remaining legacy megacarriers (Delta, United, & American) will see a huge pilot retirement spike in the coming years, peaking in 2023 and not really easing until another decade after that. In the next five years alone, they will lose 5098 pilots to mandatory retirement. By 2023, that number increases to 15,235; by 2027, the number is 23,850, or 64% of the current seniority lists. Add in FedEx and UPS, and the 14-year total is 28,450. The national and non-legacy majors add thousands more.
Now, there is still a lot of flight training infrastructure in this country, and we certainly have the capability to train 30,000 new pilots in the next 14 years. The problem is that historically low numbers of people are investing $80,000 or more in training for a career and industry whose troubles have been widely publicized in the general media. The FAA issued fewer commercial certificates in the last three years than any other period since the early 1980s, and a large portion of these were issued to foreign nationals who plan to return home to fly for their national carriers. Even if the pilot shortage publicity sparks a renewed wave of flight training, there will be a 3-4 year lag before these new entrants are qualified to fly for an airline, by which time the effects of the shortage will be very deeply felt and rapidly multiplying.
Of course, these effects will not be felt equally by all sectors of the industry. The three airlines retiring the most pilots will be almost entirely unaffected. They know that their pay and benefits will attract enough pilots from the military, corporate world, lower-paid national carriers, and regional airlines to easily replace their retirees. In fact, the regionals alone have over 21,000 pilots, most qualified to fly for the major airlines and many planning to do exactly that. It is who will replace these regional pilots that is the real problem – especially since the modern regionals represent such a large share of the major airlines’ domestic networks. Already, with the shortage barely underway, the lowest-paid regionals like Great Lakes have been absolutely crippled by a dearth of qualified pilots willing to work for them, and more established regionals like American Eagle are already offering signing bonuses of $5000 or more to meet their rather modest demand for pilots. In the very early stages of major airline hiring, airlines like Endeavor are already losing many more pilots than they can entice to show up for class. If you look at the retirement numbers discussed above, it becomes clear that the later effects of the shortage will be far, far more pronounced.
Any first-year Econ student could tell you that in this situation, with a shortage of qualified labor, one can expect wages to rise. And yet, here we have a peculiar example of an entire industry defying the laws of economics, for the very opposite is presently true: there is strong downward pressure on regional pilot wages. This is because the newly emboldened mega-legacies are treating their erstwhile regional partners much like Walmart treats its suppliers: smaller, vulnerable targets to be bullied into submission and forced to slash costs, even to their own detriment, because the alternative is annihilation. Regional management has grown increasingly desperate, having seen their peers unsuccessfully attempt branded flying (ACA, ExpressJet), merging with other carriers (Pinnacle, ASA), or diversifying their partnerships (Mesa, Republic) in an effort to survive the storm. They are now willing to slash costs no matter the consequence, even if it eventually robs them of pilots to fly the airplanes, so long as it lets them live to fight another day. To do this, they are preying on their pilots’ insecurities about their careers, forged in the turmoil of the post-9/11 era and not yet attuned to the opportunities of a labor shortage.
Pinnacle was the first to do this, with Delta pulling the strings and assisted by a bankruptcy court. They were able to convince their pilots that rejecting concessions would result in an even worse contract being imposed by the court, Delta slashing capacity at the airline, and the loss of many jobs. This was the stick; the carrot was a promise of future mainline jobs. Together it was enough to lure the pilots into massive concessions only a year after securing a very hard-won contact that took years to negotiate. PSA was next. Outside of bankruptcy, they were able to convince their pilots that their 50-seat exposure spelled eventual doom, and only voluntary concessions to secure 76-seat flying could save them. And now American Eagle, the second-largest regional airline in the nation, is telling its pilots that they must endure a second round of draconian concessions only 18 months after approving the first round – or be shut down as Comair was. This, even while they offer $5000 signing bonuses to attract new pilots! The sheer nerve of it is breathtaking.
The problem here is that the turmoil and stagnation of the last 13 years, coupled with a seniority system that traditionally ties a pilot’s career to the health of his airline, has made it very easy to convince pilots that the death of one’s employer means the death of one’s career. In the context of the regionals and the pilot shortage from 2014 forward, it’s simply not true. First off, the major airlines are not looking to reduce system capacity. Their yields are consistently high, they are making record profits, and they have begun ordering airplanes. While they will continue to shift capacity from the regionals to mainline, they will not cut overall capacity. Coupled with the massive retirements at the majors, this means ample job opportunities for regional pilots regardless of how long individual regional airlines survive. Secondly, any shutdown of a regional airline – due to lack of concessions, or more likely, due to other industry conditions – will necessarily be long and drawn out, as Comair was. Delta taking possession of Pinnacle in bankruptcy rather than risk a shutdown, at a time Delta was actively trying to get rid of 50-seaters, shows that they could not afford to cut or shift that capacity suddenly. If Eagle is shut down – with or without concessions – I expect it will be drawn down at roughly the rate of pilot attrition, not with massive furloughs sending starving FOs to the unemployment dole. Thirdly, it’s not clear where capacity could be shifted to, if not mainline; few regionals can easily staff their present flying, to say nothing of growth.
The reality is that concessions will not save the regional airline industry; they will only prolong its demise. The regional business model of the past 20 years is essentially dead. It was always based on cheap fuel, a cheap and plentiful labor supply, low employee longevity, new airplanes with inexpensive maintenance, expensive and unproductive mainline pilot contracts, and nearly endless growth. None of these conditions apply anymore. The pilot shortage is the final nail in the coffin. Going forward, the industry will slowly return to its roots of the 80s and early 90s: a niche player in small markets where high yields can justify high costs. It benefits none of us to prolong this process, keeping more of us at the regionals longer. It benefits none of us to put downward pressure on wages of airplanes that will likely end up at mainline in the long run. It benefits none of us to accept smaller paychecks at a time that our skills are becoming increasingly valuable.
Finally, regional pilots of all people ought to recognize the moral repugnance of freezing pay for newhires who will work for the regionals after we’re gone, consigning future pilots to even worse wages than the ones we’ve spent so much time lamenting. How many times have we decried major airline pilots selling scope and creating a C-scale? And yet there are many of us prepared to do essentially the same thing to those who follow in our footsteps! It’s utterly shameful, and given current industry conditions, more than a little insane. The only thing that can prompt us to do something so illogical – the only tool in management’s toolbox these days – is fear. The pilots of ExpressJet are to be commended for taking a clearheaded look around the industry, realizing that there is nothing to fear but fear itself, and making a stand for their chosen profession. It is my sincere hope that the pilots of American Eagle will heed their example, reject the poisonous whispers of the fearmongers, and make us proud.
The Insanity of Concessions in 2014
It’s just about all that pilots are talking about these days: in classrooms, at flight schools, in cockpits of airplanes big and small, the pilot shortage is on everyone’s mind and everyone’s lips. Mind you, not everyone is a true believer: many of us have been hearing about the pilot shortage our entire careers, even as we were furloughed, stuck on stagnant seniority lists, and forced to start over at poverty-level wages. Much of the loudest hype comes from the flight training industry and others with something to gain. Every time the shortage seems to be gaining steam, something unforeseen comes along and pushes it back another five years. It’s not surprising that so many pilots – regional pilots especially – are so cynical about the current shortage talk.
And yet, the numbers are incontrovertible. The three remaining legacy megacarriers (Delta, United, & American) will see a huge pilot retirement spike in the coming years, peaking in 2023 and not really easing until another decade after that. In the next five years alone, they will lose 5098 pilots to mandatory retirement. By 2023, that number increases to 15,235; by 2027, the number is 23,850, or 64% of the current seniority lists. Add in FedEx and UPS, and the 14-year total is 28,450. The national and non-legacy majors add thousands more.
Now, there is still a lot of flight training infrastructure in this country, and we certainly have the capability to train 30,000 new pilots in the next 14 years. The problem is that historically low numbers of people are investing $80,000 or more in training for a career and industry whose troubles have been widely publicized in the general media. The FAA issued fewer commercial certificates in the last three years than any other period since the early 1980s, and a large portion of these were issued to foreign nationals who plan to return home to fly for their national carriers. Even if the pilot shortage publicity sparks a renewed wave of flight training, there will be a 3-4 year lag before these new entrants are qualified to fly for an airline, by which time the effects of the shortage will be very deeply felt and rapidly multiplying.
Of course, these effects will not be felt equally by all sectors of the industry. The three airlines retiring the most pilots will be almost entirely unaffected. They know that their pay and benefits will attract enough pilots from the military, corporate world, lower-paid national carriers, and regional airlines to easily replace their retirees. In fact, the regionals alone have over 21,000 pilots, most qualified to fly for the major airlines and many planning to do exactly that. It is who will replace these regional pilots that is the real problem – especially since the modern regionals represent such a large share of the major airlines’ domestic networks. Already, with the shortage barely underway, the lowest-paid regionals like Great Lakes have been absolutely crippled by a dearth of qualified pilots willing to work for them, and more established regionals like American Eagle are already offering signing bonuses of $5000 or more to meet their rather modest demand for pilots. In the very early stages of major airline hiring, airlines like Endeavor are already losing many more pilots than they can entice to show up for class. If you look at the retirement numbers discussed above, it becomes clear that the later effects of the shortage will be far, far more pronounced.
Any first-year Econ student could tell you that in this situation, with a shortage of qualified labor, one can expect wages to rise. And yet, here we have a peculiar example of an entire industry defying the laws of economics, for the very opposite is presently true: there is strong downward pressure on regional pilot wages. This is because the newly emboldened mega-legacies are treating their erstwhile regional partners much like Walmart treats its suppliers: smaller, vulnerable targets to be bullied into submission and forced to slash costs, even to their own detriment, because the alternative is annihilation. Regional management has grown increasingly desperate, having seen their peers unsuccessfully attempt branded flying (ACA, ExpressJet), merging with other carriers (Pinnacle, ASA), or diversifying their partnerships (Mesa, Republic) in an effort to survive the storm. They are now willing to slash costs no matter the consequence, even if it eventually robs them of pilots to fly the airplanes, so long as it lets them live to fight another day. To do this, they are preying on their pilots’ insecurities about their careers, forged in the turmoil of the post-9/11 era and not yet attuned to the opportunities of a labor shortage.
Pinnacle was the first to do this, with Delta pulling the strings and assisted by a bankruptcy court. They were able to convince their pilots that rejecting concessions would result in an even worse contract being imposed by the court, Delta slashing capacity at the airline, and the loss of many jobs. This was the stick; the carrot was a promise of future mainline jobs. Together it was enough to lure the pilots into massive concessions only a year after securing a very hard-won contact that took years to negotiate. PSA was next. Outside of bankruptcy, they were able to convince their pilots that their 50-seat exposure spelled eventual doom, and only voluntary concessions to secure 76-seat flying could save them. And now American Eagle, the second-largest regional airline in the nation, is telling its pilots that they must endure a second round of draconian concessions only 18 months after approving the first round – or be shut down as Comair was. This, even while they offer $5000 signing bonuses to attract new pilots! The sheer nerve of it is breathtaking.
The problem here is that the turmoil and stagnation of the last 13 years, coupled with a seniority system that traditionally ties a pilot’s career to the health of his airline, has made it very easy to convince pilots that the death of one’s employer means the death of one’s career. In the context of the regionals and the pilot shortage from 2014 forward, it’s simply not true. First off, the major airlines are not looking to reduce system capacity. Their yields are consistently high, they are making record profits, and they have begun ordering airplanes. While they will continue to shift capacity from the regionals to mainline, they will not cut overall capacity. Coupled with the massive retirements at the majors, this means ample job opportunities for regional pilots regardless of how long individual regional airlines survive. Secondly, any shutdown of a regional airline – due to lack of concessions, or more likely, due to other industry conditions – will necessarily be long and drawn out, as Comair was. Delta taking possession of Pinnacle in bankruptcy rather than risk a shutdown, at a time Delta was actively trying to get rid of 50-seaters, shows that they could not afford to cut or shift that capacity suddenly. If Eagle is shut down – with or without concessions – I expect it will be drawn down at roughly the rate of pilot attrition, not with massive furloughs sending starving FOs to the unemployment dole. Thirdly, it’s not clear where capacity could be shifted to, if not mainline; few regionals can easily staff their present flying, to say nothing of growth.
The reality is that concessions will not save the regional airline industry; they will only prolong its demise. The regional business model of the past 20 years is essentially dead. It was always based on cheap fuel, a cheap and plentiful labor supply, low employee longevity, new airplanes with inexpensive maintenance, expensive and unproductive mainline pilot contracts, and nearly endless growth. None of these conditions apply anymore. The pilot shortage is the final nail in the coffin. Going forward, the industry will slowly return to its roots of the 80s and early 90s: a niche player in small markets where high yields can justify high costs. It benefits none of us to prolong this process, keeping more of us at the regionals longer. It benefits none of us to put downward pressure on wages of airplanes that will likely end up at mainline in the long run. It benefits none of us to accept smaller paychecks at a time that our skills are becoming increasingly valuable.
Finally, regional pilots of all people ought to recognize the moral repugnance of freezing pay for newhires who will work for the regionals after we’re gone, consigning future pilots to even worse wages than the ones we’ve spent so much time lamenting. How many times have we decried major airline pilots selling scope and creating a C-scale? And yet there are many of us prepared to do essentially the same thing to those who follow in our footsteps! It’s utterly shameful, and given current industry conditions, more than a little insane. The only thing that can prompt us to do something so illogical – the only tool in management’s toolbox these days – is fear. The pilots of ExpressJet are to be commended for taking a clearheaded look around the industry, realizing that there is nothing to fear but fear itself, and making a stand for their chosen profession. It is my sincere hope that the pilots of American Eagle will heed their example, reject the poisonous whispers of the fearmongers, and make us proud.
01-22-2014, 06:46 PM
#4
Gets Weekends Off
Joined APC: Dec 2012
Posts: 480
Dude, you're a great writer, but I feel like I'm being sold mutual funds all over again. They sit you down and pretend that there could never be an economic downturn for 50 years, and your 10,000 dollars will be worth 90 billion dollars when you're ready to retire. One recession later, and Washington mutual sends you a letter saying your fund doesn't exist anymore while the executives run off to retirement mansions.
28,000 is not that significant over a 14 year period. Further, we are still pumping out a record number of certificates, according to the FAA. At our current rate, we can easily cover that number and have a huge surplus.
I am always proud of guys that hold the line, but it's not always sunny. That's someone's job. Good, competent professionals like everyone in here, putting on their pants the same way, have held the line and lost everything.
28,000 is not that significant over a 14 year period. Further, we are still pumping out a record number of certificates, according to the FAA. At our current rate, we can easily cover that number and have a huge surplus.
I am always proud of guys that hold the line, but it's not always sunny. That's someone's job. Good, competent professionals like everyone in here, putting on their pants the same way, have held the line and lost everything.
01-22-2014, 06:54 PM
#6
Gets Weekends Off
Joined APC: Dec 2012
Posts: 480
Also, supply and demand isn't that simple with a contractual labor force that has been bullied into accepting what was sold as internships they will never grow out of. A need for pilots will be no more than a need for cheap, internship accepting pilots.
Can I pose an honest, open ended question to everyone here, all responses welcome? At some point, do we have a ethical responsibility to not offer starry eyed accounts of why people should get into this industry?
Young people could make the decision to spend a lot of money, work very hard and still end up unhappy and in poverty because of us, and it only brings more people into a saturated career field, making it worse on everyone.
I went through flight training with people who believed they were paddling into a wave. I'm the only one that still flies out of all of them, because they couldn't get jobs. Most bailed when there were no students at the flight schools, and they realized they were on a 10 year track to get 1,500 hours. There's still more than enough people getting ATP mins.
Can I pose an honest, open ended question to everyone here, all responses welcome? At some point, do we have a ethical responsibility to not offer starry eyed accounts of why people should get into this industry?
Young people could make the decision to spend a lot of money, work very hard and still end up unhappy and in poverty because of us, and it only brings more people into a saturated career field, making it worse on everyone.
I went through flight training with people who believed they were paddling into a wave. I'm the only one that still flies out of all of them, because they couldn't get jobs. Most bailed when there were no students at the flight schools, and they realized they were on a 10 year track to get 1,500 hours. There's still more than enough people getting ATP mins.
01-22-2014, 07:21 PM
#7
Gets Weekends Off
Joined APC: May 2011
Posts: 996
Very well written. I believe mainline is seeing the numbers and are demanding concessions based purely on threats of shutdown. To "Comair" an airline is so much more difficult than pilots realize. Airlines will always threaten a shutdown. It's a zero risk strategy with pilots being constrained by the RLA. 10 year agreements with no chance of reopening negotiations is a poison pill no regional should have to endure. I can only hope that Eagle will follow in the footsteps of XJT and vote down this poisonous contract that will have vast effects in the regional industry.
01-22-2014, 07:31 PM
#8
Line Holder
Joined APC: Feb 2007
Posts: 72
Dear md11,
When you say "economic equilibrium is TRUTH," maybe you could explain how work is going to be shifted from a relatively underpaid workforce to a group being compensated FAR above the market clearing price of labor. Also, your response is on a regional thread celebrating the demise of the regionals. Are you just flame baiting, or have you no manners?
When you say "economic equilibrium is TRUTH," maybe you could explain how work is going to be shifted from a relatively underpaid workforce to a group being compensated FAR above the market clearing price of labor. Also, your response is on a regional thread celebrating the demise of the regionals. Are you just flame baiting, or have you no manners?
01-22-2014, 07:36 PM
#9
Gets Weekends Off
Joined APC: May 2011
Posts: 996
Originally Posted by ckelley
Dear md11,
When you say "economic equilibrium is TRUTH," maybe you could explain how work is going to be shifted from a relatively underpaid workforce to a group being compensated FAR above the market clearing price of labor. Also, your response is on a regional thread celebrating the demise of the regionals. Are you just flame baiting, or have you no manners?
When you say "economic equilibrium is TRUTH," maybe you could explain how work is going to be shifted from a relatively underpaid workforce to a group being compensated FAR above the market clearing price of labor. Also, your response is on a regional thread celebrating the demise of the regionals. Are you just flame baiting, or have you no manners?
01-22-2014, 07:45 PM
#10
Line Holder
Joined APC: Feb 2007
Posts: 72
Dear Rgr,
What? This is how I pay my bills. Maybe you are former military, or help HR check some EEOC box, or have some solid internals. I don't want to bet my life that after all these people are hired there will still be a need for me. (Even if I am commuting to reserve FO till age 65) How can you think it is a good idea for me to hope I lose my job?
What? This is how I pay my bills. Maybe you are former military, or help HR check some EEOC box, or have some solid internals. I don't want to bet my life that after all these people are hired there will still be a need for me. (Even if I am commuting to reserve FO till age 65) How can you think it is a good idea for me to hope I lose my job?
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