Airline Pilot Central Forums - Light Reading on the State of The Industry

Spirit lost over One Billion Dollars in Market Cap yesterday.............

I Highlighted some interesting points.............

Airline pilots reveals the truths and myths behind the pilot shortage - Business Insider

THE PILOT SHORTAGE is here, and it’s been making headlines. Last month, Horizon Air, the Seattle-based affiliate of Alaska Airlines and one of the country’s biggest regional carriers, announced it would be forced to reduce its busy summer schedule due to a dearth of pilots.

The shortage already caused Horizon to cancel more than 300 flights in June. Earlier this year, Republic Airways, a large U.S. regional carrier that flies on behalf of United, American, and Delta, filed for bankruptcy protection. It blamed the filing, in part, on a lack of qualified pilots. Other carriers have been canceling flights and mothballing aircraft as pilot recruitment departments scramble to fill classroom slots.

Yes, the shortage is real. It’s critical, however, to make it clear which sectors of the aviation industry we’re talking about. First, we are looking specifically at the U.S. airline industry. Civilian pilots in the United States are responsible for securing their own FAA credentials, and for logging hundreds, or even thousands, of hours of flight time before applying at an airline. It’s a long, slow, and very expensive process. Other countries often recruit pilots differently, with a growing reliance on so-called “ab-initio” programs, whereby young candidates are chosen from scratch, with no prior experience, and are groomed from the ground-up, so to speak, in a tightly controlled regimen that puts them in the cockpit of a jetliner very quickly. These programs are ultra-competitive, drawing hundreds of applicants for each available slot.

Delta Airplanes Delta airplanes line up on the taxi way at Hartsfield Jackson Atlanta International Airport in Atlanta, Georgia. REUTERS/Tami Chappell

Even more important, we need to draw a sharp divide between the major carriers and their regional affiliates. The major carriers, also referred to as “legacy” carriers, everyone is pretty familiar with — American, United, Delta, Southwest, JetBlue, et al. There is no pilot shortage at these companies, and unless something changes drastically they will continue to have a surplus of highly qualified candidates to choose from. They are able to cull from the top ranks of the regionals, as well as from the military and corporate aviation pools. Even amidst an ongoing wave of retirements, a steady supply of experienced crews is unlikely to be depleted.

At the regional airlines, it’s a different story. And by “regional” we are referring to the numerous subcontractors who operate smaller jets and turboprops on the majors’ behalf: those myriad “Connection” and “Express” companies, whose actual identities are usually concealed beneath the liveries of whichever major they are aligned with. United Express, Delta Connection, American Eagle, and so on. For civilian pilots, the typical career progression includes a substantial amount of tenure at this level before, assuming he or she is fortunate enough, progressing to a major. And it’s here where the problem is.

How it came to this is both a long and short story. The short story is that pay at the regionals is terrible and working conditions are harsh. This has driven thousands of pilots out of the industry, and/or has discouraged countless others from pursuing an aviation career in the first place. Becoming a licensed commercial pilot, to the point where one is eligible to apply for an airline job — any airline job — requires a huge amount of time and money. It can take years, and the average pilots sinks well over a hundred thousand dollars into his or her flight training and education. Salaries at the regionals, meanwhile, have traditionally started low as $20,000 a year, and have topped out at under six figures. Schedules are demanding and benefits paltry; the relationship between management and the workers is often hostile. On top of all that, the regional sector is highly unstable. These carriers always seem to be coming or going, shrinking or shedding planes, changing their names and realigning themselves with different majors.

American Airlines Airbus A319American Airlines

But this is nothing new. Pay and working conditions at these companies have always been substandard. Yet filling jobs has seldom been a problem, so what gives? Well, what’s different is that the regional sector has grown so large. Today, regional jets account for an astonishing half — 53 percent was the last number I saw — of all domestic departures in the United States. As recently as twenty years ago it was somewhere around fifteen percent. In those days, pilots saw a job with a regional as a temporary inconvenience — paying one’s dues. It was a stepping stone toward a more lucrative position with a major. Pilots are now realizing that a job at a regional could easily mean an entire career at a regional. Thus, a diminishing number have been willing to commit the time and money to their education and training when the return on investment is somewhere between unpredictable and financially ruinous. An aspiring aviator has to ask, is it worth sinking $100,000 or more into one’s primary training, plus the time it will take to build the necessary number of flight hours, plus the cost of a college education, only to spend years toiling at poverty-level wages, with at best a marginal shot at moving on to a major? For many, the answer is no.

In the meantime, the FAA has enacted tougher hiring standards for entry-level pilots. Over the past two decades, as the regional sector grew and grew, thousands of new jobs were created. To fill these slots, airlines sharply lowered their experience and flight time minimums. Suddenly, pilots were being taken on with as little as 350 hours of total time, assigned to the first officer’s seat of sophisticated regional jets. Then came a rash of accidents, including the Colgan Air (Continental Connection) disaster outside Buffalo in 2009. Regulators began taking a closer look at hiring practices, eventually passing legislation mandating higher flight time totals and additional certification requirements for new-hires.

Some airlines blame the shortage at least partly on these tougher rules. Technically they’re right, but really all the new regulations have done is returning things to historical norms. My first job with a regional — “commuters” we called them in those days — was in 1990. Competitive applicants at the time had between 1,500 and 2,000 hours, and most of us had an FAA Airline Transport Pilot certificate as well. That’s more or less what the FAA requires today. The difference, of course, is that there are far more jobs to fill.

ExpressJet Bombardier CRJ Delta connectionFlickr

Things are beginning to change, if slowly. To their credit, many regionals have started upping their salaries and improving benefits. The cost structures of these carriers, whose existence is primarily to allow the majors to outsource flying on the cheap, limits how much they can lavish on their employees, but if they want to stay in the game, they frankly have little choice. New-hires at companies like Endeavor Air (a Delta affiliate) and PSA (American), for example, can now make first-year salaries in the $70,000-plus range. That’s around three times what these pilots would have been making in years past. Some companies are offering signing bonuses of several thousand dollars, and work rules too are getting better. Air Wisconsin, a United partner and one of the nation’s oldest regionals, says that new-hires can now earn up to $57,000 in sign-on bonuses. It promises earnings of between $260,000 and $317,000, including salary, bonuses, and what it calls “elected benefits,” over the first three years of employment. Numbers like that are unprecedented.

For those considering a piloting career, the situation is looking better. The problem for the industry, though, is the lag time. For a pilot just learning to fly, any cockpit job is still a long way off — probably years away. So while the mechanisms are falling into place to curtail a full-flown crisis, the shortage is going to be with us for a while.

Read the original article on AskThePilot.com. Copyright 2017. Follow AskThePilot.com on Twitter.

https://finance.yahoo.com/m/791d485a...take-bite.html

Spirit Airlines Inc. (SAVE) said a pilot work showdown in May resulted in about 850 cancellations and cost about $45 million, which impacted second-quarter results.

The $45 million included about $25 million in lost revenue and about $20 million in additional operating costs, primarily related to passenger re-accommodation expenses.

That led cost per available seat mile, excluding special items and fuel, to rise 10% to 5.83 cents. Adjusted operating expense rose 25% to $567.5 million.

Shares were down 17% in early afternoon trading.

Spirit and its pilots, represented by the Air Line Pilots Association, are negotiating under the supervision of the National Mediation Board.

Cowen & Co. analyst Helane Becker said Thursday that she is concerned by the possibility of additional pilot job actions. "We believed there will be a continued headwind from the pilots until a deal is reached, which could force the company to be more conservative with their capacity outlook," Becker wrote in a note.

Excluding items, the carrier earned $79.1 million, or $1.14 a share, in the second quarter. Analysts had estimated $1.10. Operating margin excluding items was 19.1%. Revenue rose 20% to $701.7 million. Return on invested capital for the 12 months ended June 30 was 20.3%.

Total revenue per available seat mile gained 5.7% as capacity gained 9.3%. Without the cancellations, TRASM would have gained about 6.5% and adjusted CASM ex-fuel would have been up about 2%, Spirit said.

"The progress we made with our revenue initiatives, as well as the underlying revenue trends as we headed into the June quarter, were encouraging," said CEO Bob Fornaro in a prepared statement.

"Unfortunately, given the level of operational disruptions and the associated financial impact, the second quarter 2017 performance overall was disappointing," Fornaro said.

Chief Financial Officer Ted Christie said, ""While our cost performance for the second quarter was not satisfactory, we do not believe it materially changes our long-term cost outlook and are confident that we will continue to maintain, or grow, our relative cost advantage."

https://finance.yahoo.com/m/2948d2fb...orporated.html

On Thursday morning, Spirit Airlines (NASDAQ:SAVE) posted a modest increase in earnings per share for the second quarter, boosted by the timing of the busy Easter travel period.

That said, earnings could have been much higher had Spirit Airlines not suffered a spike in flight cancellations in early May, related to a dispute between management and many of Spirit's pilots. Looking ahead, Spirit Airlines hopes to quickly put this unfortunate incident behind it. Doing so will require finalizing a new contract that gives pilots much-deserved raises.
Spirit Airlines results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$701.7 million

$584.1 million

20.1%

Total unit revenue

9.62 cents

9.10 cents

5.7%

Adjusted cost per available seat mile excluding fuel

5.83 cents

5.30 cents

10%

Adjusted net income

$79.1 million

$78.5 million

0.7%

Adjusted pre-tax margin

17.9%

21.3%

N/A

Adjusted EPS

$1.14

$1.11

2.7%

Data source: Spirit Airlines Q2 earnings release. Chart by author.
What happened with Spirit Airlines this quarter?

In the second quarter, Spirit Airlines posted unit revenue growth for the first time since 2014 and EPS increased for the first time in several quarters. But unfortunately, the highlight of the period was a labor dispute that spiraled out of control in early May.

Like many airlines, but to an even greater extent, Spirit Airlines relies on pilots picking up "open time" (essentially overtime work) outside of the normal scheduling process. But in early May, most of Spirit's pilots started refusing the extra work -- despite being offered bonus pay for those flights -- in what seemed like a coordinated labor slowdown.

Indeed, many Spirit pilots are furious that they continue to work under an old labor contract with significantly below-market wage rates. While management has offered raises of up to 30% in return for productivity enhancements, most of the pilots think they deserve a better deal.
A Spirit Airlines plane

Spirit Airlines pilots want bigger raises than what management has offered. Image source: Spirit Airlines.

At the height of this crisis, Spirit had to cancel 18% of its schedule due to pilot availability issues. Ultimately, management had to get a court order to force its pilots to start picking up open time again. Even so, Spirit Airlines canceled nearly 6% of its scheduled flights in May and 4% of its scheduled flights in June.

The spike in cancellations drove a 10% jump in Spirit's non-fuel unit costs last quarter. It also reduced unit revenue growth. Based on management's estimates, adjusted EPS might have been around $1.50-$1.55 (instead of $1.14) if operational performance had been normal last quarter.
What management had to say

In the earnings release, Spirit Airlines CEO Bob Fornaro apologized to customers for the spate of flight cancellations in Q2 and he called it a disappointing quarter. However, Fornaro also took note of the strong underlying demand and strategy changes that salvaged the company's profitability:

Despite our financial and operational challenges in the second quarter 2017, the changes in our pricing and revenue management strategies helped to drive year-over-year improvement in passenger and non-ticket revenue per segment -- this is the first time in over two and a half years either of these metrics increased year over year.

CFO Ted Christie was equally blunt about Spirit's failures during the quarter, as well as its ability to bounce back. "While our cost performance for the second quarter was not satisfactory, we do not believe it materially changes our long-term cost outlook and are confident that we will continue to maintain, or grow, our relative cost advantage," he said.
Looking forward

While flight cancellations have decreased significantly compared to the highs of early May, pilot availability continues to be an issue. Some pilots may still be protesting their below-market contract by refusing to work overtime. However, Spirit Airlines may also be genuinely understaffed: something that the pilot union has been warning about for a while.

Getting a new pilot contract ratified is the only way for Spirit Airlines to get its pilots motivated again -- and to ensure that the company can continue to recruit new pilots to support its growth. Achieving a new contract that is fair to the pilots but affordable for the company thus ought to be management's highest priority right now. After all, having pilots available when they are needed is a precondition for any airline to succeed.

Adam Levine-Weinberg owns shares of Spirit Airlines. The Motley Fool recommends Spirit Airlines. The Motley Fool has a disclosure policy.

https://finance.yahoo.com/m/e2f71349...s-sinking.html

Shares of Spirit Airlines (SAVE) are tumbling today after the airline reported better-than-expected earnings today, but disclosing a big hit to revenue for a pilot slowdown and competition fromUnited Continental (UAL).
Illustration: Getty Images

Spirit reported an adjusted profit of $1.14 a share, beating forecasts for $1.10, on sales of $701.7 million, missing forecasts for $703.8 million. But Spirit also disclosed that a pilot slowdown had cost the airline about $45 million.

CFRA's Jim Corridore says that the pilot issue "needs to be resolved for good" but sticks with his Buy rating:

We trim our 12-month target price by $5 to $65, an Enterprise Value to EBITDAR multiple of 6.7X our '18 estimate, above peers, reflecting faster revenue growth than peers. We raise our '17 and '18 EPS estimates to $4.15 and $4.82 from $3.97 and $4.68. SAVE ran into disruptions from issues with pilots and other employees and this needs to be resolved for good. Despite these issues, SAVE grew unit and overall revenues 20% while Q2 EPS of $1.14 vs. $1.11 still beat our $1.12 estimate. We continue to like the shares of this rapidly growing discount airline.

Shares of Spirit have tumbled 18% to $40.06 at 12:33 p.m. today, and are other airlines are feeling the weakness. Delta Air Lines (DAL) has declined 0.8% to $50.72, United Continental (UAL) has fallen 2.3% to $68.62, American Airlines (AAL) has, and Southwest Airlines (LUV) has after reporting earnings of its own.

https://finance.yahoo.com/m/c2769ca0...-stock-is.html

Why Spirit Airlines Stock Is Plummeting Today
Pilot-related flight cancellations held back the airline operator's Q2 revenue.
Rich Smith
(TMFDitty)
Jul 27, 2017 at 1:07PM
What happened

Shares of discount flyer Spirit Airlines (NASDAQ:SAVE) are crashing today, down 18.5% as of 12:50 p.m. EDT, after the company reported second-quarter results.
So what

This is not the response you'd ordinarily expect for a company that beat earnings expectations, and yet, by all accounts, Spirit Airlines did beat expectations when it reported its Q2 2017 results last night -- sort of.

Revenue came in at $702 million, up 20% year over year but about $400,000 below what analysts had predicted. Spirit said that flights were up about 9% year over year, while "operating yields" (i.e., the ticket prices paid for those flights) grew 7%.

Earnings per share was $1.12 ($1.14 pro forma), however, and that was definitely more than Wall Street's expected $1.11 per share.
Spirit airplane

Image source: Spirit Airlines.
Now what

One of Spirit's big problems in the quarter seems to have been that operating costs grew 23%, which was faster than revenue increased, and thus prevented profits from growing as fast as sales. Fuel costs also exceeded sales growth -- up 26% year over year.

A second problem, and the one getting more attention today, is the fact that the company experienced 850 "pilot-related flight cancellations" in the quarter, which held back revenue from where it could have been and added costs. As Foolish airline expert Adam Levine-Weinberg explained, "Spirit Airlines relies on pilots picking up ... overtime work ... outside of the normal scheduling process. But in early May, most of Spirit's pilots started refusing the extra work -- despite being offered bonus pay for those flights -- in what seemed like a coordinated labor slowdown."

With Spirit and its pilots still engaged in contract negotiations, this problem appears to be ongoing, and could continue to weigh on Spirit Airlines stock for some time to come

https://finance.yahoo.com/m/791d485a...take-bite.html

Spirit Airlines Inc. (SAVE) said a pilot work showdown in May resulted in about 850 cancellations and cost about $45 million, which impacted second-quarter results.

The $45 million included about $25 million in lost revenue and about $20 million in additional operating costs, primarily related to passenger re-accommodation expenses.

That led cost per available seat mile, excluding special items and fuel, to rise 10% to 5.83 cents. Adjusted operating expense rose 25% to $567.5 million.

Shares were down 17% in early afternoon trading.

Spirit and its pilots, represented by the Air Line Pilots Association, are negotiating under the supervision of the National Mediation Board.

Cowen & Co. analyst Helane Becker said Thursday that she is concerned by the possibility of additional pilot job actions. "We believed there will be a continued headwind from the pilots until a deal is reached, which could force the company to be more conservative with their capacity outlook," Becker wrote in a note.

Excluding items, the carrier earned $79.1 million, or $1.14 a share, in the second quarter. Analysts had estimated $1.10. Operating margin excluding items was 19.1%. Revenue rose 20% to $701.7 million. Return on invested capital for the 12 months ended June 30 was 20.3%.

Total revenue per available seat mile gained 5.7% as capacity gained 9.3%. Without the cancellations, TRASM would have gained about 6.5% and adjusted CASM ex-fuel would have been up about 2%, Spirit said.

"The progress we made with our revenue initiatives, as well as the underlying revenue trends as we headed into the June quarter, were encouraging," said CEO Bob Fornaro in a prepared statement.

"Unfortunately, given the level of operational disruptions and the associated financial impact, the second quarter 2017 performance overall was disappointing," Fornaro said.

Chief Financial Officer Ted Christie said, ""While our cost performance for the second quarter was not satisfactory, we do not believe it materially changes our long-term cost outlook and are confident that we will continue to maintain, or grow, our relative cost advantage.