The Pending Pilot Shortage:

Transcription

1 The Pending Pilot Shortage: A 2017 Regional Industry Issue at Work William Bill Swelbar Executive Vice President InterVISTAS Consulting LLC Page 1

2 Challenges Facing Small Community Air Service Operational No 50-seat and less replacement aircraft in the pipeline In the wing oil in excess of $100 per barrel Economic Smallest new production aircraft likely to be at least 100 seats 40,000 cycle decision Strategic Capacity discipline at major carriers has reduced frequencies and seats Prevalence of low cost carriers in primary catchment areas Pilot shortage surely to impact regional sector of the business Flight Time/Duty Time regulations may cause staffing challenges Government Induced Page 2

3 In Every Prior Business Cycle.. Passenger load factors increased; Hub and Spoke systems came and went; The LCCs/ULCCs became increasingly prevalent; Real fares trended downward (current business cycle being an exception); and Small community access improved (current business cycle being a mixed exception). Page 3

4 Consolidation s Promise As the airline industry consolidated, the merging carriers promised that the combined networks would benefit communities of all sizes small communities in particular. However, that promise is now at risk because of a pending shortage of regional airline pilots hastened by new regulatory and legislative requirements. Page 4

5 265 Markets in the Contiguous United States with Greater than 90% Regional Departures Source: Innovata Schedules, June 2014 via Diio online portal Page 5

6 21 States Across the United States Have Greater than 65% Regional Departure Share, 35 States with Greater than 50% Departure Share Source: Innovata Schedules, June 2014 via Diio online portal Page 6

7 The Convergence of Events Increased role of business jets Change mandatory retirement from 60 to Hour Rule New Flight Time/Duty Time Requirements Page 7

8 Signs of the Pilot Shortage Issue are Increasingly Present Great Lakes Silver The Cleveland Hub ExpressJet Republic American Eagle/Envoy Summer Reductions in Frequency Page 8

9 The Air Line Pilots Association It s all about the starting pay Ask yourself, who negotiates the rates of pay and rules of work Why is this the case? Cite the number of ATP licenses granted in 2012 ALPA negotiated and recommended the American Eagle/Envoy contract that was rejected soundly Even if First Officer pay fixed immediately, problem would still persist Page 9

10 Starting Pay/Regional Economics To ensure an adequate talent pool, regional airlines may be forced to provide additional training to cover the fivefold increase in required flight time. They also may be required to increase wages to ensure piloting regional aircraft remains a viable career choice. Regardless, regional airlines costs will increase and they will be forced to charge their bigger partner airlines more to provide regional air service. As costs rise, the big airlines will reevaluate the smaller cities they serve, eliminating, or reducing service to, those that no longer support the increased expenditure. Page 10

11 Estimated Pilot Retirements Anticipated Pilot Retirements at AA, DL, UA & WN Cumulative Pilot Retirements at AA, DL, UA & WN Number of Regional Aircraft Necessary to Fund Retirements Cumulative Regional Aircraft Necessary to Fund Retirements ,015 1, ,076 2, ,233 4, ,479 5, ,619 7, ,872 9, ,059 11, ,379 13, ,483 16, ,023 1, ,116 1,354 1,602 Page 11

12 Why A 2017 Issue and Not Today? It is my view that until 500 regional units are parked, very few markets will lose all of their service: Frequency reductions do not create the type of buzz that market exits make among lawmakers A worst case assumption is that the existing regional industry is the sole source of pilots for the 4 mainline carriers: If true, then 200 units of flying would be removed each year between 2015 and 2022 Page 12

13 QUESTIONS AND DISCUSSION William Bill Swelbar Executive Vice President InterVISTAS Consulting LLC Page 13