Less than a year ago, many U.S. airlines were offering pilots generous early retirement packages, as they maneuvered to stretch their payroll support funds as far as possible. Since then, air travel demand has come roaring back, particularly in the domestic leisure market. In recent days, passenger throughput at TSA checkpoints has averaged 75% of 2019 levels -- and the summer peak season is just getting under way.
As a result, the U.S. airline industry could soon face a huge pilot shortage. Here's how it could affect top airlines like American Airlines (AAL -2.66%), Delta Air Lines (DAL -1.60%), Southwest Airlines (LUV -1.89%), and United Airlines (UAL -2.20%).
A decade marked by mandatory retirements
Airlines were struggling to hire pilots fast enough before the pandemic struck. The U.S. enforces a mandatory retirement age of 65 for commercial airline pilots. Due to demographic factors and the history of the U.S. airline industry's growth, a huge number of pilots will turn 65 during the 2020s.
That means the industry needs to recruit lots of new pilots even before making any allowances for growth. A 2017 report by analysts at Cowen estimated that mandatory pilot retirements at the top five U.S. airlines combined would surge from 1,266 in 2017 to 2,397 by 2021, finally peaking at 2,641 in 2025.
Including other airlines, U.S. mandatory pilot retirements could exceed 3,000 annually in the mid-2020s. Moreover, the pace of retirements will remain elevated into the 2030s.
Replacing all of these retiring pilots won't be easy. The U.S. military is training far fewer pilots than it did a few decades ago, and training privately to become a commercial airline pilot is a long and expensive process.
The pilot shortage fades and comes roaring back
The COVID-19 pandemic abruptly changed the supply and demand balance for airline pilots. Airlines dramatically slashed capacity last year, driving a corresponding reduction in their need for pilots. Many offered generous early retirement packages to reduce their labor costs. More than 1,800 Delta Air Lines pilots accepted these offers, along with hundreds of pilots each at American, United, and Southwest.
In effect, last year's early retirement programs accelerated some of the mandatory retirements that would have happened over the next five years. That will make the near-term pilot shortage worse, as U.S. airlines could surpass pre-pandemic capacity levels by the summer of 2023 (if not earlier). Airlines' fleet upgrades are exacerbating the problem, as many of their current pilots need to be retrained.
Indeed, Delta recently announced that it intends to hire more than 1,000 pilots before next summer as it looks to replace those who retired last year. Many other airlines are returning to hiring mode, too.
Making matters worse, airlines stopped recruiting new pilots during the pandemic. Moreover, the industry's deep downturn last year may have scared away some aspiring pilots, thinning out the pipeline of future pilots. As a result, there could be a shortage of more than 12,000 commercial airline pilots in North America by 2023, according to consultants at Oliver Wyman.
Two potential victims
The pilot shortage won't hit all airlines equally. Regional airlines pay much less than mainline carriers. That makes it harder for them to recruit new pilots, while their existing pilot ranks are routinely poached by higher-paying major airlines. A pilot crunch at regional airlines would, in turn, hit network carriers that rely heavily on regional partners to serve smaller communities.
Thus, Southwest Airlines has nothing to worry about. A fourth-year first officer at Southwest is already making $150 per hour, far above what the most experienced regional airline captains earn. That ensures that the low-fare airline will get plenty of applications to fill available pilot positions.
Delta Air Lines is also comparatively immune. Prior to the pandemic, its regional fleet numbered 442 aircraft, including 117 50-seat jets that will be fully retired by the end of 2023. The 325 regional jets that will remain in its fleet by 2024 are all two-class aircraft that generate enough revenue to cover higher wages for regional airline pilots.
By contrast, United Airlines ended 2019 with 326 50-seat jets in its fleet. As the pilot shortage worsens, it will become increasingly difficult to operate these aircraft profitably. However, whereas Delta has had great success funneling traffic from smaller markets through its megahub in Atlanta on small mainline jets, United's hubs tend to be smaller, making such a strategy harder to pull off. As a result, United Airlines could struggle to adapt if its low-paying regional airline affiliates run short on pilots.
American Airlines has a different challenge. On the one hand, two-class jets represent the bulk of its regional flying. On the other hand, it has a lot of them: over 400 at the end of 2020. So while its regional operations may be more sustainable than United's current setup, American Airlines has the biggest exposure to regional flying -- and, by extension, the looming pilot shortage -- of any airline.