I read a great article the other day about the severe crew recruitment constraints carriers are facing today. While topic has received some attention in the media and industry, it certainly hasn’t been proportionate to the magnitude of the challenge facing the industry. There seem to be two key drivers as to why this issue hasn’t been taking a larger spotlight. First, is the perception that this is a regional airline issue. Second is a belief that this is really about pay and a market adjustment will resolve the matter in due course. Both views fail to appreciate the nature of the issue and ignore many of the operational realities of the industry today.
While the regional carriers are feeling the bulk of the pain at the moment, the market, demographics and the relationship between mainline and the regionals are converging to make crew shortages an industry-wide issue. Mergers and the subsequent route consolidation have created some efficiencies, and they have allowed carriers to feed new growth with existing crew capacity. But these leaner carriers are now poised for expansion, and will have to look outward to support that growth, creating a significant demand on the pilot marketplace. The problem becomes doubly vexing when you consider the pool of available crew from regional airlines has essentially been emptied, and that the graying pilot ranks are accelerating mandatory retirements thus driving further the need for qualified crew. With aircraft orders at an all-tim high, and global competition increasing, the industry-wide challenge will continue to grow, and at an increasing rate.
A second dynamic that elevates this issue to an industry-wide crisis, as opposed to something localized to the regional airlines, is the increasing dependence upon regional carriers to support mainline routes. Regionals look very different today than they did just a decade ago, and routes once the exclusive domain of major carrier brands have increasingly been sourced to regional partners. Even hub-to-hub trips are now quite often being supported by regional partners. A quick look at schedules today will find these routes filled with regional aircraft flying under partner brands. This sourcing has put increased pressure on the regionals to deliver just at a time when their ranks are being thinned by their very partners.
It’s clear that the issue is industry-wide even if the mainline carriers have yet to feel the full effect of the pain, and the short-term behavior creates a potentially vicious cycle for the airlines. As more flying is shunted to a regional airline base that is increasingly unable to support such flying, the rate of delays and cancellations increase and the mainline partner brands end up taking the hit. It becomes harder to rationalize any strategies that would allow carriers to buy their way out of the problem, and this leads us to the second prevailing misconception about the issue of crew shortages.
There have been those who have argued that there are available crew, or at least there could be available crew, if pay rates were made more attractive. Ultimately, this is the solution to the issue and most people would like to see regional pilots earning more than their often shockingly low pay. But getting to this goal will be a protracted exercise. Consider that the primary variable upon which the mainline-regional relationship is predicated is lower cost of labor. This is the one cost that regionals can influence to keep this flying attractive, and the downward pressures on this cost are tremendous.
In addition to keeping costs down to attract partnership flying with mainline carriers, regionals also have to offset the costs associated with less efficient operations. They do not have the same opportunities to leverage pricier technologies, nor do they enjoy the same economies of scale that larger carriers experience. The result is a very real overhead of process and administration that cuts into the bottom line. All things being equal, crew labor is the most likely target for cost-cutting.
For wages to appreciate to the point where they can offset the drain by the majors (as well as from aggressive recruiting from international carriers), there will be some fundamental changes to the economics of mainline-regional partnerships. With the costs ultimately passed on to the consumer, mainline carriers may opt to bring larger hub flying back in-house and be willing to drive higher prices for smaller, less-trafficked routes. Another possibility may be even deeper integration between regional and mainline partners so that the smaller carriers may leverage some of the efficiencies of their larger partners.
Changes are happening, but we have entered a period of disruption and we have yet to appreciate it’s full magnitude. As with any paradigm shift, those carriers who embrace the new dynamic and approach the new world strategically will emerge as tomorrow’s winners.