A Massive Pilot Shortage Is Coming: What It Means for Airlines

Many U.S. airlines offered pilots generous early retirement packages less than a year back, as they tried to increase their payroll support funds. Air travel has seen a resurgence in recent years, especially in the domestic leisure market. Recent statistics show that the average passenger throughput at TSA checkpoints is 75% of 2019, and summer peak season is only beginning.The result is that the U.S. aviation industry may soon be facing a shortage of pilots. This could impact top airlines such as American Airlines (NASDAQ;AAL), Delta Air Lines, Southwest Airlines (NYSE.DAL), United Airlines (NASDAQ.UAL).Ten years of mandatory retirementBefore the pandemic, airlines were having difficulty hiring pilots quickly enough. For commercial airline pilots, the U.S. has a 65-year-old retirement age. A large number of U.S. pilots will reach 65 in 2020 due to demographic factors and the growth history of the airline industry.This means that the industry must recruit many new pilots before it can make growth allowances. Cowen analysts estimated that the mandatory retirement of pilots from the five largest U.S. airlines would rise from 1 266 in 2017 to 2 397 by 2021. The peak will be at 2 641 in 2025, according to a Cowen report.In the mid-2020s, mandatory pilot retirements in the United States could rise to 3,000 per year, if other airlines are included. The retirement rate will continue to rise into the 2030s.It won't be simple to replace all these retired pilots. The U.S. military is now training far fewer pilots that it did in the past few decades. Private training to become a commercial pilot for a commercial airline is expensive and takes a lot of time.The pilot shortage is over and the industry is roaring back.The COVID-19 pandemic radically changed the demand and supply balances for pilots of airline aircraft. Last year, airlines dramatically reduced their capacity which led to a reduction in the need for pilots. To reduce labor costs, many offered generous early retirement packages. These offers were accepted by more than 1,800 Delta Air Lines pilots, as well as hundreds of Southwest, American and United pilots.The effect was that last year's early retirement programs expedited some of the mandatory retirements expected to occur over the next five-years. This will only make the short-term pilot shortage even worse. The U.S. could exceed pre-pandemic capacity levels in the summer 2023, if not earlier. The problem is being exacerbated by the fact that many current pilots are in need of retraining.Delta recently stated that it plans to hire over 1,000 pilots by next summer to replace the last year's retirees. Other airlines are also returning to hiring mode.To make matters worse, airlines stopped hiring new pilots during this pandemic. Some aspiring pilots may have been scared off by the downturn in the industry last year, which could have slowed the growth of the future pipeline. According to Oliver Wyman consultants, North America could see a shortage in commercial airline pilots by 2023.Two possible victimsAll airlines will be affected by the pilot shortage. Mainline airlines are paid much more than regional airlines. This makes it more difficult for regional airlines to hire new pilots while their pilot ranks are routinely poached from higher-paying major carriers. Network carriers, which rely heavily upon regional partners to provide services in smaller communities, would be affected if there was a pilot shortage at regional airlines.Southwest Airlines doesn't have anything to worry about. Southwest Airlines' fourth-year first officer is currently making $150 an hour. This is far more than the average regional airline captain. This ensures that there will be plenty of applicants for the available pilot positions at the low-fare airline.Delta Air Lines is also relatively immune. Its regional fleet consisted of 442 aircraft. This included 117 50-seat planes. They will all be retired by 2023. It will keep 325 regional aircraft in its fleet until 2024. They are all two-class aircraft which generate sufficient revenue to pay higher wages for regional airline pilots.United Airlines, on the other hand, ended 2019 with 326 50 seat jets in its fleet. These aircraft will be more difficult to rent profitably as the pilot shortage continues to worsen. Although Delta has been able to funnel traffic from smaller markets via its Atlanta megahub on small mainline jets with great success, United's hubs are smaller and make this strategy more difficult. United Airlines may struggle to adapt if it has a shortage of pilots in its low-paying regional airlines affiliates.American Airlines faces a unique challenge. Two-class jets make up the majority of American Airlines' regional flying. It also has many of them, more than 400 by 2020. While its regional operations are more sustainable than United Airlines' current setup, American Airlines is the airline with the greatest exposure to regional flying and the consequent pilot shortage.