You are using an older browser version. Please use a supported version for the best MSN experience.

One Very Necessary Expense May Squeeze Airlines Further

TheStreet 3/22/2023 Michael Tedder

The airline industry may have no choice but to follow Delta's lead in this one crucial area.

The airline industry has had a pilot problem for the last several years.

When the pandemic hit, airlines that took federal aid were prevented from laying off or furloughing any employees. But in order to reduce costs, many airlines offered pilots a buyout or early retirement. Once vaccines became available in 2021 and people began feeling comfortable flying again, there weren’t enough pilots to go around, and cancellations and delays became commonplace.

DON’T MISS: American Airlines Sued Over Alleged Negligence

What’s more, because there weren’t enough seasoned pilots around to train the next generation, it’s been difficult for the airline industry to get its staffing levels back up to meet the booming post-pandemic demand for travel. Critics have alleged that companies like Southwest Airlines  (LUV) - Get Free Report have been reluctant to spend the money to recruit and keep enough pilots to ensure smooth, stable travel, with the result being more canceled flights than ever.

Pilots Have More Power Now

The increase in demand for travel (there was a 130.2 percent annual traffic rise in 2022, compared to the previous year) coupled with the relative scare supply of pilots (at Delta alone, about 17,000 employees, or 20% of its workforce, took buyout packages or early retirement) has put the remaining pilots in a position of power, in terms of negotiations.

Delta  (DAL) - Get Free Report pilots recently ratified a contract that will raise their pay by 18% right away, as well as 34% more over four years.

And now, it seems like the rest of the industry might have no choice but to follow suit. Spirit  (SAVE) - Get Free Report, Hawaiian and Alaska  (ALK) - Get Free Report pilots have also recently won raises as well, and American Airlines  (AAL) - Get Free Report CEO Robert Isom recently indicated that his company will match Delta, including pay increases of 21% in the first year and 40% over four years, and United  (UAL) - Get Free Report is prepared to pony up for retroactive pilot pay once it reaches a deal with its pilots union. 

BERTRAND GUAY/AFP via Getty Images © Provided by TheStreet BERTRAND GUAY/AFP via Getty Images

Fares Are Going Up

The increase in pilots' pay isn’t the only rising costs that airlines have to deal with, as fuel prices have been rising as well. Travel Weekly notes that jet fuel “was averaging $2.66 per gallon as of March 14, according to Airlines for America, and averaged $3.37 per gallon last year, according to the Bureau of Transportation Statistics (BTS), compared with the 2019 average of $2 per gallon.” 

Taken all together, these headwinds are expected to continue to push the costs of plane fares up, as tickets were 8.3% above pre-pandemic levels last month, according to the Consumer Price Index, while airfare is in total was up 26.5% year over year last February

image beaconimage beaconimage beacon