Part 1) Regional Airline Industry- Pilot Demand

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There happens to be a lack of pilots interested in the regional airlines not because there is a shortage of pilots or qualified people willing to become pilots, but because the compensation, career progression, are not enough to justify the scheduling sacrifices and investments necessary to pursue such a career.

In many ways this is a simple supply and demand scenario from economics 101. Lets start about 15-20 years ago and analyze a simplified supply and demand curve that helps illustrate what things were like back then.

As a refresher for those who took economics a while ago the long term supply of available pilots goes up as the price for pilots goes up. Conversely, the number of pilots the industry is willing to pay for goes down as the price goes up. Naturally, in every supply and demand curve the natural equilibrium point of these two curves is where the price point for the market rests. The tension between these two forces (People would like more pilots if they are cheap, and more people want to become pilots if they are paid well) settles at the intersection of these two curves. Follow the following link to a more detailed description of simple supply and demand principles.

Figure 1.) Theoretical Supply and Demand Curve for Pilots 15 Years ago. P is the price point where the market determines the value of a new pilot. S is the number of pilots P is able to get.

 

Figure 1)

Figure 1)


Now lets add another level of complexity. The truth is not all pilots are created equal, and the market really isn't a linear line. In the eyes of their creator they are equal but when it comes to skill, proficiency and professionalism they may not be. We could overlay a distribution that might look something like this: (For our purposes a parabola was selected but it could look different, the bulk of pilots are at the average/good level)

Figure 2)

Figure 2)

Most regional airlines would be happy to hire only excellent pilots but they settle for good quality pilots and their price point or the amount they are willing to pay for these pilots falls around this quality. It is true they hire some excellent pilots but for the most part they hire good, competent and capable pilots. These pilots typically have no DUI's, have a good background/education, and pass almost all of their tests. Pilots that airlines have historically not wanted to hire would not meet these qualifications.

If we overlay this assumed distribution on top of our supply and demand curve we can learn something interesting. It looks kind of like the following.

Pilot Supply and Demand with an over layed distribution
In this case we can see that the price point or point of equilibrium allows those who want pilots to get all the pilots they want at this particular price point to get excellent to good quality pilots. This was the case 15-20 years ago when the following bullet points were true.

 

  • Flight training cost 20-25,000$.
  • In most cases pilots could rent an aircraft for 50-70$ with fuel.
  • Tuition was much lower than it is today.
  • Upgrade times at the regional airlines were 2-5 years depending on the regional.

Result: Regional airlines consistently hired pilots at over 1000-1500 hours of flight time.

So what happened?

Today we see-

  • Flight training costs increasing through 70-220,000$ with or without a Bachelor degree.
  • Tuition costs have increased substantially.
  • Upgrade times at some regional airlines have reached 8 to 9 years.
  • Many regional pilots have worked for multiple carriers because of industry instability, and have therefore been unable to amass significant seniority or quality of life finding themselves perpetually on the bottom pay scales.

Result: Some regional airlines now struggle to find quality applicants to fly as first officers for them. Before the 1000-1500 hour rule requirement they often hired pilots at 500 hours and some as low as 300 hours attempting to find good pilots willing to work for low wages and poor work rules.

The supply curve for pilots shifted because of these factors. Naturally, when the underlying cost of a commodity goes up then that cost is passed on to customers through a shift in the supply curve. Basically, new regional pilots expect compensation and career progression appropriate to their investment. This investment is beyond just financial investments  and includes the opportunity costs they incurred to pursue aviation instead of law, business, medical or other career fields.

What happens looks like this on a very simple supply and demand curve.

Adjusted for new factors Pilot Supply and Demand Chart

The supply curve shifted while the demand curve stayed relatively the same. In normal markets this price point would simply have adjusted, just like it does in most markets. When oil became expensive gasoline increased in price which resulted in an adjustment in the number of gallons we used as Americans. Simply the price would have gone up for pilots. For reasons that are intended to be covered in the rest of this 4 part series that has simply not happened or has not happened aggressively enough to match the change in this supply curve. Who is at fault for this? For now I will simply state that if airlines where as proactive in cultivating and efficiently using their labor capital as they are fuel we would likely not now have a pilot staffing problem.

So what are the results?

Due to the fact that regional airlines are unwilling to adapt enough to this changing price point they struggle now to attract qualified and quality applicants. By looking at the above graph it is easy to see that the supply line has moved and naturally the pilot quality distribution has moved with it, if airlines don't move to match this price point then they risk being able to only attract poor quality pilots who they have historically not been hired.

In reality the supply of most things in the short-run is fairly inelastic, meaning if an airline instantaneously asked for a ton of new pilots they probably could not get them no matter how much they paid. However, in the long run the supply of pilots is very elastic and responsive to market forces, meaning the problem some of the regional airlines now find themselves in is a result of irrational contracts and procrastination.

This website has at times been in contact with competent men and women who would happily pursue a career in aviation. Often these people are aware of the regional compensation and have naturally asked these recruiters if their company was willing to help offset the staggering cost of flight training. The answer from the regional airlines has been a resounding no, even now.

A caution to regional airline management teams. It would be wise not to procrastinate adjusting the price point for pilots to something more accurate to the real market for pilots. The longer these teams procrastinate the more they will be behind the curve of this shifting supply. The results of this procrastination include compromised safety as they are forced/choose to hire those who are available at there old price point in order to win new or retain old contracts.

Some airlines have attempted to use a Bonus Program to try to bring in more pilots. They probably will find that it won't make much of a difference in the long run. As a student entering training today there is no guarantee the bonus program will be in existence in two years. It comes and goes at the whim of these regional airlines and can't really be counted on when making an investment of this magnitude. Without lasting change in compensation or reimbursement programs management teams will continue to operate at the "old" price point and subsequently struggle to find quality pilots.

 

Trackbacks/Pingbacks

  1. Part 3) How does pilot demand affect the future of the regional airline industry? - Audries Aircraft Analysis - […] See part 1) Regional Airline Industry- Pilot Demand […]
  2. Part 2) Regional Airline Industry - (Fee for Departure) The back story. - Audries Aircraft Analysis - […] See part 1.) Regional Airline Industry Pilot Demand. […]

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