Out of the valley
Airline industry posts improvements in 2006
Anybody who follows the airline business understands that the industry is subject to financial peaks and valleys. This most recent valley period, beginning shortly before September 11, 2001, has been more of an abyss as the airlines collectively lost nearly $50 billion. But, hallelujah, it appears that more carriers are beginning to drain away the red ink from their profit-and-loss statements.
In September, the Bureau of Transportation Statistics (BTS) reported an airline domestic operating profit margin of 7.9 percent during the second quarter of 2006. This is the first profitable period in a year and the biggest since 2000. For those who might not be jargon savvy, the domestic operating margin measures profit or loss as a percentage of the airline industry's total domestic operating revenue.
The numbers come from the seven largest carriers in each of the following categories: Major airlines, which include Alaska, America, Delta, Northwest, Continental, United, and US Airways; low-cost carriers, featuring Southwest, Spirit, JetBlue, Frontier, ATA, America West, and AirTran; and regional airlines such as American Eagle, Atlantic Southeast, Comair, ExpressJet, Mesa, Pinnacle, and Skywest Airlines.
Comparing second-quarter 2006 numbers to the same period in 2005, the major airlines reported a profit margin of 7.2 percent, an increase of 9.4 percent over the 2.2 percent loss reported in 2005. Revenues increased to $1.3 billion, compared to the $0.4 billion loss reported in 2005. The top operating profit margin performers were reported by Southwest, Northwest, and ASA. The highest revenues per available seat-mile were reported by US Airways, Northwest, and Continental; low-cost carriers Southwest, JetBlue, and ATA reported the lowest unit revenues.
Profitability means job security and, in most instances, workforce expansion. But, "us against them" sentiments also seem to be making a comeback, which could very well jeopardize the recovery. Some industry observers claim that bloated payrolls in the past, driven by pilot thinking about their pay in particular, contributed to the financial tribulations experienced by the airlines over the past six years.
Granted, it's been tough out there. As a result of the economic conditions of the last half-dozen years, about 120,000 airline jobs were eliminated, according to the BTS. At the legacy carriers, most workers saw their paychecks chopped by 15 percent or more. A senior Delta Boeing 737 captain lost about 26 percent in pay, resulting in about $116,000 annually--for a 65-hour month. A United pilot flying "the Guppy" will make $102,000 per year, down about 34 percent when compared to pre-2001 salaries. Over at American, the seven-three driver will see $122,500 annually or 18 percent less. But, to most of the working folks in our society, making six figures for a 120-hour month is still a dream.
Now that some airlines are beginning to see light, some of the old attitudes are returning. What is surprising is the commentary from pilots whose jobs were on the brink of extinction as US Airways skated on the thin ice of bankruptcy before America West essentially bailed out the company. Jack Stephan, chairman of the master executive council of the Air Line Pilots Association--representing pilots for the pre-merger US Airways--says in USA Today, "We're not going to watch investors and managers enrich themselves now at our expense." Another labor leader, Tania Bziukiewicz, says, "We've made tremendous sacrifices, and now that the airlines are doing well, and the forecast is that they will continue to do well, it's certainly justifiable that we should be getting some significant improvement." But, as one labor contract negotiator for the airlines says, "We are only one terrorist event or one oil spike from being right back where we were."
No matter which side of the labor/management fence someone resides, the fact is that Alaska, Continental, FedEx, JetBlue, AirTran, and Southwest are hiring. This is certainly good news, and even though American, Delta, Northwest, and United still have more than 7,000 pilots on furlough, they are recalling pilots slowly.
How does all of this relate to the aspiring airline pilot? It just makes sense to recognize trends and issues. It is called due diligence. If you are one of the legions of eager airmen seeking an airline career and training at one of the nation's aviation colleges, universities, or flight academies, is the aforementioned data new information? Do you care? It's unfortunate that most professional pilot training organizations do not have required coursework in airline economics and management. Cases in point: What does a new Embraer 170 cost to own and operate? Who are the chief executive officers of SkyWest, Republic Airways, and Mesa? Which regional airline had the most robust hiring in the past year?
Good questions that most students of aviation cannot answer. Probably the most important of these is "Who's hiring?" Let's look.
The folks at Kit Darby's AIR, Inc. serve as the airline industry's hiring watchdogs. These stats come from their researchers. All numbers are for January through October 2006.
Mesa Airlines takes the hiring crown for 2006. The company hired 475 pilots through the first 10 months, slightly more than the 424 pilots hired in 2005. Financially, things seem pretty good as revenue per passenger-mile (RPM) was up 9 percent compared to the same period last year.
Over at ExpressJet, hiring dropped when compared to 2005's track record of 610 pilots hired. Through October 2006, this airline invited 288 pilots to join the firm. Revenue was up 19 percent through August 2006, according to RPM.
A real surprise in hiring took place at Pinnacle Airlines/Northwest Airlink. Traditionally one of the lowest-paying regional airlines, the company brought in 261 pilots during the first 10 months of 2006. Financially, the company was up 4 percent when considering RPM.
American Eagle comes in fourth in hiring January through October 2006 with 236 pilots hired. This figure already bests the 201 pilots hired in all of 2005. Like the top three hiring carriers, revenue looks good as RPM data increased 16 percent.
One of the best in the business, SkyWest ranks fourth in the hiring poll with 208 pilots drafted into the company, although the number is about half the total of 439 hired during all of 2005. 2006 RPM increased about 19 percent over the same eight-month period in 2005.
"Air Willie," as Air Wisconsin is affectionately known, did some modest hiring with 144 pilots calling the company their new home in 2006. Business, however, appears to be down with a 25 percent decrease in revenue per passenger-mile.
A nifty airline up in the Northwest, Horizon Air, opened up the hiring gates wider than they've ever been by recruiting 107 pilots in 2006 through October. Business was up 13 percent over 2005 when looking at RPM through August 2006.
Comair, one of the industry's stars years ago, has been faltering. Although the airline brought in 36 pilots, stalled labor talks could force Comair to lay off hundreds of workers. According to USA Today, Comair submitted a bid to Delta aimed at retaining the right to fly a big chunk of its current routes, but competitors may underbid the company because it's made little progress in concessions talks with Comair pilots.
Trans States and Mesaba are not sharing the wealth with their counterparts. No hiring has been taking place at these airlines.
One company that apparently has not reported to AIR, Inc. is Republic Airways, which operates Chautauqua, Shuttle America, and Republic Airways. It has been hiring. Look out for this aggressive company chaired by a fine, family-values CEO. Republic's RPM increased by a whopping 52 percent in 2006 over the same eight-month period in 2005.
So, you are now somewhat up to date. What about the future? Based upon the best guesses in the FAA Aerospace Forecasts Fiscal Years 2006-2017, "System passengers are projected to increase an average of 3.4 percent a year, with the regional carriers growing faster than mainline carriers (4.3 vs. 3.1 percent per year). By 2017, U.S. commercial air carriers are projected to fly...1.07 billion enplaned passengers a total of 1.256 trillion passenger miles. Planes will bec ome fuller, as load factor is projected to increase every year in the forecast to 78.4 percent by 2017." This can only mean more airplanes and more aircrews.
For anyone pursuing a career in an airliner, it is prudent to remember these words: "Commercial aviation is first and foremost a business." In addition to plodding through the regulations, maneuvers, and FAA certificates and ratings, the wise future airline pilot will keep a finger on the pulse of the industry--just in case a career mid-course maneuver is necessary. But, based on all current indicators, if you are preparing for a career on an airline flight deck, you still did good.
Wayne Phillips is an airline transport pilot with a Boeing 737 type rating. He is a B-737 instructor and operates the Airline Training Orientation Program in association with Continental Airlines. He is an aviation safety consultant in Michigan and speaker for the AOPA Air Safety Foundation.