What Are Airlines Doing to Solve the Pilot Shortage?

There are a host of issues that have been concerning the workforce in the United States—from longer working hours to contentious relations with management and fewer job protections, a fair work-life balance, and stability. However, the prime issue that has led to a crisis in regional airlines is that regional players pay much less than their legacy peers even when the regional sector accounts for half or more of all flying. These regional carriers are also important since they feed the legacy carriers with customers on their networks.

Most airlines, including Delta Air Lines (DAL), Southwest Airlines (LUV), United Continental (UAL), and American Airlines (AAL), have recently renegotiated contracts with both pilots and other contract workers. As per the contracts, the pilots will receive a good pay rise over the next two years, followed by decent pay increases for two to three years thereafter. This means labor peace for airlines at least for the next few years. This is good news for both parties, especially for airlines like Southwest Airlines that have been struggling to reach an agreement with pilots for the past four years.

As many as 30,000 pilots will reach the mandatory retirement age of 65 years 2026. According to a study by North Dakota University, if there aren’t sufficient new hires to replace them, airlines could face a pilot shortage in three years. In the next nine years, by 2026, the pilot shortage could be as high as 15,000.

While the shortage issue isn’t completely tackled yet, some companies, like American Airlines are trying to solve the problem by increasing the pay for fresh pilots, making pilot training costs viable.

Investors can gain exposure to airlines by investing in the SPDR S&P Transportation ETF (XTN), which invests ~22% of its portfolio in airlines.