The dark side of the pilot shortage.

[wheelsup]

A misleading statement that management always loves to use. Don't fall for it. An example:

Let's say payroll is your largest expense at 25% of total costs (pretty typical for a scheduled airline). At a typical airline, about half of that would be crew costs (both pilot and FA). So now we're down to 12.5% of total costs represent pilot and FA. FA wages don't have the same upward pressures on them right now that pilot wages do, so we can take them out of the equation and look primarily at pilot wages, so we'll bump that down to an estimated 10% of total costs going towards pilot payroll. And let's now say that we need a significant bump in pilot payroll to stem the tide. A 20% increase is generally considered a huge increase to total payroll (remember that only about 70% of payroll is wages, so to get to a 20% increase, you need really big pay rate increases). So by bumping up pilot payroll by 20%, we're impacting the total costs on the airline by...2%. That's it.

If your airline is collapsing because you can't find pilots, and you can't find a way to make a 2% increase in total expenditures work in order to save your airline, then you're a horrible manager, and you deserve to be out of business.

Ignoring for a moment that pilots make way more than FAs, even a 1/2% increase in costs triggers a whole slew of ramifications for a company from bond holders. When it hits 1% they bonds typically are renegotiated.

So yes, it is significant.

 

[SlumTodd_Millionaire]

Ignoring for a moment that pilots make way more than FAs, even a 1/2% increase in costs triggers a whole slew of ramifications for a company from bond holders. When it hits 1% they bonds typically are renegotiated.

So yes, it is significant.

In all my years negotiating pilot labor contracts, I’ve heard a ton of comical excuses from management about why they couldn’t pay more. But never once did the issue of having to renegotiate bonds come up. Try again.

 

[pete2800]

Alaska Air Group has a 20% pre-tax margin. Considering that wages are a business expense, a 2% increase in costs due to labor would mean a less than 2% reduction in margin. The world won't end with an 18% margin. Hell, since when do airlines even make 5%?

 

[Inverted]

You can only make so much revenue 9 seats at a time, the economics of making a PC-12 competitive comp-wise to even a Crash 8 (for the same operation) doesn’t work in the long run.

Well it’s more dynamic than you make it but I tend to agree. Which is why a PC-12 job isn’t a career job earnings potential wise. The thing that really grinds my gears is that the companies with the most to lose by losing good people, tend to treat their people like crap. So take the pay away, why are these companies paying below a standard wage AND giving pilots crappy to no schedule, no QOL on the road on top of the crappy pay?

Also, revenue generating airplanes tend to be a cost neutral venture when you compare costs. I’m not aware of any 135s operating a Dash 8 (I’m sure they exist but the revenue per seat percentage is less and the overhead is less. The operating cost isn’t even in the same universe between a PC-12 and Dash 8.

Private aircraft will never generate the total revenue of a commercial airliner, it’s never going to happen, so then what? I keep coming back to the idea that we are somehow supposed to feel sorry for these companies that can’t compete...

 

[wheelsup]

Labor costs are a miniscule portion of the overall cost of a charter. The company that hangars my 421 for me also owns a King Air for charter. I had them price it for me recently in case my plane is ever down. What they're paying the pilots was a single digit percentage of the overall cost of the charter. You're paying primarily for fuel, engine and maintenance reserves, and management overhead. Labor is nothing. If you're going to drop $6k on a charter flight, you're not going to stop chartering and go back to airlining just because it goes up to $6,200 to throw labor a bone.

All those costs are direct operating costs except for the management side.

You fly the airplane more you get reimbursed for it.

With indirect costs it's tough to figure as they are set and vary on a per hour flown basis.

How many rich part 135 owners do you know? The ones I knew in the past made way more from the management fees they charged the owners than they made flying airplanes. In fact most owners put their aircraft on charter just to help defray ownership costs not make any money. So additional costs are an even bigger expense.

 

[wheelsup]

In all my years negotiating pilot labor contracts, I’ve heard a ton of comical excuses from management about why they couldn’t pay more. But never once did the issue of having to renegotiate bonds come up. Try again.

Much more impactful on smaller businesses. This is a thread about 91/135 not 121. Try again!

 

[Cptnchia]

Yeah ok.

I give ATN a lot of crap, on a lot of topics, but on this, he is right.

 

[Inverted]

Alaska Air Group has a 20% pre-tax margin. Considering that wages are a business expense, a 2% increase in costs due to labor would mean a less than 2% reduction in margin. The world won't end with an 18% margin. Hell, since when do airlines even make 5%?

This.

Salary and training are the highest pilot costs percentage for fixed costs but the percentage it takes out of revenue is irrelevant for the most part. You don’t generate the revenue without employees that need salaries. Management wants to convince us all otherwise, it’s just simply not true.

 

[SlumTodd_Millionaire]

How many rich part 135 owners do you know?

How many 135 companies are dangerous hellholes that shouldn't be in business in the first place?

 

[SlumTodd_Millionaire]

Much more impactful on smaller businesses. This is a thread about 91/135 not 121. Try again!

He was specifically talking about larger scheduled operators. And as for smaller 135 operators, I doubt many of them are issuing bonds. If they need investors, they're almost certainly selling equity.

 

[Roger Roger]

yknow what? Forget I had anything to say. Clearly a bunch of airline pilots know more about running a 135 than someone who helped do it for a few years.

 

[Inverted]

I have more 135 experience than 121. Is the stigma of 135 made up? Nope.

 

[SlumTodd_Millionaire]

yknow what? Forget I had anything to say. Clearly a bunch of airline pilots know more about running a 135 than someone who helped do it for a few years.

I think people who have negotiated labor contracts and been officers in labor unions know a thing or three about labor costs. But okay, sunshine.

 

[wheelsup]

I think people who have negotiated labor contracts and been officers in labor unions know a thing or three about labor costs. But okay, sunshine.

Labor costs are very different for a company flying pilots 80 hours a month vs 10-20. Also the cost structures are quite different. Aircraft are run 8-10 hours a day at 121, what is the average for a King Air or Lear? I don't know maybe someone who flies them can speak up.

 

[SlumTodd_Millionaire]

Labor costs are very different for a company flying pilots 80 hours a month vs 10-20. Also the cost structures are quite different. Aircraft are run 8-10 hours a day at 121, what is the average for a King Air or Lear? I don't know maybe someone who flies them can speak up.

The basic math shown above doesn't change either way, because we're dealing with payroll figures and not hourly costs.

 

[Apophis]

The bigger problem at the small operator level imho is that the chief pilots, DOs, etc are seeing spots opening up at LCCs and in some cases even majors that were inaccessible to them a few years ago and jumping on it. That’s leaving a lot of places with a leadership and experience vacuum at the top. In spite of the sour grapes that a few bitter 135 vets on here have at many places the CPs, DOs, ACPs are honest hardworking people who hold the operation together.

If you work really hard doing 50 hour weeks May-September, next year you can be a check airman and work 60 hour weeks March-October!

You can only make so much revenue 9 seats at a time, the economics of making a PC-12 competitive comp-wise to even a Crash 8 (for the same operation) doesn’t work in the long run.

At my company, the amount of open management positions is hilarious. We haven't kept an assistant chief pilot for more than 6 months, and I've been here almost 3 years. Our chief pilot is the only management position that has remained stable. A year and a half ago our DO and a bunch of HR people were fired for reasons I'm still not clear about. Our SJU operation is so thin on pilots it wouldn't surprise me if flights start getting cancelled. The management (and general pilot) turnover here are a joke.

And this is at a 121/135 FedEx Feeder. Without FedEx money and resources we would have disappeared a LONG time ago.

 

[wheelsup]

The basic math shown above doesn't change either way, because we're dealing with payroll figures and not hourly costs.

Stop moving the goal posts. My initial reply was that increasing costs will directly impact demand for the product. It's just basic common sense that hourly costs will rise (typically how charters are figured) as pilot wages rise.

This will further increase operating costs because as demand goes down the labor side also increases. So costs will get a double whammy increase.

 

[SlumTodd_Millionaire]

Stop moving the goal posts.

No goal posts are being moved. There are just several issues being discussed, and you're now bouncing back to an earlier discussion.

My initial reply was that increasing costs will directly impact demand for the product.

Already addressed. Nobody who drops $6k on a King Air charter is going to go back to airlining if his charter goes up to $6,200 just to keep the charter operator going.

 

[wheelsup]

No goal posts are being moved. There are just several issues being discussed, and you're now bouncing back to an earlier discussion.



Already addressed. Nobody who drops $6k on a King Air charter is going to go back to airlining if his charter goes up to $6,200 just to keep the charter operator going.

Addressed? Hardly. You really have no idea where the line is. Anything that increases costs reduces demand, even with something as inelastic as gasoline.

 

[WacoFan]

A misleading statement that management always loves to use. Don't fall for it. An example:

Let's say payroll is your largest expense at 25% of total costs (pretty typical for a scheduled airline). At a typical airline, about half of that would be crew costs (both pilot and FA). So now we're down to 12.5% of total costs represent pilot and FA. FA wages don't have the same upward pressures on them right now that pilot wages do, so we can take them out of the equation and look primarily at pilot wages, so we'll bump that down to an estimated 10% of total costs going towards pilot payroll. And let's now say that we need a significant bump in pilot payroll to stem the tide. A 20% increase is generally considered a huge increase to total payroll (remember that only about 70% of payroll is wages, so to get to a 20% increase, you need really big pay rate increases). So by bumping up pilot payroll by 20%, we're impacting the total costs on the airline by...2%. That's it.

If your airline is collapsing because you can't find pilots, and you can't find a way to make a 2% increase in total expenditures work in order to save your airline, then you're a horrible manager, and you deserve to be out of business.

This is difficult to argue with - and remember, I think ATN is a Satan-Commie. But he's correct here.

All you motor-oil out there: Market forces dictated your life when I made my motor-oil/employees are a commodity post years ago. Nothing has changed now - market forces dictate your life. It's just that now they are working in your favor.