Pilot Shortage Cost American $61 Million in Fourth Quarter

Photo credit:  Skift / Edward Russell

U.S. airlines face an increasingly challenging situation finding pilots for their regional affiliates. This shortage is affecting schedules and the recovery and, at least for American Airlines, costing millions of dollars to rectify.

In its fourth-quarter results, American reported $61 million in special charges related to “regional pilot retention.” This comes from the more than $180,000 in signing bonuses and financial incentives in place at its wholly owned subsidiaries Envoy, Piedmont Airlines, and PSA Airlines to attract and retain new crew members.

“The issue we have is the throughput of pilots and getting them into training,” said Robert Isom, president and incoming CEO of American, during the carrier’s fourth-quarter and full-year earnings call on Thursday. He cited lower numbers of new pilots produced during the pandemic that, coupled with the early retirements during the crisis, has constrained hiring, particularly at U.S. regional airlines that the entree point for most crew members into the industry.

In addition to the added costs, American has suspended select regional routes this spring to mitigate the impact of the shortage. And American is not alone: Delta Air Lines has cut regional flying by up to a quarter in the first half, and United Airlines has parked more than 100 small jets and cancelled routes and destinations as a result.

Experts have warned that the pilot shortage in the U.S. could hamper the airline recovery this year. For American that means only recovering capacity to roughly 95 percent of 2019 levels this year, which is slightly lower than the forecast it provided in October.

Aside from pilots, American does not face any issues hiring, said Isom. The airline plans to hire 18,000 people across functions, including flight attendants, mechanics, pilots, and reservations agents, in 2022.

On a positive note, American CEO Doug Parker said that the airline — and the broader U.S. industry — has put the operational affects of both the Omicron variant and botched 5G wireless rollout behind it. But that is not before thousands of Omicron-related flight cancellations over the holidays and into January, and only after several global airlines cancelled select flights to the U.S. amid 5G concerns.

“It wasn’t our finest hour as a country to get us to that point,” Parker said Thursday. Government agencies, planemakers, and the telecom companies are now talking and sharing info, which will allow the safe full rollout of 5G technology, which allows for faster wireless speeds, he added.

American cancelled more than eight flights and delayed others as a result of the 5G rollout, according to a memo from operations chief David Seymour on Wednesday. The airline is awaiting U.S. Federal Aviation Administration authorization to operate Airbus A320 family aircraft and Bombardier and Embraer regional jets to airports near 5G transmitters during bad weather that require automated approaches. There are fears that the wireless technology could interfere with the altimeters on these aircraft.

While the 5G rollout debacle is a black eye for regulators, Omicron was outside of everyone’s control. The variant adversely impacted demand after the holidays, and particularly in January and February when American expects losses before a significant improvement in March.

American’s outlook matches that of Delta, which also forecasts January and February losses and a March profit. Executives at both carrier outlined a quicker recovery from Omicron as compared with past variants of Covid-19.

The broader pandemic recovery remains on track, according to Isom. Omicron only affected the “timing” of the recovery to later in 2022 but not the fundamentals. Critically, domestic business travel continued to recovery in the fourth quarter to 70 percent of 2019 levels. However, Isom said the business travel mix remains changed — likely permanently — with American carrying more small- and medium-sized business (SME) travelers rather than managed corporate account travelers. Domestic and short-haul international leisure demand has nearly fully recovered. Only long-haul international demand remains down significantly from 2019 levels.

While American did not forecast a 2022 profit, Isom said the airline does anticipate returning to profitability later in the year.

One thing the airline is looking forward to is the arrival of its 13 delayed Boeing 787s. American anticipates deliveries of the jets to begin in mid-April — more than a year late in most cases — with four aircraft expected to be in place for the peak summer period, said Chief Financial Officer Derek Kerr. However, he noted that the April date was unchanged for several months and warned that any additional delays from Boeing could push it back.

And the numbers

American lost $931 million in the fourth quarter despite improving revenue trends. The airline brought in $9.4 billion in revenues during the period, which was down nearly 17 percent compared to 2019 but a nearly eight-point improvement from the decrease in the third quarter. Expenses were down just 3.6 percent year-over-two-years to $10.2 billion. Passenger traffic was down nearly 17 percent compared to 2019 on a 13 percent decrease in capacity.

For the full year, American lost nearly $2 billion including the benefit of $4 billion in special items particularly federal Covid-19 relief. Revenues were down almost 35 percent to $29.9 billion and expenses were down almost 28 percent to $30.9 billion compared to 2019.

American forecasts revenues at 78-80 percent of 2019 levels, and capacity at 90-92 percent in the first quarter.

The call Thursday marked Parker’s final earnings presentation. While only CEO of American since December 2013 after orchestrating its merger with US Airways, the call was his 107th consecutive results presentation after becoming chief financial officer of America West Airlines in June 1995. Parker steps down as CEO on March 31 though he will remain as non-executive chairman of the airline’s board.

“Our goal right now is to get back to profitability as soon as possible and deliver a reliable product,” said Isom, who will take over as CEO from Parker.