Items such as record orders for new planes, expanding airports, airlines struggling and the environmental cost of the growing popularity of air travel are most frequently in the news when attention turns to aviation. But there is a less well known and understood issue that threatens to influence all of the above. Put simply, it is increasingly clear that there is a real shortage of qualified pilots globally and, furthermore, that the problem is not going to go away anytime soon.
Pilot Shortages: A Growing Problem
Most people are aware of the fragility of an airline. Wafer-thin margins, forensic cost control, intensive competition, vast capital expenditure, volatile fuel prices and the potential of one-off events to significantly destabilise the marketplace all combine to make it one of the most precarious business environments around.
What is perhaps less well appreciated is a new set of headaches for much of the airline industry globally associated with perhaps their most vital human assets, pilots. For in amongst the cheering long-term trends for the aviation industry (record levels of passenger demand, miles travelled and new routes) and the unprecedented number of new aircraft orders waiting to be delivered over the next 6 -7 years is something which has been ignored; there are not enough pilots to fly the new aircraft that are ordered to meet future passenger demand.
Pilot Shortage a Long-Time in the Making
In truth, a shortage of pilots is not only a recently anticipated problem. As far back as the early 2000s, airlines and commentators were warning of a shortage of qualified pilots as the initial impact of what would become termed ‘globalisation’ began to be felt. However, the potential for a pilot shortage was suddenly removed with the downturn that followed 9/11. Subsequent one-off events such as the SARS virus outbreak, the Eyjafjallajökull volcano disruption and ultimately the global financial crisis dampened growth sufficiently to keep the supply of new pilots in balance.
Lack of Pilots a Growing Issue
But since then, the rapid expansion of new routes and the deliveries of planes to operate them has increasingly made clear that the annual supply of new pilots was not enough to meet the demands of airlines.
The first signs of the supply tightening began with airlines improving working conditions and salaries for pilots. For years, and as part of the low-cost airline model that has impacted the whole of the industry, pilots had had their salaries and working conditions subjected to the same cost control pressures as all other aspects of airline operations had. No longer did the job of a pilot offer a large salary, unlimited travel and high status. Instead, salaries (especially for new pilots) failed to keep pace with similar professions, flying became more of a routine exercise and working conditions gradually eroded as much as possible given the safety restrictions imposed by aviation authorities.
But for the past 18 months, these trends have begun to reverse. Pilots salaries have shown a marked increase and not just for experienced Captains but also for First Officer starters. The outcome of the dispute between Ryanair and its pilots show that pilots have a stronger position than for some time in determining salary structures and working conditions. Much of this change is due to the increasing shortage of qualified pilots and the intensifying competition between airlines to secure a steady supply of ‘airline ready’ pilots.
Impact on Profitability
A further sign of the impact of a shortage of pilots is an increasing number of airlines reporting that they have had to cancel certain routes as a result of a lack of pilots. This first started in the US where the low numbers of new pilots was felt ahead of much of the rest of the market due to a double impact of low numbers of new pilots combined with regulatory changes that made becoming an airline pilot a much longer process. But more recently in Europe, FlyBe was forced to cancel flights due to a shortage of pilots while in Asia, Jetstar Japan has just been forced to cancel 70 flights in June.
Flight cancellations obviously have an impact on airline profitability. Not only is it revenue that is no longer recognised but passenger compensation is further on profits. Airlines are therefore increasingly adopting measures to shield themselves from the impact of a global shortage of pilots. As mentioned, these include better salaries and working conditions in order to retain pilots, as well as higher salaries to attract recently qualified pilots.
Training Fees & the Supply of Pilots: Why does Anyone become a Pilot?
However, in terms of improving the supply side, airlines have as yet shied away from decisive action. There has been an increase in agreements between airlines and ATOs (Approved Training Organisations) that involve instruction to a certain standard and commitments to take a certain number of pilots annually, but very little that involves actual investment, either in ATOs or sponsorship of pilots individually, that has made a marked difference to the number of people who want to train to become a commercial pilot.
For the real issue with the shortage of pilots is the high cost of training that falls squarely on the shoulders of cadets. At anywhere between £80,000 to £130,000 for 18 months of instruction, pilot training is not cheap. These onerous costs have meant that the pool of available pilots has progressively become more restricted to those whose parents can, in various ways, subsidise them through training.
And it’s not just the upfront cost; the calculation for a typical cadet is that it would probably take the best part of a decade to pay off their debt as a First Officer with promotion to Captain in Years 7 or 8. While higher staring salaries have obviously made this calculation more acceptable as well as the improved prospect of getting a position straight after qualification, this level of investment and risk still puts off a large number of applicants who would otherwise be pilots. It also impacts the drop-out rate of those who begin training. In the final analysis, it is the high fees, extended repayment period combined with no guarantees of an initial job that severely restricts the number of pilots that the ATO system can process to meet airlines’ demand.
Barriers for Airlines to a Strategic Response to a Shortage of Pilots
It is not a surprise that airlines have failed to appreciate that they will need to invest in a strategic way to ensure a consistent flow of pilots. The low-cost operations model means there are cultural barriers to such up front, long-term investment. A sudden shock that reduces passenger demand will mean that for a period, the pressure of lack of pilots will abate as will when airlines go bust and a sudden influx of experienced pilots become available on the market.
But while it is understandable why airlines generally have failed to see pilot supply as a strategic necessity that they cannot just rely on the training market to provide, we are now entering a period of such critical shortage that airlines will need to begin to think not just of the risk of not having enough aircraft to service demand but not having enough pilots to fly the aircraft they have ordered to meet that demand.
A Problem Unlikely to Go Away
Ultimately, the pilot shortage is a supply-side problem that begins with a lower number of cadets training than is needed to meet demand because of the large financial burden they have to take on. It is possible that governments can help reduce the cost of training at the margins, such as making fuel for ATOs VAT-free or providing direct subsidies or loans to cadets.
But until airlines take a strategic view and invest in training pilots either through ATOs or direct sponsorship to a much larger degree than currently, the pilot shortage will remain a fact of life for the next ten years or so and will increasingly impact airline profitability.
Interested in Pilot Training, or any other aspect of aviation and aerospace?
Contact: Chris Cradock, Partner (Aerospace, Security and Defence)
Call: +44(0)20 8996 5088 or +44(0) 799 0581 701