About That Pilot Shortage...

Since even before I started flying in 1994, I've been hearing about an ever-looming severe pilot shortage. This is a theory that has been promoted most vigorously and infamously by Kit Darby of Air, Inc, but has been repeated at length by various aviation publications and eagerly endorsed by the flight training industry. The idea is that a large contingent of Vietnam-era airline pilots are approaching retirement age at the same time that industry growth creates a need for additional pilots, and not enough new pilots are being trained to fill both needs. The effects will be intense, widespread, and will have far-reaching implications for the airline industry, say the proponents of this theory.

I've seen two large booms in airline pilot hiring in the last 14 years which were, at the time, thought to be the onset of the predicted pilot shortage. Graph 1 below tells the story of boom and bust; it is based on hiring data published by Air, Inc, which despite a minor conflict of interest between collecting/publishing hiring data and selling interview prep materials to aspiring airline pilots remains the industry's most authoritative source of hiring data.
After war, terrorism, and economic turmoil led to the shutdown of Eastern and PanAm and the furlough of thousands of pilots at the other major airlines in the early 90s, steady economic growth paved the way for the airlines' comeback in the middle and later parts of that decade. By 1995 most furloughees had been recalled and major airline hiring increased steadily from 1200 pilots in 1994 to 5000 pilots in 1999. From 1997 to 2000, hiring at national and regional airlines ($100M to $1B in annual revenue) outpaced hiring at the majors, largely driven by the advent of 30-50 seat jets at the regional airlines. 2000 was the height of the hiring boom. Although major airline hiring had eased somewhat, the regionals and nationals more than made up the difference and pushed airline hiring to an all-time high of over 11000 pilots. At the time it looked like the onset of a major shortage. Retirements were just starting to increase and the majors were forecast to grow significantly in the next decade; the regionals frenetically hired pilots to replace those who moved on to the majors, and many were hiring pilots with as little as 500 to 1000 hours. Flight schools had a horrible time keeping instructors around; as soon as they accumulated a few hundred hours, they were off to the airlines. It seemed like a very good time to have one's foot in the door of the aviation industry.

Even if 9/11 hadn't happened, it's likely that the collapse of the dot com bubble economy would've still devastated the airlines. The planes were fairly full within a few months of the attacks; the expense-account business travelers, however, did not come back (or rather, modified their travel purchasing habits), a trend that had already begun in early 2001. The major airlines had built their business models around these travelers in the 90s, and their disappearance devastated the industry. In this difficult, uncertain environment, the major airlines made significant cuts to their flying, which resulted in many thousands of furloughed pilots and the total collapse of hiring between 2000 and 2003. Hiring minimums at the few airlines still recruiting shot skyward.

The second major boom took place only last year. The data in the years leading up to it is more confused than it was in the 90s and requires some explanation. The majors' hiring trended upward after 2003 and was back at moderate levels by 2005. This was driven entirely by the growth of low-cost carriers like Southwest, AirTran, and jetBlue, and freight carriers FedEx and UPS. The "legacy" airlines had no hiring; in 2005, four of the six were simultaneously in bankruptcy and all still had thousands of furloughees on the street. The expanding low-cost and freight carriers hired largely from this pool of furloughees. The regionals and nationals saw fairly low attrition during this time; the large hiring bump from 2002 to 2004 was due to growth thanks to the relaxation of scope in the major airline pilots' post-9/11 concessionary contracts. As these new air regional hiring leveled off in 2005 and 2006.

In 2007 the dynamic changed. By the end of 2006, all the legacies were out of bankruptcy with drastically altered cost structures, and the low cost carriers' growth slowed. Most of the legacies' remaining furloughees were recalled, and by mid 2007 most of the legacies were hiring again for the first time in six years. This time, the majority of civilian newhires came from the regional carriers, and attrition there skyrocketed. This happened at the same time that many regionals were expanding due to the delivery of 70-86 seat jets that were allowed to be outsourced by contracts imposed in the majors' bankruptcies. The result was that the national and regional airlines' hiring doubled between 2006 and 2007, and they suffered a pilot shortage more acute than 2000-2001. The regionals couldn't find enough pilots to fill their classes; hiring minimums fell to the bare legal minimum for the first time in 40 years and handsome signing bonuses were offered to applicants with prior airline experience. There were discussions within the industry that the lack of qualified pilots posed a threat to some regionals' very survival, particularly those with high attrition. This rather acute shortage ended abruptly in the spring of 2008 as high fuel prices brought a halt to hiring at the majors and made the 30-50 seat RJs horrifically costly to operate on a per-seat basis. When fuel prices eased in the latter part of 2008, it was in response to a collapsing economy that posed an equal threat to the airlines; thousands of pilots are again on the street, this time at both majors and regionals. At the same time, retirements are way down thanks to a recent increase in the mandatory retirement age from 60 to 65. Hiring prospects for 2009 look bleak.

With so many surplus pilots during two periods of a single decade, it's easy to dismiss talk of a pilot shortage as nothing but snake oil peddled by the flight training industry, and many pilots do think it was nothing more than the brainchild of Kit Darby. I think it depends on how you define a shortage. The hiring booms clearly had some of the makings of a shortage; neither bubble, however, constituted a truly acute, industry-wide shortage as had been predicted. The boom of 1994-2000 was widespread and prolonged, but was never any sort of threat to the industry. Hiring minimums decreased at both majors and regionals, but neither had much trouble finding qualified candidates. In 2007, the shortage was very acute but limited strictly to the regional airlines; the majors had a huge pool of qualified, motivated candidates to choose from. I believe that these two scenarios are as close to a pilot shortage as we will ever come in the United States. I also believe that the second type of pilot shortage will return with a vengeance several years from now.

My reasoning is based on the supply of new pilots and how it fluctuates in response to varying hiring markets. There isn't any available data on how many people begin flight training each year with a goal of flying for the airlines, but we do know how many commercial pilot licenses the FAA issues every year. Clearly not everyone who is issued a CPL intends to fly for the airlines or even fly professionally, but given that every would-be professional pilot must first earn a CPL it seems reasonable to use this as a gauge of the supply of pilots entering the industry. Refer to Graph 2 below, which charts annual CPL issuances against total airline hiring.
One can see that there is a fairly strong correlation between the strength of the hiring market and the number of CPL issuances. There is also a pronounced 2-3 year lag between the peaks and valleys of hiring and those of CPL issuances. Both conclusions make sense: obviously people find it most worthwhile to invest time and money into flight training when the aviation industry is doing well, and it may be several years between that decision to enter aviation and earning one's CPL. By comparison, the number of Airline Transport Pilot (ATP) certificates issued tracks very closely to the strength of the hiring market with little lag (see Graph 3 below). Once one has the required flight time for an ATP, the training is quite short compared to the CPL. So from these two charts, it is obvious that both pilots and potential pilots take the strength of the hiring market into strong account when deciding whether to invest in training, but the actual supply of new commercial pilots is affected only several years later when the hiring market may be entirely different.By the time the first hiring boom reached its peak in 2000, hiring had been increasing very steadily for six years. Accordingly, the number of CPLs issued had increased since 1997, and there was a rather steady supply of new pilots that prevented the boom from ever becoming a severe shortage. Even if 9/11 and the dot com implosion never happened, I suspect that flight training could've easily kept up with airline growth and retirements. There is a lot of flight training infrastructure in this country that can be utilized when times are good and people choose to invest in flight training (incidentally, the lack of such infrastructure is why the pilot shortage is very real in overseas emerging markets). I seriously doubt that any extended period of growth and retirements will translate into a severe, prolonged pilot shortage.

The boom of 2007 was different. Although airline hiring had increased between 2002 and 2006, it was not the sort of steady growth across all sectors that characterized 1994-2000, and it was a period of instability for the airlines. The woes of the legacies and the plights of their pilots - contracts gutted and pensions terminated in bankruptcy - were very much in the news. These are not the conditions that inspire people to sign up for flight training. Accordingly, CPL issuances reached their post-9/11 nadir in 2006 and posted only a modest gain in 2007. When the regional airlines suddenly had to hire 6800 pilots in 2007 - double that of 2006 and 235% more than Air, Inc had predicted at the beginning of the year - several years of depressed training translated into a dearth of qualified pilots. Hiring minimums plummeted, and those airlines with the highest attrition (i.e., most pilot-unfriendly management) were forced to hire pilots with the minimum legal qualifications - and they still couldn't find enough pilots. If this hiring environment had continued - if high oil prices and the economy hadn't killed of the demand for pilots - it is likely that CPL issuances would've continued the upswing seen in 2007-2008 and eventually satisfied the industry's demand for pilots. In the meantime, though, the shortage would've posed a distinct challenge for the airline industry and a distinct opportunity for pilots.

So what does the future hold? I think 2009 is going to be a very rough year for airline pilots. Although oil prices have fallen significantly, it's anybody's guess as to when and where the economy will bottom out and begin its recovery. All the airlines are forecasting significantly decreased revenue for next year; many forecasts have revenue falling more than in 1987, 1991, or 2001-2002. Accordingly, the airlines have made significant capacity cuts with more probably on the way. To the airlines' advantage, the credit crunch should ensure there are no upstarts to play spoiler by increasing overall capacity like in 2001-2006, but this also means there will likely be no hiring at low cost carriers to absorb the legacies' furloughees. Many regional airlines, too, are facing contraction as their major airline partners try to reduce their exposure to 30-50 seat RJs. Meanwhile, the change to the retirement age means retirements will be significantly below normal until 2012. My guess is that overall hiring for 2009 will be significantly lower than 2002, with a depressed job market for several years after that.

Eventually, though, the shortage at the regionals we saw in 2007 will return, and it will be worse next time. Although CPL issuances will continue to rise for another one or two years, after that you'll see a sharp drop like that in 2003. I think the training slump will be much lower than it was in 2003-2006. Back then, there were still jobs available at the regionals even if the majors were still in turmoil; this time there will be few airline jobs of any description for several years straight. The cost of flight training has increased significantly in the last few years. It will also be harder to secure loans for flight training as long as the credit crunch endures. During the next few years, there will be a lot of people stuck flight instructing, flying freight, etc, but this surplus will only obscure the fact that there are fewer and fewer new pilots being trained.

When the economy begins its recovery and the airlines start adding capacity back into their systems - several years from now, I'm guessing - they will initially have no problem finding qualified candidates for their openings. The majors, of course, will hire from the huge cadre of regional airline captains chomping at the bit to move up to the next level, and the regionals will be able to draw from the pool of flight instructors and freight dogs that formed during the years without airline hiring. If the hiring ramped up slowly and steadily, I would expect the training of new pilots to increase enough by the time this pool is depleted that the boom would never become a shortage. There is a complicating factor, though: the first wave of airline pilots to hit age 65 will retire in 2012 and double or even triple the annual number of retirements. If this happens concurrently with an industry growth period, attrition at the regionals will skyrocket and quickly deplete the pool of experienced pilots. I think you'll see a very similar shortage to 2007, but without several years of preceding hiring activity like 2004-2006 to stimulate new training. You'll see a return of 250 hour commercial pilots to the right seat of airliners (or even less qualified, if the ATA gets it's way on Multi-Pilot License). You'll also see a return of signing bonuses for experienced pilots. This situation will persist for several years until the people it lures into aviation complete their training. It will be a unique opportunity for regional pilots to get better contracts without fear that their flying will be replaced by a lower-cost regional.

In the meantime, those of us at the regionals aren't going anywhere - if we're lucky. I personally don't have a great deal of faith that I'll be employed at NewCo this time next year, in the left seat anyways. If that happens, there's a good chance I'll be heading overseas - where the pilot shortage is very real indeed and still ongoing, and a pilots' services are therefore valued more highly than in the erstwhile "land of opportunity".