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Commentary: The Importance Of Pilots In An E-Commerce World


FreightWaves is providing Market Voices – a forum for a number of market experts.

Despite air cargo volume figures trending downward, the need for pilots is increasing. The Federal Aviation Administration reported in 2017 that there were 609,000 pilots in the U.S., down 30 percent from 30 years ago. Globally, Boeing expects that the aviation industry will need 790,000 new pilots by 2037, of which 96,000 will be needed to support the business sector to meet growing demand.

The shortage of pilots is due to several reasons including federal safety measures implemented in 2011 that limited the number of hours a pilot could fly. Also, as noted in a previous FreightWaves article, additional high barriers of entry for new pilots include the acquisition of a private pilot's license, which often requires a college degree followed by 1,500 flight hours before one can be hired by a commercial airline.

41 percent of all active pilots will retire in the next decade

Airlines have implemented a number of plans to recruit and retain pilots. FedEx Corporation (NYSE: FDX), for example, offers bonus incentives of $40,000 to $110,000 to pilots near retirement age. UPS Inc (NYSE: UPS) offers an internship program in which pilots who complete it are eligible to enter the three-year UPS FlightPath training program conducted by Ameriflight, a Texas-based regional carrier. At the end of the training program, pilots are guaranteed an interview with UPS for a full-time position.

A number of airlines have increased pay and benefits for pilots to retain and attract. As noted by TheWall Street Journal, American Airlines Group Inc. (NASDAQ: AAL) increased pilot and flight-attendant pay and benefits at a cost of $230 million in 2017 and $350 million in both 2018 and 2019. Pay for pilots at regional airlines, often an entry-level position, has risen to about $50,000 a year, including bonuses, up from $30,000 in early 2016.

In terms of volumes, express providers are perhaps one of the bright spots of the air cargo industry. The demand for faster delivery times to satisfy e-commerce purchases has pressured many providers to sacrifice profits in favor of volume. Perhaps that is one of the reasons why FedEx Express opted not to renew its contract with Amazon.com, Inc. (NASDAQ: AMZN). But despite representing only 1.3 percent of FedEx Express revenue, it still means less capacity for Amazon and thus, will pressure other airlines to step up and assist the largest U.S. e-commerce provider meet its goal of next day delivery to Prime members.

However, the pressure will be greatest on its two air cargo partners, Air Transport Services Group and Atlas Air Worldwide Holdings, both of which are responsible for the availability and maintenance of planes as well as the recruitment and payment of pilots to fly the airplanes not only for Amazon but other customers including DHL, UPS and Cathay Pacific.

But the relationship between pilots and Atlas Air Worldwide Holdings is not exactly the best. Captain Mike Griffin has flown for Atlas for over 20 years and said that in 1999, Atlas was a fantastic place to work but it has changed over the years. Pressures to grow the business profitably have resulted in neglecting the pilots and jeopardizing safety. Retention rates are worrisome. Despite interviewing and hiring over 300 pilots between July 2018 and March 2019, Atlas gained a total of only four pilots. Furthermore, monthly new hire targets are not met. Attrition rates for the last several years exceed 30 percent.

In addition, according to a paper from the pilots' union titled, Atlas Air Pilots Set the Record Straight, Atlas Air Worldwide Holdings Inc. (NASDAQ: AAWW) also has multiple aircraft sitting idle. A list of other concerns are outlined in this paper and certainly causes one to be very concerned about pay, safety and treatment of pilots.

Shared by Captain Griffin, the chart below shows by year, the total number of pilots hired, the number of pilots remaining and the number that retired or resigned. The information in the chart comes from the Atlas Air Seniority List (as of March 31, 2019).

Year Total Hired # Remaining # Retired/Resigned Percentage Lost
Prior 2010 684 418 266 38.9%
2010  71  40  31 43.7%
2011 162  91  71 43.8%
2012  77  45  32 41.6%
2013 104  43  61 58.7%
2014 106  64  42 39.6%
2015 341 223 118 34.6%
2016 321 214 107 33.3%
2017 340 256  84 24.7%
2018 328 277  51 15.5%
2019  86  83    3  3.5%

In a Washington Post article, Mark Bly, who has flown for Atlas Air for 20 years, said, "Work has exponentially increased." According to Bly and other pilots including Captain Griffin, they are paid less than half the industry average and are frequently booked on last-minute flights during their days off. That, they say, has led to high turnover rates and concerns about fatigue and burnout.

Atlas Air issued a press release refuting such claims made by the pilots and accusing the union of "highly inaccurate information." It seems there is no solution on the horizon and the pilots continue to work despite not having an updated contract since 2016. The strained relationship between the pilots and Atlas resulted in a rare statement from Amazon which read, "The continued inability of Atlas and their pilot union to resolve these negotiations could result in a change to the allocation of our current and future aircraft. We have an obligation to deliver to our customers, and so do they."

The pressure is on Amazon's air cargo partners to handle its capacity. UPS will probably see more volume as a result of FedEx Express exit but it will likely come at the expense of lower financial margins. A look at its first quarter earnings finds that the average revenue per package for Next Day Air declined year-over-year 3.6 percent while Deferred declined 3.0 percent despite average daily volume gains of 8.8 percent and 6.7 percent respectively.

Meanwhile, as Amazon rolls out its next day delivery service for Prime members, air movements will play a critical role. In order for it to succeed, Atlas Air and the union must settle their differences. Success for both depends on a collaborative approach with open and honest dialogue. If differences are not settled, customers such as Amazon will take their business elsewhere.

Image sourced from Pixabay

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