No one knows what the final outcome of the Covid-19 pandemic will be on the U.S. airline industry. That was the combined view of five industry leaders at the U.S. National Transportation Research Board (TRB) Annual Meeting in Washington, D.C., last week.
Variants continue to wreak havoc on operations. Networks continue to adjust to new traveler demand patterns with staffing a critical constraint. Fleets remain in flux with a rush to more economic jets. And, there is little consensus on the future of electric aircraft even as the industry rushes headfirst to cut carbon emissions.
In the short-term, Omicron is the concern of the day. Carriers around the world — from Alaska Airlines to Finnair and Qantas — have pared schedules through March amid spiking numbers of sick workers to bring operations back under control. But most public health experts anticipate the latest surge will pass, probably in February in the U.S., allowing the industry to get back to the recovery at hand. More concerning are the challenges airlines face hiring everyone from entry-level workers at major carriers to qualified pilots and maintenance technicians at the regional airlines that feed the majors.
“There’s a lot of pressure on hiring, and that may have the effect of creating a conservative capacity growth going forward,” said Kevin Healy, CEO of Campbell-Hill Aviation Group, at the conference.
Airlines are already being forced to pare back capacity on account of staffing shortfalls. Delta Air Lines has reduced regional flying by 20-25 percent from planned levels during the first half of 2022 as a result, President Glen Hauenstein said during the carrier’s fourth quarter earnings call on January 13 (See Weekly Skies section). United Airlines has been forced to park more than 100 small jets, end service to at least eight destinations, and suspend multiple routes due to the shortage with the airline informing many airports that it may not return until 2023. And American Airlines, while its schedule appears less impaired, CEO Doug Parker has confirmed that it too faces challenges hiring pilots at its wholly-owned regional affiliates.
The pandemic exacerbated existing pilot supply issues in the U.S. While airlines avoided involuntary furloughs thanks to federal Covid-19 relief funds, they still pruned their ranks of pilots, flight attendants, and other trained staff through voluntary departure packages and early retirements. These departures were necessary to help mitigate the immediate, deep losses carriers faced. Then, when travelers began returning, major carriers needed to hire, and fast. For pilots, this meant turning to their long-standing pool of available talent: Regional airlines.
An analysis by Raymond James in December estimated that the eight largest U.S. carriers will hire nearly 8,000 pilots in 2022 alone. That’s nearly half of the 17,167 pilots that U.S. regional airlines employed at the end of 2020.
“There are a handful of certainties in life [and] one is supply and demand,” said Jens Hennig, vice president of operations at the General Aviation Manufacturers Association (GAMA), at the conference. “If you want to attract something in a competitive environment it comes down to dollar cents and lifestyle … It’s going to be highly competitive because you cannot grow a pilot very quickly.”
Getting out of the hole may take years. Commercial airline pilots require years of training, and at least 1,500 hours in the air before they can fly a passenger plane — a process that by some measures can take up to five years. Healy said that the certification rules, particularly the hour requirements, will likely be a “big constraint” on the recovery of capacity at mainline carriers, especially for small- and medium-sized communities. He worried that some smaller communities that only have flights on one major carrier, for example Toledo, Ohio, could lose all network carrier service as a result.
But not all airlines are affected in the same way. Ultra low-cost carriers like Allegiant Air, Frontier Airlines, and Spirit Airlines — none of which has regional affiliates or face the same pilot hiring constraints — are leading the pandemic capacity recovery. In 2021, combined domestic capacity at the three carriers was flat compared to two years before while the combined capacity art American, Delta, and United was down nearly 19 percent, according to Cirium schedules.
The capacity growth at ULCCs signals a larger trend. The segment, which was almost nonexistent 20 years ago, grew its share of the U.S. domestic market to 15 percent in the first half of last year from just 11 percent in all of 2019, according to data from Airlines for America (A4A) Chief Economist John Heimlich. He called this share growth a “significant shift” with carriers like Allegiant, Frontier, and Spirit now carrying more domestic traffic than Alaska, JetBlue Airways, and Hawaiian Airlines combined, in a presentation at TRB.
The pandemic has also prompted a great rejig of airline fleets. Hundreds of older aircraft, including Boeing 757s and 767s, and MD-80s and MD-90s, were retired and similar numbers of new models, particularly from the Airbus A320neo and Boeing 737 Max families, were ordered. But one trend that became more pronounced during the pandemic was the embrace of new middle-of-the-market jets, particularly the A321XLR.
“If an airplane can do the job of a bigger plane with the same range and economics, that airplane wins,” said Richard Aboulafia, a long-time aerospace analyst and now managing director at AeroDynamic Advisory, at the conference. He referred to the comparable range and improved economics that the A321XLR offers over the widebodies it competes with on longer routes, for example transatlantic.
But this trend has left Boeing in a bind deeper than the myriad of ones it already faces. With no real next generation mid-market aircraft in its line up, customers are flocking to Airbus with what Aboulafia sees as a risk to the long-standing commercial airplane duopoly that has existed between Airbus and Boeing for years.
“We’re looking at one of those pivotal moments in aviation that, if Boeing doesn’t respond, they’re going to lose 10, 15 points of market share,” he said. Aboulafia outlined the possibility of a future 70-30 market split in favor of Airbus, citing the follow on orders, for example for smaller A220 or A320neo family jets, that airlines could place with the planemaker to complement their purchases of A321s.
For its part, Boeing officials said the planemaker views the 737 Max as a full family and not individual types, like the 737-8 or -10. By this measure, sales were brisk last year with major orders from Southwest Airlines, United, and, earlier in January, from new customer Allegiant. And asked about the 737-10’s inability to operate longer-range missions, for example across the North Atlantic, they indicated that the jet can operate 99 percent of single-aisle missions.
Boeing’s problem is not new. The U.S. manufacturer has been playing catch up with Airbus in the narrowbody space since its European competitor launched the re-engined A320neo family in 2010. That move forced Boeing to delay a new clean-sheet 150-200 seat aircraft and instead re-engine the 737. The resulting Max was then grounded for nearly two years after two fatal crashes attributed to the flight control system. In addition, the largest Max variant — the 737-10 — lacks the same range and payload capabilities as the A321neo. Boeing was working on a mid-market concept, its New Mid-Market Airplane (NMA), for several years but CEO Dave Calhoun cancelled its development in 2020 amid the airframer’s struggles with the Max.
That cancellation has pushed nearly every mid-market customer into the arms of Airbus. Based on September 2021 order numbers, the A321neo had captured 83 percent of the 3,570 orders for large narrowbodies, a category that also includes the 737-9 and -10, according to Aboulafia. And the pandemic accelerated that shift as airlines realized “the virtues of point-to-point flying,” as Aboulafia put it. The A321XLR, the most capable variant of the A321neo family with a range of just over 5,400 miles, has risen in popularity among airlines looking for a plane with narrowbody economics and widebody capabilities.
Asked if Boeing still has time to respond to Airbus’ sweep given any new aircraft would likely not enter service until the end of the decade, Aboulafia said the planemaker does have time — but needs to act fast. He added that a number of airlines have indicated that they want a competitor in the space and are hesitant to give Airbus too much pricing power.
“We are focused on being a dual-source user of airplanes,” Hauenstein at Delta told pilots in November. The Atlanta-based carrier, which along with United is one the largest remaining 757 and 767 operators, is in regular talks with Boeing, including over a potential mid-market aircraft that he described at the time as “encouraging.”
But finding customers for a cleansheet mid-market aircraft is just one of many challenges Boeing faces. Broadly, the aiframer is struggling to resume 787 deliveries after they were halted due to quality concerns raised by the U.S. FAA, the 777X is at least three years late due to a myriad of issues, and it is awaiting FAA certification for both the 737-7 and -10 that combined have hundreds of orders. Specific to the mid-market, Air Lease Corp. Executive Chairman Steven Udvar-Hazy noted in November that a new plane will need engines that provide at least a double-digit improvement in fuel burn and other efficiencies over current technology. And it is not currently clear how those savings will be achieved, whether from improvements to the existing geared-turbofan technology or from hybrid- or hydrogen-electric technology.
“How do you commit $15, 20 billion between the engine and airframe development not knowing where the industry’s headed?” he said.
Hennig, while speaking at the conference, put the challenges facing Boeing — and the widespead interest in new electric aircraft — succinctly: “Every evolution revolution in aviation has been around the powerplant.”