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June 12, 2018
Does consolidation solve workforce constraints?
By: Ginger Hughes

Airlines are looking for solutions as the industry-wide pilot shortage continues. Airlines must figure out how to get more pilots onboard as the wave of retirements continues due to the large number of pilots aging out of the system. Nearly one-third of today’s pilots will be forced to retire in the next few years. In the next 20 years, 87 new pilots will need to be trained and ready to fly a commercial airliner every day to meet demand.1 Airlines such as Air France are offering to pay to train pilots,2 which can cost more than $70,000 for a European cadet. Qantas plans to open its own training facility to train up to 500 pilots per year.3 Other carriers are offering significant signing bonuses and higher wages.

Emirates is seeking around 150 more pilots to fly routes from its base in Dubai and the Gulf States to destinations around the globe.4 Some airlines are proactively adjusting to the shortage. Some airlines are canceling flights. Some are grounding smaller jets and turboprops in favor of larger gauge aircraft that are able to transport the same number of passengers using the same number of pilots. Republic Airways cited the pilot shortage as a contributing factor to its need to restructure under chapter 11. Others have simply stopped flying to some destinations.

The pilot supply concern is not the only industry-wide issue with qualified talent. The aviation industry is also facing a lack of aircraft mechanics and flight simulator technicians which require extensive training and licensing. Boeing estimates that the aviation industry will need more than 1.2 million new commercial airline pilots and aircraft technicians between now and 2036.5

Is consolidation the solution?

Talent supply constraints affect how airlines conduct business. Carriers must figure out how to be more efficient. Some wonder whether consolidation remedies the issue—but will consolidation solve the problem?

Historically, airline mergers and acquisitions can solve scale problems, but does scale solve highly skilled workforce supply constraints? To evaluate a merger transaction, an airline must first explore (at a minimum) these three considerations:

  1. Does the transaction truly drive efficiency in the workforce?

    The geographic network concentration, types of employees needed and aircraft flown are factors in determining if the transaction will bring about efficiency. For instance, when Alaska Airlines and Virgin America merged, both networks had significant US west coast concentration. While the merger will generate efficiencies in aircraft technician and flight attendant requirements, pilot efficiencies are limited by lack of aircraft commonality.

  2. Will consolidation improve access to capital markets?

    The airline industry is one of the most capital-intensive businesses. Better access to capital markets ultimately reduces financing cost, which is especially important to financing aircraft. For example, combining British Airways, Air Lingus and Iberia under International Airlines Group (IAG) allows each airline the benefit of the credit of the combined group. Better credit equals lower cost.

  3. Will brand awareness and market penetration improve when combined?

    Brand awareness supports both revenue production and recruiting capabilities. While a combined network almost certainly produces enhanced brand awareness to the travelling public, in the highly competitive environment for talent, it also benefits recruiting. When airlines have greater scale, employees have access to better career opportunities, whether that be geographical options or more room for advancement.

    Many mergers are grounded in benefits gained through leveraging workforce efficiencies. The airline industry is unique due to its widely distributed workforce. Airlines need efficiency of line employees—which may or may not be accomplished through consolidation. It’s a question worth exploring as maximizing efficiency will be the defining success factor to create competitive advantage in the future of aviation.


1 “The U.S. will face a staggering shortage of pilots,” CNN Money, July 31, 2017,
http://money.cnn.com/2017/07/27/news/companies/pilot-shortage-figures/index.html
2 “Airlines, flight schools try to lure pilots with cheaper - or free – training,” Reuters, February 9, 2018
3 “Qantas to open pilot academy amid global pilot shortage,: FoxBusiness, February 24, 2018\
4 “How the pilot shortage is taking its toll on airlines and passengers,” Fast Company, April 12, 2018,
https://www.fastcompany.com/40558114/how-the-pilot-shortage-is-taking-its-toll-on-airlines-and-passengers
5 “Pilot and Technician Outlook 2017-2036,” Boeing, http://www.boeing.com/commercial/market/pilot-technician-outlook/

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