(In before the hate mail - pilot costs are higher than ever outside the pandemic. Don’t take that to mean we think pilots are overpaid. Don’t take that to mean we think they aren’t.)

In case you haven’t noticed, things are more expensive lately. Since the start of COVID, U.S. inflation has increased by 22%.

Things are more expensive. We’ve all heard about the supply chain disruptions and increases in food and housing prices. Of course, the money supply has increased rapidly as well and remains, quite simply, the best barometer of inflation for our models - (staggeringly impressive leading correlations that put all of the prior factors back into question.).

During this period of increased prices, another critical component has increased - wages. People are more expensive - particularly those at the pointy end of airplanes.

This week, we consider the rise in pilot costs to the airlines. Notice we said costs and not wages. The two are different. Pilots are paid more, yes, but airlines have tools to reduce the overall cost.

Chief among those is productivity. Larger aircraft move more passengers per pilot than smaller. Longer flights drive down pilot unit costs just like nearly every other cost.

But the cost of pilots extends far beyond pay and benefits. Seniority greatly affects the overall cost of pilots to an airline. Training requirements can also have an inflating impact to pilot costs as a pilot in training is still paid, but producing no productive flying.

Since 2011, the pilot cost to move one seat one mile for U.S. airlines has doubled. During this time, the average size of aircraft and average distance flown have increased, and still the pilot cost has doubled.

Notable is Southwest Airlines, now with the highest pilot cost per Available Seat Mile (ASM). Why? Has Southwest lost its advantage?

Aside from oddball numbers in 2013 and 2014, Southwest has been in the top two airlines for pilot unit costs through the last decade. Whatever advantage the airline had before COVID has not been erased by pilot costs. The reasons are complex but, consider that Southwest must compete with Delta, American, and United in achieving competitive contract rates without large widebody aircraft.

(Now consider a proxy fight for control of the airline and how that may pressure the movement of the little yellow line on the chart).

Now consider United Airlines. Arguably starting at an artificially lower value in 2011 following concessionary contracts from bankruptcy, the airline has still quadrupled its pilot unit costs since 2011. Since 2019, the numbers have increased 67%.

Why?

United pilots are paid more, yes, but United has also been on an aggressive hiring spree. That’s expensive.

Originally touted as an advantage in United’s ability to attract pilots during an acute pilot shortage, that sharp correction has largely re-corrected, creating a bit of a self-inflicted issue.

Working to reduce United’s pilot costs are deliveries of the aircraft for which the pilots were hired. Those numbers should start to stabilize - (unless, of course, something happens that would further delay delivery of the large order of 737 MAX aircraft on United’s books.)

Since 2019, United has seen the highest increase in pilot costs per ASM. The airline is also experiencing rapid growth, somewhat stunted by delivery delays.

But consider other airlines on the list - the second-from-the-top, for instance. In United’s newly defined world of cost convergence, are ULCCs really doomed, or did Spirit just take the bait?

Our research published this week:

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