PSA and Another American Regional Boost Pay to Combat the Expected Pilot Shortage

It looks like the regional airline fight to hire enough pilots continues. Two of American’s wholly-owned regionals, Envoy and PSA, have announced they’re boosting starting pilot pay a ton in order to attract pilots. After years of never having to worry about finding someone to fly an airplane for cheap, these airlines (and other regionals) are having to pay up. Today we’ll look more closely at PSA.

This PSA has no connection to Pacific Southwest Airlines, the PSA with smiling aircraft that was Southwest’s inspiration. Although, I guess that’s not technically true. See, the original PSA was acquired by USAir in the 1980s and promptly run into the ground. (It was well on its way before the acquisition, but USAir finished the job.) This all happened around the same time that USAir acquired Piedmont in the South. With that acquisition came a couple wholly-owned regionals called Henson and Jetstream.

By the early 1990s, USAir wasn’t using the names Piedmont and PSA anymore, but it didn’t want anyone else to use them either. It had to find a creative way to keep them going, so it looked at the regionals. It changed Henson’s name to Piedmont, and Jetstream became PSA. So while there is a tenuous connection, these are really entirely different airlines. The ownership of PSA has passed along through mergers, and now, American owns it outright.

The modern incarnation of this PSA began in 2003 when it started taking delivery of regional jets. Over the next couple years, it took delivery of 35 CRJ-200s and 14 CRJ-700s for a total fleet of 49 slogging around the East Coast. This was pretty much steady-state for a decade.

During that time, getting pilots to fly was easy. There was a huge glut of pilots in the market, in fact. The multiple economic shocks that crippled the industry since 2000 meant furlough lists were long and pilots who were flying were just happy to have a job. Wages were low, because they could be.

Over the last few years, however, things have changed. Airlines started growing again and pilots were called back from furlough until there were none left to recall. There had been a five-year break on retirements because the feds had raised that maximum age from 60 to 65. Once those pilots reached 65, they started being forced out rapidly. The cherry on top? The misguided federal rule change that required (with some exceptions) 1,500 hours of experience before a pilot could be hired to fly commercially sealed the deal. All of a sudden, the market for pilots was turned on its head.

In this environment, finding new pilots was going to be hard for PSA anyway, but then American made a decision. It wanted PSA to do more flying, and so it started piling on airplanes. First PSA received a contract to fly 30 CRJ-900s for the airline. Then another 24 were added. At the same time, American moved 12 CRJ-700s over from Envoy to PSA. The airline that had been comfortably flying 49 airplanes now finds itself with 115 in the fleet. And that’s not all. Starting next year, it’ll take another 35 CRJ-700s from Envoy giving it a total fleet of 150. And it needs a lot of pilots to fly those airplanes.

Though the big guys haven’t been hurt by pilot issues, because they’ve long been at the top of the food chain, the regionals felt the pain. Republic struggled to fly its schedule. Other airlines had to get more aggressive.

At American’s wholly-owned regionals, including PSA, there was a clear advantage. They had a deal where the pilots were able to flow through to American once they had some experience and slots opened up. There was a clear path to making hundreds of thousands of dollars flying big airplanes to far away places. But that alone wasn’t enough. Some have tried hiring bonuses, others have invested in training, and some are just boosting wages.

PSA is increasing pay for incoming First Officers by more than 50 percent. Previously they made $24.62 per hour in their first year, but now they’ll make $38.50. Assuming an 80-hour month, that means annual pay rises from $23,635 to $36,960. Oh, and there is a signing bonus of $15,000 plus another $5,000 for pilots that have CRJ experience. Yeah, that’s a ton of money for a first year pilot, especially since wages didn’t even always crack the poverty line in years’ past.

Wages in the second and third year will rise too, but that’s it. Why? Because PSA expects that by the third year, First Officers will be able to upgrade to Captain. Captain pay isn’t changing, but a third year captain makes about $69 per hour, or again assuming an 80-hour month, $66,240 a year.

But wait, there’s more. First Officers can get a $20,000 retention bonus that gets paid out in installments after the first year. And Captains get a $7,500 retention bonus. Just because PSA gets them in the door doesn’t mean it’s confident it can keep them there.

What’s interesting is that this is coming from American itself. Envoy has rolled out a similar increase. American may own these regionals, but that doesn’t mean it gives them priority. These subsidiaries have to compete with third-parties, and if they can’t be cost-competitive, they could lose out. Then again, if they don’t have pilots, they will definitely lose out.

The fact that American is making this big increase suggests that either a) the wholly-owned regionals have a cost advantage than can absorb this and still be competitive or more likely, b) American realizes it needs more pilots and it has to start boosting costs across the board for regional flying. This is going to be the new norm.

In the near term, this means costs of operating regionals will go up. That might make some existing flights unprofitable and service could be cut. But the alternative is to not have enough pilots, in which case service will definitely be cut. There is no happy ending for marginal markets.

In the long, we need to hope that increased pay will be one component that helps encourages more people to start training to fly. We’ll need a lot more pilots in the future, and pay is only going to be part of the equation, at best, in ensuring there are enough of them.

[J-Air Bombardier CRJ-200ER via contri/CC BY-SA 2.0]

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