The numbers for 2021 were only marginally better than the worst year ever – 2020. What can we learn about the recovery? Analysts Addison Schonland and Timothy O’Neil-Dunne dig deeper into the world of numbers for US-based Airlines.
The US Airline industry would appear to be well on the road to recovery. TSA’s total numbers are up. Airline profits appear to be returning and flights are full. It’s clear the industry is much better off than it was a year ago. How do we know that?
The pandemic has upended conventional wisdom. Take the PPP (also known as government bailouts) impact on airlines. For passengers, there are the same annoying airport hassles – too many people, not enough space to which must now be added the annoyance of wearing facemasks. As this stress wasn’t enough, there has been a spate of badly behaved individuals onboard and in airports. The customer behavior has ranged from behaving poorly to assaulting the cabin crew. The recovery has not been a pleasant experience. Will this be the new normal?
We dug deep into the airline metrics and tried to think like an airline. We wanted to see how they metric themselves and how we can observe their recovery progress. For the last nearly two decades, productivity gains across the industry have been significant. Total employees declining from their peak in 2000. Consolidation and increased automation are driving demonstrable better performance. And market power on the part of the airlines. But these gains can only go so far. This industry requires lots of specialized people to keep the business running. That delicate balance is still disrupted.
Let’s look at the data. Here we show the number of total employees per flight.
In this table, you can see the darker the green, the lower the number is. For a long time, the industry was able to achieve 1.3 employees per flight but from 2012 the ratio started to creep up to 1.5. Then in April 2020, Covid hit like a tsunami. For a three-month period, US airlines reeled under the onslaught of a drastic cut in flights and too many people on the payroll. No wonder the industry clambered for PPP. However, as we can see, for the remainder of 2020 the industry was laying off people and trying to get flights back up. It is remarkable that by December 2020 the ratio was back to 2.3. A command performance you might think, as a stockholder. As an employee, you have a different take on this. Very different.
Sara Nelson, International President of the Association of Flight Attendants gave testimony to the US Senate in a hearing titled “Oversight of the US Airline Industry” in December 2021. She noted about the PSP “For the first time in American history a relief program told companies exactly how they had to apply for the relief, the required service they must maintain for the country, and ensured federal dollars couldn’t benefit executive compensation or rewards for Wall Street.” She went on to note “Some have questioned the use of the relief dollars in the wake of some operational meltdowns in late summer and fall. Staffing is above pre-pandemic levels if compared to the number of flight hours airlines are flying. But aviation workers are not as willing to pick up overtime due to the combative passengers and concerns around COVID. American worker productivity was higher than any developed country in the pre-pandemic world. This is also true in aviation, but it is not sustainable anywhere.” You can read the rest of her eloquent statement here.
Look at the following chart that lists labor categories and see how the US airlines cut headcount with some severity. After a few years of seeing a steady increase in headcount since 2012. The big cuts came in categories of “Passenger/General Services & Administration” and “Passenger Handling Employees”.
In contrast, the Pilot category went from 60,151 in 2019 to 55,516 in 2020 which is not as severe. What is interesting is to look at the comparison between different groups of airlines.
Bear in mind that US airlines have gone through a series of consolidation moves. The fewer airlines should have required fewer back-office people to move the growing number of passengers. But the customer-facing employees had to grow – airlines needed more pilots and cabin crew as they added aircraft.
Using 2000 as a base year, we notice that US airlines did not behave as one might have expected in terms of labor categories. Whereas total employees went from 100 in 2000 (the peak year), by year-end 2020, the base number was down to 72.2.
As the chart illustrates, even as the number of passengers/flights grew US airlines limited their customer-facing staff numbers.
We would assert that going into the pandemic US airlines demonstrated productivity gains from their passenger facing employees. Once the pandemic hit, airlines laid off many of these people. But when the return traffic came about – these people were either unavailable or did not want to return to work. As Ms. Nelson pointed out: “…aviation workers are not as willing to pick up over time due to the combative passengers and concerns around COVID”.
Couple that with the market volatility – and voila – the air transportation system literally fell over. Loss of agility and loss of resilience is very clear. Throw in a few winter storms and there was a collapse of that delicate infrastructure. And no Virginia it was not the fault of Santa Claus or the tooth fairy.
The airlines have a long road of recovery ahead of them. The numbers look promising. The regulators need to pay attention that during this time operational labor margins are tight. Regulators need to do what they can – but not kowtow to the needs of airlines. Now is a perfect moment in time to address things like emissions and employee benefits. Failure to do so does the industry an injustice. It will cause continued scenes of anger and frustration. That needs to end.
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Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.