The Folly of the Horizon Air Pilot Shortage   Leave a comment

Supposedly robots are going to take over our jobs pretty soon, but there are six million job openings in the US, and large companies in a range of industries claim they are running short of humans to perform labor, so maybe the truth is that robots aren’t quite ready to take all of our jobs. American companies don’t have a shortage of people. Their problem rests with wages, benefits, and training, and that’s a problem they could fix, but haven’t.

Horizon Air is a prime example. A regional airline and subsidiary of Alaska Air Group, Horizon services the Pacific Northwest including Alaska. The Seattle Times reports it’s “cutting its flight schedule this summer because of a severe shortage of pilots for its Q400 turboprop planes. The shortage became a crisis this summer when Horizon was forced to cancel more than 318 flights because it didn’t have enough pilots to fly all its planes. That represents 6.2% of the flights Horizon runs between Seattle and places like Boise, Spokane, and Portland.

Let that sink in a moment. Horizon’s bread and butter is flights between Seattle and smaller airports like Boise and Spokane and Nome, Alaska. Flying these routes isn’t a side business for Horizon. That’s it’s only business. Canceling flights damages their brand and their company’s long-term prospects — it alienates and annoys customers who have already purchased tickets. It also hits short-term profits. If you’re in the business of moving people from Point A to Point B, the more you can move the better. You’ve already committed to pay the overhead of planes, insurance, gate slots at airports, maintenance, and ground crews. You should want passenger volume to be as high as it can be. This is the equivalent of Starbucks deciding not to open several hundred existing stores because it doesn’t have enough managers.

Recognize that Horizon Air isn’t some fly-by-night operation unable to cope with the mysterious ways of the marketplace. It’s a unit of Alaska Air Group, a publicly held company that has a market capitalization of $11 billion and chalked up $1.7 billion in revenue and $99 million in net income in its most recent quarter. That’s a big balance sheet, representing vast resources, stock, borrowing capacity, and access to all kinds of services. While not considered one of the majors yet, Alaska Airlines is an up-and-comer who is pushing the major airlines to either do better or get out of the way. So, what’s going on?

alaska airlines horizon air

There’s a metaphor in a big airline intentionally grounding flights because it can’t find pilots. Horizon (and other companies in this situation) are paying the price for a decade or more of corporate sickness surrounding wages. Here’s an economics lesson.

Labor is a commodity … just like gasoline or sugar. It’s subject to the laws of supply and demand.

When labor is in abundant supply and lots of people with the needed skills are looking for jobs, but openings are few, companies don’t have to pay as much to fill positions.  That’s where we were from 2008 to 2012 … a lot of hungry people, not that many openings, so the companies could set whatever wage they wanted and workers would take it because they needed to make some money rather than make no money.

Conversely, when labor is in short supply and few people with the needed skills are seeking work, but there’s lots of openings, companies have to pay a lot more to fill positions. That’s the reality of airlines in the last few years. The number of people flying has increased, but a lot of Baby Boomer pilots have retired, so now the pilots who are still working are in demand and they know it, and expect to be paid more.

So why aren’t businesses adapting? Maybe a lot of business managers never took Economics. They’ve become accustomed to thinking they can have all the labor they want, with all the skills they need, without having to pay much for it. They no longer want to offer good benefits or long-term job security or they refuse to fund the training needed for pilots to qualify to fly new aircraft.

We’ve been hearing complaints about a pilot shortage for a few years now. The problem seems particularly acute at regional airlines, which often pay exceedingly low wages for jobs that require training and education that can cost up to $100,000. To weather its current problems, Horizon will pay some pilots overtime to fly extra hours. Of course, there are FAA rules against flying too many hours in a given day, so that’s a temporary fix at best.

I happen to know several Alaska Airlines pilots (I have a friend who caters to them), who have privately told me what the problem is and it doesn’t just affect Alaska/Horizon. The airlines have become tightwads who don’t understand supply and demand. If Alaska Air Group wants to fix the problem, they need to:

  • offer higher wages to people who already have jobs so they will leave their jobs to work for the other airline
  • offer existing employees better long-term incentives — profit-sharing, stock options, pensions and other benefits that will encourage them to stay
  • Recruit new employees by offering to train them or pay back the loans they incur while getting the training, or offer to split flight school tuition in exchange for a long-term commitment to the airline

Coping with a shortage of skilled workers by shuttering a portion of your operations doesn’t seem like much of a solution. Of course, this affects me because Alaska Air Group provides the majority of air travel in and out of Alaska. So work it out, guys. Don’t allow your great customer service to deteriorate because you’re stuck in a business model from nearly a decade ago.

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