Apr 08, 2022

Chapter 4

Aviation From 2000 Through 2020

“Both optimists and pessimists contribute to our society. The optimist invents the airplane and the pessimist the parachute.”– Gil Stern

Since the deregulation of the airline industry, and leading up to the year 2000, it has seen its fair share of economic ups and downs. From the inflationary periods of the late 1970s to the great economic and stock market crash of the 1980s. Even significant upheavals in the financial markets in the early to mid-1990s.

Nonetheless, the most significant period for the airline industry prior to 2020, was that of 2000 to 2019. Beginning with the .com bubble and market crash, and the period ending with the Great Recession of 2008 of which the entire world had not yet completely recovered by the end of 2019.

It is important to understand why economic collapses, financial markets, or stock markets collapse would affect the aviation industry. Most companies operating in the industry, particularly the airlines, are publicly traded companies, thus, they derive a lot of their market capitalization, valuations, and ability to raise capital from a healthy financial market. Needless to say, a significant downturn in the financial markets causes aviation businesses to be unable to raise enough capital needed to run their business - which is already operating on thin margins. To compound the problem for the airlines in particular, customers of airlines during these times need to cut back on their traveling expenses because of the economic downturn, thus lowering the revenues for the airlines.

In the year 2000, there was a significant collapse in the equities and financial markets brought on by the technology stock bubble. This affected the aviation industry in a significant way. That being said, however, this market collapse was largely contained to the technology asset classes, and with the help of the government the aviation industry was able to mitigate any long-term effect on the wider markets, the airline industry included.

Having recovered, albeit rapidly from the 2000 technology market bubble collapse, the airline industry was rocked by the terrorist attacks of September 11, 2001, when a group of terrorists hijacked a few airliners which two flew into the World Trade Center, New York City. This was quite devastating for the airline industry, not because of its financial impact outright because of first, the fear of people to fly which then leads to lower revenue for airlines, and secondly, perhaps most significantly, the Government's response to the events by creating greater regulations to manage the airline industry for greater safety, and the national security of the United States.

As the airline industry slowly recovered from the events of 2001, trying to adapt not only to lower revenues from fewer flights due to a reduction in customers but also coping with the new regulations, airport procedures, and requirements for the airlines themselves and the aircrafts they were using in the airlines. Given the added costs, it was clear that the airline industry was not prepared for the Great Recession of 2008.

As airlines struggled to recover from the events of September 11, 2001, many of the players in the industry found it quite difficult to survive. During the first 2 to 3 years after the event, many airlines to survive merged with other airlines just to stay afloat. A few of the airlines themselves went out of business. This also led to a shrinking of the overall industry and the cost for traveling went up which further caused fewer travelers which reduced income for the airlines even more between the years 2001 to 2016.  

While all this was going on, on February 12, 2009, Colgan Air Flight 3407, marketed as Continental Connection under a codeshare agreement with Continental Airlines, entered an aerodynamic stall from which it did not recover and crashed into a house in Clarence Center, New York, at 10:17 P.M. EST. The accident took the lives of all 49 passengers and crew on board, as well as one person inside a home. This singular event caused the FAA to raise the requirements for pilots entering the airlines from 250 hours to 1500 hours.

This requirement led to a deep pilot shortage that lasted for many years. The effect of this regulation on pilot shortage would have been overcome if it were not for other factors that helped prolong the pilot shortage. It is worth noting that the main cause of the pilot shortage with the new regulation from 250 hours to 1500 hours, is no longer a factor. These days the pilot shortage is prolonged by a different set of circumstances and triggers.

It is the belief of this author and based on the data, that from the year 2016 onwards, the major cause of the pilot shortage in the airline industry was not the increased hour requirement for airline pilots, but by a separate set of circumstances and influencing factors.

First, as the airline industry bounced back from the major catastrophes of 2001, 2008 and the Colgan Air crash of 2009 - and the subsequent raising of the hours required for pilots - there became an increased need for air travel. With this increased need for air travel, airlines find it necessary to buy more aircrafts and operate more routes to capture this increased demand. It is precisely this attempt to capture the increased demand that was not only new equipment and ground personnel, but additional needed pilots to fly.

Second, as the market for the airline industry began to see some sort of boom in worldwide air travel, other new airlines sprung up to take advantage of the increased demand in the business in the industry. This led to more aircraft being sold and more routes being adopted, which inevitably led to an even greater demand for pilots.

Thirdly, and perhaps the least intuitive of all, our aircraft engine manufacturers such as General Electric, Pratt & Whitney, and Rolls-Royce. The roles played by these companies in the shortage of pilots are not easily seen unless the deep analysis is done. Furthermore, since it's the widely held belief that the pilot shortage was caused by the FAA increased hours requirements, very few people take the time to actually analyze the effect that the aforementioned companies have on the pilot shortage.

So, how do General Electric, Pratt & Whitney, and Rolls-Royce play a role in exacerbating the pilot shortage? It is this author's belief after careful consideration of the data and facts, the following;

As engine manufacturers compete with each other to create the most efficient - with regards to fuel efficiencies - more durable and long-lasting engines. They effectively achieve their objectives by making aircraft engines more fuel-efficient and durable. As they offer these engines to aircraft manufacturers such as Bombardier, Embraer, Boeing, and Airbus. These aircraft manufacturers find it necessary to create more efficient airframes. This creates a trickle-down effect which causes the airframe themselves for aircraft and the overall aircrafts being sold to airlines to be a lot more fuel-efficient and durable. With greater fuel efficiencies and durability the airline finds it necessary to be able to lower their prices to compete with their competitors. The greater efficiencies and durability lower the cost of operations for each airline which allows them to compete for a greater portion of the traveling market with lower prices.

As more and more airlines adopt more fuel-efficient and durable aircrafts, and subsequently lower their prices, this in turn pools additional air travelers in the market that we're not able to afford tickets on a regular basis - or even some before that could not afford tickets at all. As the demand for air travel increased due to lower pricing, there was a greater demand for aircraft and pilots to keep up with the increased demand. All the while the requirements of 1500 hours have not changed, and the timeline to go from a non-pilot to an airline pilot still hovered around 3 years.

This is arguably the most significant reason for the continued pilot shortage.

But what about training requirements, how have those been affected? The author would be remiss if he did not take into consideration the impact on training, and training requirements on the industry.

Due to the mad rush to fill pilot jobs, there was a blooming pilot training industry. Flight schools were popping up all over the country, while individual flight instructors were training at flying the next generation of airline pilots. One might ask the question; If the training requirements and flight schools and individual flight instructors adapted to the increased demand for pilots by training more pilots, why was there still a prolonged and increasingly deep demand for pilots? The answer to this question lies in the very effectiveness and efficiency of our pilot training system. Because our system can effectively adapt to the need for greater pilots by training pilots, and because we have the best pilot training industry in the world, airlines across the world take this opportunity to send their pilots here to train. This means that up to 1/3 of all the pilots trained here in the United States do not stick around to become instructors to train other pilots, or even to get to our airlines. This phenomenon coupled with the intense training required to become a pilot which caused another 1/3 of all registered student pilots to drop out, leaves only 1/3 of the yearly newly registered student pilots to go through to become certified flight instructors (CFI) and subsequent airline pilots here in the United States. This in itself, while a victim of the pilot shortage paradoxically, is one of the causes. In essence, the pilot training industry is a victim of its own success.

In sum, between the years 2000 and 2019, the airline industry here in the United States has seen its fair share of ups and downs. With all that being said, it is still accurate to say that the years were quite fruitful. Then, there was 2020…

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