Yahoo Finance How Is the Pilot Shortage Affecting US Airlines?
Your March 2016 Guide to Investing in the US Airline Industry
Labor issues intensify
US regional airlines have been suffering from labor issues and a pilot shortage, which also threatens the health of the broader US aviation industry. Labor issues are now becoming a serious threat for airlines, as there have been flight cancellations and other serious disruptions for air carriers.
Republic Airways operates flights for Delta Air Lines (DAL), United Continental (UAL), and American Airlines (AAL). Last month, Republic Airways filed for bankruptcy protection due to the labor crunch.
Compensation: The biggest issue
The workforce in the airline industry has been fighting through a number of issues such as longer working hours, contentious relationships with management, fewer job protections, and industry turnover with the expected retirement. However, the biggest reason behind such a huge dropout by pilots is compensation.
Regional carriers pay much less than their legacy peers even though the regional sector accounts for half or more of all flights. Pilots have been demanding reasonable compensation, a fair work-life balance, and career stability. Otherwise, the labor trend of using regional carriers as a stepping stone to reach larger airlines should continue in the future as well.
US airline industry to suffer
While most of the airlines that are suffering from the labor crunch are mid-sized carriers, the issue is a potential threat for the large carriers as well. Large carriers such as United Airlines (UAL) and Delta Air Lines (DAL) depend on these mid-sized airlines to serve their rural passengers and to feed passengers into their networks. If the pilot shortage is not mitigated soon, the industry could experience a significant crisis.
The PowerShares Dynamic Leisure & Entertainment Portfolio ETF (PEJ) invests 5% of its holdings in each of UAL, DAL, and AAL. PEJ invests 2.7% in Alaska Air Group (ALK).
Browse this series on Market Realist:
