Southwest Airlines Sees a Major Industry-Wide Problem
The embattled company's CEO has bad news for people hoping the prices will come down and flying will get easier.
After a very dark period for the air carrier, Southwest Airlines management has been very upfront about the problems the company faces. Fixing the technology problems that led to the company's holiday season meltdown remains at the forefront, but that's not the only issue the airline must overcome.
Southwest Airlines (LUV) - Get Free Report has also committed to spending hundreds of millions of dollars to improve its winter weather preparedness. Some of that money has gone to equipment while tens of millions are also being spent on additional personnel.
DON"T MISS: Why You May Not Want to Fly Southwest Airlines
But, the biggest problem facing Southwest isn't its technology or even the labor unrest it faces with multiple unions. Those are big problems, but the reality is that the airline has plans to tackle both.
The company is spending billions to fix its technology and the labor issues with its pilots and flight attendants will likely get resolved because other airlines have set standards for pay rates. That leaves the air carrier facing two problems that constrain its capacity, Boeing (BA) - Get Free Report being behind on delivering planes and the company not having enough pilots to fly the planes it does have.
Executive Vice President Bob Jordan talked about the pilot constraint issue during his company's first-quarter earnings call.
"We talked a lot about what's constraining the airline. And right now, that is pilot hiring. So, we have aircraft effectively that we are not producing capacity out of today because the constraint is just pilots," he said.
Southwest faces labor negotiations with multiple unions. Image source: Kevin Dietsch/Getty Images
Pilots Are Not Just a Southwest Problem
For people looking to fly, Jordan made it clear that the entire industry will have pilot problems.
"A lot of -- a lot of carriers are dealing with this, and that was going to true up roughly at the end of the year," he said.
Analysts at Jefferies estimate the United States is 10,000 pilots short Reuters reported.
American Airlines (AAL) - Get Free Report CEO Robert Isom echoed his rival's concerns during his company's first quarter earnings call.
"The largest issue that we've been facing is the shortfall in pilots," he said,
American has grounded 50 of its namesake planes and another 150 flying under its regional banners. Isom does see the situation improving.
"We've seen great uptake in terms of people coming into the business because of some of the changes we made in compensation last year," he said. "And we're getting to the point where we have enough captains to build hours with first officers to get aircraft back up in the air."
Jordan said at the Bernstein Conference in May that he expected pilot shortages to be an industry issue for the roughly the next three years.
Pilots Are Not Southwest's Only Problem
Pilots have been a major constraint for Southwest, but as it catches up on training new pilots, the lack of deliveries from Boeing will soon become the biggest factor limiting its capacity.
"Now, with the order book dropping, the deliveries issue dropping from 90 to 70, that's the point at which the pilot constraint turns into an aircraft constraint is," Jordan said,
He expects the lack of airplanes to become the airline's biggest problem, at least as it relates to capacity, later this year.
"It will be post summer, late third quarter, early fourth quarter," he added. "We'll flip to aircraft constrained from pilot constrained."
Boeing's issues hit Southwest especially hard because of the airline's reliance on the 737 Max. But, every major U.S. airline supplied by the manufacturer faces a similar problem where they have to balance pilot training with aircraft deliveries.
Jordan has made it clear that it has been openly talking with Boeing to manage the deliveries versus staffing schedule.
"We don't want 152 aircraft next year. We want to grow. We have a lot of opportunities, but we want that growth to be orderly and measured and as consistent as we can be year to year to year," he said. "So hopefully, that helps with just thinking about capacity next year and how that relates to the order book."
Source: TheStreet
