#89 - Air Traffic, Pilot Pay, and Airline Economics with A4A's Chief Economist John Heimlich

[00:00:00] Welcome back to Passive Income Pilots, everyone. Tait Duryea here with Ryan Gibson on another week of financial education for pilots. What's happening, man?

[00:00:10] Oh, not much. This week we're excited to bring on somebody that works for and is the chief economist for Airlines for America. And this guy, he understands very well all the little things that are happening in aviation and we're going to talk about that.

[00:00:24] But, you know, first I wanted to talk, you know, you're probably listening to this and you're like, who is Airlines for America and what do they do? And if you're a passenger, you should appreciate them. If you're a pilot, you should have some appreciation for them. They represent and lobby for the airlines based in the United States.

[00:00:39] So they're actually a Washington, D.C. based association that looks out for the best interest of our U.S. based carriers. And there's a lot of alignment there for passengers and for pilots that is probably largely unappreciated because there's so much work that goes on in the background and making sure that we're lobbying for more air traffic controllers, that we're lobbying to have more favorable regulations for U.S. airlines, how to negotiate through the COVID relief bills that we had.

[00:01:09] The Airlines for America is in the background doing all this tirelessly working on our behalf as an aviation community and as a traveling public. And we're just excited to hear John give a perspective on where we are in the industry, what's going on with air traffic control, what's going on with the airlines, what new things are happening, what's really driving revenue at the airlines.

[00:01:29] Yeah, and this is cool because we hear so much as airline pilots from the unions. This is really hearing it from the airlines perspective. And it's a symbiotic relationship. When you're in contract negotiations, it can be butting heads, but it's a symbiotic relationship. The airlines have to be in a good financial position to pay pilots great wages. And so A4A does incredible work on that front.

[00:01:52] John Heimlich, we are super honored to have him on the show today. He's the chief economist and vice president for A4A, which he joined in 2001. He's responsible for matters pertaining to economics, energy, frequently engages with members of the media there. Prior to A4A, Heimlich spent five years at United Airlines in financial planning, financial analysis, and international and regulatory affairs.

[00:02:17] So very, very, very well versed in the aviation industry. So let's get straight to the episode.

[00:02:27] Welcome to Passive Income Pilots, where pilots upgrade their money. This is the definitive source for personal finance and investment tactics for aviators. We interview world-renowned experts and share these lessons with the flying community. So if you're ready for practical knowledge and insights, let's roll.

[00:02:47] John, thanks so much for joining us and coming on to the show and talking a little bit about the airline industry as a whole. Would you mind introducing yourself and just kind of telling us what Airlines for America is and what it does and what you do for them?

[00:03:00] Sure. Thanks for having me on the show. Nice to make your acquaintance over the last couple weeks. I am John Heimlich. I'm vice president and chief economist with Airlines for America, also known as A4A and formerly ATA, Air Transport Association of America.

[00:03:16] I joined in 2003, I'm sorry, 2001, about six months before 9-11 and came there from United Airlines, where I served in financial planning analysis for a couple of years and then international and regulatory affairs for a couple of years.

[00:03:32] A4A is our principal airline industry trade association. We had seven until recently six with the last Hawaiian merger, six passenger airline members and three cargo airline members and essentially the larger ones.

[00:03:50] We don't have the ultra low cost carriers or the regionals, but otherwise our coverage, especially in terms of traffic share is huge.

[00:03:59] The organization was established in 1936 and it is to serve as a voice, consensus building organization, one-stop shop for the media advocacy.

[00:04:14] And just before we get into it, when we say advocate, we advocate on behalf of our members globally.

[00:04:22] So sometimes it's a non-governmental issue, but if it is governmental, it could be U.S. federal, but it could also be state and local or international.

[00:04:31] So stop with that and happy to answer other questions.

[00:04:34] Yeah, A4A really, from my perspective, serves as the voice of the airlines in Washington, looks out for the interests.

[00:04:41] And we were talking before the show that, you know, we as pilots appreciate that because, you know, your organization is a big contributor to the fact that the airlines in the United States are healthy and they're looked after from a regulatory perspective.

[00:04:58] And that creates an opportunity for us to have these incredible careers.

[00:05:03] Well, it's really nice to hear you say that.

[00:05:05] Having gone through 9-11, the Great Recession and then the pandemic, I don't think I can take one for the fourth one.

[00:05:14] But, you know, especially with the pandemic, all I was focused on is I just kept saying over and over, you know, 750,000 jobs, 750,000.

[00:05:21] That's what I'm trying to do here.

[00:05:23] I spent many, you know, long nights in the office and one Saturday night, the low point of sleeping on the floor of my office until I remembered a colleague on our 12th floor had a sofa in his office.

[00:05:37] So I went down there, but it felt like the four seasons at that point.

[00:05:41] But yeah, I'm really proud of, you know, our work and expanding our employment footprint and preserving the one we have is super important.

[00:05:50] Definitely.

[00:05:51] John, let's talk about some wins.

[00:05:54] You know, as an airline industry, things seem to be in a good spot.

[00:05:58] What are some of the big wins of 2024 for the airline industry?

[00:06:02] Yeah, a quick question.

[00:06:03] So when you say a good spot, I mean, the market, you know, and the demand portfolio for travel and shipping has been quite, quite good.

[00:06:13] Last couple of years, we really passed that pandemic dip.

[00:06:17] And in many fronts past or pre-pandemic levels.

[00:06:21] So on the sort of policy front, we had a bunch.

[00:06:26] Let's see.

[00:06:27] I will start with actually a state and local example.

[00:06:30] We pretty recent within the last month, we after a year of slogging away with the California Air Resources Board,

[00:06:38] we reached an MOU for voluntary agreements to hit sustainable aviation fuel targets in the state.

[00:06:46] I don't remember all the specifics.

[00:06:48] I think it's by 2030 and a certain number of gallons or percentage.

[00:06:52] But basically, jet fuel is the only fuel that had been exempt from their what they call obligated fuels.

[00:07:01] So gasoline and diesel and other things had to meet certain targets.

[00:07:05] And we like the sweet spot where our renewable jet fuel gets the monetary credits that incentivizes producers

[00:07:14] without having the obligation which drives up fuel costs, which isn't good for the employees or the customers.

[00:07:20] So we did push back on sort of a threat to obligate our fuel.

[00:07:26] And we reached and had a nice joint ceremony in the announcement.

[00:07:31] So that's state and local.

[00:07:32] I don't want to go too far in.

[00:07:33] On international, and then I'll come back to the big ones, federal.

[00:07:37] International, most recently, I think we were a joint litigant with IATA and some European carriers on stopping flight caps at Dublin.

[00:07:47] We seem to be, and that we were successful getting a stay in the ports.

[00:07:52] A lot of airlines were worried about losing their slots for the summer 2025 season,

[00:07:58] which would have unquestionably meant less flying and less service for customers, fewer opportunities for pilots.

[00:08:04] And it seems like these days we're doing a little bit of whack-a-mole in Europe with, you know, it had been Amsterdam.

[00:08:12] I think there's something looming in Denmark.

[00:08:14] And of course, France has been aggressive on reducing.

[00:08:17] So, look, we are all for, and by the way, it's not always under an environmental rationale or objective.

[00:08:25] In the case, I should point out, in the case of Dublin, this is kind of nutty, but the federal government, I guess, was,

[00:08:36] they had concerns about the road infrastructure to and from the airport, really,

[00:08:41] that go back to a 2007 study of inadequate access and egress going to the airport.

[00:08:48] And what's interesting is the Dublin airport staff themselves said, that's ridiculous.

[00:08:54] That's an obsolete study.

[00:08:56] It's not reflective of the current situation.

[00:08:59] So people always assume these are some green objectives, but that's not always the case.

[00:09:04] So that was a recent win in the international arena.

[00:09:08] And then I'll just come back to the big, you know, federal stuff, which I'm sure is the primary interest.

[00:09:15] Our probably number one win this year has to do with air traffic control, which may hard to believe as you confront some of the challenges every day as pilots.

[00:09:28] But what we did successfully, primarily in the FAA bill that passed, and that's roughly every five years it has to happen,

[00:09:36] is get statutory language that requires FAA to hire the maximum number of controllers and to adjust their staffing model.

[00:09:48] And we also, although we need to do much more on this and the agency doesn't sell,

[00:09:53] we also got some supplemental money for facilities and equipment in the FAA budget and some facilities modernization.

[00:10:02] But there's a lot more that needs to happen there.

[00:10:06] We also got to, people may not realize one of our functions is to sue, to litigate.

[00:10:14] When we did that, that was a problem example.

[00:10:16] But we had one particular victory.

[00:10:20] We got to stay on a U.S. DOT proposal to regulate ancillary fees in terms of how we advertise, distribute,

[00:10:32] and other very prescriptive policies which don't apply not only to other sectors of the economy,

[00:10:39] but to other modes of transportation.

[00:10:42] And that's one thing that drives us nuts all the time is when the airlines get singled out for stuff.

[00:10:48] By the way, that's our view on, you know, wage issues too in states and locales.

[00:10:55] If you want to debate things like minimum wage in the state legislature for the whole state, that's great.

[00:11:01] But don't single out airport gators or something.

[00:11:06] Just have a broader policy debate about that stuff.

[00:11:09] So anyway, that stay with the federal appeals court was a big one.

[00:11:13] One more on air traffic control.

[00:11:15] Well, it wasn't just hiring the maximum number of controllers.

[00:11:19] It was the resurrection or reinstitution of the so-called college training initiative, which we call CTI.

[00:11:27] And because in order for FAA to hit their targets of the maximum hiring,

[00:11:33] they have a bottleneck at the academy in Oklahoma City.

[00:11:37] There is a finite number of classrooms, instructors.

[00:11:41] There are lots of issues.

[00:11:43] And they had a program which I think was suspended roughly eight years ago, which they've now got back up and running.

[00:11:51] It's a long story.

[00:11:51] But all these colleges like Embry-Riddle, North Dakota State, Beaver State, I think the current NACA president went there,

[00:11:59] have very solid training curriculums for people who want to be air traffic controllers.

[00:12:05] And you can do these on dual tracks.

[00:12:08] I think there's a brief stop at Oklahoma City Academy.

[00:12:11] But without these other pipelines available, especially given the attrition rates they have either during testing or once someone's on the job with retirement,

[00:12:20] there's no way to hit these.

[00:12:22] So getting CTO, they've approved only two schools so far, which is a bummer.

[00:12:26] They should be going at a faster clip.

[00:12:28] But getting that up and running is huge because if they don't have enough controllers,

[00:12:33] you guys do less flying and customers spend more time in airspace flow program.

[00:12:38] Well, this leads into another question that I had and skipping a little ahead on our list.

[00:12:43] But travel just seems to be exploding today.

[00:12:46] I mean, you go into the airports and it seems like everybody's traveling.

[00:12:50] Flights are full.

[00:12:52] How many more airplanes can you stuff into the national airspace system if Boeing was delivering the airplanes that it said it was going to

[00:13:00] and not have a bunch of flow control delays because of airspace restrictions and airport slots?

[00:13:05] Yeah, my short answer is zero.

[00:13:09] My second answer is it depends on the part of the country and the sector of airspace.

[00:13:14] You know, just using, of course, the Northeast and New York as an example right now.

[00:13:19] You know, we're under essentially a two-year waiver of our slot usage rules in Northeast airspace where they said you can put up to as much as 10% of the replying without penalty.

[00:13:31] And the fact that FAA has been extended that so long, and we think they might even extend it beyond that,

[00:13:37] because they only have something with 63% to 65% staffing at New York Center and New York TRACON.

[00:13:44] Wow.

[00:13:44] And by the way, nationwide, they're at 80%, which is bad enough.

[00:13:49] But then you peel the onion and you get to some of these critical locales, and you're talking 35% to 40% staffing shortly.

[00:13:56] And they're also having trouble with the recent new, with some New York-based controllers to Philadelphia.

[00:14:03] That's complicated.

[00:14:04] Very interesting.

[00:14:05] And people should remember, by the way, on this call, it's not just airline flights, and it's not even just U.S. airline flights.

[00:14:14] We've got foreign carriers, we've got overflights, transit flights, and we've got the general aviation community.

[00:14:19] Right.

[00:14:19] And when you start to get in, whether it's Teterboro or some of these Florida airports, there's a lot of general aviation activity.

[00:14:26] And if you look at the FAA Center, aircraft handled as one of their statistics, and aircraft's an aircraft, and they've got to deal with it.

[00:14:34] But just coming back to your point about the aircraft delivery delays and tying that in, I think a lot of those would go to replacements before growth, just depending on the part of the country, if they were coming at the rate, you know, understood.

[00:14:51] It is an issue.

[00:14:52] There's no question that—oh, by the way, just, what, two or three days ago, FAA, in their Thanksgiving interviews or whatever,

[00:15:02] they said that there will be, like, an extra amount of airspace flow programs implemented during the Thanksgiving peak travel season.

[00:15:10] So they've been very upfront about it, finally.

[00:15:14] They weren't a year and a half ago, but they've gotten around.

[00:15:17] Before we move on, can I just ask another question on that thread, which is, what is the interplay?

[00:15:24] Because you hear that airlines want to hire, but they're not hiring because of the aircraft delivery delays.

[00:15:30] You're saying a lot of these aircraft would be going to replacements anyway.

[00:15:34] What is the interplay between aircraft deliveries?

[00:15:38] And I know you're not an expert on pilot hiring per se, but aircraft deliveries and growth plans and air traffic control constraints.

[00:15:46] How does this play out over the next 12 months as Boeing potentially gets its act together and starts delivering more planes?

[00:15:54] That's a great question.

[00:15:55] So, look, to be fair, there are a lot of growth opportunities, especially, I think, in the international arena.

[00:16:04] The 787s, and, you know, of course, there's plenty of Airbus equipment.

[00:16:10] Some of it's their own production rate issues, but a lot of it's their supply chain and it's the Pratt & Whitney issues that have put airplanes for JetBlue and Spirit and others on the ground and some of the 220s that Delta uses.

[00:16:22] So, you know, it's not just a Boeing issue and it's not just an airframer, but there are plenty of growth opportunities and there are, you know, longer range opportunities.

[00:16:32] So, you know, the planes might not all be going to the Northeast and I shouldn't imply that they're overwhelmingly for replacement.

[00:16:42] It's just you have to balance the congestion issue with that.

[00:16:46] So, I think you're right that, you know, there's no question there's a correlation between the delivery slowdown and the pauses that I highly referred about.

[00:16:58] I've heard some presumptions are occurring, too.

[00:17:02] I'll just add that for just a video feel for the delays.

[00:17:07] I don't have a 2025 estimate.

[00:17:09] That's one thing on my research list to work up is to go back and look at it, you know, a year ago, whatever I was expecting in 2025.

[00:17:16] We just haven't done that work.

[00:17:17] But for 2024, if you look at 11 or so largest U.S. passenger carriers, I think we're down about 45, 46 percent in terms of actual deliveries this year versus what their contractually obligated weekends were.

[00:17:34] It's a huge cut.

[00:17:36] It's something like it was supposed to be 528 and we're getting like 70-ish.

[00:17:43] I mean, I just go back and look.

[00:17:45] There's this for those who look on airlines.org.

[00:17:49] I have a slide on this in our state of commercial aviation depth.

[00:17:53] So, something I track closely.

[00:17:55] And, of course, as you know, if it's a wide body, that translates to, you know, more international, more jobs per aircraft over the course of the year.

[00:18:03] So, John, the last five years have been great for pilots.

[00:18:09] Obviously, contract improvements have been pretty wide sweeping and massive across all airlines, not just any particular one.

[00:18:17] How is the airline industry handling that substantial increase in expense?

[00:18:24] Well, fortunately for several carriers, the revenue environment has been cooperative.

[00:18:29] So, that's, you know, that's the absolute best.

[00:18:32] Then you have a win-win, you know, you have lots of people flying.

[00:18:36] You have those rates are sustainable, more job opportunities.

[00:18:40] And, you know, to the extent that you have this newfound ability to, I shouldn't say newfound, but greater over the past two years, over the past 15 years, ability to segment your cabin.

[00:18:54] And, you know, younger generations are really interested in loyalty programs and people are, they get it.

[00:19:00] I think Delta said it well, and it's an investor day.

[00:19:02] Once you get a little bit of your first taste of premium economy or mint or whatever you want to call, you know, it's hard to go back and you're going to do it.

[00:19:11] Maybe we'll do it twice a year.

[00:19:12] Maybe we'll do it four times a year.

[00:19:13] And as your wealth improves, you know, it's more like your standard.

[00:19:17] So, those things have been, I think, a fundamental shift and critical to supporting the types of contracts we've seen and signed.

[00:19:26] What else am I?

[00:19:27] And, of course, some of the long-haul international flying.

[00:19:30] And now, you know, for the most part, since most U.S. airlines are so highly leveraged to U.S. point of sale, generally speaking, the strong U.S. dollar has been another really important factor.

[00:19:43] It's not, maybe not as been, sorry, Tate, for the Japanese guests.

[00:19:48] Nothing.

[00:19:49] On Hawaiian Airlines inbound, that's been a challenge.

[00:19:51] Oh, yeah.

[00:19:52] A challenge.

[00:19:53] But elsewhere.

[00:19:54] So, I, but the answer, Ryan, varies widely by airline and business model.

[00:20:00] As you know, as we all read in the press right now, some are struggling and unable to pass those higher costs along.

[00:20:07] And I think there's no question that, you know, some airlines benefited from the tight supply of pilots because some of their competition really couldn't handle it.

[00:20:18] And they were really struggling not only to recruit but to retain if people had better, you know, earnings potential elsewhere.

[00:20:26] Yeah.

[00:20:27] I think that's a big factor shaping the industry right now.

[00:20:30] And it's not limited to pilots.

[00:20:32] Would it be fair to say that the increase in pilot pay as an industry has sort of been in lockstep with the growing top-line revenue that the airlines have had through these loyalty programs and sort of commensurate with the airlines getting more demand and travel and more frasm, so to speak?

[00:20:54] You know, my answer is that it feels that way, but I confess I haven't looked at it hard enough to give you a defensible analytic answer.

[00:21:04] But it feels that way.

[00:21:06] You know, I mean, fortunately, we haven't seen an economic recession.

[00:21:11] And I think, but then I think about, look, the other factor here is, I answered your question in terms of revenue.

[00:21:18] The other thing is, what about the non-labor costs, right?

[00:21:21] And, you know, that's where I think it's a little tougher because we don't have as many levers on the non-employee costs as we did.

[00:21:30] We've, you know, even just, it's great to see all these airports doing all these projects and a lot of capital improvements.

[00:21:36] So that's all great, except to the extent that it all gets passed along to the tenants at some point, and they are paying more themselves for labor and materials.

[00:21:44] So a project they budgeted for $20 million, you know, a few years ago getting implemented now might be $30 million.

[00:21:51] Of course, sometimes these aren't millions.

[00:21:54] They're millions we're talking about.

[00:21:55] So that's a little trickier.

[00:21:57] And I think, let me answer this.

[00:21:59] If we come back to labor, we all like the high rates.

[00:22:04] It's just got to be offset by, to the extent, by productivity, right?

[00:22:08] So, and why the pandemic was so tough is that you had this juniority phenomenon where a lot of people with many years left the force.

[00:22:18] This is happening in air traffic control side too, of course.

[00:22:22] And let's, let's forget about Pius.

[00:22:23] Let's talk about maintenance as a good example.

[00:22:26] So let's say you have sort of 18 years median experience with your aviation maintenance technicians.

[00:22:33] And then a lot of people retired during the pandemic or God forbid they perished or go to another industry or taking care of a sick family member.

[00:22:42] Well, now your, your median, you know, experience for a mechanic might be, you know, eight years or 90 years.

[00:22:50] I don't know if it was that dramatic, but what, what does this mean?

[00:22:53] Well, you have to, a 30 year mechanics seen everything, you know, a two year mechanics has seen a couple different types of repairs.

[00:23:02] And this means now a repair that used to take and was blocked in for three, four hours might take seven hours.

[00:23:11] So that means schedule buffer.

[00:23:13] And when you have schedule buffer and the airlines, you know, really had to learn this quickly because customers were getting delayed and all this.

[00:23:23] And you had to adjust your staffing model.

[00:23:26] And it's like, well, we have all these great pilots, but we're, we're not getting as many flying hours out of them productive flying hours as we, we'd like to.

[00:23:35] So stuff happening on the mechanic side is affecting, you know, your overall pilot costs, not because of your rates, but because we needed more of them to keep the schedule or because we had to sacrifice revenue, you know, in order to maintain schedule.

[00:23:52] So, right.

[00:23:53] Sorry for a long answer, but I just think it's all really interconnected.

[00:23:57] And the point is, as we get farther out of the pandemic, I think airlines are focused on recapturing some of those former efficiencies, automating, you know, to have better investment in systems.

[00:24:09] We've seen that on the scheduling side, making these things now that they have a little more cash, making those priorities because the productivities, I really think this is a win all around and makes those rates more sustainable.

[00:24:22] Right.

[00:24:23] That makes a lot of sense.

[00:24:24] Can I ask three questions sort of in rapid fire and, and maybe get an answer that pertains to all of them?

[00:24:32] How profitable is the industry today?

[00:24:36] Is the airline industry today against a historical context, meaning inflation adjusted numbers in a, in a hundred year history, how profitable or thin are, are the margins in the airline industry today?

[00:24:51] That's one question.

[00:24:52] Do you see the demand side of things being sustainable and healthy, or do you see it still as being froth coming out of the end of the pandemic?

[00:25:01] And how prepared do you think the industry is for some unforeseen downturn?

[00:25:06] So I know that's a lot, but, you know, where are we historically and how insulated are we in terms of some unseen drop in demand and how robust and sustainable do you think that demand is?

[00:25:20] Okay.

[00:25:21] Okay.

[00:25:21] I'll try to do these concisely.

[00:25:23] So our main thing on profitability, I look at is pre-tax profit.

[00:25:29] It's an easy way to compare to other industries and don't worry about, well, then we get an aircraft financing stuff.

[00:25:35] It doesn't matter whether you're renting or owning, and then you also don't worry about different tax NOLs at the moment still.

[00:25:42] So on that basis, I have data back to 1970 for our industry.

[00:25:50] And a couple things stand out.

[00:25:52] One, and we track against some other companies and industries.

[00:25:56] We also track against the average U.S. corporation.

[00:25:59] So we can get from the Department of Commerce.

[00:26:01] There's not been a single year in that whole period back to 1970 where we hit the U.S. average profitability.

[00:26:09] So we always been below, and by the way, the average in the first half of this year was about 17% for the 11, some publicly traded airlines collectively, 2.7%.

[00:26:21] Well, first half of this year.

[00:26:23] And by the way, McDonald's 39%.

[00:26:26] The golden arches are truly golden.

[00:26:28] Now, before a little perspective, before the pandemic, our most profitable year based on margin was actually 2015.

[00:26:39] And while 19% was the highest back then for volume, it wasn't the highest financial performance.

[00:26:46] And the way I think about it is four years of $100 oil and a lot of capacity discipline.

[00:26:53] And then oil, and as you know, there's usually a six-month lag between fares and fuel.

[00:27:00] So we had that period in the capacity discipline where yields were pretty nice.

[00:27:05] People were starting to really fly more, you know, coming out of tough years where they were paying high gas, new price, and fuel had come down.

[00:27:15] And so 2015 was really good.

[00:27:17] And then there was a lot of ultra-low-cost carrier growth and yields came down.

[00:27:21] And before you know, we haven't been down.

[00:27:22] So that was our high bar.

[00:27:24] Finishing up here to your question, I've never seen this kind of differentiation across airlines.

[00:27:32] So bottom line, how are we doing?

[00:27:34] You ask three carriers, you'll get a variant or it's center.

[00:27:38] Then you ask three other carriers.

[00:27:39] Let's just put it that way.

[00:27:40] And I think we all know who it's talking about.

[00:27:42] So this kind of margin differentiation, I've never seen anything like it.

[00:27:49] And it's really hard to say, how is the airline industry broadly doing now without peeling the onion and really looking at different segments of it?

[00:27:58] It's just not there.

[00:27:59] They're not all marching in one step right now.

[00:28:01] So I hope I hit everything and kind of connected them.

[00:28:04] Yeah, no, that's interesting.

[00:28:05] It's funny that that kind of mirrors the sentiment of the American public right now.

[00:28:10] How's the economy?

[00:28:11] It depends on who you ask.

[00:28:12] Some people think it's booming and some people think it's terrible.

[00:28:15] It's funny that the airline industry is mirroring that exact same sentiment.

[00:28:19] Yeah, I mean, maybe I'll just say kind of try to be a little bit comedic here, but some of them can afford great pilots now and others must not.

[00:28:27] I mean, if you think about inflation, that's the way you think about it in terms of consumer growth.

[00:28:31] I think that that's a great look at it.

[00:28:34] You know, kind of to Tate's question, you know, unexpected downturns.

[00:28:39] And I think, you know, as airline pilots, as we go through our career, you know, the wise captain always tells us, you know, it's good now, but in 15 to 20 years, you know, you're going to have that black swan event and something's going to, you know, something's going to pop up and cause industry downturn.

[00:28:57] And I think it's just important to kind of keep that in mind, you know, and depending on your airline's ability to produce revenue and margins and all the things that we just talked about.

[00:29:06] I mean, it really comes down to the balance sheet and how strong that airline can handle some kind of a catastrophic downturn that we don't see.

[00:29:16] I wanted to kind of shift it to going back to kind of the pilot pay and industry.

[00:29:22] What do you think had been the biggest impacts to the airlines in relation to pilots and their pay and their contracts and the supply and the demand issues?

[00:29:33] Where do you think the top one or two challenges have been in their ability to attract and retain or stomach some of the new contracts that have come in?

[00:29:41] And you mean in general, not like during the pandemic or related to the pandemic necessarily?

[00:29:47] Exactly. Yeah, exactly. Just kind of in general. Yep.

[00:29:49] Well, look, a huge factor in this preceded pandemic was like sort of the dwindling of the military pipeline, right?

[00:29:58] I mean, the U.S. Armed Forces were had similar issues and were working harder.

[00:30:04] Well, the one, they were flying more missions, I think, and there was some burnout.

[00:30:07] And they also, you know, to their credit, I think improved some of the compensation and whatnot to do a better job retaining their flying workforce.

[00:30:17] And in turn, that made it harder for the airlines to steal those folks away.

[00:30:23] And so, and some of it is just demographic, you know, all that.

[00:30:28] So, and also, I'm sure that your comment about the Wise Captain and the Black Swan events, I mean, depending on, and you guys have probably experienced this, depending on where you were in those early 2000s, right?

[00:30:43] And you saw, geez, this doesn't work like such an attractive career.

[00:30:46] And you miss those opportunities to recruit the people who are going to be your senior folks in 10, 15 years, depending on where you are in the economy, right?

[00:30:57] I'm sure during the heart of the pandemic, even if the academies were open, by the way, to train those people, which is a separate issue.

[00:31:03] That was an issue with truckers.

[00:31:05] But look, I really think the future is great.

[00:31:07] I think the key, you know, coming back to this is what airlines are doing, which is diversifying the recruiting pool and getting people earlier in their lives, you know, junior high, right?

[00:31:19] So, you know, probably didn't happen when you guys, people were coming to your schools or, and look, all that, look, the creation of all these episodes.

[00:31:27] I think the key to the future is just a proof that the secular changes of how we think about going after pilots instead of guaranteeing you a pathway and marketing.

[00:31:38] And thankfully, now we have tools like social media and all these emails to recruit people and say, hey, did it ever occur to you?

[00:31:47] You could have a career as a pilot.

[00:31:49] So, and I think it's great and partnering with all these universities and there's a lot of really good, exciting stuff happening.

[00:31:57] And I really, you know, coming back to our earlier conversation, I think a lot of this is happening with respect to air traffic controllers too.

[00:32:06] The good thing for us is we can talk about, you know, generally speaking, come work with us and use state-of-the-art technology.

[00:32:13] That's not exactly a pitch that FAA can make on recruiting, even though it's a great career.

[00:32:19] So I'm here to expect.

[00:32:21] I see that.

[00:32:21] But changing gears a little bit, we obviously have wide sweeping political changes coming with a new president, a new house, a new Senate, mostly Republican majority.

[00:32:35] And as A4A is, you know, kind of a lobbying group for the airlines, what do you think the potential effects are or the changes?

[00:32:43] What do you see on the horizon for that, whether it's positive, negative, or maybe just business as usual?

[00:32:48] Well, I definitely don't think, broadly speaking, it's not, it won't be business as usual.

[00:32:53] You know, we definitely expect with the change at Department of Transportation, first and foremost,

[00:33:00] we hopefully have a lot more discussion about infrastructure and enhancements and ways to know things.

[00:33:08] But, you know, we've taken a lot of hits on things that are perceived that would be wrong.

[00:33:14] And there are certainly some things we've been needed to improve on, but it feels very one-sided.

[00:33:21] And we end up playing a lot of defense when, you know, like you always hear a good offense can be your best defense.

[00:33:28] I think there are a lot of ways we can improve the system.

[00:33:31] So because the number one thing people complain about is flight delays and cancellations.

[00:33:36] And why don't we far focus on minimizing us?

[00:33:39] Yes, we should be doing a better job with wheelchairs.

[00:33:42] We should be, you know, always be nice to keep all those things, you know, but I don't know.

[00:33:47] Sometimes they really go after us in a way that just seems either just proportionate or singling us out,

[00:33:53] coming back to the real routine.

[00:33:54] Now, that's sort of, that's DOT.

[00:33:56] So there will be a big change there, Lutho.

[00:33:58] The, more broadly, you know, hopefully the economy seems stable.

[00:34:03] I think questions on inflation are unclear, depending on what policies actually get implemented.

[00:34:09] So as far as how that affects demand and the cost of our inputs, that's a factor.

[00:34:14] The one big thing I would say is cautionary is the traditional lines between the parties aren't what they were 20, 30 years ago.

[00:34:24] And there's been an infusion of populism that has influenced both parties.

[00:34:30] And that often means anti-corporation in some respect or another, which, you know, can put us in a tough spot.

[00:34:40] So we have to navigate that very carefully and make sure that we tackle it well.

[00:34:46] I mean, one other area is, and right away, you saw the president's comments about DI's role in hiring pilots and others.

[00:34:59] So, you know, we have to navigate those waters.

[00:35:01] Of course, we just see it as, you know, having the widest possible talent.

[00:35:06] Now, the other factor is no matter which party someone belongs to, where they live can be important in terms of how they think about rural air service, which is a big city airport and access.

[00:35:18] So, you know, it just seems that every year there's a study on small community air service.

[00:35:24] And, you know, you can connect that back to partly to the pilot's flyers use to aircraft economics.

[00:35:30] And, you know, while I said we do like the higher rates and what they mean for people, they do have implications for particularly for small community air service and whether people are willing to pay fares.

[00:35:44] But, you know, it makes those smaller markets sustainable, especially at a time when they're willing, most people are willing to drive, you know, 60 to 120 miles to go to an under air.

[00:35:55] We are, you know, kind of cliche, but cautiously optimistic.

[00:35:59] I think we'll be playing a lot of those defense and hopefully we can go more on offense and improve the air traffic management system.

[00:36:05] And whether it's staffing or facilities and equipment, those will be our priorities.

[00:36:11] And, of course, continuing the work with we're excited about the things already that TSA and CDP have been doing with respect to use of technology and checkpoints of the future and biometrics.

[00:36:24] So that's all good stuff irrespective of some really good default.

[00:36:28] That's great.

[00:36:29] Thanks for sharing that.

[00:36:30] Yeah, it seems like it's addressing the root cause rather than the, you know, the lagging effect of a delay and punishing the airlines for a delay when in fact going after the root cause, like improving the infrastructure and hiring air traffic controllers should be the focus.

[00:36:47] Certainly preaching to the choir here.

[00:36:50] Just one last thing we didn't mention on is the environmental sustainability, which there'll be a big change in the administration and some of Congress on that.

[00:37:01] But there, so we do have a lot of outreach at the federal level and the state local level with respect to our desire to continue to adopt more sustainable aviation fuel over time.

[00:37:14] And, you know, one interesting thing is, of course, a lot of the feedstock to support conversion into sustainable aviation fuel resides in many rural Republican-made districts and states, Georgia and the like.

[00:37:33] So that's an opportunity we have.

[00:37:37] And we have a staff coalition that includes Senator Moran from Kansas and others.

[00:37:43] And we are a little concerned about, we'd really like to get the federal tax credit that helps staff extended.

[00:37:54] And that's going to be a very big lift with this new Congress and president.

[00:37:59] But that's, you know, as you know, in our interest, one, we're global and we deal with countries and cultures, generations all over.

[00:38:08] And we have to play the long game here.

[00:38:10] You know, we have goals for 2050, not for four years from now until the next election.

[00:38:15] These are long-term goals we need to, you know, want to be 2049 and say, uh-oh, what do we even do?

[00:38:21] Right.

[00:38:22] Well, this has been fantastic, John.

[00:38:24] We want to be respectful of your time.

[00:38:26] Can I just ask one last question, which is if you are bumped into a pilot at the airport and you had one piece of advice to give them based on all of your decades of experience in the airline industry, what would it be?

[00:38:40] I would say broadly that I think a lot of the transformation that's occurred over the last 10 to 15 years has been really good for everyone in the industry.

[00:38:50] Our staying power, our ability to withstand higher, whether it's higher costs across all our business.

[00:38:57] And, you know, we, until the spirit filing, we hadn't had a major bankruptcy since 2011 with American.

[00:39:06] And I think there's a reason for that.

[00:39:08] And, you know, let's all stick together because we want to grow financially when only we want to grow our employment footprint.

[00:39:15] And I really think there's a lot to be said for the symbiosis of the two.

[00:39:20] It's fantastic.

[00:39:22] And tell your grandkids they should be pilots.

[00:39:24] So we have a future support.

[00:39:26] I love that.

[00:39:28] I love to hear that.

[00:39:29] Yeah, that's good.

[00:39:30] That's good to hear.

[00:39:31] Well, controllers.

[00:39:32] Yeah, or air traffic controllers.

[00:39:34] Yeah, another great perfection.

[00:39:35] John, you put out such a good economic report data.

[00:39:39] How do listeners review what you write or learn more about some of the content that you put out about the airline industry?

[00:39:46] Yeah, so we, you know, we do these holiday forecasts.

[00:39:50] Early we talk about advocacy, but we also do some on behalf of our carriers.

[00:39:55] On behalf of the whole industry, we talk about, you know, 31 million passengers over Thanksgiving and the summer forecast and all that.

[00:40:02] There's some of that on our social media and Twitter.

[00:40:04] A lot of my personal thoughts are captured in two slide decks in particular on our website, airlines.org.

[00:40:13] And then you go to impact.

[00:40:14] And you guys are welcome to share the links with your audience.

[00:40:18] And so it's not hard to find one's kind of a shorter term focus called stated commercial aviation.

[00:40:25] The other one is a broader look at the decades about industry view and outlook.

[00:40:28] And I update it all the time, kind of obsessive about it.

[00:40:33] So I don't like old stuff.

[00:40:35] And a lot of my ideas are shaped by talking to people like you and going to meetings and interacting with employees.

[00:40:41] And if you have thoughts or say, have you looked at X, Y, Z?

[00:40:45] I love that stuff.

[00:40:46] So it's a two-way street.

[00:40:47] We'll link to that in the show notes.

[00:40:49] Thank you so much for your wisdom.

[00:40:50] Thanks for coming on.

[00:40:51] This has been fantastic.

[00:40:52] Thank you.

[00:40:53] Great.

[00:40:53] And hopefully your audience enjoyed it and I hope you'll be back someday.

[00:40:57] Thank you.

[00:40:57] We would love it.

[00:40:58] Thanks, John.