While labor relations have become more challenging at Southwest, the real draw is the chance to be a captain sooner.
For some years now, getting a pilot job offer from Southwest Airlines was considered the sine qua non of a successful aviation career. Southwest, which since 1971 has grown from a small intra-Texas regional carrier to the largest domestic US airline by passenger count, has become well known for its laid back corporate persona and fun loving culture. And its pilots, while never being the highest paid in the industry, were known to be fiercely loyal to CEO Herb Kelleher, the iconic founder and larger than life cheerleader for the airline and its famous culture.
In recent years, however, there appears to be some unrest in the pilot ranks at Southwest with increasing reports of pilots decamping for allegedly greener pastures at places like Delta, Fed Ex and American. While the reports are mostly anecdotal, there have been consistent stories of up to a half dozen pilots resigning their jobs monthly to go elsewhere. And this number doesn’t represent the number of pilots who either don’t apply for a job at Southwest or turn down job offers if they do apply. So what’s going on?
In one sense, what we’re seeing is a return to normalcy after nearly a decade and a half of disruption in the airline industry following 9/11. Other factors contributing to this trend are things like the pilot shortage and the mandatory retirement age for pilots, growth forecasts and consolidation in the industry, fuel and other costs, labor issues, and the nature of the airline piloting career itself. Let’s unpack these, shall we?
The Great Disruption
The terrorist attacks of 9/11, which used commercial airliners themselves as weapons of mass destruction, were not only successful in killing thousands and destroying iconic buildings, but also transformed an entire sector of the economy, the aviation industry. The aftermath of the attacks saw commercial airlines furloughing thousands of employees and all the largest US airlines, save for Southwest, declaring bankruptcy.
Many pilots with the seniority to keep their jobs found themselves forced back to copilot or engineer positions with a concurrent loss of pay and quality of life. For the thousands out of work, many either found non-flying jobs to await a recall, rejoined the military if they were veterans, took jobs with low paying commuter airlines or simply left the profession.
For aspiring pilots hoping to make a career of aviation, it was simply a lost decade. There were no jobs in the major airlines to be had with one exception, Southwest Airlines. How did Southwest avoid bankruptcy and furloughs and even thrive where others had failed? It really came down to one thing: cost control.
Kelleher, a legendary character with a nearly cult following, was also a brilliant businessman and visionary. He understood the vagaries of the industry and always made clear that costs were to be managed in the good times so as to ride through the bad times. With costs at a fraction of the legacy airlines, Kelleher was able to navigate the shoals of bankruptcy and to keep his airline profitable and growing.
And it also meant that a job offer from Southwest was the golden ticket for getting a destination airline job. Southwest had the pick of the litter as far as pilots were concerned and it showed in their hiring. Having a type rating in the 737 along with many thousands of hours of pilot time were the bare minimums to get an interview. Southwest even had a few former astronauts on its roster to include space shuttle commander Hoot Gibson.
Those unique and fortuitous conditions could not and eventually did not last. Following the wave of bankruptcies by the legacy carriers came a wave of consolidations resulting in what is now called the “big four” airlines. American, Delta, United and Southwest now control over 80% of domestic US traffic. The bankruptcies had one other salutary effect, at least as far as airline managements were concerned. That was the abrogation of many union contracts resulting in sharply lower labor costs.
In the meantime, costs were slowly rising at Southwest. Call it the curse of success, but as Southwest’s reach became national, the airline had to match at least some of the amenities offered by the legacy carriers such as better reservation and customer information systems. Suddenly Southwest found its costs and margins on par with the newly slimmed down legacy carriers fresh from their bankruptcy weight reduction spas.
Suddenly the legacy airlines found that they could compete and occasionally even win against Southwest. Southwest’s entry into the Philadelphia market was easily contained by a low cost, if miserable to fly on USAir, and Southwest’s gambit to buy into the Atlanta market with their AirTran merger has produced only mediocre results as Delta has tenaciously guarded its hometown turf.
The Pilot Shortage and Retirements
One of the largest determinants of both income and quality of life in the career of a commercial airline pilot is that pilot’s seniority. Seniority, or the order in which a pilot is hired, determines nearly everything concerning pay rates, work schedules, the type of aircraft flown, and even where in the country a pilot can live.
As with other unionized work forces, the seniority system is designed to prevent job hopping by requiring any new hire, regardless of qualifications or experience, to start at the bottom of the seniority list. In the airline business, this means weekend and holiday flying in the smallest aircraft which pay the least. And any two pilots who are flying in the same aircraft are even paid differently with captains earning about 30% more than their first officers (copilots). Again this is determined solely by seniority.
Given this system, there are essentially two ways to gain seniority. One way is for more people to be hired after you and the other is for the people senior to you to retire. The first method is caused by growth, or more airplanes being bought and more pilots hired. The second is determined by the number of pilots reaching the current mandatory retirement age of 65. This age limit was raised to 65 from 60 back in 2007.
Now given how important seniority is to career advancement and career earnings, the ideal airline to work for would be one that is both fast growing and also staffed with lots of old pilots. But a funny thing happened to airline growth in the last decade. After years of bashing each other over the head by adding capacity to undercut the competition but also flooding the market with cheap seats, the big four airlines have discovered a thing called capacity discipline. This means that each of the big airlines have on their own voluntarily agreed to withhold capacity from the market and thereby raise demand (and profits) from the remaining seats to be sold.
What this means is that the growth side of the seniority equation cannot be counted on to deliver advancements. Remember, at an airline like Southwest with only one type of aircraft, the airline has to essentially double in size for a new hire to reach the 50% mark and get a coveted captain seat (with its 30% raise). Current growth rates of a few percent mean many years to wait for upgrade to captain.
This means that the retirements of more senior pilots will deliver the most seniority gains. It thus follows that when choosing an airline, the numbers of retirements in future years is a key metric to consider. And this is also where Southwest is at a disadvantage.
Recall that during the decade following 9/11, Southwest was the only game in town as far as major airline hiring was concerned. Well, the thousands of pilots hired during those years at Southwest are relatively young and will be on the seniority list for decades to come. At the same time, the other three legacy airlines did virtually no hiring in the 2000’s but grew through mergers with other legacy carriers.
Heavily staffed then with older Vietnam era pilots, the other three legacy carriers will have to hire thousands of pilots in the next decade to merely keep their pilot forces from shrinking. The numbers are enormous with nearly half of all currently flying pilots at the big three legacy carriers needing to be replaced due to retirements in the next decade. Given these numbers, and the importance of seniority, the legacies have a distinct advantage in the hiring market.
As an example, Delta now has pilots upgrading to captain with as little as two years total seniority while captain upgrade at Southwest can take more than a decade.
When is the Next Recession?
There’s an old joke that asks how to become a millionaire in the airline business. The answer, of course, is to start with a billion. Commercial aviation may actually be the worst possible business in which to try to make money. It is capital intensive, dependent upon a scarce resource from an unstable part of the world, and both highly regulated and highly unionized.
It is of little surprise, then, that heroic figures such as Eddie Rickenbacker, Frank Borman (both Eastern), Howard Hughes (TWA), Richard Branson (Virgin), and Herb Kelleher (Southwest) attempt to make a go of it. Only their obviously herculean levels of intestinal fortitude are sufficient to ride the economic roller coaster ride that running an airline must be. One day you’re riding high and raking in the dough, and the next you’re in more debt than a third world banana republic and close to folding up shop.
It is also here where airline employees live or die by the seniority list, because during a downturn, the devil literally does take the hindmost. When things go south and airlines need to furlough, it is the most junior, or most recently hired who are let go. This, again, is another reason why choosing an airline where getting the most seniority in the shortest amount of time is a smart decision.
Southwest boasts that they’ve never furloughed any employee during their entire 40+ year history. And that is true–they haven’t. That can be largely attributed to the wise stewardship in the form of cost control imposed by Herb Kelleher. But with their costs now roughly equivalent to the other three legacy carriers, it is no sure bet that Southwest will be able to ride out the next recession or fuel price spike when it shows up without a force reduction. And without the up escalator on the seniority list provided by numerous retirements, pilots will spend a longer time being vulnerable to any possible furlough at a carrier with relatively few retirements like Southwest.
Widebodies, Labor Issues and the Intangibles
The highest paid pilots in the airline industry fly wide-body aircraft. Those are airplanes with two, instead of one aisle down the middle. They typically hold over two hundred passengers and are used on either trans or intercontinental routes. The extra revenue generated from the additional seats means that unions were able to negotiate a larger piece of that pie in compensation for their pilots.
The nature of overseas flying also typically means more days off in the month with extended layovers in exotic locations such as Paris or Sydney. International flying, though, isn’t everyone’s cup of tea so some pilots at international carriers bid back to domestic flying for a schedule that may pay less, but is more respectful of circadian rhythms. Pilots for narrow body only carriers such as Southwest will never have the opportunity to reach the income levels that their wide-body flying brethren do. For some pilots it doesn’t matter, but for others wishing to maximize career earnings, it does.
Historically, Southwest has always had harmonious labor relations. Kelleher related to and appeared to like the pilots at his airline even though he was well known to drive a hard bargain during negotiations with the pilot’s in-house union. That cordial atmosphere seems to be ebbing, though, as the most recent contract negotiations ran to over four years and included large picketing events held by the pilots. It appears as if labor relations at Southwest are entering a new phase which is more aligned with the traditionally contentious outlook at the legacy carriers.
Any organization which starts out with a great esprit de corps and a charismatic leader will over time face challenges to the vibrant culture which accompanies that start. Southwest was founded as a small but plucky upstart besting its larger competitors in a highly dynamic industry. The famous culture at Southwest, which now counts over 50,000 employees and over 8000 pilots may be a victim of its own success as a more buttoned down and corporate atmosphere comes to dominate.
Southwest Airlines is and remains a destination airline. That means that the majority of pilots who interview and accept a flying job there intend to stay for the duration, and will enjoy a fulfilling, if not the most highly compensated career. However, some of their more junior pilots have made the calculation that losing a year or two of seniority is worth the gains to be made in a career elsewhere by upgrading sooner. Leaving any good flying job is a big decision usually involving many personal and family considerations. It is clear, though, that Southwest no longer enjoys the unparalleled prowess it once had in the aviation job market as its competitors have gotten back on their feet.