Will airfare go down soon? It's not likely after airlines are coughing up big pilot pay increases

Pilots are seeing big pay bumps across the industry. That could keep airfare prices rising.Taylor Rains/Insider

  • Delta Air Lines and its pilot union have come to a preliminary agreement to increase wages by over 30%.

  • Pilot pay raises could increase airfare as labor is the number one cost for airlines.

  • Regional markets may also take another hit as airlines scale back frequencies to small cities.

Sky-high airfare might not go away after airlines have been forced to cough up huge bumps in pay for pilots, flight attendants, and other staff.

During the coronavirus pandemic, thousands of commercial airline pilots left the cockpit as carriers reorganized their schedules to cope with plummeting demand for air travel. Many were furloughed or laid off, while others permanently stopped flying through airlines' early retirement offering.

But, as travel roared back in 2021, it was apparent that too many pilots were let go, and now the industry has to battle a challenging pilot shortage that has contributed to operational meltdowns, higher airfare, and dozens of regional market cuts.

Pilots have threatened to strike over working conditions

The shortage has caused many pilots to complain of draining work schedules and burnout. In October, Delta Air Lines' union, the Air Lines Pilots Association, voted to authorize a strike, while pilots from carriers like American Airlines, Southwest Airlines, as well as Delta, have picketed in recent months.

Airlines have tried to alleviate the issue with aggressive hiring campaigns, as well as requesting lower hourly requirements for new hires and opening new pilot training centers, like United Airlines' Aviate Academy.

But pilot pay raises may be a more effective way to attract and retain talent. Pilots at American wholly-owned regional carriers PSA Airlines, Piedmont Airlines, and Envoy Air solidified huge wage increases in June, with other regionals offering similar raises.

For example, Piedmont new hire first officers previously started at $51 per hour and first-year captains made $78 per hour. Now, they make $90 and $146 per hour, respectively, with line-check airmen, who train other pilots, now making $427.50 per hour.

The raises are on top of the up to $180,000 in retention bonuses Piedmont pilots can now earn.

While the regionals have scored a big win, major airlines are still fighting for better contracts. Delta and its union have reached a preliminary agreement, which would offer over 30% in raises worth more than $7.2 billion. American and United are still in negotiation, though Alaska Airlines managed to update its contract in October.

Increased pay could mean higher fares

As more major carriers potentially solidify additional pay raises, it's possible the industry's already high airfare could increase even more as labor is the number one cost for airlines.

Colon Scarola of CFRA Research told Insider that Delta's airfare in the third quarter of this year was 23% more than in the same period in 2019 — suggesting high operating costs are pushing up ticket prices.

"Airlines are trying to keep healthy profit margins," he said. "So, with these higher wages, they can't back off on this post-pandemic surge in airfare pricing."

It's not just Delta charging higher fares. Data crunched by Nerdwallet reveals prices across US carriers jumped by 9% in October 2022 compared to October 2021, and a staggering 43% compared to the same month in 2019.

In fact, travel website Hopper revealed fares in October were averaging $430 for Christmas flying, which was 17% higher compared to 2019 and 53% higher than the same time in 2021.

While Hopper analysts expected prices to continue to rise, as of Tuesday, average fares were steady at $339 roundtrip, but last-minute tickets are expected to go for over $400.

"I don't think flying is going to get any cheaper next year," Scarola told Insider.

Small cities may lose even more airline service

In addition to increased airfare, Mike Stengal, senior analyst at consulting firm AeroDynamic Advisory, told Insider the pay raises, coupled with high fuel costs, could incentivize airlines to ditch more of their regional flying to smaller cities.

Specifically, he explained 50-seater planes are now even more expensive to operate, so parking them could further reduce airlines' frequencies to small markets, cutting or limiting connectivity to the rest of the US.

Read the original article on Business Insider