Pilot contract negotiations with airlines turn sour

U.S. airlines are profitable again, and their pilots want a bigger cut of the industry’s recovery.

The biggest airlines in the country are negotiating new pilot contracts, and talks with unions so far haven’t gone well. This week alone, unions representing about 30,000 pilots combined at American Airlines and United Airlines rejected potential contracts.

The tensions come as the industry rebounds from the Covid-19 pandemic, which devastated travel demand and drove airlines to record losses of around $35 billion in 2020. The pandemic also derailed contract talks with pilots, flight attendants and other groups, setting the stage for widespread negotiations throughout the industry this year.

Airlines are facing the dual challenge of combatting a shortage of pilots while keeping a lid on costs. Meanwhile pilot unions are demanding higher pay and better schedules, on the heels of a roller coaster two years.

Both sides are staring down the risks of persistently high inflation.

“We’ve been crushed by inflation. The money is coming, there’s no question about it,” said Dennis Tajer, an American Airlines Boeing 737 captain and spokesman for the Allied Pilots Association, which represents some 15,000 pilots at the carrier. “What this is really about is the work-life balance and restoring reliability of airlines — and doing that not on the backs of pilots.”

New labor deals are sure to drive up costs at airlines, analysts say. Employee compensation rivals fuel as carriers’ biggest expense. But pilots are in short supply and aviators at smaller carriers have received huge pay increases in response, so securing deals is in the major airlines’ interest as they fight over aviators.

Pilot pay varies widely based on experience and type of aircraft but senior wide-body captains at major airlines can make more than $300,000.

“I have a feeling right now that this is as good as it gets from a bargaining position” for pilots, said Raymond James airline analyst Savanthi Syth.

The Allied Pilots Association said on Wednesday that its board of directors rejected a tentative agreement from American Airlines. The Fort Worth, Texas-based carrier offered pilot raises of some 19% in the latest two-year contract proposal. American had offered 17% raises earlier this year.

Beyond pay, APA’s Tajer said the union wants better work rules, such as the ability to drop and add trips more easily. Major airline unions have said frequent schedule changes and long trips have hurt members’ quality of life.

Earlier this week, United Airlines pilots overwhelmingly rejected a deal for nearly 15% increases over about 18 months. United said it is already working with its pilots’ union, the Air Line Pilots Association “on a new, industry-leading agreement that we expect to include improved pay rates and other enhancements.”

Delta Air Lines pilots also this week voted to authorize a potential strike if the union can’t reach a deal with the airline, a lengthy process. Delta noted the vote won’t affect its operation.

The Atlanta-based carrier has said that despite the vote, the two sides have “made significant progress in our negotiations and have only a few contract sections left to resolve.”

Delta, Southwest Airlines and FedEx pilot unions have turned to federal mediation to resolve impasses.

Flight attendants, too, are negotiating for higher pay and better work schedules at American, Southwest and United. Off-duty pilots and flight attendants have picketed at airports and company headquarters to demand contract improvements, and more demonstrations are said to be in the works.

Airlines are now trying to navigate sealing up deals without spooking investors about company finances.

“We negotiate with a mind to making sure that we take care of our team and that we take care of the company as well,” American Airlines CEO Robert Isom said on a quarterly earnings call late last month. “And it’s the best interests of our pilots and flight attendants and everybody in this company. So there’s win-win deals that will be had out there.”

Alaska Airlines pilots ratified a new contract last month, a rare success story this year. Under the agreement, some pilots are getting more than 20% raises at contract signing.

And pilots have been taking note of massive pay bumps at regional airlines, including some owned by American, smaller carriers where staffing shortages are most acute.

JPMorgan airline analyst Jamie Baker wrote in an Oct. 27 note that “we’ve long assumed that industry-wide wage increases would be kept comfortably below the double-digit level. That no longer appears the case.”

The longer negotiations take, he said, the bigger the date-of-signing increases could be.

If unions reject deals in an effort to push for better terms, the industry could face an economic downturn. FedEx CEO Raj Subramaniam in September rattled investors when he predicted a “worldwide recession” is coming.

Meanwhile, passenger airline executives have been far more upbeat about continued travel demand, but increasing costs of living could further embolden unions to ask for a better deal.

“They ask for the stars and they hope to get the moon,” Syth said of unions.