This Week's Herman Trend Alert

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  The Herman Trend Alert

September 22, 2010

Pilot Shortage Ahead

Just as the United States' airlines return to profitability, they have a new crisis to handle: finding enough pilots. According to the International Civil Aviation Organization, between 2010 and 2030, growing airlines around the world will need an average of 49,900 pilots/year. The problem is that the current training capacity is only 47,025.

That shortfall has created a bidding war, with some airlines offering tax-free salaries and four-bedroom villas and other carriers offering free training. Some airlines have even had to cancel flights. After losing 27 pilots to higher paying jobs abroad, Philippine Airlines canceled flights in July and August.

This pilot shortage will be a critical challenge to the industry’s growth. Even if airlines are able to find pilots, they will have to pay top dollar for them because they are in such demand.

In the next 12 years, the major US airlines alone are expected to hire more than 40,000 pilots. However, the US will face competition from faster-growing countries, like China and India.

In fact, China is the world’s fastest-growing major aviation market and is apt to account for a third of the orders from Asia, according to Airbus---the world’s biggest aircraft manufacturer. According to International Monetary Fund (IMF) estimates, China's economy will grow by 10.5 percent this year; by comparison, the average world growth is expected to be only 4.6 percent and the US will be even lower.

Rivaling China, India is coming up fast with growth this year estimated to be 9.4 percent. Two other countries to watch that are growing rapidly are Brazil and Turkey, with growth rates of 9 percent (Wall Street Journal Q1) and 5.2 percent (IMF forecast for 2010) respectively. Their airlines, too, will increasingly need pilots.

With the learning curve for pilot training, this shortage is going to last for a while and foreign carriers will struggle most. According to Airbus between 2009 and 2028, world passenger traffic will increase an average of 4.7 percent a year.

With business travel shrinking, due to virtual meetings, our forecast is (absent another financial or healthcare sector catastrophe), non-meeting business travel, including leisure and personal business travel, will pick up the slack.

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