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The U.S. pilot shortage could redound to United's benefit if other airlines are forced to cancel flights due to staffing shortages, CEO Scott Kirby said. The carrier is getting ready for a summer demand to set records.

United Airlines acknowledged that the U.S. pilot shortage is real and a problem that won’t be resolved for several years, but the carrier’s management believes the issue will be more damaging to smaller airlines than to airlines its size.

Not that United is immune. Regional carriers operating under the United Express brand, mainly to smaller cities, are struggling to hire pilots. This will affect United’s ability to broaden its network to many small and midsized cities as regional airlines scale back their growth.

“The pilot shortage is real,” United CEO Scott Kirby told investors on Thursday. “Most airlines will not be able to realize their capacity plans because there simply aren’t enough pilots, at least not for the next five years.”

United believes U.S. pilot training schools produce between 5,000-7,000 pilots a year. The airline industry needs to hire 13,000 pilots this year as it plots it post-pandemic growth, mostly to replace pilots who retired or took buyouts during the depths of the pandemic. Although many airlines, like United itself, have set up or partnered with pilot-training academies, it will take years before those schools can produce enough fully trained pilots to meet demand. To fly a commercial aircraft in the U.S., pilots need 1,500 hours of flight experience, a process that takes years and is expensive to complete.

United plans to hire 200 pilots per month this year, and Kirby believes it will have no problem doing so. Carriers like it, and Delta Air Lines, and American Airlines, offer aspiring pilots a more lucrative career path, with the potential to fly larger aircraft, than smaller and mid-sized airlines, he said.

The pilot shortage could actually redound to United’s benefit this summer, when demand for travel is expected to be stronger than it was even in 2019. Supply — or the number of flights — will be mismatched with demand, especially as smaller airlines cut back service and scale their capacity plans downward, Kirby said. Demand is so strong that United will be able to pass on all of its higher cost of fuel. “The domestic [revenue] environment will be stronger than previously thought,” he said.

United is virtually licking its chops in anticipation of this summer. The airline is expecting revenues per seat — an industry-standard way of measuring earnings — to be 17 percent higher in the second quarter than in 2019. The recovery already has begun: Unit revenues in March were 9 percent than in 2019, Chief Commercial Officer Andrew Nocella said.

Summer’s recovery will be felt through most of United’s network. Domestic leisure forward bookings are robust. Near Latin America demand is high. And the carrier is anticipating “record” transatlantic demand. Asia, long shuttered, is showing signs of life, with demand buoyant after Australia and South Korea reopened to international travelers. But overall Asia demand will be depressed as long as Japan and China continue to restrict travel, Nocella said.

At the outset of the pandemic, United, with its reliance on business travel and huge network in Asia, was uniquely battered among the major airlines. But it retooled its network to increase flights to domestic leisure destinations, particularly in Florida. Now, with Asia reopening and business travel returning, United believes it is uniquely positioned to take advantage of the recovery.

To illustrate this, Nocella noted that business travel was 30 percent lower than in 2019 during the first quarter, but in March was only 20 percent lower. The airline sees “considerable upside” in business travel as offices reopen, particularly in San Francisco, where United operates a major hub. Tech companies have lagged other industries in returning to business travel, but Nocella sees signs that even United’s tech corporate accounts are putting workers back on the road. “We are bullish on business,” he said.

Kirby was even more positive. “There has been a structural change in travel. Once people get back to traveling, you realize how much you missed it. It’s not just pent-up demand … We are social creatures and we need to be with others,” he said.

“I happen to believe we will surpass [2019] on a permanent structural basis,” he added. “But that’s just one guy’s opinion.”

United has seen no appreciable uptick in demand since a federal judge struck down the mask mandate. But the carrier is calling on the Biden administration to rescind pre-departure testing for inbound international travelers to the U.S. This, United said, will boost traveler confidence and international travel.

Despite all the optimism, United spilled more red ink in the first quarter. The carrier reported a $1.4 billion adjusted net loss on $7.6 billion in operating revenue, down 21 percent from 2019. This generated a pre-tax margin of negative 23.2 percent. There were some bright spots. Cargo, for example, generated $627 million in revenue, up 119 percent from 2019, as maritime shipping remains constrained while companies restock inventories. United believes cargo yields will remain strong in the near term and that it will have enough belly-hold capacity to meet demand, even as it scales back cargo-only flights.

In the second quarter, United expects to generate operating margins of 10 percent. The airline expects to be profitable for the full year.

“We are in the first inning of the recovery,” Kirby said. “That’s why just barring something bad happening in the world, in 2023 getting to 2019 margin levels seems pretty easy.”

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Tags: earnings, pilot shortage, united airlines

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