New pilot contracts to drive up costs at US airlines

US airline profits are set to come under pressure in 2023 as they look to shell out more cash to retain pilots amid worries about the impact of a potential recession on travel demand. Major carriers such as United Airlines, American Airlines, Delta and Southwest have rushed to add staff after a faster-than-expected rebound in the US travel market. Some airlines have had to hand out bumper contracts to pilots, stoking concerns about a rise in costs as they recover from the pandemic when they were saddled with heavy debt loads. "Margins are set to take a hit in 2023 as airlines ratify new contracts with labor groups," Cowen analyst Helane Becker said last month. "We expect pilot pay, which represents approximately 40% of labor expense, will increase by 20% to 30% under the new agreements." In a recent note, BofA Global Research estimated that the industry will need to hire about 5,200 pilots per year from 2024-2030. Last month, Delta offered a 34% pay hike to pilots, which aviators at rival carriers termed as a new "benchmark". "Delta's recent tentative pilot agreement, assuming it is ratified, could drive incremental unit costs higher by ~2%, and 2%-3% higher for American, Southwest and United," Barclays analyst Brandon Oglenski said on Wednesday.<br/>