Airline capacities ‘stymied’ by pilots’ experience requirements: Mesa Air Group CEO

Mesa Air Group Chairman and CEO Jonathan Ornstein joins Yahoo Finance Live to discuss spiking crude oil prices following recent OPEC+ production cuts, its impact on the airline industry, in addition to ongoing pilot shortages within the industry.

Video transcript

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JARED BLIKRE: The surprise production cut from OPEC Plus sent oil prices spiking, with research from Jefferies projecting a similar price shock to jet fuel over the next month. Here to discuss the outlook for airlines this quarter with what those production cuts could mean for the industry is Jonathan Ornstein, Mesa Air Group Chairman and CEO. So thank you for joining us here today. Might not be the first thing we think about, but rising fuel prices, got to factor into the airlines. How deep could this resonate?

JONATHAN ORNSTEIN: Well, you know, I mean, prices are still at levels that allow the airlines to operate within the range of what they would consider normalized prices. I mean, if we got up over $100, I think that starts to have an impact. But I think between $60 and $80, $90, I think we're-- those are kind of shocks that would not have the impact that it might have if you started to see fuel prices really accelerate above $100.

SEANA SMITH: So, Jonathan, you have the risk here of rising fuel prices, also the fact that we just heard from the FAA last week warning about air traffic control shortages. Some airlines might be pulling back here on some of their flights this summer. Is it affecting Mesa at all? And I guess, how do you see that maybe affecting your planning down the road?

JONATHAN ORNSTEIN: Yeah, I think there's just been a shortage throughout the industry in skilled positions that has really been, at least in the regional business, crippling. The air traffic control is specifically probably centered more around peak periods, peak holidays, and also in certain areas. For example, there is a big problem over this past year with so much traffic going to Florida and the inability for ATC to manage that traffic efficiently.

You know, I think the bigger issue, at least particularly for the regional airlines, has been the shortage in pilots that has just had a significant impact with capacity reductions oftentimes in the 40% range over what could be flown under normal circumstances. And this all goes back to changes in regulation that have required pilots to have more hours. And that has just really put a real kink in the pipeline. And it's made it really difficult to keep up, particularly when the majors coming out of COVID began to hire many of our pilots to fill the requirements that they had that came about due to early retirements and just the basic demographics at the mainline.

So we currently have a not insignificant portion of our fleet parked. I think other regional carriers are having the same issue. And it just takes a long time to get people trained. And it takes an even longer time to get those people to a position where we can hire them. So that's probably had a bigger impact on us that's just been really, frankly, somewhat overwhelming.

SEANA SMITH: Yeah, and, Jonathan, you guys talked about that in your latest-- in your last earnings call as well. How long until you think some of these issues then are resolved? Are we talking six to nine months? Or is this an issue that you could see lasting for years to come?

JONATHAN ORNSTEIN: I think that without appropriate action at the federal level in terms of Congress, and then the FAA sort of following through on some of the initiatives that have been discussed, I think this could easily last five years, and maybe longer. There is some discussion now about raising the retirement age, which I think is entirely appropriate. Pilots have to get medicals every year. Obviously, they would keep a close eye on people as they approached retirement age. I think that's one of the things that really needs to be done.

I think there are other training avenues that could be explored. But right now where-- we have a requirement in the United States that's five, six times higher than the rest of the world. And at the same time, pilots flying for KLM and Lufthansa and JAL are all flying into US airports with one fifth the time as a pilot.

I think it's pretty outrageous to discriminate against US pilots like that, and we're doing it right here within our own country. So hopefully, we can see some action-- I think it's really important-- or this is a problem that will not be solved any time soon. That I can be-- assure you it's going to take a long time, multiple years.

JARED BLIKRE: And your company is taking some steps to alleviate the dearth of pilots. Can you just briefly go over some of the initiatives and some of the incentives you're rolling out?

JONATHAN ORNSTEIN: Yeah, I mean, one of the big initiatives that we started, obviously wages had to increase because we had to sort of stop the flow of pilots going to the low-cost carriers who were effectively taking our pilots at will. Now, we've been able to stem some of that attrition. But the bottom line is the problem is not so much attrition, it's just people coming up through the pipeline.

And one of the areas that we've done has been to begin basically allowing pilots the opportunity to build those extra-- over 1,000 hours that they need after getting a commercial license to then actually use that commercial license and fly commercially. So we've begun a program using light sport aircraft, where we're effectively loaning the pilots the money to build the time at a very, very low rate, I mean, one quarter what the commercial cost would be to them, and then building that time and then coming to Mesa once they have the time to do that.

Another problem that we have along that is even once they get to Mesa or another regional airline, they need a certain number of hours to then be able to upgrade to captain. Well, now, pretty much every regional airline in the country has been stymied in their ability to add capacity because they don't have people who have the required hours to upgrade to captain. So this problem just is compounding as a result of this legislation where now even if you have the flow up, you don't have people qualified then to become captains. And that's all due to the high level of attrition that the industry had been facing as a result of the majors now adding people in the pipeline having been basically closed for so long.

So it's a multifaceted problem that's going to take a lot of work, both within the industry, within Congress, with the work groups, the pilots themselves. It's just something that needs to have a cooperative approach or the people who will pay will ultimately be the consumer because they'll be paying in fewer flights, fewer cities served, and higher prices. And that's all just part of what a shortage is about.

SEANA SMITH: Jonathan, great stuff there. I wish we had more time with you. We'd love to have you back on Yahoo Finance soon. Chairman and CEO of Mesa Air Group.