“This pilot shortage was going

to occur this decade no matter

what.”
Helane Becker, airline analyst at TD Cowen

American acquired many of its regional partners over the years,

which it operates separately as PSA, Piedmont and Envoy airlines.
(Alaska and Delta also bought regional partners — Horizon and
Endeavor, respectively.) American last year also precipitated the
latest round of disruptions to the regional business by being the first
to make big increases to regional pilot pay.

The pilot shortage has been fueled by buyouts the major airlines
offered to reduce payrolls during the pandemic. About 6,000 pilots
took early retirement, according to the Regional Airline Association.
But observers say demographics were bound to lead to a shortage
regardless, with the number of new pilots entering the business in the
last decade diminished by a new federal rule requiring pilots to get
1,500 hours of flying time to qualify to work for a scheduled airline.
Almost 50% of U.S. pilots are over 50.

“This pilot shortage was going to occur this decade no matter what,”
says Helane Becker, an airline analyst at TD Cowen.

Apart from the specter of outright failures, it’s unclear how much
more consolidation there could be after the number of regional
passenger airlines RAA counts as members has shrunk to 17 from
about 90 in 2000. Ornstein says it’s more likely one of the owners of
the smaller carriers could decide to sell — like Cape Air, GoJet or
CommuteAir — rather than a combination occurring among SkyWest
and Republic and Mesa, the three big independents.
Mesa Air was caught in a squeeze. Travel was rebounding from its
pandemic doldrums and bigger airlines had hired away thousands of
pilots from Mesa and other regional carriers, which operate short-
haul flights for the majors from small cities to giant hub airports. To
keep his planes staffed, Ornstein joined other carriers in radically
hiking wages, doubling pay for entry-level first officers to $100 an
hour. But American Airlines, a key Mesa customer, refused to
increase compensation for the flights the regional carrier was flying
for it.

“I was looking at any possible combination whatsoever to survive,”

Ornstein, a colorful raconteur who’s run the Phoenix-based airline
since 1998, tells Forbes. Mesa was bleeding cash, running up a $182.7
million net loss for the fiscal year that ended September 30.

It was another large carrier, United Airlines, that saved Mesa. In

January, United agreed to a five-year contract with richer terms that
could employ all 40 jets that Mesa had flown for American.

Mesa’s struggles have come amid rising doubts over the future of
regional airlines, which account for roughly 40% of scheduled
departures in the U.S. The steep increase in pilot salaries has eroded
the cost advantage once enjoyed by the scrappy carriers, some of
which are independent while others are owned by mainline airlines.
Meanwhile, a shortage of captains has led to the grounding of a large
share of the regional fleet and cutbacks in service.

As of April 19, regional airlines had 26% of their 1,835 planes in

storage, according to Cirium, an aviation analytics firm. Mesa has
42% of its 143 planes in mothballs. There were 308 U.S. airports in
April with less service than in the same month in 2019, 72% of the
total, according to the Regional Airline Association, and 11 airports
have lost scheduled service entirely, including Williamsport,
Pennsylvania, and Ogden, Utah.

“The regional airline model of a regional carrier flying for a larger

mainline partner is reaching the end of its useful life,” Henry
Harteveldt, a travel industry analyst who heads Atmosphere Research
Group, tells Forbes.