Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Wasn't, and I'm Tracy Alloway. Tracy, I, I flew recently on my first flight without a mask mandate. How was it? Was it a totally different experience. I actually it was more different than I would have expected.
Like I got on the plane and I was like, oh, this is so like something just felt like it was like I knew the different thing, which is that no one was wearing masks, but also like it just felt everything just felt like a little bit freer and different. It was very like it was. It was noticed. It was very noticeable in a way that's a really hard door to look. I grew up in Tokyo and wearing
masks was not a massive issue. It was just something that people did when they were sick on public transport or in an office or place with lots of people. So I don't know, I have mixed feelings about it, but I'm glad you enjoyed the maskless feeling. It makes traveling with kids a lot easier to not have to like always be adjusting their their ear strap on their mask or something. I can see that, and obviously you
can drink and eat as much as you want, exactly right. So, UH, lots going on though in air travel, because we know that it's booming. We know that things are picking up, although I don't know about business class or sorry business travel, but we know travel is picking up. We know that the mask mandate is gone. Um. We also know that oil prices like jet fuel costs have gone up a lot,
and actually in some places there's even a shortage. There was a story recently that the airport in Austin actually had to cancel some flights because there literally wasn't a jet fuel available. And it sort of speaks to one of our themes that we have about, you know, the revenge of the real Like it doesn't matter what the price of jet fuel is if there's simply not enough of it in a specific location. Yeah, it's also sort of like a list of times, worst of time scenario
for the airline industry. So lockdowns are ending, at least in the West. The mass mandates are being lifted. People are getting out and traveling again. But at the same time you might have higher costs. Well, you do have higher costs with his UH air fuel, right, air fuel is high and inflation is high, and that you know,
obviously burdened people. But it feels like after two years, even with inflation, even with economic uncertainty of various sorts, like people really want to travel at least for leisure. I would like to travel. That is true, I recommend it. So today we're gonna be speaking. So we actually had this guest on recently, I think in February, but we recorded the episode about a week before the war, before
the invasion. We had to change up our schedule due to news, and then so much happened that we're like, you know what, rather than trying to find just like the right time to publish it, so much is going on, all the things we talked about, why don't we just have them back on for a fresh episode, a take to the episode, the public episode of the of the
conversation that never got out there. So this is either a signal of a return to normality or something major is going to happen in the next week again and we're going to have to re record well hopefully this hopefully the public here's this conversation. I'm very excited we're going to bring back to the show. H Scott Kays He is the founder of the website Scott's Cheap Flights, and he knows everything about how the airline aviation industry works and what's going on to us. Scott, thank you
for coming back on odd lots. So great to be here. Thank you both for having me. What happened with Austin? And there was I don't know if it was just Austin, but there was something like there wasn't enough jet fuel. They're like, what happened there? Yeah, Austin is a little bit of a special case. The Austin bergs from airport because, uh,
for a couple of reasons. One, it is one of the fastest expanding airports in the country, one of the fast expanding metro areas in the country, and so the airlines and the infrastructure in place that the airport is having trouble keeping up. And so where you see that come to a head recently is with jet fuel, where, unlike most major airports which are actually directly connected to fuel pipelines, the Austin airport is actually not connected to one.
Fuel actually has to be trucked in from a pipeline I believe about fifteen miles away or so, and so with the expansion not only of the number of planes, but with larger and larger planes, more international flights, you know, flights to the Netherlands and elsewhere. What you're seeing is that the airport infrastructure just can't provide the fuel necessary and airlines having to take some pretty extraordinary steps as a result, including flying in airplanes with enough fuel to
be able to fly out to their destination. They call that tankering or other sorts of mitigation tactics. Unfortunately, this is something that is not especially widespread. Austin is a little bit of a special case. But you know, look there's some concern that between jet fuel prices and jet fuel availability, that's become a larger and larger problem in other areas as kind of we get back to a new normal after the past couple of years. So I wanted to like stay on the topic, but I actually
just flew out of Austin. I mentioned an intro, and I took a flight recently, but actually, like one more question about this, and I know it's not that timely, but I'm curious, Like Austin has grown just an insane amount in the last twenty years, particularly ten years, just like unbelievable at the number of conferences and events and population growth, Like what does that due to it an airport, because I can't imagine that like airports are easy to
just like build more gags on. It is very difficult to and and and a time consuming process to expand in airport's capacity. Now, the Austin situation is especially different than in many cases, in part because they an old terminal, the South Terminal, that is not exactly sufficient for today's demand out of flights in there, and so there's been a lot of discussion with the local government of trying to expand it, but been a lot of kind of
regulatory roadblocks and doing that. Even in the best of times, trying to expand airports and build new infrastructure is not a month's process. It's not a one or two year process. It tends to be a five to ten year uh project and sides and part why it takes goes so slow.
A funny thing though, happened early in the pandemic where airports like Salt Lake City again another one that has expanded the metro population significantly over the past decade, they were already undergoing an airport expansion process that they're actually you know, you never hear these words so much in infrastructure these days, but they have completed it ahead of schedule.
And the reason why was because the passenger volume, obviously early in the pandemic dropped and so what that meant was that they could shut down airport for significantly more greater swaths of time, significantly greater parts of the day in order to complete the construction and not disrupt air travel the way it would have in normal times. So there was a kind of a brief window there where you could actually complete some of this airport infrastructure projects
ahead of schedule. That that window is fortunately closed as air air travel is rebounding. But it's a it's a difficult timely thing. I'm getting a flashbacks to covering keythrow airport slots in the building of Terminal five as a
baby transport reporter in London. But uh, nevertheless, um, you mentioned mitigation of fuel costs there, and you know this is something airlines do, being large consumers of jet fuel, They buy their future needs and they hedge what they need to get what does it look like right now in terms of hedging. So we have this big spike in the price of crude oil. Is all of that going to flow through into airline underlying costs or is
there some mitigation here. There's gonna be a significant amount that flows through to the airline's costs, and then obviously some of that will get passed onto consumers. I mean, just to take stock today, the price, the spot price of a gallon of jet fuel is three dollars uh and one cents, which is almost at least when nominal terms, where it was at that record high in two thousand and eight when it reached three dollars and eighty nine cents,
and so it is very, very high. And just to underscore how important this is for airlines, jet fuel is the number two expense at airlines. There are no airlines with significant you know, there are no airlines with electric airplanes and commercial operation, no airlines with significant sustainable aviation fuel or all other alternative fuels. They're all basically exposed to the price of oil in a pretty major way.
But I'm glad you brought up hedging because that's historically one of the ways that airlines have tried to navigate this world where they have are exposed to the price of oil. Where you saw this really come to a head was during the oh eight oil seven O eight oil crisis, where a lot of the airlines we're seeing, even in the face of a recession, their prices be going way way up again because the price of a barrel of oil hit a hundred and forty seven dollars.
So as a result, the airlines were actually kind of late to the game of oil hedging, and they frankly had a pretty bad experience dipping their toes in andto they got into it too late. They ended up timing it just they basically started hedging right around the peak and ended up losing billions and billions and billions of dollars in the process. Uh. And so there are a few kind of legacy effects of that experience for the airline. For most of the US airlines, they just got out
of hedging entirely after the experience. They said, this is just, you know, a sort of scheme to enrich Wall Street bankers were not going to play it anymore, will mostly just rely on the spot price of jet fuel dealt them took a slightly different path and actually purchasing an oil refinery in Pennsylvania so they could have at least some control over the UH sort of production and refining process, and this still kind of helps supply some of their
airplanes in the New York City metro area. But by and large, the airlines just decide we are getting out of with the major exception of Southwest, which still engages in hedging today. But where you see this conduct having an interesting ripple effect is that is not the case
with European airlines. European airlines by and large do still do a lot of fuel hedging, and so what that ends up meaning is that the European airlines are obviously seeing much lower fuel costs today compared to the US airlines, which are having to pay the spot price. So if you think about a flight between the US and Europe, most of the cheapest fares today on flights to Europe
are actually on European airlines. Like I was teching a look at a flight from New York to Switzerland, cheapest airline to fly on it right now is s A S with a Scandinavian airline, And many of those European airlines are able to offer lower fares as a result because they're not paying the current inflated prices of jet fuel and so that ends up having ripple effects for your Deltas and your Americans and your Uniteds which have to decide do we charge a more expensive fair and
risk you know, being undercut on price and all our customers buying their flights on s A S or Lufthansa or British Airways, or do we lower our fares and compete on price but then end up having to eat the cost of higher fuel. And it's a I don't envy the folks in revenue management who are having to
make these decisions today. I'm kind of surprised. I would have, like, my assumption would be that there's a market price of a ticket or you know, roughly, and that the company and the airlines that are paying uh that are hedged or making more money, and the airlines that are spot
are going to pay less. I'm kind of surprised that there is a noticeable enough difference or that companies or that airlines can afford to charge significantly more for a given route than their competitors just because they happen to be paying more at a given moment for their their fuel cost. Yeah, one of the one of the most interesting things. And I would say, most unique things about the airline industry compared to other industries is just the
volatility of airfare. It is unlike anything else we purchase. It is the most volatile purchase that consumers regularly make. And there are a few kind of unique challenges for the airlines and why that's the case. One is air airplane seats are what are called rival goods. You know, if I buy a seat, that same seat can't be sold to someone else. It's only uh can be sold to one person. Two, you have spoilage. You know, as soon as the airplane door closes, any seats that are
unsold are are are spoiled. You can't get any money for them, and so they have to try to sell them by that date. But then three, you have sort of unpredict stability of demand. When you know you have to kind of project forward when you think travelers are going to purchase, when you think business travelers might purchase, what you think the world will look like, three, six,
nine months from now. It's almost akin to having to buying a futures contract where you have to guess today what the kind of outlook will look like nine months from now. And that's why it's such a difficult thing,
and why airfare tends to be so so volatile. Yeah, there was a consultant I wish I could remember his name, but he used to describe airlines very similar to a grocery store in the sense that you know, you have a thing that might not be worth it, Well, it's not going to be worth as much in a day or two. You know, the plane is leaving, whether it's full or not, sort of similar to the way fruit or vegetables would spoil. So you kind of need to
sell that produce or that product when you can. And on that note, one thing I was wondering is, okay, you have all this pent up. Well, first of all, how much pent up demand do you see for air travel? And then secondly, are you expecting a big ramp up in capacity by airlines to respond to it. Yes, So I would say that there has been a significant amount
of pent up demand until pretty recently. I think it's really kind of getting released this spring and into this summer, and I think by the fall we're going to start to enter a sort of period of stability similar to like we saw pre pandemic. You know, I think these next kind of four or five six months or where
we're seeing that pent up demand getting released. But I'm glad that you called out capacity, because while demand is close to recovered, especially domestic demand, and I would say leisure demand vacationers visiting families and relatives, is actually higher today than it was pre pandemic. And obviously it's just the dearth of business travel that's resulting in lower overall
travel numbers. Capacity is actually still down quite a bit from where it was pre pandemic, about about fifteen percent, but some routes, you know, especially trans Pacific ones, still down as much as seventy from where it was. Think about flights to China. The actual volume of travel from US and China right now is down from where it was pre pandemic. It is unbelievable, both how important it
was in and just how absent it is today. But that kind of diminishment, well, you know, the main story that get talk gets talked about is how travel demand is kind of rebounding very very quickly, much quicker than most analysts expected, and that's causing probably the single greatest cause of why we're seeing such a bump in overall
airfare prices. The capacity not rebounding quite as quickly over the past six nine months, in large part due to this ongoing pilot shortage, is a pretty signific a con factor that I think ought to deserve a lot of credit for the higher fares as well, that the airline airlines aren't able to operate as many flights as they would like to because they just don't have the capacity, they don't have the crew, and in some cases they don't have the planes to be able to do so
that they would like to. And that just gets into you know, our favorite topic of supply chains, whether it's the labor supply chain of training and certifying new pilots, or whether it's the aircraft supply chain of building and shipping out new planes. So I think this is actually a good spot to tell us where exactly do we
stand in terms of relative levels. I mean, you mentioned U as China, but for the various categories, whether it's domestic leisure, international leisure, business travel, like, where are we versus I guess the benchmarks. Yeah, so compared to domestic air travel is currently down about five percent, but again I think that belies the the the sort of makeup difference today versus pre pandemic, where it's much more weighted towards leisure travel. Leisure travel is higher today than it
was pre pandemic. One of the reasons actually, why when you got down an airplane I'm assuming Trason Joe, when you're going to be flying soon or when you flow recently, that airplane I can pretty safely guess was completely full or almost completely full. And the reason why is that airlines are having to sell far more seats today than they used to make up for that lack of business travel.
You know, historically they would want to keep some number of seats unsold up until the last few weeks or last few days before departure in order to take advantage of those late per purchasing but price insensitive business travelers. Today, they know that those business travelers aren't quite as prevalent as they used to be, and so they have to sell more seats to account for that. They know leisure travels the ballgame, and that's why airplanes on average today
are more full than they were pre pandemic. You know, today a planes eight nine percent full on average versus the same week in it was eighty six percent full. Not not a whole lot of elbow room. But international too, you know, just to touch briefly on it is still down quite a bit compared to pre pandemic. It depends
a little bit region to region. Mexico is actually up and been one of these sort of success stories, and travel, if you will, over the past year is significantly higher today in terms of travel demand than it was pre pandemic. Actually higher more passenger volume between the US and Mexico today than the same month in But international to let's say, Europe still down, you know, to Canada down, close to down, over across the Pacific down, and so that's where you're starting.
You're really seeing kind of airlines hoping that we're going to see a rebound, and especially hoping that we're going to see the end of the requirement that you show a recent negative test to get back into the US, even if you've been fully vaccinated. I want to ask you more about testing your harms and also labor shortages.
But before we do, there was a moment post two thousand eight when a bunch of airlines started or new startups began experimenting with business class only airlines, and part of that was in response to higher oil prices, and the thinking was, well, most planes, most airlines make the
majority of their money from business class passion passengers. The business class passengers are essentially subsidizing economy, so why not just cut out economy and have this class only carriers for popular roots like London to New York or London to Paris or wherever. And it didn't work out so well. But I'm wondering what happens in the current cycle, because on the one hand, you have very high fuel prices.
On the other hand, you have business class travel still missing, and no one's quite sure whether or not it's coming back. So maybe airlines want to focus on leisure. But how did they do that? What sort of creative ways are you seeing of responding to the current environment. Yeah, let me let me give you just a brief Let me
give you a couple of data points here. When you look at Delta's financials in versus the number of seats that they had on a plane that were premium, you know, premium economy business class first class in eleven was nine percent, that it almost tripled to and the percentage of the first class seats that they sold that they didn't give away for free or you know, giveaway to somebody who is well dressed or something like that that they actually
sold and got money for. Inn was but En was six and so as what what that is telling us is that the premium section of the airlines are where the airlines are seeing the significant growth in their revenue. That it is becoming increasingly important to airlines to be
able to monetize the front of the plane. And so that's why you see airlines not only building out larger business class cabins, but also building out you know, premium economy, something that didn't really exist a decade ago but now is a pretty it's a big money maker for the airlines because it only the premium economy seats are only about thirty to fifty larger than a regular economy seat, but they generally charged double the price for it. So you can see how that works out pretty well in
the airline's favor. Singapore Airlines just announced in the past week that their business class section and of their airplanes was actually selling out now before economy was. And now it's a you know, stark reversal of what was happening pre pandemic. And so I think you're seeing a couple factors. By and large, the airlines are marketing more towards affluent leisure travelers rather than primarily business travelers in order to
sell these premium seats. And secondarily, I think they're getting much better at sort of the pricing mechanisms to reach them, you know, not just having a sort of one size fits all, very high inflated price. And then there are a lot of unsold seats and maybe they'd give them away to two elite members and instead being able to
do much more sort of dynamic pricing. I don't know if you had this offer one your recent flights, but what they'll do many times if they have a number of unsold business or premium economy seats when you go to check in or nearing the flight datas, they'll actually hold something of an auction on it. Will they ask, you know, hey, how much would you be willing to pay to upgrade to be since class? You know, and you can put in your bid and if it gets accepted,
they get it. And and and so the airlines have just gotten much better at monetizing that kind of scarce space on an airplane. And so when you the last data point here is that when you look at Delta's revenue over the past decade eighteen, their overall revenue grew by nine billion dollars, it was up, but their economy
ticket revenue actually fell by one billion dollars. And that's because they're getting so much better at at diversifying their business model away from the old model of just relying solely on economy ticket revenue. Yeah. I was on a flight recently and there was some offered a bid on business and I was like, this is too confusing. I don't want to, Like, I don't engage in some like
complicated financial derivative just to fly. You know. The other thing is also it's like if there's a power outlet and working WiFi, Like, I don't care if I'm in coach. I'm just happy serving my phone for five or six hours,
So I really don't mind. Anyway, that's a divergence. So we've talked about what's going on with volumes and what's going on with leisure volumes, of what's going on with travel, what's going on with price, and how much is price you know, in the coming months predictable because we've seen um a pretty big jump in airfares over the last several months. I think it was like a huge one month jump in the last uh CPI report. But how predictable,
like is it? Can you extrapolate and say, okay, as things normalized further and as a bunch of people take trips this summer, that we're going to see further upward price pressure or like what can we say confidently about the sort of like aggregate trajectory of airfares? Yeah, so you're you're absolutely right. In uh March of two, we saw the single highest one month jump in airfare on record. It was up eleven per cent, and that you know, goes in line with the one over the past twelve months,
it's up twenty four percent. But when you dig a little bit deeper and you zoom out a little bit, you see that over the past two years compared to you know where we were in in March, air fares down five percent today compared to then, compared to five years ago, down compared to a decade ago. Air fare is down thirty and those are in real numbers and inflation adjusted, And so I think, you know, look, a lot of folks are understandably confused, upset, not happy with
seeing the price of flights going up. In the near term, it is, it is absolutely going way, way up. But I think if you if you take a bit of a longer term perspective, you see that we're actually still living in what I call the golden age of cheap flights. It's never been cheaper to fly as it has been since about mid While we're on this topic of of kind of average airfare increasing, prices of flights generally going up, I think the most important thing to recognize is that
two things can be true at the same time. First, average airfare can be increasing, and second, cheap flights can still be plentiful. You know, in March, as the average fares went up that record spike of eleven percent, a few deals that you know, we found in sent Scot's Flights members, like three hundred dollars round trip to Paris, going to Costa Rica for a hundred and ninety three dollars round trip, Hawaii for a hundred and ninety seven
dollars round trip. These are all on full service airlines, and so airfare is rather than it's being something with a sort of narrow curve and all kind of clustering around the average air fare. Airfare is something instead that has a super super wide distribution. You have expensive flights and you have cheap flights. You know, I recently took a flight to Boston. Uh you know, I paid two hundred dollars round trip, but for my flight from Portland,
Oregon to Boston. And that's the person sitting next to me, what did they pay for this flight? And they paid six hundred dollars for it. So between the two of us, we paid four hundred dollars, but neither of us actually paid that average fair four hundred dollars. We either paid two hundred or six hundred, and so air average airfairs can absolutely be going up, but there can still be a plethora of cheap flights available. And that's I think kind of different than a lot of other goods of
services that we tend to purchase. So I have a slightly existential question. But there used to be this great chart, and probably one of my all time favorite charts, although I haven't seen an updated version for a long time, but it basically showed airlines average cost of capital versus airlines average return on capital, and you could see throughout modern history cost of capital was basically more than the return on capital, and historically airlines have been extremely unprofitable.
Maybe they have these boom bust cycles, but I think over time they tend to to lose money. How long, you know, given the rising pressures, labor costs, fuel costs, none of that seems like it's going to go away anytime soon. But will we always have the option to travel at a reasonable amount to wherever we want to in the world? Essentially? Yeah, So, I mean this is somewhat of a recent phenomenon being able to travel, especially long haul travel, at much more affordable prices than we
have historically. You know, to touch on your first point about airline financials, Look, we've all heard the Richard Branson joke about how the quickest way to become a millionaires to have a billion dollars and buy an airline. You know, I think that underscores a certain truth when even in pre pandemic times, airlines tend to lose money on flights
and actually make it up on other things. So in when you looked at air American airlines financials, the revenue from every of what are called available seat miles, they made about fourteen point four cents off of but the cost for a per available seat mile was fourteen point nine cents, So they were actually losing money on every plane that they flew. And where they made it up and why they turned a profit was from the billions of dollars that they made selling miles, frequent flyer miles
to banks and credit cards. And so the airline business model is one that has significantly changed over the past decade, or really over the past thirty forty years, but especially over the past decade, where historically airlines relied almost entirely on economy air fare to fund their revenue and to fund their operations, to one today where they make a majority of their revenue on things other than economy air fare. They make it, you know, we talked about the front
of the plane selling business and premium economy seats. They make it on selling frequent flyer miles and credit cards. They make it on corporate contracts, they make it selling cargo. They make it certainly on ancillary fees, bags and seats selection. They make it on commission selling you know, hotels and car rentals after you purchase your flight. And so what it means is that they have all these revenue streams
today that they didn't use to. That makes them fly a little bit certainly much more diversified, but also more resilient than they used to be. Uh. And this is why Tracy, to your point, the economy airfare has followen so much over the past decade while we're living in this golden age of cheap flights. You know, think of it like a restaurant where economy seats are are the states the main course that's essentially sold at cost, maybe
there's a very slight profit margin. The premium seats, frequent flyer miles commissions. Those are you know, the sodas, the alcohol, the salads, the things that get marked up at a huge profit. And so if they if the airline you know, didn't have those sort of answerers, those high profit or high margin products, they would be much more difficult for them.
And that's why historically it was. But they've been able to generate those while while combining it with the sort of low margin parts of the travel experience, like buying
your economy ticket. And so that's why I think the because the business model has changed, why I'm pretty bullish on the outlook for cheap flights generally that I think the just the model has changed that's going to continue to allow these cheap economy air fairs, whether you're flying to mescal or but especially if you're flying long hault
places like Europe, places like South America or beyond. So I have a question, and it's kind of a big picture, but you know all of these when we talk about the state of the economy and we talk about normalization, there's always this question of, like, well, how much of what we're experiencing now, whether it's inflation or other disruptions, is a function of the fact that things are still weird because of the pandemic versus some sort of new normal.
And of course that's a huge question for economists trying to evaluate the inflationary environment. But just from like an airline specific industry, are there things yet that you feel comfortable saying this is going this about air travel is going to be fundamentally different than it was in and this is a new shift. This is some new trend that's emerged that was not the case, and it's not likely to revert. Like do you see like structural changes having taken place as a result of what we've all
experienced over the last two years. Sure, I'll give you one from a consumer perspective and one from an industry perspective. So from a consumer perspective, one of the things that is absolutely changed today from pre pandemic is that you have a lot more flexibility to change your plans after
you book your flights than you used to. Historically, when you booked your flight, you're pretty well locked in, and if you wanted to even just change your the dates that you're going to fly on, you had to pay first a penalty of you know, two hundred, three hundred, sometimes four hundred dollars or more. Uh, in addition to
any fair difference. But one of the things that airlines across the board did early in the pandemic was to get rid of those change fees, because they their assumption was that travelers needed to be able to uh feel confident that they could change their plans, that they could have flexibility later if they were gonna have any hope of booking flights today. Uh. So, across the board, airlines kind of really trumpeted that they were permanently getting rid
of change fees. Uh. And so now when you book your flight, you know you can you can if you decide you don't want to take that Memorial Day trip like you'd originally book, you can just push it back till later in the summer. You can push back to
the fall, to the winter, whenever. It Not only I think is a real benefit for consumers to be able to have that flexibility automatical a but the airlines like it too, because it's one of the areas of differentiation and upsell that they that they tend to not make this available if you book a basic economy ticket, and so that encourages folks then to pay slightly more to purchase a main economy ticket and be able to have
that flexibility. One of the major changes from an industry perspective is this ongoing pilot shortage where the airlines are still kind of paying for some of the decisions that they made early in the pandemic, you know, rewind to March April. Airlines, this was an existential question for them, are we going to survive this as an airline? Not just are we going to be a smaller coming out
of this, but will we exist at all? And so airlines virtually overnight UH stopped hiring new pilots and other personnel, and they stopped doing a lot of the training, and they started offering a lot of buyouts, early retirements and whatnot across the board and ess actually for pilots, and so by the time travel started rebound, travel demand started rebounding. That happened much quicker than the analysts or any of
the airlines expected. The airlines were caught pretty flat footed that they didn't have as many pilots, not to mention all the the airplane supply chain issues, but they just didn't have enough pilots to be able to fly the number of planes they wanted. And so they've been quickly trying to ramp up in order to deal with that, by you know that doing everything from starting their own
flight schools to increasing pay. In many cases, they're actually poaching the large kind of mainline airlines like Delta and American are actually poaching airlines either from the smaller budget airlines who have lower pay, or maybe they're poaching them from what are called regional airlines that fly you know, smaller planes to smaller airports, and so u the large
airlines have been able to navigate this pretty well. They're close to where they want to be from a pilot perspective, or at least there's a light at the end of the tunnel by the end of this year that they'll have the number of sort of pilots and overall personnel
that they'd like. But who's really struggling with this are the regional airline So I think you know, your small flights took places in Montana to Reno to you know, Colorado Springs, places like that that rely on regional airline service, where that's where you're seeing a ton of the cancelations, a ton of the schedule cuts, and a lot less
capacity today than you had in nineteen. It's just much more difficult to fly to some of the smaller cities and destinations than it used to be because of this pilot shortage that I think is going to be we're still going to be dealing with for the next year or two at least. So two questions here, but one
where do new pilots come from? And I realized that might sound like a weird question, but it used to be that you would get a lot of X Air Force pilots at least to the U S who would migrate into commercial and that's certainly what my dad did, And what's the value proposition for being a pilot now, especially if you're someone who has to start out on a regional carrier where the schedules suck and there's a lot of stress and maybe you're not making enough money initially.
And then speaking of a lot of stress and the schedules sucking, um, what's going on with flight attendants at the moment, because it seems like there's some pressures on that supply of labor as well. Yeah, absolutely so, I mean in terms of sourcing of new pilots, yes, absolutely, you know X X military, X air Force is it was has historically been a pretty big abundance supply of commercial pilots. And then you know, just just there are also folks who go to school, come out of college
with the intention of getting into the airline industry. And there are a lot of flight training schools where folks go into in many cases, pretty significant debt in order
to get certified as a commercial pilot. And and you know, in some ways that there's a similarity with the medical profession where we think of you know, doctors is relatively well compensated, but there is a big ramp up time there's a lot of training, a lot of schooling that's required, and a lot of regulatory requirements in terms of the amount of training you need. In the US to be a commercial pilot, you have to have had fifteen hundred
hours in the cockpit or other training. And so that ends up kind of limiting the amount of supply and and making it difficult for airlines to be able to quickly higher up. I mean, I don't you know, it's not an entry level job where they can just quickly meet demand. That it takes. You know, it's a matter of months and years to be able to train and
high up new pilots. And that's why so many of the airlines are getting into actually owning and operating many of the new flight schools themselves, because they want to. They can't. They don't feel like they can rely on the supply of new pilots in the way that they that they used to. And you know, the the other area where it's kind of smilar to the medical profession in some ways is that the entry level pay, the initial pay is actually much lower than many folks realize.
You know, it tends to be forty K fifty K many times starting out if you're flying for one of the regional airlines who are really kind of small, you know, nine seat type of aircraft, and it can take a while to get to you quote unquote the big leagues, where not only do you have a lot more prestige, a lot more pay, a lot more more kind of desirable flight schedules in general, uh, in terms of you know, we talk about the pilot shortage, and that feels like
in many ways where the most pressing part of the labor shortage of the airline industry is. But I think you really kind of raise a good point that that it's not the only aspect of airlines that are struggling with labor. You know, you see uh, you see it in phone agents. You know, I don't know if you ever had to call an airline in the past two years, but the weights tend to be you know, measured in hours, if not as sometimes to be able to get through
to a phone agent. And it's measured oftentimes in other sort of ancillary services, not just flight attendant, is not just gate agents, but think about the baggage handlers or folks who are refueling the plane, the ground support at an airline. Those tend to be more entry level jobs, but they tend to pay. They're they're competing in many ways with these sort of similarly if not better paying warehouse jobs that that folks might be able to get.
And so if you are looking for one of these types of jobs, do you take the eighteen dollar an hour job kind of taking and loading bags off a plane in January in Chicago, or do you take the similarly paid job working on Amazon warehouse where at least it's temperature controlled and other sorts of uh, you know, not having to deal with the kind of Chicago winters
in the same type of way. And so I think that competition is become becoming more difficult for airlines today than it used to, and why they're seeing uh, labor shortages across the board, not just with pilots. You know. Tracy mentioned flight attendants, and of course the mask mandate just in the last week when we're recording this UM went away. And I'm sort of curious about perception. So
here's my guess as too. And I don't know because I haven't seen any like official surveys, but my guess as to the perception of among flight attendants is probably there's some mix. I'm guessing most people don't like having to wear a mask all day while they're work, That's
what I was gonna say. I'm guessing there's sort of universal, um sort of displeasure at having been essentially deputized to enforce one of the most sort of divisive things over the last two years, their job which they never you know, signed up to get in the middle of this sort of culture war whatever you want to call it, of enforcing mask mandates. How much talk to us a little bit about that. How much of a burden was that?
How much did that contribute to what I believe there's been an uptick and sort of air rage incident and what uh sort of the aftermath in terms of inclination to fly and other things now that the mass mandate
has gone. Yeah, I think that's exactly right. You know, being a flight attendant is not an easy job, but none of them signed up to have to also be a bouncer at thirty thousand feet Like it's just trying to make those decisions, and in many cases having physical harm inflicted on them from these incidents was really, uh,
pretty awful to see. And so I think, um, whether the root cause of that is because of the mass mandate, or whether the root causes more sort of systemic because you see, you know, across the board in society, a lot of types of the incidents are are on the rise. It's it's a little bit hard to say, but I think the general trend, at least over the past few months, uh and sentiment among fighting has been trending towards wanting
the mandate to be lifted. It's obviously a contrast between the folks who are the most exposed to everybody who's coming onto a plane and and and and any germs they might be bringing. But also there are the folks who are having to wear masks all day every day at their job, and so as in much of society,
there's a real kind of diversity of opinion. There fortunately a lot of the sort of safety mechanisms that exists on airplanes, between the HEPA filters that constantly changed the air the onboard you know, oxygen is constantly coming into the plane from the outside during a flight, the downward airflow.
The fact that people are quiet tends to fortunately mean that there's not nearly the amount of in plane transmission that a lot of folks might have assumed early in the pandemic, but that doesn't mean that it never happens. And so the last thing I'll say on this is that the UH in there was no federal mandate that that airplane airons had to our transportation had to have
require mass. But you saw across the board all the US airlines require it voluntarily because that's where they felt like the sentiment was, where where you know, the the demand was today Now that with the mask mandate gone, zero airlines voluntarily required, and I think that kind of reflects where they see, you know, the folks with money on the line here see that it is they're going to take advantage of demand in a greater way without
having without imposing a mandate than with one. So you touched on this earlier, but just on the topic of the mask mandate rolling off, we still have vaccination and testing requirements for a lot of international travel. How much of a drag is that still on air travel and how much would you expect demand to pick up once
those are removed. It's significant, you know, the international travel still down anywhere from fifteen to thirty percent today, why whereas domestic travel has largely rebounded essentially on parity with where it was in and I think the single largest reason why you see that disparity is because of the requirement that all travelers flying on an airplane to the US, even Americans who have been fully vaccinated, have to show a negative test that they took one day before their flight.
And what that means is that, you know, especially in the world now where there are many breakthrough infections, folks who have been fully vaccinated and boosting still able to contract the virus. A lot of folks have, I think pretty reasonable worry that if they take that trip to Barcelona, they take that trip to Cancoon and they catch or breakthrough infection, they're going to be stranded in a foreign
country for seven and fourteen days. Not only the expense and hassle of that, but also the you know, I don't know any pet care, any work obligations. It's just the downside. Risk is a lot higher today than it used to be in twenty nineteen, and so I think you see a lot of those folks who might have otherwise been interested in taking that that trip to your that trip to Latin America instead traveling domestically. And why you see the kind of balance of international versus domestic
trips waited today towards domestic. There's rumors, there's you know, tongues are wagging right now that the uh the test requirement could end sometime in the next month or two. If that comes to past, I would anticipate we're going to see a pretty big jump in international travel moving forward. I think that this is probably the big, single largest roadblock.
I think it will still be some time until it gets back to parity, but I think you'll see a pretty large jump because you won't have that same concern about about breakthrough infections impacting your ability to get home that you would today. You speaking of international travel, and you mentioned that US China travel is down, and in a way, I'm surprised it's not. Maybe it is, but you know, one of the stories of the last decade, I think in international tourism was this rise of the
Chinese middle class. Tourism class going all over the world. I assume for some carriers in some country is a huge source of tourism demand and travel. And I don't think it's obvious that it's gonna come back anytime soon. I mean, obviously, like China is as lockdown or more locked down than it ever has been. And I know, who knows how long that last. That must really blow a whole uh for a lot of like airlines budgets, and I assume some countries even for whom that was
a major source of tourism dollars. Yeah, and it's both tourism dollars in certain you know countries and economies have more exposure to that than than others. But it's also airfare,
especially to elsewhere in Asia. One of the main reasons why we saw so many cheap flights across the Pacific where you know, two places like Vietnam, Thailand, Singapore, Bali, etcetera, was because of the rise of Chinese airlines that they were really kind of flooding the market with a significantly more capacity that had a downward pressure on overall prices.
You know, you see the same story play out not just domestically but increasingly internationally, where budget airlines are just more airline capacity at large having a really kind of
downward impact on prices. Because the single largest determinant of how many cheap flights you see on around is just how much competition there is between airlines, and so the the removal of many, you know, the the vast, vast majority of Chinese airlines on these long haul international flights is one of the reasons why we see so few cheap flights right now across the Pacific, even as a lot of countries really kind of open up their tourism
doors in mass over the past couple of months, you know, Thailand, Singapore, Vietnam, elsewhere, most of Southeast Asia is now open for tourism. But you haven't seen the same rebound in capacity or the same cheap fares that we saw in twenty nineteen. And I think the single biggest reason why is you don't have the Chinese carriers kind of adding to that capacity
and depressing air fare prices. I have one of their sort of like actually international question, and this is definitely something that we couldn't have talked about when we talked in February, But what is your understanding of the situation with um the Russian airline industry, Because in addition obviously to being cut off from much of the world, you know, their import or their export restrictions, and I have to assume that makes it difficult to service or get parts
for key airlines, although I guess, or key airplans, although I'm not sure. And then I seem to recall that Saber one of the key some of the key software that they used cut them off, like what has happened or what's going on? Or what's your read if if you contain anything on what's happened to plane travel in Russia. Yeah, the domestic Russian travel market has been one of the
largest growing over the past decade. It is a you know, major major purchaser of Boeing planes and others, and so, you know, and and by and large leasing their aircraft
in most cases from Western aircraft lessers. And so when they made the decision to effectively nationalize the airlines, the airplanes that they had, even if you took a very best case scenario look at at you know that somehow things are significantly improved over the next year or two, the aircraft that exists in Russia today are essentially a
total loss for those lessers. And the reason why is that in order for aircraft to continue to be so perviceable, in order for them to continue to be underwritten by insurance companies, in order for them to be sold to other airlines down down the line, they need to have impeccable maintenance records, and without the sort of Western support, without the parts and without the access to these sort of manuals and expertise that exist at Boeing and at
some of the other aircraft parts suppliers, they just can't do that. One of the things that's different about the aircraft industry that than than many other industries is that when you buy a Boeing plane, when you buy you know, a certain you know, Pratt and Whitney engine or Rolls Royce engine, you don't get the full sort of manual
to how that thing operates. And in most cases you actually have to still be in touch with the aircraft manufacturer, with the engine manufacturer for maintenance, for repairs, things like that, where they actually have dedicated teams working with you. And because it's a you know, an intellectual property issue and a proprietary issue, that now all of that is effectively cut off. And so that's why it's such a big deal of the Russian aircraft industry being cut off from
the kind of Western world. Now what do they end up doing, Like does every does aeroflot just start using two polufs or something like that. Like, there are Russian made aircraft, although I'm not sure how many people would want to be flying on them. Yeah, they're West They're they're Russian made planes. There are Chinese. Chinese domestic industry is starting to grow. They just kind of roll are
rolling out their first domestically manufactured one. But those still include a lot of Western technologies, especially from airlines like Lufthansa, and so it's not a holy independent thing and probably can't operate with a certain amount of Western support. What
they're likely doing. I have no idea what Russia's long term plan or even medium term plan is for their aircraft, but the short term plan at least is to be able to take a lot of the planes that they have and designate some of them to essentially just be for parts for scrap, you know, where if if if some parts starts to needs maintenance, needs replacement, needs repair,
they take it from one of these other aircraft. It's a model that has been used in the past and other kind of severely sanctioned economies, but it is it is absolutely more of a band aid, more of a short term fixed than something that's sustainable over the long run. So before we go, Scott, I mean, I think this summer is probably gonna be pretty wild for travel, probably fairly expensive, everyone getting You know, after two years, many people are going to be traveling or doing vacations in
a real way for the first time. Jet fuel costs are up. What did you know, Scott's cheap flights? So what's your what's your tip for anyone? I'd say, who wants to take a take a vacation this uh, this summer? What's your what's your big tip for them? Two very quick tips. One, if you are just hoping to take a vacation you really want to go somewhere cheap, but
you don't care where or when. Instead of deciding where you want to go and when you want to go, and then look at airfare, take that same three step process and flip it on its head. Step one, where are their cheap flights out of my home airport? If you live in New York, Oh, there was you know, just in the past week, there were flights to Barcelona for two round trip, Santorini for five sixty six, or
Hawaii for four fifty. Oh, I'd love to go to Barcelona two eighty six, choose your destination and then choose the dates that work for you. By setting prices the top priority rather than the last priority. That's how you get cheap flights, and that's how you end up with three vacations for the price you used to pay for one. Last thing I'll say is that if you have a specific trip, you need to be at X destination on why dates they It's really really critical to get your
timing of when you book your flights right. I use the WHAT model of the Goldilocks windows. So the best time for when cheap flights are most likely to pop up is not too early, not too late, just right in the middle. If you're traveling domestically, one to three months ahead of time is typically when you see those cheap flights most likely to pop up. For international flights, two to eight months is typically when you see those.
But if you're traveling during a peak travel period middle of Summer, Christmas, New Year's Dublin for St. Patrick's Day, add a couple of months to those recommendations. All right, Scott, great to have you back back for your first episode. I don't know how to describe it, but great to have you back. We'll definitely have you on again and appreciate all your insights. That was great, This is so much fun. Thank you both for having me Tracy, I'm
really glad we had Scott back. It really does feel like, at least in domestically and maybe US Europe and US Mexico and some other routes, travel is just about to get It's just going to get even more crazy for a while, well barring some sort of event that makes us have to mothball this episode, like I don't know, solar spots flare up or something like that. So pessimistic, Yeah, I don't know. It just feels like it's been NonStop over the past month or so. But anyway, Yes, that
was a really interesting conversation. One thing that struck me, and again, my expertise in airlines sort of ended. Um, I guess it would have been right around two thousand eight, Yeah, right around the financial crisis. But it is interesting to see how this historically loss making industry continues to adapt
and survive in really the worst of work circumstances. So actually, I thought that was really interesting and I didn't appreciate the degree to which these UH airlines have really diversified their revenue stream and so you know, he mentioned, you know, there's the old cliche like how to become a millionaire like by and be a billionaire and then buy an airline or whatever it is. But my impression is that it's just a much in the core business has become
less volatile. If you have all these ancillary revenues, if you have ways of selling business class tickets to leave your travelers, it seems like you can really sort of smooth things out a little bit, and not quite that would be quite so boom and bust. And it's interesting, like I feel like it's when we were kids, like airlines were going bankrupt all the time, like big ones. You know what happened up My dad worked for Brand if I remember, they went bankrupt and he was out
of a job. It was definitely boom bust cycle for sure. And it feels like I don't know if like an airline is like a good business, but it doesn't feel like a terrible business these days. Uh maybe maybe, I want to say, I hope so so historically I feel like what tends to get the airline. So, yes, there are unforeseen circumstances like the nine eleven terrorism attacks or
something like a global pandemic things like that. But historically what tends to get the airlines is their own behavior, where for instance, they end up annoying all their consumers by charging ancillary fees and revenue and pushing all of that onto them, or they over expand and start price wars that then hurt everyone. It's kind of crazy. Like I'm looking at a chart right now in the terminal like Delta Airlines a d A. Like the stock just
goes sideways. It's like it's basically exactly where it was in the middle like late right now, and so it's it's doing pretty well in nineteen and then of course the stock plunged in spring. But like they're not like it's sort of yeah, they're not likely to go bankrupt, but they're not exactly Like they're not the right tail is not there. They're not huge moneymakers. This is very true. Alright, shall we leave it there. Let's leave it there. This
has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can find me on Twitter at Tracy Halloway and I'm Joe Why Isn't Though? You could follow me on Twitter at the Stalwart check out Scott Kais of Scott's Chief Flights. He's at s M Kais. Follow our producer Carmen Rodriguez at Carmen Rman. Followed the Bloomberg head of podcast Francesca Lead at Francesca Today, and check out all of our podcasts Bloomberg under the handle at podcasts. Thanks for listening,