Keeping up with inflation
After more than 10 years, US charter rates and aircraft management rates are finally rising. But so are costs.
The US Bureau of Labor Statistics last Friday (December 10th) issued inflation figures showing that the cost of living rose by 6.8% in November – the highest rise for 39 years. The department tracks lots of different costs – some of the big rises are food, fuel, and (both new and used) cars.
Current consumer price data follows on from strong jobs data showing that there are more US jobs vacancies now than at any time in the past 20 years (when tracking started). Unemployment numbers are almost down to pre-Covid levels. If, as predicted, they keeping falling, they could soon be the lowest since 1973.
While labour costs do not always follow inflation, they are also rising. The Atlanta Fed has seen the fastest rise in wage growth since 2007. The US Bureau of Labor Statistics shows that compensation for US private industry workers increased 4.1 % for the 12-months ending in September 2021.
Defying the expectation of a Covid-driven lull in wages, private industry compensation actually increased 3.1% from the first quarter of 2020 to the first quarter of 2021.
But business aviation wage growth was much higher. It was more than twice the average for the private sector at 7.5% for the same 12 months, according to Dr Christopher Broyhill, inventor and CEO of AirComp Calculator.
Broyhill has been working on business aviation compensation since 2017 – both for the NBAA and operators – and he only sees rates rising at maintenance shops, and both charter Part 135 and private Part 91 operators.
“Airlines drive compensation. A lot of people in business aviation are completely committed to the industry and have deliberately chosen to be in it. But a lot are happy to work for airlines,” says Broyhill. “You may not think you are losing staff to airlines, but you are. If you lose a pilot, mechanic or director of Maintenance to a competitor they are often replacing someone who has left for an airline.”
He says this competition for people is only going to get fiercer. “With Covid, airlines have made things a lot worse. They basically looked at 2001 and fought the last war cutting back hard because they thought the market would take years to bounce back. It hasn’t,” says Broyhill. “They cut people and offered early retirement to hundreds of pilots they cannot get back and are now scrambling for people. You can see this with the thousands of flight cancellations.”
Broyhill is expecting all the major airlines to negotiate new labour agreements that are more attractive to staff in the next year. He adds: “I will be shocked if we are not having the same conversation in five years’ time.”
Wage costs are a significant component of maintenance costs so you can expect these to rise too. The same is true for parts. Metals prices have also risen in 2021 – aluminium is up 50% since January. This also means that people waiting for aircraft in 2022 and 2023 can expect escalation.
Rising fuel prices are also a big driver of the consumer price index. The same is true for jet fuel. The International Air Transport Association (IATA) says that North American jet fuel is up 49.3% since January (it has fallen in the past few months).
The good news is that rising demand gives operators a chance to pass on these rising costs. But, as they take the opportunity to raise prices for the first time since 2008, they need to make sure they keep above inflation.
Above. North American jet fuel is up 49.3% in price since January, but has fallen recently: IATA.
Below. Christopher Broyhill: “You may not think you are losing staff to airlines, but you are.”
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