American Airlines CEO Offers Pilots Up To $590K In Pay

American Airlines management seems ready to give its pilots a new contract, though I’m surprised (and impressed) by the way the airline is going about it…

American Airlines’ contract negotiations with pilots

At the moment we’re seeing pilots at most major US airlines trying to negotiate new contracts. They didn’t have much leverage to negotiate during the first two years of the pandemic, and with pilots now being in such high demand, this is obviously a great time to try to get a new contract.

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We’ve seen pilots at both Alaska Airlines and Delta Air Lines negotiate new contracts, and pilots at other airlines are currently trying to do the same. American Airlines pilots have been trying to negotiate a new contract since before the pandemic, but so far haven’t been able to come to an agreement.

One of the challenges with these contract negotiations is that pilots at each airline want an industry leading contract. So not only is there a lot of benchmarking happening between airlines, but some contracts even contain provisions that there could be further retroactive pay increases in case a competitor negotiates a better contract.

Obviously this is challenging, and creates a situation where the sky seems to be the limit when it comes to pay. We’re seeing the latest example of that at American now…

American Airlines’ unconventional offer to pilots

Generally contract negotiations happen behind closed doors, and occur between management and top union officials. American Airlines CEO Robert Isom is currently taking an unconventional approach, and has just sent a letter to pilots, with what essentially amounts to a contract offer, as first flagged by @xJonNYC.

This letter is so unusual and frankly generous that many wondered if it was fake, but nope, this is real. Let me hit on a few of the highlights:

• Isom confirms that Delta pilots ratified a new contract “that is unprecedented in the history of collective bargaining,” and it’s “a deal that profoundly changes the economics of a Delta pilot’s career”
• Isom confirms his commitment that pilots at American “will be paid competitively,” and that “American is prepared to match Delta pay rates and provide American’s pilots with the same profit-sharing formula as Delta’s pilots”
• American pilots would receive pay increases of 21% in the first year, plus they’d get a better profit-sharing program, plus they’d get a bump in their 401(k) in the second year of the deal
• The profit sharing pool would increase from the 5% of pre-tax earnings that it currently is, to 10% of pre-tax earnings, to 20% of pre-tax earnings above $2.5 billion
• Compensation would increase 40% by the fourth year of the deal, and factoring in overall compensation, narrow body captains would earn $475,000 ($135,000 more than now) while wide body captains would earn $590,000 ($170,000 more than now)
• Isom finishes by saying that this contract is what American pilots deserve, and that it can be negotiated quickly, so he says “let’s get this deal done”

My thoughts on American’s offer to pilots

Usually it’s common to see airline management drag their feet when it comes to contract negotiations. So Isom offering what’s unarguably a compelling contract to pilots might come as a surprise. My guess is that he’s just trying rip the band aid off, and make sure the summer travel season runs smoothly:

• Isom probably realizes American is going to have to match the Delta contract, so he might as well get some goodwill out of it, and avoid travel disruptions
• These contracts often include retroactive pay raises as well, so there’s not really a benefit to drawing out the negotiations and waiting as long as possible to have a new contract ratified

Congrats to American pilots on being offered this contract, and hopefully they can come to an agreement soon.

I do think it’s worth briefly discussing the overall implications of these contracts. Ultimately pilots should of course negotiate as much pay as they can, but I think it’s worth acknowledging that to most Americans, these are some pretty jaw-dropping compensation structures. In fairness, keep in mind that the above numbers are for experienced captains, while newer captains and first officers would be paid less. However:

• There’s no denying that with such high labor costs, airfare will continue to have to increase over time, to reflect this kind of pay
• In particular, these kinds of pay structures make ultra long haul flights even more challenging economically, as these flights have four pilots; American seems to have almost given up on ultra long haul flying, but if United negotiates a similar contract, that’s going to be a challenge, given how many ultra long haul routes the airline operates
• While I understand becoming a pilot requires a big investment of time and money, it seems that pilots are getting a fantastic contract here, while flight attendants and other labor groups continue to not have a reasonable new contract; unfortunately this likely just reflects supply and demand, as there’s a never-ending number of people who are willing to becoming flight attendants for the current pay, while there’s a shortage of pilots
• Generally once pay increases, it’s rarely decreased again, aside from bankruptcy, or a situation along those lines; so if this just becomes the new pay standard of what pilots are “worth,” it’s going to be interesting to see how that impacts supply in the profession over the coming years

Bottom line

American Airlines CEO Robert Isom is taking contract negotiations into his own hands, and has written a letter to pilots offering a very generous new contract. This matches Delta’s recently ratified contract, and will see pilots getting roughly 40% increases in their compensation. Not only would pilots get more hourly pay, but their profit sharing would increase, and there would be quality of life improvements as well.

Isom is promising that wide body captains would be making $590K per year, so suffice it to say that this is some incredible pay.

Congrats to pilots on these huge pay bumps. One has to wonder how sustainable this is, though, especially when economic conditions change.

What do you make of this offer to American Airlines pilots?