At the moment we’re seeing pilots at most major US airlines negotiating 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.
Back in October 2022, Alaska Airlines became the first major US airline where pilots ratified a new contract. In March 2023, Delta Air Lines pilots ratified a new contract, which set a new standard for the industry. Well, a third major airline has now ratified a new contract, as American Airlines pilots have today officially approved their new agreement.
In this post:
American pilots approve new contract worth $9.6 billion
The Allied Pilots Association (APA), which represents the roughly 15,000 pilots at American Airlines, has today announced that members have voted to ratify a tentative agreement that the union leadership and management agreed to on August 1, 2023.
95% of eligible pilots participated in the ratification vote, and pilots ratified the new agreement by a margin of 72.7%. This new contract is worth an incremental $9.6 billion in value over the course of four years, so that’s huge.
Here’s what Captain Ed Sicher, President of the APA, had to say about the new contract:
“The pilots of American Airlines have spoken: It’s time to move forward with a new working agreement that provides substantial monetary gains and quality-of-life improvements. This contract is a big first step toward restoring the wages, benefits, and work rules that were lost during the past two decades while our profession was under continuous assault. As pilots, we hold a tremendous amount of responsibility with every flight we take. It’s a responsibility we take seriously, as evidenced by the U.S. airline industry’s unrivaled safety record, and it’s time for our profession to provide rewards commensurate with its unique demands.”
It has been quite a long road for American to get here. In May 2023, union leadership and management actually reached an agreement in principle on a new collective bargaining agreement. This followed pilots having voted to authorize a strike a couple of weeks prior to that.
However, the contract was then in jeopardy, when United’s pilots managed to negotiate a better agreement in principle. So American management has since sweetened the pot.
Details of the new American Airlines pilot contract
As mentioned above, the new contract for American Airlines pilots is worth $9.6 billion in incremental value over four years. Here are some of the highlights:
- This includes an immediate $1.1 billion one-time payment and ratification bonus
- On average, pilots will see an immediate pay raise of 21%, and combined with increases in 401(k) contributions and subsequent pay raises each May, pilot compensation rates rise by more than 46% during the contract’s duration
- Qualify-of-life improvements represent nearly 20% of the increased value of the contract, including enhancements to vacation benefits, increases in training pay, and per diem
- The new contract will become amendable on August 1, 2027, with a provision for the next round of bargaining to start as soon as November 2026
For those curious, you can find the new American Airlines pilot pay scale here (you’ll see lots of planes listed that American doesn’t actually fly, but that’s pretty standard — no, American isn’t acquiring any A380s). Unsurprisingly, the new pay almost exactly matches Delta’s updated pay.
For example, below is the captain and first officer pay scale for when the contract takes effect.
Meanwhile below is the captain and first officer pay scale for 2027, which is when the contract becomes amendable.
I’ve written in the past about how airline pilots are paid. If you want a rough estimate as to how much annual pay this translates to, just multiply the hourly pay by 1,000. Most pilots will fly just under 1,000 hours per year, but then also have other opportunities to get paid extra, ranging from per diem, to picking up extra trips with bonus pay, to profit sharing, etc. So if a pilot gets paid $300 per hour, you can expect that they’re probably making well over $300K per year.
As you can see, with this contract, senior narrow body captains will make around $340K per year, while senior wide body captains will make around $420K per year. Those amounts will significantly increase over the course of the contract, to closer to $400K per year for senior narrow body captains, and $500K per year for senior wide body captains.
That doesn’t include any profit sharing, though we’re talking about American here, so there might not be much in the way of profits to share.
What this contract means for American Airlines
A new contract like this is going to have some major implications. American’s new pilot contract offers $9.6 billion in incremental value over a four year period. This is significantly more than the company’s net profits over the four year period from 2016 to 2019, which were the four most profitable consecutive years in the history of the industry.
Given the razor thin profit margins in the airline industry, one has to wonder how sustainable these pay increases are. Not because pilots aren’t skilled and professional, but rather because they don’t exactly work in the highest margin or most profitable industry.
Bottom line
American Airlines pilots have just ratified a new contract. The four year contract offers $9.6 billion in incremental value, and includes pay increases of up to 46% through 2027.
This is a great new contract for pilots, and it’s going to be costly for the airline. I guess airlines have to hope that airfare and demand just keep going up, or else they might have a hard time paying these wages while turning a profit.
What do you make of this new contract for American pilots?
Long overdue! Pilots wages have lagged well below inflation. Pilot's compensation is such a SMALL part of total ticket cost, its just plain silly and false economics to state it will cause a bankruptcy. Pilot shortage, supply and demand drives this. Part of doing business. Enjoy, AA pilots!
As alluded to below, the next economic slow down will spin the life out of these sky high wage plans.
The best way for DL, UA, & AA to free themselves from this craziness is chapter 11. Since each has visited this provision of the law in the past, it will be noted by the pundits as Chapter 22.
Just give it time.
Inb4 bailout during the next economic downturn
Any kind of disaster or economic crisis notwithstanding, this contract simply means that costs will go up faster than productivity and some markets that were marginally profitable will no longer be.
As the AA contract is the final nail in the coffin for scope relief, it only stands to reason that some mainline markets will be downgraded to Amercan Eagle, forcing some AAE markets to be dropped altogether.
If I were SBP or ERI I'd be very worried.
I believe that 9.6 billion is inclusive of their current contract value, so it's not an additional 9.6 billion
Preparing for the next Government Bailout and Bankruptcy I see! Of prices go literally any higher, they WILL see a drop-off in demand.
As a pilot.. could care less about pay rates..work rules are EVERYTHING. I would rather have generous work rules with more reasonable pay rates. Believe what you will , AA pilots just agreed to A320 rates equal to JetBlue and work rules that are 10 years or more behind. Widebody is a win but AA does not have THAT many wide bodies.
What could go wrong? "(Reuters) - American Airlines filed for bankruptcy protection on Tuesday to cut labor costs in the face of high fuel prices and dampened travel demand, capping a prolonged descent for what was once the largest U.S. carrier.Nov 29, 2011"
Don’t forget that was AFTER the pilots, mechanics and FAs voluntarily took massive paycuts in order to prevent bankruptcy only to find management got massive bonuses then quickly declared ch 11 anyways. This was the root of the recent ill will and animosity in recent times.
Is the assumption that none of this will simply be passed down to the consumer through increased costs and reduced services?
I cannot imagine airline top brass would simply take a profit cut to their take home via salary+stock.
Maybe I'm just cynical?
As is always the case, the price of a good or service is always the most a seller can convince the buyer to pay. If AA, or Kellog's thought it could charge more for an airline ticket or a box of cereal, it woud already.
The only time when the cost of something can be passed on is if the buyer has no meaningful choice, other than take it or leave it, and can't or won't leave it.
Good luck with this contract AA! This is not a sustainable expense and any down turn in the economy will mean a bankruptcy filing!
American is generating profits as high as or higher than United.
Unlike United, American is paying down debt and slowing its spending.
American's domestic network is increasingly concentrated in its southern US hubs which are strong and growing.
However, the big pilot contract will set a fairly high bar which AA's flight attendants will be shooting for as they try to bring their negotiations to a close as well as adding boarding...
American is generating profits as high as or higher than United.
Unlike United, American is paying down debt and slowing its spending.
American's domestic network is increasingly concentrated in its southern US hubs which are strong and growing.
However, the big pilot contract will set a fairly high bar which AA's flight attendants will be shooting for as they try to bring their negotiations to a close as well as adding boarding pay which Delta gave its flight attendants.
This does not bode well for the future of ORD as a hub for AA.
While AA is taking delivery of far fewer aircraft than DL or UA, they have the aircraft to compete in ORD and NYC as they believe is necessary.
AA has a very strong presence in the southern US and its hubs there are doing well. UA is the opposite - heavily northern tier US focused while DL and WN are more balanced.
AA will be testing the limits of how "regional" a global...
While AA is taking delivery of far fewer aircraft than DL or UA, they have the aircraft to compete in ORD and NYC as they believe is necessary.
AA has a very strong presence in the southern US and its hubs there are doing well. UA is the opposite - heavily northern tier US focused while DL and WN are more balanced.
AA will be testing the limits of how "regional" a global carrier can become w/ smaller northern tier hubs while UA will be trying to maintain hubs in northern US metros that are shrinking.
As has often been the case for decades, AA and UA are on opposite ends of the continuum while DL is in the middle but somehow manages to outperform both. The pendulum is increasingly swinging in AA's favor.
And the cost pressure increasingly is on the low cost and ultra low cost carrier. The big 3 as a whole are stronger relative to the rest of the industry than they have been for half a century.
Excellent geographical analytical skills Timerigo Vespucci. All of DLs hubs (SEA, SLC, DTW/MSP, ATL, BOS) are south of UAs closest competing hubs (SFO, DEN, ORD, IAH, IAD). DTW, MSP, and SEA in particular are seeing tremendous growth from the local market.
As always, this will be passed down to the consumer, so expect airfare to just keep going up. And you know what? We'll have to suck it up because, unless you decide no to fly anymore, they hold all the card and have us by the b*&^s.
And how much were all of these Airlines given during the pandemic, that they have to pay back very little of it down the road, and that is also years down the road, and by then, the us government probably will have forgiven the whole thing.
Most of the money has been paid back with interest though. That’s a lot from them considering it would have made better economic sense for the airlines to have just shut down operations until demand returned
Really? Shut down the US aviation industry?
Let's be clear… Given by us, the taxpayers. Not only won't we get our money back, the cost of flying will continue to go up, and the airlines will continue to nickel and dime us.
As has been said most of that money has been paid back with interest, if you are gonna venture an opinion at least make it an informed opinion.
You make it sound this was money that went into the stickholders' pockets, rather than for paying 70% of employee salaries and benefits, so several hundred thousand people would not loose their health insurance and thrown into economic chaos, while the airlines paid the other 30% with essentially no money coming in.
Profit sharing? From American?
What a complete mess we'll be looking at during the next major crisis.
These wages are not sustainable and are short-sighted. Short-term gain for long-term pain.
Why are they not sustainable? Did the Company executives and negotiating consulting firm negotiate a contract they can't sustain? Sounds like the BOD needs to make changes then. What would a better contract look like? I would
They are completely sustainable…stop with the hysterics and hyperbole. Probably end up less then .5 % addition to AA’s CASM.
We saw this exact same movie in the 1998-2000 period at all the major airlines in the US (we had a lot more of them back then). The good times lasted about a year and then 9/11 wiped things out. Look for the same pattern to repeat itself during the next 'black swan' crisis to strike the industry...