United Airlines Pilots Ratify New Contract With $10 Billion In Raises

This year we’re seeing pilots at most major airlines negotiating new contracts. They didn’t have much leverage to negotiate during the first couple of years of the pandemic, and they now have great bargaining power, given the pilot shortage.

It’s a significant day when it comes to this, as United Airlines pilots have just ratified their new contract. 97.37% of pilots participated in the vote, and 82% of those pilots voted in favor of the new contract. With American Airlines and Delta Air Lines pilots having already ratified new contracts, that means pilots at the “big three” carriers are all done with their labor negotiations.

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Details of United Airlines’ new pilots contract

United Airlines pilots are represented by the Air Line Pilots Association (ALPA), and a new contract has finally been approved. United pilots have been looking for a new contract for around five years, so this is a major milestone.

There’s a dedicated website with all the details of this contract, plus this document has a summary of all the changes. With this new contract, pilots are receiving pay raises of up to 40% over four years, and the union values the incremental value of this agreement at around $10 billion.

To start, pilots will get an immediate pay increase of 13.8% to 18.7% as of the date of signing (on the low end, 14.1% for the 777 and 787, and on the high end, 18.7% for the 737-700 and A319). Below you can find the new pilot pay rates as of the date of signing. You can generally just add three zeroes to the end of the hourly pay to figure out roughly how much pilots earn per year.

The above new pay rates match Delta’s new pay rates, so they’ll immediately increase by 1%. That’s because Delta has a snap up clause promising the best pay in the industry. Since this contract matches Delta’s pilot pay, Delta pilots will immediately get a 1% raise, and then United pilots will also immediately get a 1% raise, due to a similar clause.

Furthermore, pilots will then get an additional 5% pay increase as of 2024, 4% pay increase as of 2025, 4% pay increase as of 2026, and 3% pay increase as of 2027.

But the increased hourly rates are just one aspect of this contract. While there are lots of quality of life improvements and other positive minor changes, there are two other major improvements:

• United’s profit sharing for pilots will match Delta’s — they’ll get 10% of profits up to $2.5 billion, and 20% of profits above $2.5 billion
• United pilots will get a $1.2 billion recapture of lost pay — 4% of 2020 earnings, 4% of 2021 earnings, 14% of 2022 earnings, and 14% of earnings from January 2023 through the date of signing

My take on this new United Airlines pilots contract

Congratulations to United Airlines’ pilots union for coming to this agreement, because this is an incredibly lucrative contract. The reason pilots are able to secure such lucrative contracts right now (compared to counterparts in Europe, etc.) is because our pilot pipeline is so small, due to all the restrictions in place to become a pilot.

The unions are of course encouraging keeping the pipeline of pilots small so they can secure these kinds of contracts, and you can’t really blame them for that. If you ask someone if they’d prefer a contract with more or less pay, I think we know how everyone would answer that. And it’s not like they’re taking money from a charity, they’re taking money from a for-profit, publicly traded company.

This is a fantastic contract for pilots, though I can’t help but wonder how sustainable this will be in the long run. The $10 billion in incremental value offered by the contract is greater than United’s collective profit over the years of 2016-2019, otherwise the four most profitable consecutive years of the airline industry.

In the environment we’ve seen the past year, airlines can sustain these pay rates, but it will just reduce margins. However, if there’s any sort of major economic downturn, this can’t possibly end well. But that’s not really the problem of pilots — airlines are typically lead by people who are just focused on short-term stock price. I mean, remember when Doug Parker said that American Airlines would never lose money again? If it weren’t pilots getting these pay increases during the best of time, the money would be spent on something else.

Among American, Delta, and United, all airlines having higher pilot pay does put Delta at a competitive advantage. That’s because Delta is able to command a revenue premium from passengers above American and United.

Meanwhile I’d say significantly higher pilot pay puts United at the biggest disadvantage. That’s because the airline has by far the biggest ultra long haul route network of the “big three” US carriers.

Flights of over eight hours typically require three pilots, while flights of over 12 hours typically require four pilots. Even though pilots rest for roughly half of ultra long haul flights (when there are four pilots), they all get paid for all hours they’re onboard.

At some point, a $5,000+ increase in how much pilots are paid on a one-way ultra long haul flight could start to impact the economics, especially with oil prices going up. If a route is very successful that might not be a game changer, but for a route that’s marginally profitable, it could change things a bit.

How much do pilots “deserve” to be paid?

I very much respect what airline pilots do, and I think they deserve to be well compensated. I also recognize that they’ve had a rough several years, and I’m happy that things are finally looking up for pilots. Between significant pay scale increases and “upgrades” to bigger jets and left seats, pilots are already starting to earn more than before.

At the same time, we’re now seeing contracts where some senior pilots can earn earn over half a million dollars per year.

While I’m happy for them, one has to wonder how exactly these pay increases will be paid for. Will we see profit margins at airlines decline? Will we just see ticket prices increase? Historically airline pricing isn’t based on how much a flight costs to operate, but rather is based on how much airlines can get away with charging.

There are a couple of things I’m fundamentally struggling with.

First of all, aviation is incredibly safe, and airlines around the globe have high safety standards. That’s true for airlines where the pilot pay scale maxes out at $100K, and it’s true for airlines where the pilot pay scale maxes out at $500K. You should feel safe flying Ryanair, and you should feel safe flying Delta.

When negotiating new contracts, every union likes to say something along the lines of “the best pilots deserve the best pay.” I’d love to know how United thinks they’re better than American or Delta pilots, or vice versa. I suppose this is just a typical pattern bargaining technique, though I always find the argument to be a bit silly.

Second of all, the argument by unions is that pilots deserve this much money because there’s a pilot shortage. Okay, fair, but what happens in a few years if there’s no longer a pilot shortage? Will pilots be willing to voluntarily take significant pay cuts to reflect that?

Going back several years, the industry was downright exploitative. Pilots at regional airlines got paid so little that some of them lived at the poverty line. That shouldn’t be the case. But now we’re seeing the opposite extreme. First officers at regional airlines can now quickly make $100K+, while captains can even make $200K+. Meanwhile at legacy airlines, first officers can make $300K+, while captains can make $500K+.

And while I say all of this, let me also mention that I think it’s absurd how much the CEOs at airlines make. Some of them are making eight figures annually while doing a lackluster job, so I certainly can’t blame pilots for trying to negotiate just a small fraction of that.

Bottom line

United Airlines pilots have just ratified a new contract, which is a major milestone for the airline. This contract is worth around $10 billion, and will lead to significant pay increases, quality of life improvements, and more. It will also trigger a snap up clause, meaning that Delta pilots will be getting an additional pay increase, and then United pilots will also be getting an additional pay increase.

What do you make of the new contract United pilots have approved?