Airlines ‘in firefighting mode’ amid staffing shortages, analyst says

Moody's Senior Vice President Jonathan Root joins Yahoo Finance Live to discuss the labor shortages at airlines and airports as well as the outlook for travel disruptions and flight capacity.

Video transcript

SEANA SMITH: It's great to see you. When we heard from Delta CEO Ed Bastian, he told Yahoo Finance just yesterday that travel is, quote, "not a category where consumers are pulling back." Demand is there right now. But how long will that last as consumers face higher and higher airfare prices?

JONATHAN ROOT: Well, it appears it has some room to run. Delta gave guidance for a third quarter expecting a strong margin-- 11%, selling tickets at high fares covering costs. And everyone is watching the broader economy, and recession, and what will be the impact. I think what may be different this time if we do, indeed, have a recession is that the industry is not performing at its peak or maximum level.

We know-- we hear every day about challenges throughout the service chain. And that may have some tempering effect on the rate of decline from a full activity level If, there is, indeed, a recession.

RACHELLE AKUFFO: So, Jonathan, when you look at the challenges, things like hiring, things like Heathrow Airport saying, look, there's only so many flights that we can take, how far away are we, then, from where we were in terms of pre-pandemic levels for things like hiring and staffing?

JONATHAN ROOT: Right. Hard to say precisely, but our thought at the moment is that come next spring, there should be some relief on these labor constraints. The airlines are indicating they've been hiring pilots, they've been hiring flight attendants. The challenge right now is getting all those new hires through their training programs. Importantly, though, the entire service chain is challenged, right?

Heathrow, it's about immigration folks, baggage handlers, gate agents, the folks that put fuel in the airplanes. And so that problem gets solved well beyond the airline industry itself. That's broader economy and just the labor market sorting itself out to get back there. But in terms of airline employees, I think by spring, we'll be hearing much less about shortages of airline employees as demand continues and the airlines look to increase their capacity back towards the pre-pandemic level-- and to a level that can serve the level of demand.

DAVE BRIGGS: It seems that every time they put out one fire, the airline industry, another one starts up somewhere else. It was delays, it was cancelations, and now lost baggage appears to be a debacle. We're talking about a flight from Heathrow with 1,000 bags on it with no people all accounting for lost baggage, which is up 135% year-over-year. What's causing that meltdown?

JONATHAN ROOT: Well, it's a tremendous challenge. But this goes back to the staffing issues-- the lack of staffing to manage. And the airlines had set there-- even at their lower employment levels, they announced the reductions in capacity. And they intend to serve that level of schedule that they're going to operate.

One of the biggest challenges, which is uncontrollable, is weather, as an example. And when there's bad weather and the operations get delayed, it just cascades throughout the day. And having the shortage of labor to manage everything behind the scenes, not what we see as a passenger.

As a passenger, we just know our flight's delayed. We may be waiting in the lounge, maybe waiting on the aircraft hoping that we get to our destination that day. But behind the scenes, the shortage of staff, which can be airline employees or contractors that the airlines hire at each location, is what's driving it.

So if you look at Skip Hall, we've heard stories that passengers were in the security line for nine hours. And that just-- you can't operate regularly that way. To Delta's credit, running a flight-- effectively, a cargo flight with passengers' bags-- I think is to their credit. They're in firefighting mode, so to speak, and they're doing what they need to to provide-- get as close to the level of service that they want to provide and that they historically provide.

SEANA SMITH: Jonathan, you mentioned just a minute ago that it won't be until the springtime when we start to see some relief in the staffing issues. Does that mean that we should expect some reduced flights, canceled flights, delayed flights until then?

JONATHAN ROOT: Look, every day that we go to the airport, there's a chance that our flight may be delayed. So I would say, yes. Again, weather is a challenge. Staffing should improve incrementally.

I think another thing to keep in mind is if you look at the historical seasonality by month, September is the third lowest month of the year. January and February are the first two lowest months of the year. So as we head through August and into September, there will be a decline in passenger volumes. And any decline in volumes should help alleviate the pressure on the operations while the companies are not staffed to the full level or operating the full schedule.

So yeah, things will happen. There will be delays. But the real bottleneck, I think, as we move through the holidays will be how the entire system, not only the airlines, but all the supporting cast, staff up to manage a level of demand that we expect.

RACHELLE AKUFFO: So, obviously, between now and then, a lot of airports and airlines trying to come up with workarounds to not just protect their reputation, but also try and make travel actually easier. But then you have Emirates Airlines saying, look, we know that Heathrow wants to cap the number of passengers. We don't want to do that. What are some of the domino effects that come with trying to cap passengers?

JONATHAN ROOT: So disgruntled customers, I think, would be the first. But on that point, there's no compliance mechanism. It's a request. They can't dictate or actually cancel the slots. So the airlines have the right to operate the slots. We understand that some airlines are complying with the request and others are not.

One thing, though, we view this issue as temporary. Can't say it's 30 days. We think it's way more than that. But things will improve. And the desire to travel is going to remain strong.

And notwithstanding all the challenges, you know, I'd argue that the utility of the destination still far outweighs the challenges for any individual from the time they leave the house until they arrive, land, at their destination.