Republic Airways Holdings Inc. said a worsening pilot shortage
is forcing it to cut its flying for big U.S. airlines, hurting the
regional carrier's profits and sending its stock plummeting by
half.
Republic, which flies about 1,250 flights a day for big U.S.
airlines, said it had reduced flying by 4% in the second quarter
and is discussing further cuts with its airline partners through
the first half of 2016—some of the biggest tangible effects of a
pilot shortage in the U.S.
Shares in Republic were down about 53% in midday trading Monday,
near a three-year low, and off more than 70% this year.
Republic attributed its problems in part to a series of new
government rules. In August 2013, the Federal Aviation
Administration raised the minimum flight experience required for
most commercial passenger pilots to 1,500 hours from 250,
increasing the time and cost to become a pilot. In January 2014,
the agency also began requiring more rest for pilots, reducing
their productivity by 5% to 7%, Republic said.
Republic said in a news release late Friday that those changes,
combined with an ongoing labor dispute with its pilots, are leaving
it with too few aviators to fly the schedules demanded by its three
airline partners, American Airlines Group Inc., United Continental
Holdings Inc. and Delta Air Lines Inc. Republic said it expects to
shrink its fleet as a result.
Regional carriers like Republic operate roughly half of all
domestic flights in the U.S. and carry about a fifth of the
passengers. Republic is nation's second-largest regional carrier,
after SkyWest Inc.
There is much debate within the U.S. airline industry over what
is causing the tight supply of pilots. The major pilot unions have
said there is no shortage of qualified pilots, only a shortage of
those who are willing to work for the low pay the airlines
offer.
The major airlines have said they aren't struggling to find
pilots, though the difficulties of their regional-airline partners
are having a knock-on effect. United, for example, attributed some
of its cuts at its former Cleveland hub last year to its regional
partners' shortage of pilots.
The Government Accountability Office said in a report last year
that it "found mixed evidence regarding the extent of a shortage of
airline pilots."
Republic last year removed 27 of its 243 aircraft from service
because of a lack of pilots. Republic Chief Executive Bryan Bedford
said in an interview at the time that "the short-term answer is the
aviation industry is just going to get smaller."
Republic has been unable to reach a new labor contract with its
2,200 unionized pilots since 2007. Republic said the lack of a new
contract is leading more pilots to leave and is hurting its ability
to attract new aviators.
Republic said it has offered its pilots compensation and work
rules that would put them ahead of their peers, but the aviators
rejected the proposal last year. Negotiations have been stalled
since April, though talks are scheduled for this week. Republic
said in the release, "due to the [pilot union's] unrealistic
bargaining position, the company cannot predict with any certainty
a timeline for resolution."
Republic on Friday said its second-quarter profit would be
between $4 million and $5 million, or eight to 10 cents a share.
Prior guidance had estimated earnings between 20 cents and 30 cents
a share. Republic rescinded all previously issued financial
guidance and analysts dramatically downgraded their estimates and
ratings for the carrier.
Write to Jack Nicas at jack.nicas@wsj.com
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