Increasing Your Risk Of Furlough

What Increases Your Risk of Furlough?

By Andy Garrison, MBA, CFP, Wealth Advisor

The possibility of a furlough at any point in your airline career is not a pleasant thought, but it is a reality. The good news is that once you understand the causes of furloughs, you can take steps to protect yourself, assume positive control, and come out ahead.

Let’s look at what increases your risk of furlough in four broad categories: the economy, the airline industry, your specific airline, and your seniority.

Risk 1– Economic Cycles

When the economic cycle is favoring growth and everything seems “better than it’s ever been” in the economy, your risk of furlough is significantly increased, not decreased.

The economy always has, and always will, run in cycles. In a free-market society like America, the market is always seeking a balance between expansion (growing) and contraction (shrinking or recessions).

Other factors, such as the cost of oil, geopolitical events and terrorism threats can damage the economy in ways that impact every airline and every pilot. When oil prices soar and geopolitical events cause instability, the economic forces are against airlines and pilots, and your risk of furlough increases.

The airline industry is always at the very edge of the economic cycle. This means that when times are good for the broad economy, times are good for the airline industry, and in turn, pilots. When times are bad for the broad economy, airlines are often the first to feel the pain and can suffer accordingly.

Risk 2 – The Volatility of the Airline (and Aviation) Industry

Changes in the airline and aviation industry (such as lower consumer and business spending, increased price competition, regulation, and union/contract negotiation costs) almost always increase your risk of furlough.

Due to the nature of the airline and aviation industry being at the fringes of the economy, your risk of being furloughed increases when consumer and business spending decreases. When the economy is not growing (and especially when it’s shrinking), consumers and businesses cut back on spending, and travel is often the first to go.

When spending, and in turn travel, declines, airlines begin to compete even more aggressively on price. Price competition becomes a “race to the bottom” and decreases overall revenue over time. When your airline – and other airlines – start cutting fares to hold their position in the marketplace, your risk of furlough soars.

Furthermore, as regulations increase, the cost of operating an airline increases as well. Combined with tougher union demands and contract changes, the cost of airline operations can increase significantly. Whenever the cost of operation increases faster than incoming revenue, your risk of furlough increases.

Risk 3 – How Well Your Specific Airline Operates as a Business

Your airline’s financial position, management quality, ability to invest in the future and protect against risks all impact your likelihood of being furloughed (or worse).

As a pilot, you should always be aware of your airline’s current financial position. You should be able to answer the following questions:

  • How much debt does it have?
  • How many assets does it own?
  • Is it turning a profit?
  • How much cash does it have on hand?
  • What is its credit rating?

As you might guess, the more debt an airline has, the fewer assets (think owned vs. leased planes), the less profitable, the less cash on hand, and the lower the credit rating, the greater its risk for failure or significant cutbacks. This increases your risk of furlough dramatically. 

Additionally, companies that are poorly managed are more likely be in a bad financial position, especially in the next downturn. Poor management can mean anything from bureaucracy, to poor safety, to bad market choices, to a lack of investing in the future. Anytime a company or airline is poorly run, the odds of not having to furlough pilots (and others) drops dramatically.

Risk 4 – The Big One: Seniority

The single biggest risk factor in getting furloughed is being low on the seniority charts.

You most likely fully grasp the increased risk of being furloughed due to low seniority. While your seniority has the biggest impact on your furlough risk, it, by itself, isn’t enough to cause a break in pay. Low seniority simply means that you are the “first” to go when one of the other three risks shows up.

Of course, your goal should be to become PIC of your finances and take control of your financial life so that a furlough does not devastate you!

Five Steps To Taking Control

  1. Have a backup plan. You should always have a backup plan. In fact, you should plan on being furloughed and know exactly what you will do when it happens. If you aren’t furloughed, you’ve lost nothing, but if you are, you’re in control.
  2. Build your value outside of aviation. You’ve put a lot into your life and career to get to where you are. That doesn’t change the fact that you are responsible for your financial outcomes. Constantly build value outside of aviation so that you have additional streams of income to “flip on” should you get furloughed.
  3. Be aware of your airline’s financial position. Listen to every quarterly earnings call and learn to read financial statements. The more you know about your airline’s financial position, the better situational awareness you will have. Just like in the air, the greater your SA, the less likely you’ll be caught off guard.
  4. Be aware of the broader economy. Know where the economy is in the economic cycle at all times. You may not be able to be 100 percent certain, but learn the warning signs and stay ahead of the game.
  5. Be smart when moving up. If you’re in the process of moving from the military or a regional to a major/legacy carrier, be smart about when you make the move. While you want to start the seniority clock as soon as possible, you want to also start it at the right time. Know the average age of the pilots at your carrier (the more approaching retirement age, the safer you are) and know where you are in the economic cycle before making a change. You don’t want to give up seniority at the peak of a cycle; you’re much better making the change when the next boom happens.

Bottom line: Your risk of furlough increases with the broad economy, the airline industry’s current position, and the soundness of your specific carrier/airline. Always have a furlough backup plan, build your value outside of aviation, maintain situational awareness of your airline and the economy, and be smart about when you make moves.

The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be personal legal or investment advice or a solicitation to buy or sell any security or engage in a particular investment strategy.