10 Reasons Airlines Are Lying About The Need For Subsidies In Order To Distribute Vaccines

Right now there’s a stronger likelihood of a second round of airline subsidies from the federal government than at any time in the past several months. As part of the CARES Act U.S. airlines got $25 billion in ‘payroll support’ (covering most of their actual payroll, not just the cost of workers at risk of layoff) and $25 billion in subsidized loans. Airlines also got tax relief, such as the suspension of the 7.5% excise tax on domestic airfare.

Now it appears that $17 billion more for airlines is included in the next scaled-down federal stimulus bill, and legislative leaders in the House and Senate plan to bundle it with must-pass funding measures to keep the government running and avoid a shut down. Now legislators have a Friday deadline.

Airlines have deployed the argument that the vaccine means they need subsidies because they’ll have to scale up operations to be prepared for cargo shipments, and even though they’d be paid to ship cargo somehow they are unable to prepare for that on their own. This is, to put it bluntly, a lie. Here are 10 reasons why:

  1. Payroll subsidies are retroactive. While the bill would require airlines to pay employees for four months in exchange for a large cash infusion to boost shareholders and creditors, pay would be retroactive to December 1 in the current iteration of legislation, as American Airlines President Robert Isom explained to pilots in a town hall meeting last Thursday. Clearly we’re not paying for airlines to get ready, we’re giving airlines money to reimburse them for employees who have already been paid in December.

  2. There’s no vaccine bottleneck. Payroll subsidies require employment through March only, but currently the constraint on vaccine distribution is manufacturing not shipping.

  3. There’s sufficient shipping capacity. UPS and FedEx say they have enough capacity to distribute vaccines and commercial airlines aren’t even needed for this, though of course the airlines want some of this business.

  4. The math doesn’t hold up. The latest bill would give airlines $17 billion and require them to give employees four months of pay. But only about 40,000 workers have been furloughed. That’s $425,000 per employee over four months or an annual run rate of $1,275,000 per job making it arguably the most expensive jobs program in history. That just puts the lie to the claim that this is about workers and not shareholders (a second round of ‘true subsidies’).

  5. U.S. airline shipping will be mostly exporting vaccines in the future. While there’s some limited Pfizer vaccine shipments coming from Belgium to the U.S., however much of U.S. vaccine manufacturing is domestic. American has run test flights from Miami to South America. It’s U.S. airline widebodies that’ll be bringing vaccine to the world. That is important, but an odd case to base subsidies off of.

  6. Airlines don’t need subsidies to carry vaccines. United is already boasting about carrying these shipments without subsidies – it’s profitable business. And indeed American sent out a press release about a single Boeing 777-200 flight from Chicago to Miami enroute to “a U.S. territory in the Caribbean.”

    American Airlines President Robert Isom told employees last week that his airline has done 2000 cargo-only flights during the pandemic (something they hadn’t done at all since 1984). Isom declared, “We’re ready to do more” and noted they have the cold storage facilities in Philadelphia, and dedicated-power source provided cargos in Dallas. Another executive pointed out that they can carry this cargo on planes that are already flying with passengers.

  7. Furloughed pilots can train now. American is training furloughed pilots on the Boeing 737 MAX and expects to have all pilots through MAX training by the end of March. Of course domestic narrowbodies and regional jets aren’t going to be carrying much cargo anyway.

  8. There’s no reason to pay flight attendants and reservations agents for cargo-only vaccine flights. Payroll subsidies aren’t targeted at vaccine efforts in any case. If this were really about vaccine shipping it would be for people who work on… flying cargo.

  9. Airlines are going to come back for another round of subsidies. The need for greater air transport of vaccines largely comes after March as manufacturing of multiple vaccines ramps up, and air travel won’t have recovered by April 1. So as J.P. Morgan told investors once airlines get their second bailout they’ll come back for a third.

  10. Shipping guarantees would accomplish the same thing at lower cost. If the real reason for a new round of subsidies was ‘being ready to ship vaccines’ then it would suffice to guarantee the purchase of cargo capacity at prices that allow airlines to earn a profit, in other words follow the Operation Warp Speed model with advance purchase guarantees rather than paying airlines to re-hire workers and then pay airlines for shipping.

Another deflection airlines offer besides needing to be ‘ready to distribute vaccines’ is that a new round of subsidies would require them to restore service to the handful of cities (many in or near key districts of members of the House Transportation Committee) where they were losing $500,000 or $600,000 a year.

What they don’t tell you is that in taking subsidized CARES Act loans they agreed to continue serving these cities if the Department of Transportation directed them to do so. The DOT opted not to do so, but in effect you’re paying the airlines twice to restore this service when subsidies in the tens of millions would easily accomplish it and hardly justifies another $17 billion.

The airlines and their lobbyists will make any argument necessary to get their hands on more taxpayer money. You have been mostly staying home and not buying tickets during the pandemic, but the airlines are on the cusp of taking more of your money anyway.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Grifters in congress. I think lobbying for profit-driven business should be outright illegal. There is no consumer or taxpayer welfare involved, and corporations don’t (directly) vote.

  2. But there are flight attendants in the cabin on cargo-only flights, albeit less than FAA required staffing model. They need to get paid, no?

  3. It was stated previously American Airlines accepts U.S. taxpayers money, furloughs U.S. mechanics and than pays overseas workers to do work on their aircraft while these laid off workers get unemployment (again U.S. taxpayer money). This needs to fixed!

  4. @Mark Redman – so what is airlines go bankrupt (or even out of business)? It’s called supply and demand. The market will adjust to meet demand and the government shouldn’t support an unprofitable business. BTW bankruptcy doesn’t mean they go out of business since all the major US airlines expect SW have been in Chapter 11.

  5. So, how much of this money is being sent to the airlines for their cabin rehauls? It seems that American and United have gone full steam ahead on cabin refreshes this year. If true the literally stinks while workers are being furloughed/ laid off.

    We cannot let this continue.

  6. Flights are quite cheap for specific times and dates in March 2021.
    Is it a good idea to make the purchase NOW and lockin my ticket now

    Currently Jet Blue MCO to SFO ROUND TRIP. $171.00
    Can’t purchase a non rev seat for a family member.
    That’s currently running $340.00 R/T.
    Explain!!!!

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