The largest U.S. airlines, led by Delta, ran a years-long campaign to get the U.S. government to limit flights by Emirates, Etihad, and Qatar. They expressly sought to limit customer choice and raise fares. Their argument was predicated on the idea that those Gulf carriers were supported by their governments, and what they wanted was a free market in air travel.
That’s why it’s so striking that after $80 billion in U.S. airline subsidies over the last year, Delta has gotten on board the state-backed carrier train.
Speaking at the J.P. Morgan Industrials Conference this morning, Delta CEO Ed Bastian said,
One of the things that has allowed the U.S. industry to emerge from this crisis bruised but relatively strong is the support of Congress.
He thanked Congress, and complained that Delta’s international partners haven’t received the same support from governments that U.S. airlines have, which has led to a ‘rash of bankruptcies’ but ‘our partners will emerge stronger.’
Aeromexico, LATAM and Virgin Atlantic have been through bankruptcies. Air France alone though received a $7.5 billion government bailout. Last week an American Airlines executive tried to draw a distinction between massive government subsidies airlines have gotten during the pandemic, and government support to sustain an airline industry at other times but the argument fails.
While at first blush it seems like Delta’s applause for government officials who provided them with taxpayers’ cash is a substantive and rhetorical about-face, the truth is that Delta hasn’t opposed government subsidies of Delta: subsidies for me, but not for thee.
Most of the taxpayer (not government) subsidies of the airline industry should not have happened. The first was needed in the initial months of the pandemic to prevent a wholesale collapse of the industry – and markets as a whole. No airline could even access the private capital markets.
After the first CARES Act, DAL and LUV went on to pull down $10 billion in private capital. UAL followed. AAL used government loans first but is finally converting its largest government loans to private sector loans.
After that point, every other funding of the airline industry has been a waste of money – but so has most of the feds intervention in the economy. The stock market and consumer savings are soaring.
I doubt if any US airline will be talking about subsidies at this point, Gary.
And federal funding has provided an enormous reset of international competition which DAL and UAL’s CEOs both addressed. The Middle East airlines lived off of scraps which other carriers left on the table; those won’t happen anywhere near to the same degree. East Asian airlines are on their knees; European airlines have had far less market to work with during the pandemic. Latin airlines will be fewer and weaker – other than those that managed to successfully stay in bankruptcy through it all and then will emerge stronger on the other side – which is a reference that DAL made to Aeromexico and Latam.
Subsidy complaints are history. Airlines succeeded at getting tons of money that wasn’t needed but it will serve as huge reset of global airline competitiveness. As a very well-run company and one that competes well in the domestic and international arenas, Delta will not fail to take advantage of what it was handed.
So the U.S. airline industry has emerged “from this crisis bruised but relatively strong.” Remember that when the airlines ask for more subsidies when the $14 billion American Rescue Plan money runs out and the airlines want more.
Lobbying efforts on the Fourth Tranche have already begun!
@ Arguendo, I’m shocked (sarcasm). The words of Delta’s CEO that the industry has emerged from the crisis in a relatively strong position should be thrown in the face of the airline lobbyists and executives when they march up to Capitol Hill with their hands out. I doubt that will happen (not sarcasm).
John,
Delta would do much better than American and United if federal cash dried up.
It might be that part of the reason why Delta is saying what it is saying.
Tim Dunn
Didn’t Delta loose the most money in 2020? Also if it had not been for federal cash Delta would be in the same boat with American and United. Delta had 6 months of cash on hand at the beginning of this pandemic, United had 5 months and I believe American had 3.5 months of cash. The only major carrier that came into this pandemic with enough cash to last months was Southwest. They had 10+ months of cash on hand. Make no mistake if the government had not stepped in the Delta Airlines you see today during the pandemic would not exist. The only reason any of the major carriers were able to raise the amount of capital they raise in such a short period of time was because investors knew the government would not let them fail. If the government would have stayed out of this and let the airlines fend for themselves Delta would be nothing more than a shell of its former self. Delta has received over $12 billion dollars in government help in less than one year, that is more money than Delta had in liquidity when this crisis began. And because Delta reduced all of their employees hours that has left them with billions of additional paycheck protection funds in their bank.
The reason Delta is saying what they are saying is because their argument doesn’t hold water, it never did but now it is blatantly clear all three US legacy carriers survived this crisis thanks to government subsidies.
Delta’s losses were so large because they took billions of dollars in special charges including for the most expensive early retirement program in the airline industry which cost several billion dollars. Delta also early-retired hundreds of airplanes over a 5 year period which allowed them to build up a massive loss which will be used to offset future taxes.
On an operating cost basis, Delta’s losses in the fourth quarter were the smallest in the industry on a size-adusted basis. The 4th quarter was supposed to have been the quarter when airlines would have been operating without financial aid – so financial performance that quarter was worth watching. More federal money came but Delta and other airlines expected they would have to show their true colors in the 4th quarter.
DL took special charges to get themselves to a size to be profitable on a long-term basis.
United’s CEO made a comment about not taking charges and not retiring airplanes and yet they also did not get the costs out of their system.
As soon as capital markets opened up 11 months ago after the first CARES Act, Delta and Southwest each pulled down $10 billion in private capital. AA and UA both turned to the government and took CARES Act 2 loans which DL and WN did not take. UA was the first to collateralize its loyalty program in the capital markets which DL later topped and AA is now in the process of doing. DL and WN both have over $10 billion in unencumbered assets while AA and UA likely have little if any left.
Both AA and UA are deciding whether to get rid of the government loans in favor.
DL and UA both said they were cash burn neutral in March, something AA and WN have not yet said they will achieve in the next few months.
You are free to interpret all of this how you want but DL has been at the top of the industry along with WN in terms of access to private sector capital while DL and UA are the first to end cash burn. As such, it is highly unlikely that DL would have been the first to go or even have gone down if others had started to fail.